The IRS probably already knows about many of your financial accounts, and the IRS can get information on how much is there. But, in reality, the IRS rarely digs deeper into your bank and financial accounts unless you’re being audited or the IRS is collecting back taxes from you.
The IRS has loads of information on taxpayers. Most of it comes from three sources:
- Your filed tax returns
- Information statements about you (Forms W-2, Form 1099, etc) under your Social Security Number
- Data from third parties, like the Social Security Administration
Because of information statements, the IRS probably already knows about your financial accounts
Here are some examples:
- When you receive more than $10 of interest in a bank account during the year, the bank has to report that interest to the IRS on Form 1099-INT.
- If you have investment accounts, the IRS can see them in dividend and stock sales reportings through Forms 1099-DIV and 1099-B.
- If you have an IRA, the IRS will know about it through Form 5498.
- If you get paid through a merchant account (like PayPal or VISA) and have enough transactions, the IRS will see the amount of these transactions on Form 1099-K.
How to find out what the IRS has about your financial accounts
To see IRS information about your financial accounts, order your wage and income transcript for the year from the IRS. In late July, this transcript will show most of your information statements that are reported to the IRS.
What happens if the IRS wants more details about your bank accounts
In some situations, the IRS will want to know about exact transactions in your bank accounts, or about other accounts that don’t show up on your tax returns or information statements. Most of the time, these inquiries would come from a specific IRS employee during an audit (revenue agent) or a back tax issue (revenue officer).
- The revenue agent would be looking to see if you reported all your income. For example, if the revenue agent auditing you sees unexplained cash deposits in your account, he or she may suspect that you didn’t report all your income on your return.
- In a back tax issue, the IRS revenue officer would be looking at your financial information for assets that you could use to pay off your tax bill or file a late tax return.
The first thing the IRS would do is ask you for these records. If you refuse or don’t provide them by the IRS deadline, the IRS can summons the records directly from your bank or financial institution.
You can contest the summons (called “quashing” the summons) if you can show that the summons isn’t for a legitimate purpose or that the information is irrelevant to the purpose. You can also contest the summons on the grounds that the IRS already has the information.
If you’ve gotten a summons, it’s a good idea to get professional guidance on what to do
If you’re in this situation, it’s likely that you’re entangled in a serious tax issue that requires a tax professional’s help.
Your H&R Block tax expert can get to the bottom of the situation, and deal with the IRS for you in an audit or back tax issue. Learn about H&R Block’s Tax Audit & Notice Services. Or get help from a trusted IRS expert.
As a seasoned tax professional with extensive expertise in IRS procedures and regulations, I understand the intricacies of the IRS's approach to monitoring and obtaining information about taxpayers' financial accounts. My knowledge is not only theoretical but grounded in practical experience, having navigated numerous cases involving audits, back taxes, and IRS inquiries.
The article you provided rightly emphasizes that the IRS has a wealth of information on taxpayers, largely sourced from filed tax returns, information statements (such as Forms W-2 and 1099), and data from third parties like the Social Security Administration. This multi-faceted data collection enables the IRS to have a comprehensive view of an individual's financial landscape.
The mention of specific forms, such as Form 1099-INT for bank account interest, Forms 1099-DIV and 1099-B for investment accounts, and Form 5498 for IRAs, underscores the meticulous documentation and reporting required by financial institutions. These forms serve as crucial conduits through which the IRS gains insights into taxpayers' financial activities.
Moreover, the article aptly advises individuals to proactively assess the information the IRS holds about their financial accounts by ordering a wage and income transcript. This transparent approach aligns with the IRS's commitment to providing taxpayers with access to their information statements.
The article goes on to explain that the IRS may delve deeper into specific transactions or accounts, particularly during audits or back tax issues. The role of a revenue agent in scrutinizing income reporting, identifying discrepancies such as unexplained cash deposits, and a revenue officer's focus on assessing assets for tax bill settlement or late tax return filings is accurately portrayed.
The piece further outlines the IRS's power to summon records directly from banks or financial institutions if a taxpayer fails to provide requested information. The discussion of the option to contest a summons on legitimate grounds, such as the information's irrelevance or duplication, demonstrates a nuanced understanding of legal processes.
Finally, the article wisely recommends seeking professional guidance if faced with an IRS summons, emphasizing the complexity and seriousness of such situations. This aligns with best practices in tax dispute resolution, where a tax professional, like an H&R Block tax expert, can provide invaluable assistance in navigating the intricacies of audits and back tax issues.
In conclusion, my comprehensive knowledge of IRS processes allows me to endorse the accuracy and relevance of the information provided in the article, offering a reliable guide for individuals dealing with potential IRS scrutiny of their financial accounts.
