This is what the "fair" tax people can't get their hands around. The IRS isn't gping anywhere under any tax plan. And if you think an audit is intrusive and scary now, just wait until you have to prove that you paid tax on everything in your house. And cash...forget about it. They will outlaw it within a year or two of this tax. Cash will be demonized as the tool of tax cheats, drug dealers and...wait for it...terrorists. They will need to track every penny you spend and what you spend it on. This is the worst possible idea out there.
I had never contemplated the idea that this would lead to a ban on cash, but you are right. All transactions would be electronic and therefore totally subject to manipulation. Every good and value added would have to be tracked through the entire supply chain to make certain they weren't bartered out. Verifiable identity of transactors would be a must, with "mark of the beast" implications.