Governmental auditors are all taught to “take it to cash”. Commonly auditors will begin an audit by first assuring themselves they have identified all of the business, personal, checking, savings and investment accounts utilized by an individual or a business and its owners. They will then sum up all of the deposits into your business and personal accounts. Their attitude is that every deposit is taxable income unless you can prove otherwise.
Therefore, it will be necessary for you to substantiate any non-taxable deposits such as those out of your personal savings, interbank transfers, borrowed capital or funds from other sources that are not taxable business income. The auditor will want to treat every withdrawal out of each of these accounts as non-deductible personal expenses unless you can prove otherwise.
The auditor’s “take it to cash” approach is one of the strongest reasons why you need an experienced Tax Audit Attorney like David W. Klasing on your side so that you first understand the taxing authorities approach to the audit and then be in a position to ultimately prove your position so that you pay only the correct amount of tax, penalties and interest at the conclusion of the audit.
Contact my office to schedule your reduced rate initial consultation to learn how I can assist with your individual tax law concerns.