For Appeal Question

[rfk]

If anyone knows,

Client wants to "add" some expenses to an audited return for TY 2009. We have five days left for response after audit. There is not an un-agreed issue. Form 12203 states to list the un-agreed issues with explanation. What if you agree with the items but want to add more business expenses to the Schedule C to reduce some of the net profit? And is this presumably okay?

Please advise of best way to approach for IRS protocol.

Thanks.

rfk

[erchess]

My Approach

The first thing I would do is prepare an amended return and gather together the 1040X and whatever else from the original 1040 was changing. Then I would write the letter treating the expenses as an un-agreed issue since as of the time of the writing the IRS has not agreed to the changes my client and I are trying to make. In the body of the letter I would say "I agree with all the changes proposed by the Service but I also am adding to form or schedule whatever $$$$ of expenses for whatever. The net result is that.... See Forms whatever and documentation attached." In another paragraph I would explain what the expenses were for and give my authority for deducting them.

I know some would not send the documentation until it is asked for and that I have more than once been asked for it when I already sent it in but oh well. What I do is make two copies of what I am sending. One copy I send one copy I keep in my files and the original I return to the client with something like "Retain until instructed by me to discard" on the outside of the folder.

I call this my "Yes, but" letter and it sometimes leads to immediate resolution and sometimes to further discussions which can go on at great length. I started a case in April after a bank account was levied because the taxpayer had not filed for several years despite great gross income and had ignored repeated requests to file. Anyway it worked out that for every year the estimated tax payments he had made were greater than the tax due after Schedules A and C were populated with expenses. It was also convenient for him that the seized money had been applied to closed years because he got it back with the refunds from the open years and an apology from the Taxpayer Advocate's Office for taking so long. I felt the apology was not necessary but the lady I worked with in that office is a very kind person.

[rfk]

Thanks, Erchess

[joanmcq]

It depends on the type of audit. Correspondence, TCO or RA? Erchess's example deals with non-filed returns; these will always result in less tax if a real return is filed. Correspondence audits will rarely if ever look at other issues, but for TCOs and RA's you may be able to open other areas: but be aware if you do elect to open other areas, the auditor may request ALL documentation for those line items you are asking to adjust.