What is the lifestyle or net worth analysis?

Answer

Another tool that an auditor could use is what’s known as a lifestyle or net worth analysis. If you’re only operating one source of income, you have a business that’s your sole source of income and you’re not reporting a lot of sales and yet you’re living in a three million dollar home and driving an expensive luxury car, it would be fair game for the auditor to ask where did the money come from to finance the lifestyle that you’re enjoying. If you can’t provide a sufficient explanation the presumption they could make would be that the money came from your business, from the sole source of income that you have or the sole source of income that can be documented and then they can then impute the amount of sales that would have to be made to generate the net income that would be required to finance your lifestyle.

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