cash return >> tax liability?

New York State

I lent a significant amount of money (about US$20,000) to a friend overseas two years ago. Now he has returned it to me in the US in cash.

If I deposit this cash in my US checking account and use it from then on as any other money I deposit what is the likelihood that if I am audited by IRS in the future I will be questioned over the source of this deposit and eventually forced to pay the income tax with penalties or even prosecuted for not declaring an income?

The money was earned and income tax on it paid in the country overseas. It was declared as part of my overall earnings overseas on my US Federal Income Tax Return but because of the Double Taxation Treaty between the two countries I did not paid income tax on it in the US.

The source of the money is legal, what I am worried is that down the road, possibly a few years from now if I am audited it will be quite difficult to prove to the IRS, they may simply not believe me.

Thanks!
BB

Repayment of loan principal is not income; interest on that principal is income. If this was a 0-interest loan, the money is not taxable. But save your documentation for the next 4 years or so.