A love letter, that inquires if your business is underreporting cash. This initiative is aimed at boosting federal receipts and ensuring compliance. The IRS sees underreporting of cash as a “wide spread problem” with small businesses.
In 2008, new laws gave the IRS broader access to merchant credit/debit card transactions. The IRS compares the merchant transactions to a taxpayer’s gross receipts reported on the small business tax return. Using internal industry data, the IRS makes a preliminary determination as to whether all cash was reported. If the data suggests unreported income based on an unusually high percentage of gross receipts from merchant accounts, the IRS is likely to send a letter to the small business seeking an explanation.
The IRS is taking the position this is not an audit – just an inquiry. Nothing to see here, folks, just move along. Still, taxpayers should treat these contacts as they would an audit, responding timely with complete and accurate information and should seek experienced tax counsel.