IRS agents are not limited to the information provided to them by a taxpayer when auditing the taxpayer's records. An IRS agent can subpoena information from banks, insurance companies, brokers, customers, and state-level public records, including income tax information.

Many taxpayers file financial information with their banks or other financial institutions. This information can be compared to taxpayer records filed with the IRS and checked for discrepancies. The IRS can also compare its records with those of state income tax agencies.

In addition, IRS agents are not restricted to analyzing the current tax period autonomously. Agents can compare net worth statements filed with financial institutions in the past with those filed currently. A taxpayer's returns for the period analyzed must add up to the net worth claimed by the taxpayer.

It is also important to realize that the IRS annually increases its ability to compare information filed from banks, employers, brokers, etc. on the taxpayer's behalf with the information supplied by the taxpayer.

If a taxpayer knows of any discrepancies between the records the taxpayer filed with financial institutions and those filed with the IRS, it is the taxpayer's responsibility to document those discrepancies and store them with any other supporting tax information kept for that particular year.

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