Needing info for bank statement analysis

[DTS]

I’m getting ready for this audit I posted about a few weeks ago. I am ready for it, however I’m trying to construct a bank statement analysis and am running into a brick wall with a major bank and trying to get the proper documentation for this analysis.

My problem is this; every time my client makes a deposit, he always takes cash back, on each one. Sometimes the amounts are large, sometimes small. I have all the bank statements that show “net” deposits. My client has repeatedly asked this bank for each, individual deposit slip to show the auditor the amount of cash back so that all employment checks, cash back and Sch C income are reconciled to the amounts shown on the return.

At my request, client has called the bank and demanded this info and has gotten nothing short of surly attitudes from bank managers stating that “not even an auditor can get the info you want”. I know, for a fact, they can and will. I want to avoid this and would just like to be able to bypass her subpoenaing these records, only to save time, nothing more than that.

My question to you is how I can go about getting this info or a work-around on my statement analysis, so my auditor will be satisfied with what is presented to her?

Any suggestions from you will be appreciated. If you need to talk to me, please leave your contact info in my PM and I'll call you. The only time today I can’t talk will be between 1 and 3:30pst.

If you are able to help, please do so. I would appreciate your suggestions.

Dennis

[Donald Rihn, EA]

Bank Info

The client doesn't keep the records to show his income?

The bank doesn't provide imaged copies with his statement?

If he knew that he didn't get copies of the deposits with his statements he should have kept copies.

If your gross receipts are more than the deposits, the IRS will use the gross receipts.

Does your client file sales tax reports? The IRS will use those gross receipts if needed.

How does your client arrive at his gross receipts on his tax return?

I had a client that signed up for no imaged copies of any thing because the account was free. About 2 years later he showed up with those to do his return. I couldn't because there was nothing other than a list of deposits and checks, no detail. He had no records. The bank wanted $1,000 to produce the 12 months of deposits and checks and he refused.

I refused to do the return, he got mad and left!

[myerstaxes]

As a Former Revenue Agent

Less cash is one of the things they look for, that is an audit procedure that should be followed...The auditor may or may not accept what the client has if Gross Receipts reported are more than deposits...But a thorough bank deposit analysis is one of the mandatory procedures last I heard...The Rep is correct in trying to nail down all of the bank activity, who likes surprises...
I would go up the Banks food chain to request this information...

[JohnH]

The banks will usually quote a ridiculous analysis charge to provide documents up front, but if a little pressure is applied they will usually relent & cut the total charge in the interest of customer retention. Unless the client is a PITA to the bank, in which case they really don't mind if he leaves so they won't give him any breaks.

Why not tell him your charge to reconstruct the stuff will be $2,400, so the $1,000 (or less) paid to the bank will be a bargain..

[erchess]

Question

The client doesn't keep the records to show his income?

The bank doesn't provide imaged copies with his statement?

If he knew that he didn't get copies of the deposits with his statements he should have kept copies.

If your gross receipts are more than the deposits, the IRS will use the gross receipts.

Does your client file sales tax reports? The IRS will use those gross receipts if needed.

How does your client arrive at his gross receipts on his tax return?

I had a client that signed up for no imaged copies of any thing because the account was free. About 2 years later he showed up with those to do his return. I couldn't because there was nothing other than a list of deposits and checks, no detail. He had no records. The bank wanted $1,000 to produce the 12 months of deposits and checks and he refused.

I refused to do the return, he got mad and left!

Was it clear from what he had how much income he had? If it was, I might. have done his return, taking his word in regard to expenses other than mileage and charitable contributions. Starting this past tax season I required documentation of those and of course I did the standard due diligence re EIC but for any other issues I took most clients at their word. Why did you feel the need to see the canceled checks? What I am fishing for is whether there is something I am overlooking about the IRS Due Diligence requirements. I don't go beyond those in asking to see documentation unless the client strikes me as foolish or unscrupulous. On the other hand you did say he was filing two years late so perhaps this client struck you as one or both.

[erchess]

Dennis

You seem to have a decent relationship with the auditor. Why don't you tell her the bank does not want to come up with what is needed and ask if she could subpoena two copies of the records,, one for her and one for you. If you are really cozy with her, arrange to have the US Marshall or whomever delivers the subpoena ask for the PITA employee you and your client have been working with. Or maybe the simple threat of that will suffice to get the bank to cooperate.

When I was in I think my second year in this business I had a client who had lost his W2 from a temp agency and he told me they had refused to give him another copy. I was incredulous so I called and sure enough that was their policy - one copy of the W2 per client. I printed up a Sub W2 in which I explained the loss and our efforts to get a replacement. I named the office manager who had refused to give it. But before mailing off the return we stopped by the office of the temp service. I showed the man the Sub W2 and asked if he really wanted me to file it. He decided to give my client another copy and he printed it while we waited.

[DTS]

Deposits

I told the client to tell the bank mgr. to get those items to us or I'd have the auditor do it for him, for free (assuming the bank would charge my client for the items). So, we'll see.

I just received the last of the statements today, so I'll work through those and see what I come up with. At that point, if something is off, I will call the auditor and see if she can have better luck getting them and then I'll complete the project. I did not want to go that route, as it looks like I'm trying to hide something from her, which is not the case.

I don't want anything left to the imagination of the auditor, just trying to be thorough and upfront.

Dennis

[Black Bart]

I like your solution.

I told the client to tell the bank mgr. to get those items to us or I'd have the auditor do it for him, for free (assuming the bank would charge my client for the items). So, we'll see.

I just received the last of the statements today, so I'll work through those and see what I come up with. At that point, if something is off, I will call the auditor and see if she can have better luck getting them and then I'll complete the project. I did not want to go that route, as it looks like I'm trying to hide something from her, which is not the case.

I don't want anything left to the imagination of the auditor, just trying to be thorough and upfront.

Dennis

Using the auditor as a club sounds good -- I haven't tried that before and would like to know if the auditor will actually do it.

Bank cooperation is a mixed bag; some will do it, but almost all the bank clerks I've dealt with seem a little horsey about it and are quick to say they'd rather not (and I'll bet they've told their manager so in no uncertain terms). It's $10 per hour here and when paper checks still came back with the statement they said finding a certain check/deposit meant viewing microfiche of all documents going through the bank that day (no separate film accounts). Then they sold us imaging (everything in one neat file) -- said it would be faster and cheaper. No improvement; they said it's still a lot of trouble to find anything.

I doubt the auditor will think you're trying to hide anything because they've probably had the same problems (the clerks aren't nasty only to you).

[DTS]

Update

I received a call from the IRS today stating my audit had been cancelled. She said "bet you've not heard of that before" and I told her that is correct.

Apparently, my auditor is no longer working for the IRS and there is not enough staff to take on her workload. Not to say this issue will not resurface, but for now, it's history!

Dennis

[joanmcq]

'Was it clear from what he had how much income he had? If it was, I might. have done his return, taking his word in regard to expenses other than mileage and charitable contributions. Starting this past tax season I required documentation of those and of course I did the standard due diligence re EIC but for any other issues I took most clients at their word. Why did you feel the need to see the canceled checks? '

I have clients like this. Really bad records What he is saying, is he got the bank statements and nothing else. One of my lawyers used to get back the cancelled checks..his register may or may not have recorded the checks and he may or may not have written down what they were for. Hard to do a schedule C when all you have is deposits and the amounts written out for expenses, but not what they were for. or if they were biz or personal. With the cancelled checks I could at least determine if it was written to his landlord or to AT&T, or his wife (personal), etc and cobble together something. The year he switched banks and all I got were statements and a half-assed check register....

[Jesse]

Dennis - good for you. Now have you talked your client into a duplicate deposit book?

...........My problem is this; every time my client makes a deposit, he always takes cash back, on each one. Sometimes the amounts are large, sometimes small. I have all the bank statements that show “net” deposits. My client has repeatedly asked this bank for each, individual deposit slip to show the auditor the amount of cash back so that all employment checks, cash back and Sch C income are reconciled to the amounts shown on the return................

Joanmcq - he wasn't looking for the checks, just the deposit slips.

I had a client in a similar situation, however not an audit, tax prep only. We used the statements to try to "reconstruct" income and expenses, but the deposit slips would have had a record of any personal cash or loan proceeds he deposited.

The bank statements included copies of checks but not the deposit slips, so somewhat in the same boat. He had a W-2 job also and would often cash his checks and put some of the cash into his business account. We were able to trace back most of the loans but his income was probably still overstated. Just too messy and the bank refused to give him copies of his deposit slips so any deposits we couldn't account for we catagorized as income.

[DTS]

...Now have you talked your client into a duplicate deposit book?

Jesse,

I have not, yet, but do plan to do so. I do believe this client is smart enough not to cover his behind on this from this moment forward. I will give him a gentle warning.

I always write a separate check the few times I want cash back. I'll have him do the same.

Dennis

[joanmcq]

I was replying to Erchess's reply to something that got a bit off topic.

I had an audit where they were looking at ALL cash reciepts, and all accounts, personal and business, and we had to prove where all the deposits came from. The bank did not have copies of all the deposit slips; what we were looking for in particular was in the personal account, since all of their income was from the biz. But there were things like an insurance refund, loans from her mother, & other stuff that we couldn't prove w/o the slips. The bank may not have all the records. Does he at least have a set of books which show contributions of capital that can be matched to certain deposits?

[DTS]

Joan...

are you asking me or Erchess?

If me, he keeps all on Excel. Income then and now is low, expenses high, but they are recorded by the month.

My client did not do a great job, but good enough, as all receipts, in all line-items that were in question matched and exceeded what was used on the return. This alone should teach him to keep much more accurate records!

Honestly, I was not too worried and I had all the confidence in him, as he's always been able to produce anything I asked for within a few minutes. However, even with me reassuring him, this audit scared the c*** out of him, as it should.

So lesson learned.

Dennis