These sources provide information relative to income and assets of the taxpayer and may assist the examiner in the classification of a particular tax return. The examiner should keep in mind that some of the third party sources may vary from state to state relative to the actual information they have, or in the way they store it. Generally, one phone call to that source will enable the examiner to proceed with the information search from that particular party. Treasury Form 4789, which is filed by the bank receiving the funds, identifies the payor, type of transactions, and method of payment. Often the transaction will be for a deposit, as the deposits tend to be made sporadically and rarely on a daily basis.
Cash is accumulated, and deposited as the taxpayer determines is necessary.
However, all of these transactions should be addressed, paying particular attention to any that are filed on the shareholders personally to insure the source of the cash is from reported income. This information can be used for determining if there are any large, unusual, or questionable line items prior to securing a return. Use of this information will prevent excess inventory and potential statute problems, as the identification of potential audits will be streamlined. These transcripts should be obtained for the shareholders and steps should be taken to insure that not only are these items reported in income where applicable, but also, these accounts or assets should be analyzed to determine if any unreported income was used for their acquisition. In identifying audit potential by using figures per return for a comparative ratio analysis to industry averages, the examiner must be aware of the large variances in the industry.