Can Accepting Credit Cards at my E-Business Make the IRS Think I’m Committing Tax Fraud?

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Can Accepting Credit Cards at my E-Business Make the IRS Think I’m Committing Tax Fraud?

By itself, merely accepting credit cards is unlikely to make the IRS think that your online business is a conduit for tax fraud or tax evasion. However, depending on your company’s operations, cross-border activities, the plausibility and consistency of explanations you provided to auditors, your business records, and an array of other factors it is possible to face offshore tax allegations due to accepting credit cards at your online business.

IRS States Credit Cards Are the #1 Conduit For Income Diversion

According to the IRS, practice and experience have revealed that use of credit cards is often linked to tax fraud and tax evasion. Essentially some business owners will accept an array of credit cards. Rather than relying on a single payment processor these businesses may work with multiple processors. The business owner may attempt to conceal these actions by passing the transaction through multiple financial intermediaries. The IRS examination techniques manual specifically mentions that “Our experience to date indicates that the diversion of credit card receipts is the primary vehicle for underreporting income on the Internet.” Thus, it emphasizes that auditors must make a flow chart of transactions as they pass through the system looking for “leakage” of receipts and revenue.