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, 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.
