An individual who ran a tax return preparation business through an S corporation couldn’t explain all of the cash deposits into various bank accounts, so the Tax Court agreed with the IRS that they were taxable business income. When the IRS is suspicious of unreported income, it can use a bank deposits method to reconstruct income. This method assumes all of the money deposited into a taxpayer’s account is taxable income unless a taxpayer can show otherwise.
Alert: Follow coronavirus-related federal tax changes for your business through the IRS.
