Investigation Team – Bank Deposit Analysis Method

Investigation Team - Bank Deposit Analysis Method

In the process of auditing/investigating accounts, it is often the taxpayer who lacks complete accounting records. Nevertheless, to satisfy as far as possible, the staff of the Inland Revenue Department that their accounting records are correct and reliable, a taxpayer should appoint a tax representative to conduct a detailed analysis of the taxpayer’s deposit/current and loan accounts and prepare revised financial statements, and then Submit to Field Tax Office for verification. In addition, the tax representative must provide details of loans, debts, or creditors in the name of the taxpayer’s family members.

In the absence of a taxpayer’s book records, IRD staff will use one of the indirect tax assessment methods of bank deposit analysis to assess profit or income. The bank deposit method is mostly used in the case where taxpayers often deposit their income in the bank. The audited/investigated accounts include the taxpayer himself, his spouse, his children, company business, joint names, etc…. used to deposit the taxpayer’s income Another person’s account will also be included.

The audit/investigation also includes referring to the bank statement in the account, email messages sent by the bank, correspondence between the taxpayer’s banks, etc. The tax bureau staff can find out the reliability of the accounts and information provided by the taxpayer from the account analysis method. How high is it, and whether there is any underreporting of income or false/overreporting of the purchase price and related expenses?

When tax officials consider using bank deposit analysis to develop solutions, they are based on income. The method is to deduct inter-account accounts, refunds, gifts, sales of properties, rental income, gambling winnings, non-taxable income plus cash and cash from business income from all bank accounts. Adjusting the receivables at the beginning and end of the year to get the approximate total turnover for the year, and then subtracting what the taxpayer reported will give you how much he has understated. It should be mentioned here that some bank deposits of unknown origin and without sufficient justification will also be included as assessable profits.

The above information is for reference only. If in doubt, we welcome your tax enquiries.

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