IRS Audit

[S T]

Anyone that is in Nevada, or files returns for Nevada, in particular entities such as LLC or S Corp, received or had experience, with an IRS audit being triggered due to whom the Registered Agent being listed on the Secretary of State is?

If so, can you share?

Thanks,

Sandy

[Koss]

Nevada LLC

I'd like to hear more about this, and might be able to offer some ideas...

Only because I attended a seminar a year ago, where the entire topic was the use of Nevada LLCs for asset protection.

No joke.

What leads you to believe that the audit was triggered exclusively, or primarily, because of the identity of the registered agent?

Girl, this could go either way... the guy who led the seminar is a Nevada lawyer, who might be very helpful, and I could probably get you in touch with him.

But he might also be the registered agent in question.



I'm not kidding.

You can e-mail me if you want to take this off the board.

BMK

[S T]

Discussion with the Auditor

Thanks Burton,

Your insight and expertise is very valuable to me and I so appreciate your posts on any subject on the Board.

Conversation with the Auditor, she allowed me to convert from an office audit to a correspondence audit, and she at this point is not auditing anything on the return for deductions. Only verifying income, and a lot of questions on the fact that this client has an LLC reporting on Schedule C - Single Member, and a form 1065 - husband/wife partnership on a rental. Auditors words "this audit is a piece of cake" just provide me the info asked for, which is only copies of the tax returns, and 2 1099 forms, to verify income reported, and any information we can provide on the Registered Agent and/or Company that set up the entities.

This taxpayer's return, has nothing unusual, other than the reporting due to the entities, such as a Form 1065, Rental form which flows back to the Form 1040. The Schedule C is clean, minimal deductions for a self employed. The rental is just a rental, income and expense, nothing unusual in comparison to the rental pre the LLC formation.

The original company that set the entities up filed the forms for S Corp on both the self employed business and the rental, and I contacted IRS and reversed the election on both of the companies, one to Single Member, LLC reporting on Sched C, and the Rental to a Partnership reporting on form 1065.

Primary questions is why are they using a Registered Agent, what was the purpose in forming these entities, and HOW did they come about using the service and registered agent that formed the LLC's.

Auditor in the phone conversation wants any any information, including brochures, flyers, etc regarding the taxpayer's decision to set up these entities. In the conversation, I found that this auditor is a "seasoned auditor" has lots of experience in working on what she called "corrupt" entities and Trusts. She stated that they are looking at all returns with a Registered Agent that is NOT the Taxpayer in Nevada.

I suspect this particular "Registered Agent" is what might have triggered the Audit, since the same company and Registered Agent are on both Entities. Taxpayer is a Nevada resident and also formed these two entities in 2005, which there was no need to, my perspective of course! Taxpayer informed me at the time, after the fact, that it was for asset protection, and that they were going to be purchasing additional rental properties, which as of this date, has not materialized. The taxpayer informed me several years ago that they had attended one of the "Asset Protection Seminars". Cost the taxpayer a small fortune to set these entities up.

Burton, you can PM me if you would like more info.

Any further thoughts would be welcomed.

Sandy

[joanmcq]

I'd like it if some of this could be kept on the board. Since I'm involved in a lot of audits, what is being looked at is of particular interest to me.

Interesting that the taxpayer is actually a Nevada resident; these types of things are promoted a lot here in CA as a way to avoid tax, etc. Sham setups they pay a lot for and for a CA resident, of course they avoid nothing but having to file in two states!

[S T]

Audit Info

Joan,

I read a lot of your posts and also have gleaned alot of information since you are hands on for audits. I would welcome any insight.

Any words of wisdom on this one. The auditor and I seem to have a good rapport on the phone discussions, and she seems pretty straight forward.

Anything I should watch out for? Really doesn't seem to be much based on the taxpayer's return, and the auditor performed the cursory, but short interview Q & A, didn't seem much interested, except for the at length discussion about the set up of the entities.

Document request is only on income forms 1099 and copies of the tax returns, which auditor states with electronic filing, they don't receive hardly any paperwork. That is not odd to me, as audits in the past have always asked for copies of the tax returns.

The big item is anything and everything that the taxpayer might have on the Registered Agent and the Company that set up the entities.

I understand the Calif residents and setting up Nevada Asset Protection or trying to avoid Calif tax. I have had several inquiries on that issue, and have always advised that it does not work. Calif resident no matter where the entity is registered is still going to have to pay California tax, if operating in California resident or non-resident.

This is a Federal issue not Calif, so I was surprised at where the conversation with the auditor led to.

I will try to post as much as I can, or you can private email me as well.

Sandy

[joanmcq]

Sounds like your clients got caught up in a sting of the RA. I haven't heard anything in the grapevine about a particular focus on NV corps or LLCs, and most of the focus that is on them is state issues; CA and TX particularly. I find it interesting that she wants any sales brochures or flyers. I wonder if the RA was also setting up abusive trusts or advertising heavily on the avoidance of SE tax since that IS a current focus.

If your taxpayers are clean, then be nice, give her the returns & 1099s and make sure she isn't playing good auditor/bad auditor with you. Keep us informed; I am so tired of these promoters!

[S T]

Gut Feeling

Joan, Interesting that you mention abusive Trusts in your post, as this auditor stated that is the type of audit that she normally conducts. She called them "corrupt" audits. she further stated that there had been a "Lull" on abusive trusts, so now she is assigned some other types of audits. I believe auditor is not playing good/bad, but won't know until I submit the package this week and she reviews. Other than the Registered Agent or Promotor Info, she is not asking for anything that I wouldn't have to produce in an audit anyways.

Just received the flyer from the client, they did have it and kept it, so I am thinking it is a "sting" for a Nevada promotor. I did google, found some info, and the taxpayer has names of some of the promotors and speakers at the seminars. And all of the original documents signed. All promoting on how to save taxes by forming LLC and S Corps.

Items like "Freedom from Taxes, How to pay less State and Federal Income Tax, How to cut Income taxes right now by up to 50%, How to audit proof all deductions," and the list goes on, and on, and on.

Yes, and I like this part, "Bring your CPA" and they can earn 18 hours CPE credits!

I have 10 pages of a flyer\informational brochure that the client just sent over.

Taxpayer is clean on reporting income and no SE avoidance, just normal income and deduction reporting. I am going to follow my "gut" reaction and be nice and supply the info requested, as I don't see how it can harm the taxpayer. They were just one of those "gullible" people that listened to one too many radio broadcasts, or watched one too many "infomercials on TV" and paid a fortune for doing so.

I reversed all of the elections to file as S corps on the first tax year filing which was 2006, the audit year in question.

Sandy

[kaimana]

Sounds like your auditor is investigating the company that created the documents for your client. The auditor's initials wouldn't be TW would they?

[S T]

Update on Audit

Great News Today! After submitting all of the information to the IRS Auditor (focus was on information from promoters and agency that formed the entity for the Taxpayer), the auditor phoned me, and said that she is issuing a " Preliminary NO CHANGE" for the taxpayer. Just has to go through review and the final No Change Issued.

Thank Goodness!

Sandy

[JG EA]

Congratulation! Nice to hear good tax news.

[Zee]

Please share the seminar brochure information with us. I assume it's available on a website?