Will the IRS audit if...?

Question

One bought a motorcycle and a car in cash and put a large down payment on a home in cash?

Answer 1

Those transactions are not reported unless they involve actual cash as opposed to writing a check.  The IRS cannot track bank activity in real time and needs either a court order or subpoena to get access to your banking records.

What CAN happen is the so-called Lifestyle Audit.  That can either run on their computers in the background or be done in real time.  Vast volumes of statistical information is available broken down to Zip+4 address codes which usually cover only a few addresses.  If your tax returns over time reflect sufficient income to support your lifestyle, you're good to go.  On the other hand if they don't then that's an audit flag.  

IRS agents have also been known to drive through neighborhoods looking for signs of unreported income.  A $500,000 home with $500,000 worth of "toys" in the driveway in a neighborhood of more modest homes is a major audit flag if the income reported by the taxpayer living there isn't sufficient to support the lifestyle.

If you should be the subject of a lifestyle audit, the IRS will estimate the income necessary to support the lifestyle and assess tax based upon that income.  It's then up to the taxpayer to prove otherwise.

Answer 2

If you are reporting income that is high enough to support those transactions then they probably will not pay attention.  If you don't have reported income that will support those transactions, then they might come calling..

Not sure what the reporting requirements are - I know that banks have to report transactions over $10,000.

Answer 3

depends on the amount of money involved and if the lifestyle and job would make that possible. like if you are a rock star buying stuff in cash would be possible. for me (not a rock star) less possible.

Answer 4

Only if they find out about those purchases and your return does not reflect income that would have allowed you to get that kind of money.  If you got an inheritance there would be no problem.  If this is ill gotten gain they will come after you.

Answer 5

Businesses that aren't banks that accept cash also file FINCEN reports.

Yes, a bunch of these can put you on an exception report.  If your income tax returns reflect income of the same bracket, then you are fine.

Answer 6

With respect to a tax return there is no way for them to know the transactions were in cash nor the amounts.

However, financial institutions are required to report cash transactions over $10,000 so "they" could find out that way.

I don't think there is a link between that and your tax return.

If you work in a cash business, and are under reporting your income, that's a different problem............