| Though I read the letter three times, there was no | | | | to my returns. She said that I would receive a letter |
| mistaking the grim news: I was being summoned to the | | | | stating the same and that I was cleared to go home. |
| IRS for an audit. I had an instant flashback to the third | | | | Of course it was a great relief to survive the audit |
| grade when I was called to the principal's office. I didn't | | | | experience. Now I won't worry if I ever get called in |
| know what I had done, but it must have been | | | | again because I know I'm on the right track. If you're |
| something bad. | | | | ever faced with the same fate, here are some things |
| After a tense conversation with my husband, I called | | | | you can do to prepare: |
| my accountant. "You have nothing to worry about," | | | | *Keep your business and personal finances completely |
| she assured me. "We have everything in order." | | | | separate. Using separate bank accounts and separate |
| The letter indicated that I needed to bring several items | | | | credit cards will keep things clean. |
| including bank statements, credit card statements, the | | | | *It can actually be beneficial to charge most of your |
| prior year's tax return, and charitable contribution | | | | business expenses to a credit card and then pay off |
| receipts. To my great surprise (and relief), my | | | | the balance each month. This way you have an |
| accountant informed me that she kept copies of all of | | | | organized record of your business expenses. |
| my statements. I had them too, but mine weren't | | | | *Keep your accounting practices consistent. During the |
| exactly in good order. I subscribe to the "shoebox" | | | | spot check process, the IRS is looking for patterns. If |
| method of filing. It would have taken days to locate | | | | you're asked to show an expense and it turns out that |
| everything I needed. | | | | it's for a personal item, you can count on having to dig |
| I put the appointment out of my mind until the day | | | | even deeper into your records. But if you show a |
| before, and then the nerves set in. Perhaps it's human | | | | consistent pattern with your expenses, there won't be |
| nature to fear the IRS. I kept reminding myself that | | | | reason to require further investigation. For example, if |
| there was no reason to worry, but I couldn't ignore the | | | | you travel an average of 150 miles each month for |
| knot forming in my gut. | | | | business, then a month in which you claim 700 miles will |
| I rode to the appointment with my accountant. She | | | | get attention. Make sure you can justify such a |
| said that the IRS was increasing the number of | | | | dramatic difference. |
| random audits it performs. She had another client who | | | | *New regulations require receipts for all charitable |
| was also going through the process and unfortunately, | | | | donations--even for the $10 you drop in the Salvation |
| the client was facing her third meeting with an auditor. | | | | Army's collection can during the holidays. |
| During her first meeting the auditor discovered a rather | | | | *If you donate goods such as furniture or clothing, your |
| large personal expense on her business credit card. | | | | receipt must state "Received in good condition." Not all |
| That set off all kinds of red flags and spurred a series | | | | charities are following this policy so make sure you ask |
| of meetings to further analyze her receipts. | | | | since ultimately it's your responsibility. |
| My appointment was scheduled to last a whopping | | | | *You are only allowed to place a reasonable resale |
| four hours--this is standard operating procedure. The | | | | value on items that you donate. The IRS agent |
| auditor greeted us just minutes after we arrived. Much | | | | suggested that it's best to consider what the item |
| to my surprise, she didn't look like an ogre that lives | | | | would sell for at a garage sale. She also uses a chart |
| under the stairs. She was a personable woman who | | | | of prices provided by the Salvation Army which you |
| was clearly focused on the business at hand yet not | | | | can access on their Web site: |
| afraid to offer a friendly smile. | | | | *Ask your accountant what records she keeps. If |
| We sat down at the auditor's desk in a standard | | | | you're lucky like me, yours will keep copies of all of |
| office cubicle in the local IRS office. She asked me a | | | | your statements in an orderly fashion. |
| series of questions about my citizenship and related | | | | *If your accountant isn't doing it for you, make sure |
| items, and then launched into the spot checking | | | | your records are in order. Ideally your statements |
| process. With my 2005 tax return in front of her, she | | | | should be filed together by year either in a folder or a |
| asked to see a detailed report of expenses. My | | | | binder. This will save a tremendous amount of time if |
| accountant handed over a print-out from QuickBooks. | | | | you get the audit call. |
| As the auditor reviewed the details, she would | | | | One last bit of advice: don't sweat it. This may be |
| periodically point to an expense and ask to see it on | | | | easier said than done, but if you're following the law |
| the associated credit card statement. My accountant | | | | and keeping good records, there is no reason to fear |
| had all of my statements filed by date in a binder so | | | | an IRS audit. And even if this is the case and the |
| she was able to quickly flip through and point at each | | | | auditor finds an error, consider the worst case |
| line item when asked. This impressed the auditor and | | | | scenario. Unless your error amounts to tens of |
| she commented that she wished more clients came | | | | thousands of dollars (which is unlikely), in most cases |
| as prepared for these meetings. | | | | minor errors will simply mean that owe some additional |
| After about an hour of spot checking and answering | | | | money. And an error could also be in your favor--you |
| questions about charitable contributions, the auditor | | | | could end up getting some money back! |
| announced that she would not make any adjustments | | | | |