The Dreaded Audit – Tips From Tax Patriots On How To Avoid or Alleviate This Issue

By KerryCarron on January 8, 2011 2 Comments

This article is a response to a post on a business forum that posed the question- “Who here has been audited?”. Never a victim of an audit ourselves, we have seen way too many victims of poor tax services come for help in this time of need and here’s our take from experience in dealing with real-life audit representations:

  • What would you do differently to make the audit situation easier, if you had known it was coming?

 

We would have to look at the numbers in the return and see how proportionate the write-offs were to the income. If the numbers are disproportionate this WILL cause a red-flag with the IRS.

Another rule of thumb is your chances of being audited depend on WHO does your tax return in this order(from greatest to lowest): yourself or family member/friend using common tax software, store-front preparer, Certified Public Accountant(CPA), Enrolled Agent(EA).

Yes the IRS will usually look at an EA more favorably than a CPA. This is especially true in an audit representation because one of the two ways to become an EA is working for the IRS for 5 years(the other is passing the comprehensive EA exam).

  • What level of documentation did the IRS ask you to produce to prove your expenses/write offs?

 

They ask for actual invoices and credit card/bank statements with the date as well as name of Payee.

  • Did you find your Auditor to be flexible and willing to work with you?

 

For the most part they work with you, as long as you provide the right documentation. The problem is that most people come up with estimates on their write-offs and this gets them in trouble.
  • Did they fight you on any common write offs that many use (i.e. home office? Mileage? Food?)

 

As long as you give them a legitimate business purpose they usually won’t argue, however, it goes back to how proportionate your write-offs are to your income.

 

  • Did they try to pierce your corporate veil?

 

This pertains to business audits and usually they will not go this far. We have not had any experience with this in any of our audit representations.

 

  • Did you end up having to pay more? Less? The same?

 

For the most part clients end up paying more than they originally paid, however, we can negotiate with the IRS to limit the balance owed. One recent example was a client who got a $30k tax bill that was improperly calculated by the IRS and we got it down to $100.

Keep in mind that an audit is not the end of the world. If you have documentation that supports your write-offs then you are fine. Yes, it is a small inconvenience, but it is not as “dreaded” as most think. The sad reality is there are many tax cheats out there that ruin it for legitimate taxpayers and this is why you might be the “victim” of an overzealous auditor who wants to audit you because of one questionable deduction.

If you find yourself in an audit situation or want to make sure you’re taking your deductions correctly, please contact us for a FREE consultation and one of our Tax Patriots will assist you.

Finally, not all accountants are created equal and the following comment in regard to a so-called “professional accounting firm” was downright horrifying:

“It’s been my experience so far that even my accountants haven’t been able to provide me with information about how to handle an audit situation, so either they have never been through an audit or they were just not very communicative when I asked these questions.”

This example shows that this so-called professional accountant has either never been through an audit OR wants to withhold this valuable information until they get paid their exorbitant hourly rate, usually north of $150 per hour.

That is why we believe in giving a free initial consultation and disapprove of the “traditional” CPA Firms as well as Tax Attorneys who have the “billable hours” model. Advice should be free! Services rendered and RESULTS are what should have a cost.

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