Does IRS audit appears in tax records?

[deliquis]

What is the name of your state? Florida

Last year, I gave 5K cash (currency) to my college going son as a gift to use for his personal needs when I was facing a lawsuit. He deposited that cash in his non-interest bearing bank account and spent that money and later closed that bank account. IRS came after him for audit this year, enquiring that cash deposit and he supplied IRS a letter that I gave him confirming that cash gift, then everything is resolved with IRS. Now I lost the lawsuit. If the creditor gets my tax records or my son’s tax records from IRS then whether anywhere it will have any traces of the IRS audit on my son or the letter I gave to my son and which he supplied to IRS during the audit, etc?

 

[LdiJ]

What is the name of your state? Florida

Last year, I gave 5K cash (currency) to my college going son as a gift to use for his personal needs when I was facing a lawsuit. He deposited that cash in his non-interest bearing bank account and spent that money and later closed that bank account. IRS came after him for audit this year, enquiring that cash deposit and he supplied IRS a letter that I gave him confirming that cash gift, then everything is resolved with IRS. Now I lost the lawsuit. If the creditor gets my tax records or my son’s tax records from IRS then whether anywhere it will have any traces of the IRS audit on my son or the letter I gave to my son and which he supplied to IRS during the audit, etc?

I doubt that your son was actually audited. He probably got a CP-2000 letter if anything. No, there is not going to be anything on his IRS record about that because he proved to the IRS that nothing needed to be changed on his return. You certainly would never have anything on your tax records about that. It wasn't a large enough gift to require a gift tax return.

On top of all that, it would be extremely difficult your creditor to gain any access to your tax records.

 

[deliquis]

Thanks a bunch! So, if I understood correctly, my son’s tax records (whether what he received from IRS was an audit or CP-2000 letter) will not show any traces of my letter to IRS even if my creditor gets his tax records. Similarly, my tax records will not show any traces of that 3K gift (yes, I did not file any gift tax return form with IRS; as I heard that it is necessary only if the gift is above 15K) or the letetr I gave to IRS about that 3K.

The creditor asked me to submit copies of my last 2 years income tax returns as part of fact information sheet, that’s why I am concerned. Creditor may ask, with court permission, the tax returns from my son also if the creditor “smells” something.

 

[Taxing Matters]

Thanks a bunch! So, if I understood correctly, my son’s tax records (whether what he received from IRS was an audit or CP-2000 letter) will not show any traces of my letter to IRS even if my creditor gets his tax records.

Your son's IRS tax records would certainly include the letter from you that he gave the IRS in response to the IRS inquiry. The IRS keeps that its files as support for why it closed the inquiry regarding the currency transaction report (CTR) that the bank filed. That CTR, too, is part of your son's tax records. However, a creditor isn't going to be able to get their hands on your son's tax records without your son's cooperation.

Similarly, my tax records will not show any traces of that 3K gift (yes, I did not file any gift tax return form with IRS; as I heard that it is necessary only if the gift is above 15K) or the letetr I gave to IRS about that 3K.

Was the gift $3K or $5K? You've now given us two different figures. In any event, the letter would not show up in your tax records as it is not relevant to your tax situation. You would have had to file a gift tax return for 2020 if the total of ALL gifts you gave him during that year exceeded $15,000. Less than that and the gift has tax impact for you.

The creditor asked me to submit copies of my last 2 years income tax returns as part of fact information sheet, that’s why I am concerned. Creditor may ask, with court permission, the tax returns from my son also if the creditor “smells” something.

If the creditor just asks for income tax returns from you, that gift won't show up.

Of course, if the creditor asks you about gifts made in the debtor's exam you are supposed to answer honestly and failure to do so might result in sanctions against you if the failure to disclose the gift is eventually discovered.

 

[Taxing Matters]

On top of all that, it would be extremely difficult for your creditor to gain any access to your tax records.

Actually, it is not that hard for a creditor to get access to a debtor's tax records as part of a debtor's exam.

 

[LdiJ]

Actually, it is not that hard for a creditor to get access to a debtor's tax records as part of a debtor's exam.

Yes, I worded that poorly.

 

[LdiJ]

Your son's IRS tax records would certainly include the letter from you that he gave the IRS in response to the IRS inquiry. The IRS keeps that its files as support for why it closed the inquiry regarding the currency transaction report (CTR) that the bank filed. That CTR, too, is part of your son's tax records. However, a creditor isn't going to be able to get their hands on your son's tax records without your son's cooperation.

That type of detail however, does not show up on an account transcript (the copy of the letter) and I have never heard of a creditor being able to get there hands on that kind of detail from the IRS.

I agree that dad's creditor isn't going to be able to get their hands on the son's tax records without the son's cooperation.

 

[zddoodah]

If the creditor gets my tax records or my son’s tax records from IRS

Not gonna happen, so the question is moot, but some of the same records might be obtained from you in connection with a debtor's exam or other post-judgment discovery. That said, I have a hard time conceiving how any of that might be relevant. That you made a cash gift a year (?) before the judgment was entered is a bit of a nothingburger.

 

[Taxing Matters]

That you made a cash gift a year (?) before the judgment was entered is a bit of a nothingburger.

It could be used as the basis for pursing a fraudulent conveyance claim. That is the concern here, and why a creditor would inquire about such gifts.

 

[Taxing Matters]

That type of detail however, does not show up on an account transcript (the copy of the letter) and I have never heard of a creditor being able to get there hands on that kind of detail from the IRS.

The information would not be available from an account transcript, no. And most of the time lenders and creditors only ask for copies of returns and account transcripts. But if a creditor did know what to ask for (like creditors who consult former IRS attorneys like me ) they would be able to get that more complete documentation. It's very unlikely, though, that a creditor of the OP would have any inkling that such records of the OP's son exist and would have anything of value for the creditor. Still, in the abstract, it is possible.

I agree that dad's creditor isn't going to be able to get their hands on the son's tax records without the son's cooperation.

That is, of course, the other problem for the creditor.

 

[zddoodah]

It could be used as the basis for pursing a fraudulent conveyance claim. That is the concern here, and why a creditor would inquire about such gifts.

I mean...sure...but I have a very hard time anyone would spend the money to pursue a fraudulent conveyance claim over $5k when the transfer occurred a year before the entry of the judgment.

 

[deliquis]

Many thanks. It was $5k, I am sorry for the typo. This is what I understood, please correct me: the creditor can get that letter I gave to IRS for my son, only from my son's tax returns or related IRS documents of my son, but not from my tax returns or my IRS documents.

Zddoodah, creditor can go all the way to the documents that are one year prior to the initial lawsuit (which I lost) was filed.

 

[LdiJ]

Many thanks. It was $5k, I am sorry for the typo. This is what I understood, please correct me: the creditor can get that letter I gave to IRS for my son, only from my son's tax returns or related IRS documents of my son, but not from my tax returns or my IRS documents.

Yes, but again the creditor is not going to get your son's records without your son's cooperation.

 

[Taxing Matters]

Many thanks. It was $5k, I am sorry for the typo. This is what I understood, please correct me: the creditor can get that letter I gave to IRS for my son, only from my son's tax returns or related IRS documents of my son, but not from my tax returns or my IRS documents.

Right, and the creditor would have a hard time getting it from your son's records, starting with the fact that the creditor likely doesn't know what to ask for.

Zddoodah, creditor can go all the way to the documents that are one year prior to the initial lawsuit (which I lost) was filed.

They can seek information regarding assets and transfers that you had any time after the debt arose to look for signs of fraudulent conveyances, etc. But I agree with zddoodah that a transfer of just $ 5k is not likely to be big enough to motivate most creditors to spend the time and money needed to pursue the fraudulent conveyance action in court.

 

[deliquis]

Thanks so much