IRS Audit

[S T]

Here is a question and I need some advice.

Client is in Calif and I am in NC - I prepared the return,

Client received a notice of audit from the Small Business unit in Santa Ana, Ca , but the only issues listed are the Medical and Dental Expenses -

Question - I am going to suggest faxing in the info, as obviously I can not be there for the meeting, chances of that?

Question - If IRS will not allow the faxing of documents, request a change of location to NC, chances of that?

Thanks,

Sandy

[JohnH]

Sandy: Do you have their fax number? If not, call & ask for it, but ask only for the fax number. Don't ask to speak to anyone regarding your request.

Then fax the supprting info to the auditor's attention along with a copy of the audit notice, attaching a letter requesting that the audit be handled via fax. They may say "no", but you haven't lost anything by trying. It will be harder for a sensible auditor to refuse if they already have the required info in hand.

[S T]

Thanks John H

Yes I have a fax # - first step I will fax the IRS office the POA with a note, and fax POA to CAF, for the contact of a 10 day limit - in the meantime t/p is gathering the info and should have it to me by the end of the week.

This is such a "simplistic" audit for medical/dental - not even much paperwork that has to be submitted, and my t/p is a great record keeper.

I just instructed her to obtain the medical accounting ledgers from the dentist for the year as there was extensive dental work and we all know dental coverage pays a very small amount, obtain the pharmacy print out, and the only other was a large item from a Hospital, that t/p had to pay due to their deductible. Requested the EOB from the insurance company.

Sandy

[Roland Slugg]

Sounds like a typical "desk" audit covering specific, limited issues. It can probably be easily handled by mail or by having the T/P take the requested documentation to the IRS office and meet with the IRS. You really don't need to represent the T/P ... unless he wants you to. In addition to the bills, the IRS will want to see proof of payment, so be sure and tell your client that.

Regarding your question of getting the case transferred to an IRS office in NC, that is extremely unlikely, and it really isn't necessary.

[Gary2]

Have you seen the notice already? I'm surprised it's not a correspondence audit.

[S T]

Yes I have the notice, I was also surprised it was not a "correspondence audit" - It is covering only the Medical Deductions - has nothing to do with any other portions of the return. ---No bank statements, etc , just proof of Medical expenses either covered by Insurance or paid out of pocket.

So as John H suggested, I will just try to turn it into a fax\mail\phone - correspondence. Out of $ 10,000 Medical deduction pre-AGI deduction - net is $ 7,600 on Sched A - $3,450 was a Hospital Payment and $5,300 was Dental - both not covered by Insurance. The remainder was minor RX, copays, and $620 in not pre-tax medical/dental ins.

I have to say this could be typical though coming from the Santa Ana, Calif Office

Sandy

[MAMalody]

Check to see if you took the self-employed health insurance deduction. You may also want to provide qualification info and proof of payment for that.

[S T]

Thanks for the reminder, on SE Health Insurance Deduction, but it is not listed on the "Information Document Request" of the audit. It is limited to Medical and Dental Expenses - Sched A

Question, IRS is requesting a copy of 2011, 2012 and 2013 tax return. My experience has been IRS is just looking to make sure the 2011 and 2013 returns were filed. The IRS examiner really does not look at them, and rarely keeps them in their file.

I get that a copy of the 2012 return being examined needs to be furnished , as somehow the IRS Examination office just does not have at their disposal.

As I am going to fax all over and try to convert to a Correspondence Audit (which is what this should be), I am thinking about only forwarding the EF Ack for 2011 and 2013 - otherwise I am looking at about 40 pages per each years return.

Thoughts

Sandy

[Mo Sheets]

Pre-Tax Money

Just a thought.....I had a client once who wanted to take a deduction for a large $$ amount of medical expenses....upon further questioning, it was determined that while the client did have substantial medical bills one year, the money came out of their HSA account to pay the medical bills. Since the money that funded the HSA account was pre-tax, they were not entitled to a deduction on the Schedule A. I thought I would throw that out there in case this was a possibility....

Good luck....and yes, I am surprised too that this was not done as a correspondence audit.

Mo

[S T]

Again, thanks for the thoughts! - No FSA or HSA on this client.

Client retired from Employer - and in 2012 last 6 months on SSA retirement with Mcare - As I stated, really pretty simplistic,

Only have on "large" dental not covered by insurance,

One Hospital Out-patient - which now I am finding out that could be questionable,

Hardly any deduction for Insurance Premiums - just the Sr Advantage and what was billed through Medicare

Prescriptions - I might have an issue on - but it is minimal

All in all - I can own up to the "deductions" that should maybe have not been deducted, and it still will not generate an additional tax liability.

Creating Schedules and spreadsheets now and matching to about 10 pages of receipts - That is it.

Just have to figure out how to present this via fax\phone to make it a correspondence audit and have it go away!

Sandy

[taxea]

I would send only the EF ACK for the other years and ask the auditor to detail what, specifically, he/she is questioning. The auditor has access to the tax transcript and is not supposed to create a fishing expedition. He probably wants to see what was deducted for medical in prior years. Don't provide the entire return. He needs to tell you exactly what he want to see and why he is asking for the return copies. I would never allow my client to speak with the IRS directly. With a POA they should not be contacting the taxpayer.

[JON]

Audit from Small Business Department

why would it be for medial expenses only?? It does not get there unless Schedule C, 1065, 1120S or something. It may have to do with self employment insurance deduction, but I would be surprised if it was just that.

[taxea]

why would it be for medial expenses only?? It does not get there unless Schedule C, 1065, 1120S or something. It may have to do with self employment insurance deduction, but I would be surprised if it was just that.

The IRS can question one line in a return or one form. They are required to tell the TP what the reason for the question is. Perhaps they need to verify third party info that they received.

[S T]

If the notice of examination or correspondence states what IRS wants, then why is IRS listing in the general body of the notice requesting copies of tax returns for 2011, 2012 and 2013 to provide or bring with. It is not on the "Information Document Request" that is pretty explicit!

Does not IRS have access to these records? Why does the taxpayer or tax preparer have to furnish? Is IRS just lazy? With my POA and access to e-services I should be able to retrieve, so why can't IRS?

Oh and you just have to love cancelled checks now, that most banks are not providing. I am using Statements, and fortunately this t/p used credit cards mostly.

Sandy

[Burke]

I find the IRS uses form letters via the computer, and certain paragraphs are often included which do not pertain to the inquiry at hand. Sometimes these letters (because of that) don't make any sense at all. I agree with taxea and would send the ACKs for the prior years, then wait and see what happens. It's possible the examiner did not really want them anyway, but if he did, I also agree with taxea that if he wants to see what was claimed for medical in all 3 years. Of course, that is immaterial to this year -- that deduction could be wildly different from year to year. Don't even get me started on cancelled checks. Thank goodness for people who use the carbons.