Response to Notice

[FEDUKE404]

Original numbers would have bothered me

Just doing the math, in my state $19k in "sales tax" would equate to over $300k in purchase costs. To me, such a number would seem way out of kilter unless this guy's name is Rockefeller or something akin.

And did I understand there was an issue of "sales tax" on labor charges??? Again, if I recall correctly the IRS rules are quite clear as to "building materials" and the purchase/payment requirements for same.

Fortunately, I only have a few clients who get to use the tables because the state solves that problem for them up front.....

FE

[geekgirldany]

Yes I know. The house he built was well over $400,000. He took 6% on the total receipt instead of just separating out the sales tax.

[FEDUKE404]

Original number problem

Yes I know. The house he built was well over $400,000. He took 6% on the total receipt instead of just separating out the sales tax. So he did not look separately for sales tax amounts he said "okay I paid $5,000 for a roof, 6% of that is..."

Not to be disrespectful, but should you not have immediately explained what IS allowable per IRS guidelines when that very large number was first presented to you, and then asked "Are you sure?" or something similar?

It's not too far from when a taxpayer gives you a huge list of medical expenses he "paid"...but then you remind client he cannot claim anything that was reimbursed by insurance/paid by cafeteria plan and the air quickly goes out of that trial balloon.

FE

[Black Bart]

Okay, I beg your pardon and

I withdraw my suggestion. Heck, who can argue with this...

Y'see, my experience is...they get less sympathy.
I can write up a sob story with the best of 'em...
make sure all the t's are crossed...
Heck, I've gotten the only two OICs I've ever done through...one...a former default.
Major sobs.
I think the auditors would...

[JohnH]

Y'see, my experience is that if the 'poor unknowing taxpayer' through ignorance made a mistake, and did not receive professional help when they needed it, and is still not consulting with a pro when they are still over their head, they get less sympathy. I can write up a sob story with the best of 'em, and make sure all the t's are crossed etc. Heck, I've gotten the only two OICs I've ever done through, and one was a former default. Major sobs. I think the auditors would rather know they are talking to someone who knows what they are talking about.

So this guy was a jerk, and now he gets to pay you to sort this out to your best ability. I hope you charge more per hour to run up the tape for an audit than for a return. And he gets hit by the blade, not you. Because if he starts talking, who knows who he will blame? Also, did he buy the materials and directly pay the taxes or did the contractor pay the sales tax? Make sure he was the end user and not the contractor.

My experience has been different - maybe it's due to different types of issues or a result of being in different parts of the country.
Anyhow, you do make an excellent point about the client in this case; there's no telling who he will sell out if he's allowed to be a part of the conversation with the auditor. So we're back to the basics - if it becomes clear that SOMEONE has to fall on their sword, do whatever is necessary to make sure it's the client.

[joanmcq]

The thing with sympathy is, there has to be a reason for it. for example, how to write it so the penalty for filing a 990 late gets abated...one of the reasons is, they made a mistake and are now cleaning up, putting a pro in charge, taking their advice. Since that isn't the case here, the best you can probably do is what Myers said; figure out what he's got, tally it up, enclose the tape with the copies of the reciepts, and hope for the best.

And charge through the nose.

[myerstaxes]

Absolutely

IMHO (again former Revenue Agent and Agent Manager) this issue has no sympathy elements, it is what it is...Just the facts Maam...A very cut a dry issue...

[Black Bart]

Just curious, but

IMHO (again former Revenue Agent and Agent Manager) this issue has no sympathy elements, it is what it is...Just the facts Maam...A very cut a dry issue...

did you handle mail audits when you were with IRS? Are they routinely handled by Revenue Agents or is delegated to clerks?

[myerstaxes]

No Bart, Revenue Agents are field agents, face to face audits are what they are supposed to handle...Correspondence comes in later in the audit when there are some records left that need to be reviewed...
I was a tax auditor at the beginning of my career, there was some correspondence audits, but mostly face to face, and again only mail in when some documents needed later in the audit process...
Having said that, I have to point out that Service Center correspondence audits, are not conducted by true tax professionals, they are tax examiners with limited tax law knowledge, and a script that they mostly follow...So for easy issues such as this sales tax, it either is or it is not...They do not handle the more complex exotic issues...smile (they are the lower graded/paid employees who get the most bang for the buck) they save the harder cases for the field/face to face auditors and agents...

[pragueproperty]

Re: Response to Notice

Thanks for your updated information. I am unable to understand the tax deductions till now. Can any one help me what is it exactly and what happens if we neglect it.

[Black Bart]

Myer,

(I would send) in the copies of receipts showing the actual sales taxes paid with an adding machine tape, explain in the response that they are enclosed and the total, and state that these are the only receipts that can be obtained...If the amount is close to what was claimed, I would ask that the entire amount be accepted (they do have a tolerance level to allow in full when the substantiation is close to what was claimed)...If not, then they will adjust the amount to what is verified...Stuff does happen, I hope that in this case it was the client who gave you the wrong numbers...If you error, I would definitely offer to pay the penalty and interest...No need to admit to the IRS any guilt, just stick with the facts...Here is the receipts, here is the total, and the chips will fall where they may...

Assuming that Dany does as you recommend here and one of those "tax examiners with limited tax law knowledge" that you mentioned in your last post is assigned to the case -- what authority does he/she have? Can they assess penalties for the taxpayer and/or the preparer? Can they close the case? Can they determine which penalties would/should apply? If they can't, then do they make recommendations to a supervisor...can you give us a picture...you know, procedures & protocol, etc., etc. Excuse all the questions please, but a view from the inside is very interesting and would be most helpful. Thanks.

[joanmcq]

Sure they can. They are the auditors, just not necessarily the most experienced ones.

[myerstaxes]

Yes,

Assuming that Dany does as you recommend here and one of those "tax examiners with limited tax law knowledge" that you mentioned in your last post is assigned to the case -- what authority does he/she have? Can they assess penalties for the taxpayer and/or the preparer? Can they close the case? Can they determine which penalties would/should apply? If they can't, then do they make recommendations to a supervisor...can you give us a picture...you know, procedures & protocol, etc., etc. Excuse all the questions please, but a view from the inside is very interesting and would be most helpful. Thanks.

They have all of the authority they need to make the assessment, and apply the penalties that are applicable...their audit procedures tell them what penalties apply, the systems that they use also alert them when certain dollar thresholds are met what penalties apply and pretty much automate the process...They can close the case either agreed, or via a 90 notice in the event there is a dispute...All cases are reviewed prior to closure, even when the examiner is most experienced, it is just the level of review that differs...When I managed revenue agents, I knew the ones that needed closer supervision and which ones did not...Hope that this answers your questions...Oh, some penalties are statutory, like it appears in this case that the sales taxes were grossly overstated...