Where does the IRS get Information ?

The question of how the IRS gets information comes up from time to time.? So where does this information originate.? There are a few sources.

The first and most obvious is mandatory third-party reporting.? These include banks when cash transactions exceed $10,000.? They also include all fund managers. Businesses that pay employees or do contractors issue either a W2 or a 1090 to that taxpayer.? A copy of the form is sent to the IRS and the State Department of Revenue if that state has an income tax.

One source of information is the “John Doe” warrant.? The IRS has recently been using those to target cryptocurrency exchanges to find taxpayers who aren’t reporting cryptocurrency transactions.? These warrants can also be used on banks.

The IRS also looks at Social Media sites, especially if a taxpayer is crying poverty.? The IRS has on numerous occasions asked about a certain post or collection shown on Facebook or other social media during negotiations.?

Increasingly, the IRS is using Artificial Intelligence and complicated Algorithms to dig out unreported income or overly exaggerated expenses.? As a result of these efforts, the IRS has huge, interconnected databases that make it extremely difficult to hide income.

The IRS also uses advanced data analytics to improve accuracy of their information.? They even work with foreign governments and other third-parties to garner as much information as possible.

So, then, how does a taxpayer defend themselves?? The most obvious step is to be honest in all filings.? When it comes to social media, remember anything put on line is never truly gone.? The best course of action is stop telling the whole world everything that happens and stop posting pictures of acquisitions.?? Deleting the accounts would be a great idea as well.? Keep in mind that anything posted online is being read by the government.?

So, what is the big deal?? Failure to complete the return can be seen as an Evasion of Payment, False Document or Conspiracy to defraud the government, not to mention the return is signed under penalty of perjury.? These can all be prosecuted with lengthy jail sentences and a felony record.