Does a cash only business raise red flags to the IRS?

Lots of reasons - for example, a lot of small restaurants and grocery stores only take cash, to avoid the expense of credit cards and avoid chasing people who bounce checks.

They tend to get audited. But so do other businesses.

The IRS has no way of knowing if your business is cash only. You don't have to tell them. They don't know if you take credit cards or not unless/until you are audited. Every cash business in existence skims at least some off their taxes. I knew a guy who used to bring home cash from his restaurant every night, a couple thousand dollars in $1s, 5s, 10s, and 20s. Then him and his wife would throw the cash up at the ceiling as hard as they could, all at once. Any cash that stuck to the ceiling is what they paid in taxes for that day.

Businesses that involve mainly cash transactions typically are audit bait for the IRS. Nothing beats a good set of books and full receipts at audit.

Some businesses accept cash only to keep costs low, though the temptation to try and cheat is high when the audit trail is faint.

.it could, but there are several things that can put a flag up. there are businesses that don't work any other way than on a cash basis.if you say have an ice cream truck or a lunch wagon.you aren't going to take a check or credit card for a pop cycle or a hamburger.some businesses are too small or don't

sell items that would make credit sales cost effective. businesses pay a fee every time they do a credit sale. in some cases it won't be cost effective to do anything other than cash.

it could

there are many things that raise red flags

overstating expenses, possibly under reporting income etc. and cash is a real bummer