Bank transfers are a normal part of life. You pay rent, send money to family, or move funds between accounts. But sometimes, a simple transfer can set off alarms at the IRS. This can lead to reviews, questions, or even audits. Most people don’t realize how easy it is to get flagged. Knowing what can trigger an IRS review helps you avoid stress and delays. Here are ten types of bank transfers that have accidentally triggered IRS reviews, and what you can do to stay safe.
1. Large Cash Deposits Over $10,000
Banks must report any cash deposit over $10,000 to the IRS. This rule is part of the Bank Secrecy Act. If you deposit $10,001 in cash, your bank files a Currency Transaction Report. Even if your money is legal, the IRS may review your account. They want to make sure the funds aren’t from illegal activity. If you need to deposit a large sum, keep records showing where the money came from. This makes it easier to answer questions if the IRS contacts you.
2. Multiple Small Transfers That Add Up
Some people try to avoid the $10,000 reporting rule by making several smaller deposits. This is called “structuring,” and it’s illegal. The IRS looks for patterns of small transfers that add up to a large amount. Even if you’re not trying to hide anything, this pattern can trigger a review. If you need to move a lot of money, do it in one transfer and keep documentation. Avoid splitting up transfers just to stay under the reporting limit.
3. International Wire Transfers
Sending or receiving money from another country can get the IRS’s attention. Banks report international wire transfers over $10,000. The IRS wants to prevent money laundering and tax evasion. If you get money from overseas, be ready to explain the source. If you send money abroad, keep records of why and to whom. This is especially important if you have family or business ties outside the U.S.
4. Transfers Involving Cryptocurrency
Cryptocurrency is a hot topic for the IRS. If you move money between your bank and a crypto exchange, the IRS may notice. They want to make sure you report any gains or losses. Even if you’re just moving your own money, these transfers can trigger a review. Always keep records of your crypto transactions. Report any taxable events on your tax return. The IRS is increasing its focus on digital assets every year.
5. Transfers Between Personal and Business Accounts
Mixing personal and business funds is a red flag. If you move money from your business account to your personal account (or vice versa), the IRS may review your activity. They want to make sure you’re not hiding income or claiming false expenses. Keep your business and personal finances separate. Use clear memos and keep receipts for every transfer. This helps you avoid confusion if the IRS asks questions.
6. Unusual Transfers With No Clear Purpose
If you make a transfer that doesn’t fit your normal pattern, your bank may flag it. The IRS looks for unusual activity, like a sudden large transfer with no explanation. Maybe you sold a car or got a gift. If so, keep a bill of sale or a gift letter. If you can’t explain a transfer, the IRS may think you’re hiding something. Always document the reason for any large or unusual transfer.
7. Transfers Linked to Suspicious Accounts
If you send money to or receive money from an account flagged for suspicious activity, the IRS may review your account too. This can happen even if you don’t know the other person is under investigation. Be careful who you do business with. If you get a request for money from someone you don’t know well, double-check their background. Protect yourself by only transferring money to trusted contacts.
8. Transfers Related to Real Estate Transactions
Buying or selling property often involves large transfers. The IRS closely monitors real estate transactions. They want to make sure all income is reported and taxes are paid. If you transfer a large sum for a down payment or closing, keep all paperwork. This includes contracts, settlement statements, and proof of funds. If the IRS reviews your account, you’ll need to show where the money came from and why you moved it.
9. Transfers After Receiving a Legal Settlement
If you receive a legal settlement, you may need to transfer the funds to your bank account. The IRS reviews large settlement payments to make sure taxes are paid on any taxable portion. Some settlements are tax-free, but others are not. Keep all documents from your lawyer or the court. If you’re unsure about the tax rules, ask a tax professional.
10. Transfers Involving Retirement Accounts
Moving money in or out of retirement accounts, such as IRAs or 401(k)s, can trigger an IRS review. The IRS wants to make sure you follow the rules for rollovers and withdrawals. If you take money out early, you may owe taxes and penalties. Always follow the correct process for moving retirement funds. Keep all forms and statements. If you make a mistake, the IRS may contact you for more information.
Staying Under the Radar: Smart Bank Transfer Habits
Bank transfers are part of everyday life, but some can trigger IRS reviews without warning. The best way to avoid problems is to keep good records, know the rules, and be honest about your finances. If you’re ever unsure, ask a tax professional before making a big move. Staying organized and transparent helps you avoid stress and keeps your money safe.
Have you ever had a bank transfer trigger an IRS review? Share your story or tips in the comments.
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