| Who does not fear an IRS audit? We all do. We all | | | | correspond to each item. |
| fear the face to face, exhausting, unpredictable and | | | | The clock was ticking quickly, we had one more week |
| time consuming interaction with the Internal Revenue | | | | to go until the IRS deadline expires. |
| Service's agent. | | | | One on One with the IRS |
| We all have that scary feeling when submitting our tax | | | | At this point I have reviewed the client's tax return and |
| return... Would I be audited? Was I too aggressive? Will | | | | all supporting documents, I knew what are the |
| the IRS "red flag" my tax return? Maybe I should ask | | | | problems with the return and what will the IRS agent |
| for a lower refund so I will not be audited... | | | | look for. |
| And then the refund check comes along, we deposit | | | | I was ready to go one on one with the IRS. |
| the check in our bank account and after a while we | | | | I have called the IRS agent, nice but very strict lady |
| tend to forget about the IRS, the audit and our fears | | | | (who was not too happy with my request to meet her |
| remain nothing but an old memory. | | | | after the deadline expires) and set up a meeting at her |
| For most of us, the story stops here (at least until next | | | | office to conduct the audit. |
| year). For some it just starts. The real story begins | | | | On the audit date, I showed up right on time, 9:30am, |
| when you open your mail and see an envelope from | | | | ready with all the necessary information. The IRS |
| the Internal Revenue Service and in it a letter notifying | | | | agent showed me to her office, located behind locked |
| you that your tax return is being audited. Wow!!! an | | | | door ("Only Employee Beyond This Point"). She did not |
| audit. What should I do now, you are asking yourself? | | | | hide the fact that she was very skeptic about this |
| imagining the end of the world. | | | | taxpayer and tax return and indicated that the |
| Best thing to do at this point is to "face your fears". | | | | numbers look very odd. |
| Read the notice carefully, see what the IRS wants, | | | | The first part of the audit included a long series of |
| what year is being audited, the extent of the audit | | | | questions about my client. In this section the IRS tries to |
| (partial, full, examination) and what is the required | | | | collect information about the taxpayer, his income, |
| documentation, and then, call a CPA. | | | | expenses and assets. The IRS goal is to cause you to |
| A CPA that specializes in audits, has the experience, | | | | disclose data which will assist the agents in determining |
| knowledge and skills to better confront the IRS, and | | | | that your tax return is incorrect (or even worse, |
| maneuver through the tricky road of an audit. | | | | fabricated): |
| Face Your Fears | | | | Where does he live? |
| Our real life story begins at the point, in which I have | | | | What is his profession? |
| received such a letter from a client, notifying him that | | | | Where is his business? |
| his 2002 tax return is being audited by the IRS and | | | | Who are his clients? |
| asking him to pay extra taxes of $20,000. Needless to | | | | Who are his suppliers? |
| say that the client (a small business owner from the | | | | What are his source of income? |
| "Big Apple") was extremely confused, concerned and | | | | Where does he bank? What kind of assets he |
| nervous. | | | | owns?and many other questions about the taxpayer, |
| Since I have not prepared the 2002 tax return and | | | | his business and operation. |
| was only retained by the client to represent him at the | | | | I have answered the agent, providing her only with the |
| audit, the first thing I did was to explain the client what | | | | information I wanted to disclose about the taxpayer |
| are we facing. | | | | and not a drop more. It is very important you answer |
| An audit , I have explained, is not the end of the world. | | | | the questions openly without volunteering information |
| The goal in an audit, is to provide the IRS as much | | | | that has not been asked for. |
| information as possible without disclosing unnecessary | | | | Once this part was over, the moment of truth has |
| details. In the next few weeks we will go through the | | | | arrived: the numbers. At this point I pulled out a huge |
| audit letter and your tax return and see which | | | | package I have prepared in advance which included |
| documents we should forward to the IRS to support | | | | hundreds of documents, statements and most |
| the return, I have added and asked the client to send | | | | importantly a summary of all the data in one simple |
| me the tax return, the IRS notice and all supporting | | | | report with suggestion to reduce the additional tax |
| documents for the tax return. | | | | from $20,000 to $3,000!!! |
| After I have reviewed all of the information, it was | | | | I have explained The IRS agent about the package I |
| clear to me why the IRS has decided to audit this | | | | brought with me and suggested going through all of the |
| specific tax return - the ratio between income and | | | | documents (knowing that it could take long long time) |
| expenses (deductions) on the return did not match the | | | | or use my summary report and sample few of the |
| IRS averages and the fairly large variation from the | | | | items to verify its accuracy. The agent who was |
| average triggered the full IRS audit. | | | | motivated by her will to finalize this audit, embraced my |
| When I called the client and asked him why was the | | | | second suggestion and asked to see my summary |
| return filed overlooking the IRS statistics, he responded | | | | report. |
| that it was a case of bad advice he had received | | | | She took my report and ask me for supporting |
| when preparing the tax return. | | | | documents of several deductions included in the |
| Too bad, I said, but again, not the end of the world. | | | | summary. I was ready with all the supporting |
| We had 30 days to respond to the IRS, so we had to | | | | documents and therefore was able to verify each of |
| move fairly quickly nut not under pressure. Always | | | | the inquiries. After she received proof for the |
| request more time, if you feel necessary. | | | | accuracy of about 10 items the agent felt comfortable |
| Information, Information, Information | | | | enough to accept my report as true and correct. |
| The next step was to gather all the relevant | | | | End result of the audit was an additional tax $3,000, a |
| information, documents and statements that would | | | | long way from the original $20,000 asked by the IRS. |
| help us support the tax return. Normally, (and so in this | | | | Conclusion |
| case) the necessary information includes: | | | | When you receive an audit letter from the IRS - do |
| Bank statements | | | | not panic. |
| Copies of cancelled checks | | | | Review the letter, see what exactly is being audited |
| Receipts of deductions claimed on the return | | | | and what is needed to proceed. |
| Income statement report - also known as profit and | | | | Call your CPA for advice and representation (your |
| loss report (if you have business income and | | | | CPA is better equip to handle the IRS's tricky |
| expenses) | | | | questions). |
| Payment verifications - for mortgage, property tax, | | | | Prepare for the audit thoroughly and collect all the |
| donations and other deductions | | | | necessary information to support your tax return. |
| So, we have started collecting the information; calling | | | | Do not rush to reply, get an extension for responding |
| the banks, mortgage companies, county administration | | | | to the IRS notice. |
| and suppliers billing departments, asking for copies of | | | | Identify the problematic areas in your tax return and |
| documents, receipts, checks and statements. Within 3 | | | | try to draw attention away from them. |
| intensive weeks we had all the required information. | | | | Be honest (but not to open, do not volunteer |
| To assure I am not missing anything, I went through the | | | | information) with the IRS agent. |
| tax return thoroughly, and checked each and every | | | | Try to lead the audit not to follow it. |
| item on it, marking all the documents that support and | | | | |