Any investigator specializing in financial fraud investigation will generally be required to analyze bank and brokerage records. This analysis is one of the most important elements of any investigation. Using DIO, a proprietary software of Sage Investigations, converts paper or PDF bank statements to an Excel spreadsheet, consuming less time and input by staff, and making analysis easier. DIO also establishes a link between each line item on the Excel spreadsheet, therefore allowing the instant review of each transaction.
It appears that this type of analysis in the future will be hampered by technology. Research has shown that Bank of America and Frost Bank have changed to Smart ATM equipment. The equipment will accept a deposit without a deposit slip and place an image of the deposited item on the customer receipt. Unfortunately, most people do not retain the receipt in their records, and receipts fade with time. The bank does not make the deposited item in the account available to the customer; instead it provides a placeholder for the amount in the bank statement.
When it comes time for an individual to contact their bank to obtain copies of a deposited item the bank will not have the item in their records. Instead it will have a placeholder for the amount of the deposited item. This makes it difficult for an individual to defend themselves in civil and criminal matters before the IRS or other state or federal agencies.
The burden of proof in an IRS civil audit is upon the individual to prove that a deposit is not reportable as income. In a criminal investigation, the burden of proof shifts to the IRS Criminal Investigation to prove that the deposit is reportable income that was intentionally not reported.
Please caution your clients to keep good records of deposits including scanned copies of checks received—especially those out of the ordinary, such as, round amounts in excess of $5,000. As technology advances, items deposited by paper deposit slips will be more difficult to prove if the client does not keep a good record of receipts. Relying on your bank may not be sufficient.
In the following scenario, a year ago, a client deposited a $10,000 check he received from an uncle and the check contained the notation “Gift.” A problem occurs when an IRS Auditor questions the $10,000 deposit and requires proof of the gift. Adding to the problem is the uncle has recently died. The best evidence to prove the gift would be a copy of the deposited item in the records of the bank. The deposit on your client bank statement may only show $10,000 and not include a deposit slip. If the bank does not maintain an image of the deposited item, it will be difficult to overcome the auditor’s presumption that the $10,000 was taxable income and not a nontaxable gift.
If you are defending a client in a civil or criminal matter before the IRS, contact Sage Investigations at 512-659-3179 or via email at firstname.lastname@example.org. With over 26 years of experience working as an IRS Special Agent, Sage Investigations can go to work for you.