I had a client casually admit something last year I didn't expect to hear:
They were moving funds between accounts to "cover timing gaps" with creditors.
Sounded harmless, until I realized what they were actually doing.
Check kiting.
I'd heard the term before.
But I'll be honest, I never really dug into how deep the tax implications go.
Here's the reality:
→ It's not just a bank issue.
→ It's a federal crime.
→ And yes, the IRS treats it seriously.
Check-kiting creates the illusion of available funds by exploiting the time it takes banks to process checks.
When you do this repeatedly, especially to float loans, mask cash flow, or avoid payments, it becomes fraud.
And the tax consequences are brutal:
→ 75% Civil Fraud Penalty on underpaid tax
→ Failure-to-file penalties up to 75% of net tax due
→ Criminal charges (bank fraud, conspiracy, tax evasion)
→ Restitution orders to repay affected banks and institutions
→ Federal prosecution with real prison time
Here are just two recent major examples:
🔗 Daycare CEO sentenced + $1.3M restitution - https://lnkd.in/gU-e8E7X
🔗 CFO sentenced for tax evasion + check kiting - https://lnkd.in/grr_Xqur
The IRS doesn't care that you were "just moving money between accounts."
If it's intentional, it's fraud. Full stop.
This is the kind of thing you learn real-time in tax practice.
Not from a book, but from the conversations that catch you off guard.
You've got to listen closely.
And know when to hit the brakes for a client who doesn't realize they're on a cliff.
Stay aware. Ask questions. Know the difference.
Give us a call today at (888) 203-4442 to better help you and your business entity to Regulate Money, Shelter Money &pay little to NO TAXES®