Audits

[SueBaby]

I have never in 10 years seen so many audits going on this year. Is it because of the rebate coming out soon or just a random thing? Some have to have all receipts and other just a letter in their miles and others are frightened to death. What is going on? Kinda makes me even skiddish.

[JohnH]

News to me

I can't say that I've seen an increase. Just the usual number of CP2000's when people "forget" to report some stock sales or "lose" a 1099 or W-2G and then the IRS computer catches up with them. I've seen several 2005 and some 2006 stuff concerning those issues, but I don't really consider them audits. Is that the sort of thing you are referring to, or is it more involved stuff? Maybe their document matching program is just getting more efficient.

[veritas]

How many

audits are you talikng about?

[SueBaby]

audits are you talikng about?

7 A few are to get all receipts on 2106 in Ar and Ms One has to get receipts for their whole return and some just a letter stated the route to work and what they done and where they went all day.

A painter called and he got audit because he did not send his workers 1099s in. Only 3 were my clients the rest back years from some other preparer.

[JohnH]

Sounds like there may be a preparer problem (the other preparer, not you).
Or rmaybe there's a special project targeting employee business expenses in your part of the country.

[ecb34691]

On the painter, remember a couple of years ago was the first time there was a separate line on the Sch C for contract labor. It had always been hidden in various ways on page 2. I wonder if the are targeting returns that have "large" amounts there and no cross reference to 1099MISC issued? I've warned my clients, if they show amounts on the contract labor line, they better have 1099's/documentation to support.

[JoshinNC]

Just got a letter from auditor

On the painter, remember a couple of years ago was the first time there was a separate line on the Sch C for contract labor. It had always been hidden in various ways on page 2. I wonder if the are targeting returns that have "large" amounts there and no cross reference to 1099MISC issued? I've warned my clients, if they show amounts on the contract labor line, they better have 1099's/documentation to support.

for a home builder client who switched from Sch. C to S-Corp in 2006. They are auditing contract labor and commissions paid for 2005, the last year as Sch. C. Of course, commissions paid and contract labor don't match 1099's because half were to corps. We're not scared because we have the documentation, but this is an added cost to my client for an audit that will definately not have any change to the return, and home builders' incomes are already depressed with the current market climate, so now I have to prove to my client that the couple of thousand it's going to cost them is worth it. So far my best argument is, "Pay me a $2000 to represent you or run the risk of getting locked in a room with an auditor and signing an agreement to increase your tax by $10,000 because you aren't well versed in the ins and outs of audits and taxation".

[SueBaby]

Sounds like there may be a preparer problem (the other preparer, not you).
Or rmaybe there's a special project targeting employee business expenses in your part of the country.

Another one this morning a trucker on his miles. Thank goodness I only have my name on only 2. One only writes a letter on her miles, which she does alot of travel on her job, and another get receipts on his miles on 2106 which he has. Whew! What a mess for these people.
They want me to pull a rabbit out of a hat to get them out of it too.

[JohnH]

Let him handle it

Josh: Let him handle it. Then you get to charge him $4,000 to save $10,000 in taxes after they get through with him. Better deal for you, and he's still getting a bargain. He will appreciate it more because he can quantify the savings. Besides, he's accustomed to lowballing the original bid and making big bucks on the change orders - he will understand the concept. Just tell him to be sure & not sign any closing agreements until he's conferred with you.