If the IRS suspects a taxpayer isn’t reporting all income, it may conduct a “bank deposits analysis” to compare deposits with what the taxpayer reported. In one case, the IRS analyzed the bank deposits of a man who held multiple accounts in his name and in the names of his businesses. The IRS argued he didn’t report all income from various sources, moved money between business and personal accounts, and used business accounts for personal expenses. The U.S. Tax Court upheld the IRS’s determination of additional tax and fraud penalties. The court stated the taxpayer’s “testimony was not credible” and the IRS supported its analysis with bank records and other documents. (TC Memo 2023-44)
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