IRS Can Detect Inaccurate Tax Reporting

The IRS can piece together a taxpayer’s income and deductible expenses if it suspects the person didn’t correctly report them. That’s what happened in one case when the tax agency performed a “bank deposits reconstruction” of a married couple’s income. The couple questioned the validity of the reconstruction but a federal appeals court ruled that it was properly handled because the taxpayers didn’t keep adequate records or offer any evidence to rebut the IRS’s calculations. (Singh, CA 9, 121 AFTR 2d 2018-887)