Possible Problem if I Deposit Cash in Bank Account

[germine248]

Thanks! I called the bank last week and I was informed that they will not keep anything beyond 7 years old.

[pg1067]

Your bank should be able to provide a duplicate of the statement for the month you withdrew the money.

Not from 2011. Banks typically keep such records for only seven years.

[Taxing Matters]

Will this information suffice, if I am audited by IRS, I was not involved in any illegal activity like stealing? Either case, is it advisable to deposit my money in bank?

The problem isn't that the IRS will conclude you were involved in illegal activity. It is that the IRS might conclude you had income (which might have been totally legal) that you failed to report and it may end up assessing you tax for that, along with penalty and interest. Whether what you tell the agent will be sufficient to convince him/her I cannot tell you. All I can tell you from own experience both having worked for the IRS and having represented people before the IRS that the IRS will be skeptical here because a claim that you simply stashed that much money in cash somewhere in your house for 9 years is very unusual; very, very few people would do such thing. A lot may turn on how skillfully this is presented to the agent and what all evidence you can muster to support. Hence my recommendation that you see a tax attorney if you are audited.

Also if I get audited, how soon the audit happens once I deposit the cash into bank?

If you put it in the bank account this year then the IRS would expect the income to be on the return you file next year. The IRS will match the return with the currency transaction report (CTR) the bank filed. You'd not see a letter or audit from the IRS on this until at least 6 months after you file the return and chances are it would be more like a year later. In short, it would take awhile after the deposit before you had to deal with the IRS on this.

I wouldn't let the possibility of the IRS doing an audit (which is not guaranteed) prevent you from depositing the cash and using it to help your husband. But I would suggest you be prepared in the event an audit does come about later and have a tax attorney assist you with that. But ultimately it is up to you to decide whether to make that deposit.

[Harold99]

An IRS audit cannot go back to 2011 unless you are suspected of fraud, which they would need evidence of.

Simply having $120K of cash is insufficient evidence. And "skepticism" or "being unusual" is not evidence of undeclared income either.

[llworking]

Thanks!! Due to my health condition, I stopped doing business since 2011 and I did not have driving license or owning a car for the past 9 years and I was depending on someone or a taxi to go out for the last 9 years. My husband has regular job for the state. Now he needs money due to an issue in his own business (I have sufficient proof that he desperately needs money and I, obviously, wants to help him). Will this information suffice, if I am audited by IRS, I was not involved in any illegal activity like stealing? Either case, is it advisable to deposit my money in bank?

Also if I get audited, how soon the audit happens once I deposit the cash into bank?

An additional problem that you will encounter is that over the last 9 years the currency has changed and most of your money would be in old bills which would be held to extra scrutiny when you attempt to deposit them.

[Harold99]

An additional problem that you will encounter is that over the last 9 years the currency has changed and most of your money would be in old bills which would be held to extra scrutiny when you attempt to deposit them.

"Will" or there might be a remote chance of it being a problem?

I wasn't aware that a currency counter detected and logged that. And who is to say that that currency did nots see the light of day over the past nine years.

IMO, any attorney or CPA worth his weight could make this a none-issue with the IRS. But here she will be marched to the gallows.

Cash does not mean criminal. The social stigma of using cash offers zero evidence of criminal activity.

[Taxing Matters]

An IRS audit cannot go back to 2011 unless you are suspected of fraud, which they would need evidence of.

It's not the 2011 return that would be audited. It is the return for year in which the cash deposit is made and the CTR filed by the bank that may result in an audit when the $120K is not reported on the return. If that deposit occurs in 2020, then it is the 2020 return that would be audited when the return does not show that cash as income.

Simply having $120K of cash is insufficient evidence. And "skepticism" or "being unusual" is not evidence of undeclared income either.

The CTR is evidence of possible income. That $120,000 had to come from somewhere. And without a good explanation of where it came from that would not be taxable income the IRS will assume it was from taxable income. And so will the Tax Court: "A bank deposit is prima facie evidence of income and respondent need not prove a likely source of that income." Tokarski v. Comm'r, 87 T.C. 74, 77 (1986). (In Tax Court the respondent is always the IRS.) The Tax Court will apply a different rule in those circuits where the Court of Appeals has set a different standard. However, the Tax Court applied the same presumption in a case arising out of Florida in which there was record of a bank deposit for $25,000. It started with the presumption that the funds were income, and went on to explain that it was not convinced by the taxpayer's explanation for why the funds were not taxable income:

Respondent adjusted petitioner's 1992 gross income on account of the NCNB deposit ($25,000 deposited into an account of petitioner's on February 10, 1992). In the petition, petitioner avers that all the cash transactions were from funds accumulated by petitioner from a 1990 loan to her from NCNB National Bank and from rental income received by her in prior years. On brief, petitioner argues that the source of the NCNB deposit was funds received by petitioner from her children, either as loans or gifts, as evidenced by the testimony of petitioner and her children.

Petitioner's testimony and that of her children concerning the source of the NCNB deposit conflicted on numerous points and was not credible. Petitioner's testimony was particularly unconvincing concerning the actual times, places, manner, and denominations of the supposed gifts of cash to her. Petitioner was not able to remember the details of her son's presenting her with $10,000 in cash or her daughter's presenting her with $20,000 in cash. Upon questioning by the Court, petitioner was not certain when she traveled from California to Florida with the $10,000 her son supposedly gave her and could not recall whether she received $20,000 in cash from her daughter in November 1991 or February 1992. The children's testimony seems particularly incredible given the large sums of money the children supposedly gave their mother in comparison to their modest reported incomes for the years at issue. We do not credit Gary's testimony that he kept $15,000 in $100 bills under the carpet in the closet in his apartment nor his sister Audrey's testimony that she received more than $30,000 in cash gifts at her wedding, which she kept at home, in her closet (in a safe). We observed the demeanor of petitioner and her children and do not believe that any of them told the truth with respect to the source of the NCNB deposit.

We may reject testimony that is inherently improbable or manifestly unreasonable, even where no contradictory testimony is offered. See, e.g., Bovett v. Commissioner, 204 F.2d 205, 208 (5th Cir.1953), and the cases cited therein. We accord the testimony of petitioner and her children no weight with respect to the source of the NCNB deposit. Petitioner has failed to prove her claim of a nontaxable source.

DiPierro v. Commissioner, 77 T.C.M. (CCH) 2132 (T.C. 1999). Note some similarity in this case to the OP's situation: claims of large amounts of cash hidden away in the homes of the children, which the IRS and Tax Court didn't buy. So it is indeed the case, as I stated before, that skepticism as to the claims of the source of the funds is a problem should the taxpayer get audited, and why the way the case is presented can make a big difference in how that goes. The taxpayer in DiPierro did not do a great job of convincing the IRS and the court of the story for the source of the funds. The OP would need to do better than DiPierro did to win. I'm not saying it can't be done. In other cases taxpayers have made a better showing and won. What I am saying is that because the burden ends up on the taxpayer to satisfy the IRS and the courts where the money came from, the OP will need to present something that will help overcome the natural skepticism that would go along with a claim that a huge sum of cash was simply stored in the house for 9 years.

Cash does not mean criminal. The social stigma of using cash offers zero evidence of criminal activity.

Again, the issue is not whether the OP engaged in criminal activity. The issue would be whether the OP had taxable income; it doesn't matter what the source of it was. It is not as easy as you seem to think to make this a "non-issue" with the IRS because I think you assume the burden entirely on the IRS here. But that is not the rule, as the cases I cited above clearly illustrate.

[Harold99]

It's not the 2011 return that would be audited. It is the return for year in which the cash deposit is made and the CTR filed by the bank that may result in an audit when the $120K is not reported on the return. If that deposit occurs in 2020, then it is the 2020 return that would be audited when the return does not show that cash as income.



The CTR is evidence of possible income. That $120,000 had to come from somewhere. And without a good explanation of where it came from that would not be taxable income the IRS will assume it was from taxable income. And so will the Tax Court: "A bank deposit is prima facie evidence of income and respondent need not prove a likely source of that income." Tokarski v. Comm'r, 87 T.C. 74, 77 (1986). (In Tax Court the respondent is always the IRS.) The Tax Court will apply a different rule in those circuits where the Court of Appeals has set a different standard. However, the Tax Court applied the same presumption in a case arising out of Florida in which there was record of a bank deposit for $25,000. It started with the presumption that the funds were income, and went on to explain that it was not convinced by the taxpayer's explanation for why the funds were not taxable income:

Respondent adjusted petitioner's 1992 gross income on account of the NCNB deposit ($25,000 deposited into an account of petitioner's on February 10, 1992). In the petition, petitioner avers that all the cash transactions were from funds accumulated by petitioner from a 1990 loan to her from NCNB National Bank and from rental income received by her in prior years. On brief, petitioner argues that the source of the NCNB deposit was funds received by petitioner from her children, either as loans or gifts, as evidenced by the testimony of petitioner and her children.

Petitioner's testimony and that of her children concerning the source of the NCNB deposit conflicted on numerous points and was not credible. Petitioner's testimony was particularly unconvincing concerning the actual times, places, manner, and denominations of the supposed gifts of cash to her. Petitioner was not able to remember the details of her son's presenting her with $10,000 in cash or her daughter's presenting her with $20,000 in cash. Upon questioning by the Court, petitioner was not certain when she traveled from California to Florida with the $10,000 her son supposedly gave her and could not recall whether she received $20,000 in cash from her daughter in November 1991 or February 1992. The children's testimony seems particularly incredible given the large sums of money the children supposedly gave their mother in comparison to their modest reported incomes for the years at issue. We do not credit Gary's testimony that he kept $15,000 in $100 bills under the carpet in the closet in his apartment nor his sister Audrey's testimony that she received more than $30,000 in cash gifts at her wedding, which she kept at home, in her closet (in a safe). We observed the demeanor of petitioner and her children and do not believe that any of them told the truth with respect to the source of the NCNB deposit.

We may reject testimony that is inherently improbable or manifestly unreasonable, even where no contradictory testimony is offered. See, e.g., Bovett v. Commissioner, 204 F.2d 205, 208 (5th Cir.1953), and the cases cited therein. We accord the testimony of petitioner and her children no weight with respect to the source of the NCNB deposit. Petitioner has failed to prove her claim of a nontaxable source.

DiPierro v. Commissioner, 77 T.C.M. (CCH) 2132 (T.C. 1999). Note some similarity in this case to the OP's situation: claims of large amounts of cash hidden away in the homes of the children, which the IRS and Tax Court didn't buy. So it is indeed the case, as I stated before, that skepticism as to the claims of the source of the funds is a problem should the taxpayer get audited, and why the way the case is presented can make a big difference in how that goes. The taxpayer in DiPierro did not do a great job of convincing the IRS and the court of the story for the source of the funds. The OP would need to do better than DiPierro did to win. I'm not saying it can't be done. In other cases taxpayers have made a better showing and won. What I am saying is that because the burden ends up on the taxpayer to satisfy the IRS and the courts where the money came from, the OP will need to present something that will help overcome the natural skepticism that would go along with a claim that a huge sum of cash was simply stored in the house for 9 years.



Again, the issue is not whether the OP engaged in criminal activity. The issue would be whether the OP had taxable income; it doesn't matter what the source of it was. It is not as easy as you seem to think to make this a "non-issue" with the IRS because I think you assume the burden entirely on the IRS here. But that is not the rule, as the cases I cited above clearly illustrate.

Why is it assumed that cash has not been taxed. There is absolutely no basis for that presumption by society or the taxman.

[Taxing Matters]

Why is it assumed that cash has not been taxed. There is absolutely no basis for that presumption by society or the taxman.

A great question, and one I thought you'd probably ask. The reason has to do with placing the burden on the party most likely to have the knowledge of what happened and that would have the records to support it. In order to explain the rule for assertions of unreported income, I think it will help to first back up an explain the general rule laid down by the U.S. Supreme Court four score and seven years ago that when challenging the audit decisions of the IRS: "[The Commissioner's] ruling has the support of a presumption of correctness, and the petitioner has the burden of proving it to be wrong." Welch v. Helvering, 290 U.S. 111 (1933). Pretty much every Tax Court case starts out stating this general rule. So when the IRS challenges the taxpayer on a deduction or credit he or she has taken, for example, it is the burden of the taxpayer to prove the IRS wrong. The reason for that is that if the burden was on the IRS, it would be in the position of trying to prove a negative. There isn't going to be any document out there that say, for example, that the taxpayer never made a charitable deduction. On other hand, the taxpayer would be in the position of being able to prove his/her charitable deduction since he or she is likely to have the documentation for it — canceled check, written acknowledgement from the charity, etc. So it is logical here to put the burden on the taxpayer as the taxpayer is the one who can provide the evidence on the issue.

When the IRS asserts that there was unreported income, though, that rule doesn't work well. Because if the IRS were to simply declare, without any evidence whatsoever, that the taxpayer had $X amount of income, now it would be the taxpayer that would have to prove a negative, and he/she is not going to have any documentation that says he/she did not make $X. So the rule for income is that the IRS has to come forward with something to make a prima facie showing that the taxpayer had income. Bank deposits are most often made from taxable income, and that income is usually deposited fairly soon after the taxpayer receives it. So it is not unreasonable to assume that, absent some other explanation, the deposit is income of the taxpayer in the year it was deposited. Thus the rule of the Tax Court that once the IRS provides proof of deposits that do not correspond to anything else on the return that generally meets the initial burden the IRS has to show the taxpayer had income. Then the taxpayer has the burden to show that the deposit was not from taxable income but was instead from something else. Why? Because again it is the taxpayer that will know where it came from and is likely to have evidence to support it. If the rule was that the IRS always had to link the money to a specific source of income — something that would be hard to do with a cash deposit since the IRS is not the one in possession of the records regarding where the cash came from — you'd allow taxpayers who were adept at hiding where the income came from to escape tax. So as it is the taxpayer who knows where it came from the courts have concluded, for the most part, that the taxpayer is one to have to explain that. It's a logical rule, though it is not the only approach the courts could have taken. One could logically argue for other approaches, too. However, the case law is what it is, and thus this rule is the one that taxpayers must confront when dealing with an IRS determination of unreported income based on bank deposits.

By the way, since the Supreme Court's decision in Welch that I cited happened to be decided 87 years ago, I referenced Abe Lincoln's line of "four score and seven years ago" from the Gettysburg Address because it was Abe Lincoln that signed the first income tax act, the Revenue Act of 1861. The income tax was enacted to pay for the Civil War. Many Americans wrongly believe that the first income tax act was in 1913 after adoption of the 16th Amendment to the Constitution. So we can blame Lincoln for bringing that idea to the U.S.

[germine248]

Thanks!! I got an idea about the serious consequences I may have to face if I deposit this. I will think 10 times before I deposit in bank. When I withdrew the cash in 2011, probably the bank, if acted correctly, must have sent a currency transaction report (which i read over internet) to IRS which will prove that I withdrew that cash. Even if the bank account is untraceable now, the IRS must be having that. I know the name of the bank I was using in 2011. Is there a way to use that currency transaction report (which may be with the bank or IRS, but I did not receive it from bank or IRS) to prove my $120,000 is clean.

I also have $36,000 cash, gifted, as cash, by my husband over 4 years time. Will this also face similar fate if I deposit in bank? My husband is willing to testify if needed (he has state job, making around $70,000 annually)?

Above, you cited "A bank deposit is prima facie evidence of income and respondent need not prove a likely source of that income." Tokarski v. Comm'r, 87 T.C. 74, 77 (1986). However, in that case, petitioner [Tokarski ] testified that the $30,000 cash is from his father who died 5 years ago. Then the court found "As previously noted, petitioner and his mother testified that the source of such income was cash accumulated by petitioner's father. Against this testimony stands the fact that respondent [IRS], in an effort to negate that explanation, investigated the assets of the father at the time of his death and submitted convincing evidence that the records of the New York Surrogate Court contained no evidence of any cash on hand." However, in my $120,000 cash, there will be no such evidence to disprove my testimony.