An IRS Agent or Tax Auditor will often ask the taxpayer about cash on hand IF an
indirect method or other method is used to uncover unreported income. What was your
cash on hand on January 1, 2003 (or first year of examination) is a simple way to ask.
Usually the agent or auditor will prepare an affidavit for the taxpayer to sign which says
that his cash on hand did not exceed $200 or $500, etc. If you ask how much cash on
hand he had many taxpayers will get hung up on the AMOUNT (which really does not matter).
The affadavit should emphasize that cash on hand means ALL cash and coins NOT in the
bank but includes cash in a wallet, mattress, hole in the ground, safe deposit box and
everywhere else.
Otherwise after the auditor or agent determines a sizable tax deficieny, the taxpayer may
argue that he had a huge cash hord which he used to live upon during the audit year.
This Closing the Barn Door before the horse escapes approach eliminates that excuse.
In most cases the taxpayer has not been reporting sufficient income to live on for several
years. One taxpayer appeared at the IRS office for an audit dressed in rags, like a homeless
person. When asked about cash on hand, he threw a huge wad of cash on the desk.
Again this was not allowed as he had not reported enough income to live upon for many
years in the past much less save that much cash after paying his tax. It too was
unreported income and IRS has been known to tax such savings also in addition to
the understatement of income computed by the indirect method.
indirect method or other method is used to uncover unreported income. What was your
cash on hand on January 1, 2003 (or first year of examination) is a simple way to ask.
Usually the agent or auditor will prepare an affidavit for the taxpayer to sign which says
that his cash on hand did not exceed $200 or $500, etc. If you ask how much cash on
hand he had many taxpayers will get hung up on the AMOUNT (which really does not matter).
The affadavit should emphasize that cash on hand means ALL cash and coins NOT in the
bank but includes cash in a wallet, mattress, hole in the ground, safe deposit box and
everywhere else.
Otherwise after the auditor or agent determines a sizable tax deficieny, the taxpayer may
argue that he had a huge cash hord which he used to live upon during the audit year.
This Closing the Barn Door before the horse escapes approach eliminates that excuse.
In most cases the taxpayer has not been reporting sufficient income to live on for several
years. One taxpayer appeared at the IRS office for an audit dressed in rags, like a homeless
person. When asked about cash on hand, he threw a huge wad of cash on the desk.
Again this was not allowed as he had not reported enough income to live upon for many
years in the past much less save that much cash after paying his tax. It too was
unreported income and IRS has been known to tax such savings also in addition to
the understatement of income computed by the indirect method.
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