9. Using Round Numbers
Having very round numbers (e.g., $100, $5000, etc.) frequently on a return tends to look strange and often fuels suspicion of filing false returns in attempt to either reduce tax liability or increase a refund amount. Taxpayers should use exact numbers instead of rounding them off when possible.
10. Owning a Cash-Based Business or Reporting a High Volume of Cash Transactions
Businesses that handle a lot of cash routinely (e.g., nail salons, restaurants, car washes, etc.) are especially subject to the underreporting of income, and even more so in situations where workers make tips. Taxpayers reporting tips or other revenue generated from cash-based businesses are subject to intense IRS scrutiny and should be diligent in keeping meticulous records and reporting their income transactions. Reporting a high-volume of cash transactions or large cash transactions also would come under scrutiny for detection of tax crimes and other potential criminal activity. Note the requirement to complete Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, for large cash transactions. [See 636 TM, Tax Crimes, I.C.; TPS ¶ 3820.05.G.2]
11. Having Cash or Assets in Another Country
If the IRS suspects that a taxpayer possesses $10,000 or more in foreign-held assets and has not filed a Foreign Bank Account Report (FBAR), or if they believe a taxpayer misreported assets and income on the FBAR, the taxpayer may be subject to an FBAR audit. FBAR audits can be complex and the failure to comply with FBAR reporting requirements can subject the taxpayer to exorbitant civil penalties and criminal prosecution exposure. [See 6085 TM, Report of Foreign Bank and Financial Accounts (FBAR); TPS ¶7170.02.B]
12. Drawing Unemployment Income
Also specifically mentioned in the 2022 Audit Plan is the IRS’s intention to increase its efforts to determine if it is identifying and examining the most productive cases for which taxpayers potentially underreported their unemployment compensation. With so many taxpayers finding themselves out of work due to the COVID-19 pandemic, this initiative will likely affect many more taxpayers than in other years. [See 501 TM, Gross Income: Overview and Conceptual Aspects; TPS ¶ 1110.06]