The Internal Revenue Service does not monitor bank accounts. However, the IRS can easily gain access to your bank account information under certain circumstances. The IRS expects you to honestly and accurately disclose your bank account information when necessary. If you choose not to provide the information, the IRS can force you to comply. Attempts to deceive the IRS can carry heavy fines and even a potential jail sentence, depending on the severity.
Depending upon the size of your deposits and transactions, your preferred banking institution may be required to report your activity to the government. If this occurs, the IRS may choose to review your account for auditing purposes.
Analyzing Suspicious Deposits
Banks are required to file currency transaction reports on cash deposits of $10,000 or more. Cash is defined as money, a cashier’s check, bank draft, traveler’s check or money order. If you make smaller deposits in an attempt to avoid reaching the $10,000 transaction threshold, you might just find yourself in serious legal trouble. According to Forbes, structuring your deposits to avoid a currency report is considered fraud, which is a felony. If the bank suspects you are obtaining the money illegally, they must send a suspicious activity report to flag potential criminal activity. All banking transactions are subject to a suspicious activity report if the amount is $5,000 or more. If you have been reported, the bank will not notify you that a report has been filed.
Reviewing Foreign Accounts
If you have an offshore bank account, you must report the account by filing a Foreign Bank Account Report with the Department of the Treasury by June 30th. The reporting requirement was established to reduce the risk of tax evasion associated with offshore accounts. Accounts with a value of $10,000 at any time during the year are subject to the annual reporting requirement. The report must list the name and address of the financial institution, account number and maximum account balance for the year. If you fail to file, you can face a minimum penalty of $10,000 for an inadvertent error. If you intentionally did not file, the minimum penalty increases to $100,000.
Conducting Official Audits
An IRS audit is an official investigation of all of your accounts, including your bank accounts. Auditors are trained to identify fraud, including attempts to conceal bank accounts and income. If you are audited, the auditor will compare the income you reported on your tax return to your bank account statements to ensure your taxes are assessed accurately. Unreported income can result in a large tax bill along with interest and penalties. While a simple error is understandable, intentional fraud carries serious consequences.
Uncovering Other Accounts
The IRS has various ways to locate your bank account information. Since you need a Social Security number to open a bank account, the IRS can track bank accounts associated with your name and number. When you request your tax refund via direct deposit, the IRS maintains the bank account information in their database. They also gather information from financial audits you may have completed in the past. If you earned more than $10 in interest for the year on a bank account or certificate of deposit, the financial institution also sends the IRS a copy of the 1099 Interest Statement you receive.