Forensic Accounting Calculator

The net worth method compares reported income against actualFundsUsed (known expenses plus assets gained), flagging any amount by which spending and asset accumulation exceeded declared income as the netWorthIncrease. The bank deposits method instead compares bank deposits directly against reported income, flagging any deposits beyond what income could explain as unexplainedIncome. They look at different evidence — what was spent/acquired versus what flowed into accounts — so the calculator reports whichever gap is larger as the overall discrepancy.

The calculator computes an incomeRatio (bank deposits divided by reported income) and a lifestyleRatio (total funds used divided by reported income), then awards 30 points for every whole point each ratio exceeds 1.0, summing both contributions and capping the total at 100. This means a subject could reach a high score either because deposits far outstrip declared income, because spending and asset accumulation far outstrip it, or through some combination of both.

When reportedIncome is zero, the code sets both incomeRatio and lifestyleRatio to a fixed value of 10 rather than dividing by zero, which pushes the red flag score toward its maximum. This reflects that any subject with declared income of zero who nonetheless has bank deposits or expenses/assets to report has, by definition, funds with no traceable declared source — the most basic pattern indirect-method investigations are designed to catch.

No — the explainer is explicit that this is a simplified single-period snapshot, whereas real net worth method engagements track beginning and ending net worth across multiple years and account for non-taxable sources like gifts, loans, and inheritances that this calculator has no inputs for. A high discrepancy here is a lead worth investigating with proper documentation, not proof of wrongdoing on its own.

It's a real, current IRS technique. The Internal Revenue Manual devotes section 9.5.9.5, "Net Worth Method of Proof," to it as one of the indirect methods IRS Criminal Investigation uses to establish unreported income when a direct comparison of income, expenses, and credits isn't possible from the available records. This calculator's version is a deliberately simplified single-period illustration of that same underlying logic, not a substitute for a full multi-year forensic engagement.