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I’ve Been Paid in Cash Since I Started Working, Will the IRS Ever Know About This?

On: September 28, 2018

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The cash issue has always been an interesting one. The IRS hates it. If you are paid in cash and put it in the bank, the bank reports the interest earned at the end of the year to the IRS. This puts the IRS on notice that you exist, but that they are not receiving any W2s or 1099s. The IRS can estimate your annual income based on interest earned, but they do not know its source. They also have no records of the expenses incurred producing your income. Under these circumstances, there is the possibility of any audit. Disputing bank records can be challenging, but have your receipts handy and be prepared to produce an accounting ledger of some form.

The same situation can arise if you have a mortgage, even if you do not have a bank account. The mortgage companies report to the IRS the mortgage interest paid by you annually.

If you are paid cash, do not have a bank account and do not pay a mortgage, you are basically invisible to the IRS. It is likely you have never filed a tax return, nor paid any taxes. While this means enforcement actions by the IRS are nearly impossible, it also means that that most forms of resolution are impossible as well. The IRS does not know how much you earned or what you owe. They will be unable to so much as enter you into an installment agreement.

If you, as a taxpayer, wish to address this issue and “come clean” to the IRS, it is advisable to hire a tax professional that can structure your financial profile, and your tax history and planning, in such a fashion that the IRS will be able to understand it.

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