audit tips?

[Possi]

I will attend my first audit in a couple of weeks.
I am a tax preparer, not EA or CPA.
This is a client's Sch C return. Mileage and other expenses will be scrutinized.
I told my client to have her mileage log and receipts ready.
Any tips for me? Other than brush my teeth, that is...


Thanks

[Bucky]

Just be prepared. I never take the client along. (others like the client with them) Meet with the client and go over his logs etc before the audit so you know what you're dealing with. The first time can be a little intimidating. Remember who you are working for. Good luck.

[Possi]

thanks

thanks, bucky~

[veritas]

What kind of audit? Specific items or everything?

[Possi]

specific items

She got a letter from the IRS stating that the following would be audited:
Office in home expenses
mileage
other expenses

All pertaining to her Sch C. All are legit expenses. She may have overstated her mileage, but I warned her about that. I told her that without a mileage log the expense could be disallowed.

[S T]

Mileage

In addition to the mileage log, have available vehicle repair bills that will indicate the odometer reading. Usually the end of the prior year, several during the year and maybe one at the beginning of the following year.

On other expenses, my experience is that auditors like the expense receipts grouped by category as placed on the return and would like to see an adding machine tape attached to the group of receipts.

Good Luck!

Sandy

[sea-tax]

In addition to the mileage log, have available vehicle repair bills that will indicate the odometer reading. Usually the end of the prior year, several during the year and maybe one at the beginning of the following year.

On other expenses, my experience is that auditors like the expense receipts grouped by category as placed on the return and would like to see an adding machine tape attached to the group of receipts.

Good Luck!

Sandy

I am sure the IRS would love us to do their work for them as well. I respectfully disagree with adding the invoices and receipts up for them. Grouping them maybe , I usually provide them all receipts by month. They want to add them up and sort them out then so be it. Why should I make the process any easier for them then need be. I am not advocating being a trouble maker just no need to do the job of the auditor for them. I work for my client not the IRS.

[jainen]

Because

>>Why should I make the process any easier for them then need be<<

BECAUSE, you don't want the auditor taking that much time or looking that closely. You want to show that you have very solid, well-organized records that completely support your position. The auditor has to put something in her file, and your opinion of the totals is much to be preferred than her opinion. With luck she will spot-check one or two of your items, then copy the whole thing as is. Even if she needs to run more tapes, she will appreciate the help you have provided in arranging things ahead of time. In case you haven't noticed, auditors can get nasty if they don't like you. Besides, if you run your own tapes you just might notice something wrong and head off a problem.

You need to stay in control of every number, every piece of paper in an audit. Things can go bad very quickly and for the most surprising reasons. Remember what you client's goal is, and don't fuss about doing the auditor's job. It's what you are supposed to do.

[sea-tax]

>>Besides, if you run your own tapes you just might notice something wrong and head off a problem.



Like I stated before I don't think you need to be rude or counter productive. Provide the auditor the items which they requested in a nice orderly fashion, that is what you are supposed to do. I just don't think you need to serve up your client on a silver platter. My feeling is it is the IRS which must prove that something is wrong not I. If I did my homework when preparing the return then I should not fear an agressive auditor.

[Black Bart]

Possi,

You said you told her to bring her mileage log and a few posts later you mention that you told her "no mileage log--no deduction." Do you know for sure yet whether she does or does not have a log?

[jainen]

a favorable result.

>>If I did my homework when preparing the return then I should not fear an agressive auditor<<

Your work in preparing a return is substantially different from handling an audit. Consider the mileage log. When you did the return, all you asked was how many miles and was there a log. For the audit you need to verify the log. If your client claimed 5000 miles and the log only shows 3000, you need to know that so you can support the rest of the miles with a corrected log or a diary or something. You can't just wait for the auditor to act. Of course, you won't "serve up" the log discrepancies unless asked, but you must be ready with a response on every point.

>>My feeling is it is the IRS which must prove that something is wrong not I.<<

Your feeling is totally wrong, and rather weak. We have a "voluntary" tax system, which means that under the law the taxpayer is responsible for reporting correctly and supporting what is claimed. This is sometimes mislabeled as "guilty until proven innocent," but it really is a tremendous opportunity for the tax professional to control the audit and achieve a favorable result.

[sea-tax]

>>If I did my homework when preparing the return then I should not fear an agressive auditor<<

. Consider the mileage log. When you did the return, all you asked was how many miles and was there a log. For the audit you need to verify the log. If your client claimed 5000 miles and the log only shows 3000, you need to know that so you can support the rest of the miles with a corrected log or a diary or something.


>>My feeling is it is the IRS which must prove that something is wrong not I.<<

Your feeling is totally wrong, and rather weak. We have a "voluntary" tax system, which means that under the law the taxpayer is responsible for reporting correctly and supporting what is claimed. This is sometimes mislabeled as "guilty until proven innocent," but it really is a tremendous opportunity for the tax professional to control the audit and achieve a favorable result.

So Jainen you simply take your clients word for mileage? I say if infact your client said 5000 but infact his log only shows 3000 then infact you have not done your homework. This is not to say that we as professionals are not to believe are clients at their word. However I feel we should at least take a look at the said mileage log and look for resonableness.I personally ask my clients and have trained them to bring in these mileage logs at tax time so that this specific situation which you outlined does not happen.


Secondly there is nothing voluntary about our income tax system. Last I checked not paying your appropiate tax was against the law. Our system is infact not a choice but rather a requirement. Yes you are responsible for providing the basis for your deductions and I never disagreed with you on that. What I question is your idea of adding up the reciepts for them. I go on the basis that what I have done is right and by doing the job right the first time I already have verifiable proof to my conclusions. For example by viewing the log or actually looking at it prior to audit, say when you complete the return.

[OldJack]

I will attend my first audit in a couple of weeks.

You should gather proof for every item the auditor lists in the letter that he states he wants to see. If no list you must gather proof for every item on the tax return. You MUST spend more time preparing for this audit than you did in preparing the tax return in the first place. Otherwise you will probably be unprepared.

Don't volunteer any information... wait until the auditor asks for what he wants. Give him only what he asks for even though you have proof of other things.

You MUST meet with the taxpayer and tell him/her how an audit works and to delay giving any answers until you have had a chance to answer the question first. Most taxpayers get themselves into trouble with their big mouth and also thinking that because the IRS agent is friendly that he can relax and gab with the agent about his taxes.

Don't be surprised or offended if the IRS agent tends to ignore you and talks direct to the taxpayer. Its his job and right to question the taxpayer if the taxpayer is present (which he has to be there if you are not an Atty, EA, or CPA).

Good Luck, let us know how it went.

[jainen]

Reasonableness

Reasonableness works fine in my office, but it isn't much use down at the federal building. I do not audit my clients. I use the information they give me unless it is inconsistent with itself or other information I know. The focus of the audit is not whether you have done your job correctly filling out the tax forms. At least, you'd better hope it isn't. It is all about the numbers, and if you don't lay 'em down just the way you want them, the auditor has nothing to pick up and will generate her own numbers.

Voluntary does not mean you can choose whether or not to pay taxes. It means what I said it means in my previous post.

[sea-tax]

Well to each his own. You want to waste time stapling a 10key role to your documents then I guess time well spent. I will on the other hand spend the time reviewing my return and coresponding documentation and then let the auditor add it up. If she finds something wrong guess what I have proof and then I will give her the blessed roll of my ten key.