2014 Tax Audit - Headache

[S T]

Oh the client and I have worked so hard on a 2014 Tax Sched C Business Audit,

So far - auditor has only reveiwed the request for Supplies (contractor - non-inventoried items) Lowes, Home Depot, Ganahal Lumber - Statements, receipts attached from all sources submitted and now --------

Auditor wants proof of payment via Bank Statements and Credit Lines - Really!

Payments are shown on the Lowes, Home Depot statements, Ganahal Lumber for in excess of $ 100K per year is not going to extend credit on past due accounts, without payment from the Contractor and statements show payment
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Talk about frustration and a lot of paperwork!

Can't wait to get to the Vehicle expenses and the Travel-Ent

Any words of wisdom

Thanks

Sandy

[Snaggletooth]

Bank Transcripts

The IRS often orders banks to produce a debit/credit transcript and usually does so concurrent with an audit. This happens every day.

One important question might be why haven't they done this? And if they haven't done so, why doesn't the taxpayer order such a transcript? He might have to pay the bank a fee for this, but it is available.

[S T]

In realtionship of charges and payments to the first group submitted Contractor Materials and Supplies) to the auditor, I find it redundant that she is asking for Bank Statements showing proof of payment.

Client has commercial account with Lowe's and Home Depot - All monthly statements were provided showing prior balance, payments made and new charges. I personally went through every charge slip to ensure that the card was not showing anything of a personal nature, to make any adjustments. If any it would be less $100 - Also matched all of the payments to the accounts. Provided the Auditor with an excel spreadsheet in the hopes it would make it easier for her!

The Lumber Company is not going to extend any form of credit after a non pay of 30 to 45 days. Commercial Contractor account well known in the area that the Contractor works in and orders from.

The request for bank statements or any proof of payment was not on the original audit request

What I thought was a really "nice auditor" is now becoming a thought that she is a "trainee" and the taxpayer and myself are going to have to jump through more "hoops" than what is necessary. -- The auditor so far I still have to say is "nice" as far as talking with her -

But I can see more before this audit is concluded!

Any notes or viewpoints, experience, is so greatly appreciated

Thanks

Sandy

[WhiteOleander]

I wonder if she wants proof he paid the expenses out of his income. Not from some gift of an anonymous benefactor. Then, try to prove the income reported on the return does not show enough to pay those expenses. Do they call that a "source and application" audit? We had an audit one time of a rancher. The auditor was giving a hard time about payments for materials for a barn built. The question was asked, if he didn't pay for them how did he get them. The auditor said he could have stolen them. Some of the expenses were denied even with receipts etc.

[Lion]

To claim a business expense, a taxpayer must show both the business purpose (often via detailed invoices) and that the business paid the expense (bank/credit card statements). With a contractor, the auditor may be confirming that the business paid for materials as opposed to his client paying for materials. Provide the auditor with lots of paper!

[Gretel]

Sandy, no words of wisdom...but I do understand your frustration. After all the statements you provided from the supply stores already show the payments...it's not like a little QB statement that anyone could fudge. I do not know if it would be helpful to talk to the supervisor about this request.

[MDEA]

2014 tax audit

The auditor wants to see if he paid the bills by check or he used cash. If cash where did it come from. I think the auditor is looking for unreported income.

[S T]

Auditor more

Thanks all for your support - I feel like I am in a "pit" Spoke to the auditor today on the supplies,

Okay I get the bank statements and proof of payment for supplies - Contractors are a little strange sometimes, in that they will receive what I call a 3rd party check payable to the taxpayer and the supplier, when they are a sub..

All income is based on cash - all expenses based on cash

Is this an unreasonable request that she is asking, she wants a "job" assigned to the the Home Depot and Lowe's charges? Really - Fortunately it is a commercial contractor that is the Taxpayer, so does not have that many jobs in one year -

Auditor Statement - "How do we (IRS) know that they did not not purchase for personal use?" Really - look at the Invoice Detail supplied. Guess we can go by date purchased and an Invoice for a job and tie in. - Well there could be a few that she could nit-pick - like a bag of peanut M&M's and some toilet paper - Out of Bldg Supplies for Lowe's and Home Depot of $ 19,250 she is going to nit pick a few hundred dollars.

I don't think there is any worries on the Ganahl Lumber which is approx $ 120K most all have a job name - only a few have "Master Account"

She started on the Auto and I have about 8 tickets or so for Union 76-Chevron on a check/debit card - that I do not have receipts for but are listed on the Bank stmt for check card/debit and dollar amount would match a "diesel fuel" purchase probably pay at the pump - Auditor - "Well how do I know what else they bought besides Gas" These total $ 743 - Really! Okay they purchased a "bottle of water or coffee"

Majority of Gas on a Shell Card - listed on each monthly statement.

Auditor statement today on phone - "I am sorry I did not reassign to another office - so much paperwork" My comment - I am trying to make your job easier and supplying information and spreadsheets, and now you are requesting more paperwork!

I need a break to think about this and plan the next course of action for when I talk to her next week. I thought I was really good at my outlines and recaps and all of the statements requested, but she has too much time on her hands!

Sandy

[taxea]

In realtionship of charges and payments to the first group submitted Contractor Materials and Supplies) to the auditor, I find it redundant that she is asking for Bank Statements showing proof of payment.

Client has commercial account with Lowe's and Home Depot - All monthly statements were provided showing prior balance, payments made and new charges. I personally went through every charge slip to ensure that the card was not showing anything of a personal nature, to make any adjustments. If any it would be less $100 - Also matched all of the payments to the accounts. Provided the Auditor with an excel spreadsheet in the hopes it would make it easier for her!

The Lumber Company is not going to extend any form of credit after a non pay of 30 to 45 days. Commercial Contractor account well known in the area that the Contractor works in and orders from.

The request for bank statements or any proof of payment was not on the original audit request

What I thought was a really "nice auditor" is now becoming a thought that she is a "trainee" and the taxpayer and myself are going to have to jump through more "hoops" than what is necessary. -- The auditor so far I still have to say is "nice" as far as talking with her -



But I can see more before this audit is concluded!

Any notes or viewpoints, experience, is so greatly appreciated

Thanks

Sandy

ask to speak with her supervisor and explain that you feel the request is redundant

[ATSMAN]

I have a feeling that the auditor saw expenses that did not meet the "smell" test and that is why they want to see proof of payment and that the materials or expenses were really "ordinary and necessary" for that business.

My suggestion is to first find out which expenses are being questioned and then get the documentary proof. Don't paint with a broad brush. I have seen auditors ignore many "expenses" for any documantary proof once you supply them the proof they need for major expenses that they questioned.

One of my clients took pictures of AC, Kitchen Cabinets etc. from their rental house to show that the expenses were incurred in their rental property and not their personal home. They also got an affidavit from the current tenant that the pictures match the materials in the rental unit. In that case the client hand Home Depot and other vendors drop off all material at their residence so that they could store it in their garage until installed. It was a total redo from the bare studs.

[Maude Lebowski]

Just my opinion, but I don't think the auditor is being unreasonable. They want the receipts AND proof of payment AND job information because there is A LOT of fraud in the construction business. Contractors build personal projects all of the time with customer funds & of course, they try to deduct the expenses as business expenses.

The worst I've witnessed personally was my client contracted to have 3 houses built. The contractor built an extra one for himself by taking job materials from the site. My client had to sue, but he did win.