The IRS More Frequently Targets “Cash Only” Small Businesses

Many small businesses refuse to take cards because of the fees which come with them. When cards are accepted the fees generally come out of overall profits. The answer to this dilemma is cash, but the IRS does not like cash because it’s hard to track and it can easily lead to fraud. Many small companies have been audited because of their cash only policy.CashOnly

Targeted by Auditing

Let’s get one thing straight, small businesses with “cash only” policies aren’t being shutdown unless they’re actively trying to avoid paying taxes. Nevertheless, the IRS is singling them out for auditing to ensure they are doing things by the book.

The fraud risk is so high that the IRS has no choice but to target these businesses. The crackdown has happened due to a growing reputation that the IRS will let businesses operating under these policies slide.

What Can You Do?

Businesses that only accept cash should have robust accounting procedures so that in the event of an IRS audit you can prove that you haven’t broken any rules.

Unfortunately, repeatedly businesses find themselves in court because they can’t prove where the money has come from and they’ve paid the right amount to the IRS. This results in their business being forced to close.


While there is a renewed crackdown on businesses with these policies in place, it’s no reason to panic. Review your accounting records and double-check what you report to the tax authorities this coming year. Do everything by the book and you have nothing to fear.

Image credit: Brad Hagan

About the author

Seattle CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.

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