First audit

[Donald Rihn, EA]

Complex Issues?

Well, after a sleepless night and thinking about what is really best for my client, I am going to call a fellow EA and see if she will do the audit and let me go with her and observe.
He could have a complex audit because a couple of issues and I wouldn't want him to end up paying a lot of money because of my inexperience.

I'll keep you all posted as to the outcome of the audit. I really appreciate all your ideas and suggestions.

Linda F

What are the "Complex Issues"? Maybe we can give you some advice. This board is great for that!

[Jiggers]

What are the issues?

If he delivers for Sears he probably receives a 1099.

What are the expenses that are being audited?

[oceanlovin'ea]

Issues

He has more than one truck. He and his son who is in his truck are paid through Southeast Leasing so that they can have workers comp.
The other drivers are paid as sub contractors. We talked about this at great length. First of all, it was already done when he came in to get his taxes done. But these guys did not want payroll taxes taken out. They preferred to be paid as subcontractors. We did give them 1099's so that he could take the expenses. So this might be an issue.

The second issue is that he form a corporation but never really used it. Everything still goes through his name. The ID number for the corporation doesn't appear on anything. So I have filed a zero corporation return and did him as a schedule C.

Because he is spanish and lives in another town, we have a little problem communicating but I have told him how he needs to do things but either he doesn't understand me completely or just doesn't do it.

So I think he needs a more experienced person that is used to talking to these agents to do this.

Linda F

[joanmcq]

If the trucks are panel trucks (only two seats, van back) he is probably ok for auto expenses because such vehicles can be considered qualified non personal use vehicles and 100% biz mileage can be assumed. 1099s may not be an issue if he doens't have a payroll audit; if he issued 1099s then subcontractor payments may be accepted simply by the 1099s being issued. At least that has been my experience.

[Burke]

In my office or at the IRS office???? Each has its pros and cons.
Many times questions are asked that the auditor may forget later or really isn't important to him and any delay he may brush it aside. LESS ANSWERS MEANS LESS QUESTIONS.

You are dead right on that one. I once had an audit w/POA -- client did not attend -- and we were just humming right along, no problems, when the question came which I was hoping to avoid, because I thought it would open up a can of worms on an unrelated matter not specifically covered in the audit. As I opened my mouth to answer, (honestly by the way with the requested information) the phone rang. It was her daughter. After a 10-minute conversation as I sat there waiting, she hung up and moved right to the next question. Audit concluded with no change.

[oceanlovin'ea]

Update

The IRS agent called me this morning. She is a field auditor. She either goes the the office of the taxpayer or to my office. She will call me back Thursday afternoon to set up the date for the first field meeting which she said the first she has available is the end of June. She said they usually set it up for 2 days.

She said that it is better on the first day for the taxpayer to be there as she will ask questions about how the business is operated and I may not have all the answers she needs. But the second day when she is going over the records the taxpayer would not necessarily need to be there.

At least I know now that we have a month to make sure everything is in order. But I am still apprehensive about this.

I spoke with a friend who is also an EA in town and asked her if she wanted to do this audit and let me watch. After discussing the business, she didn't think I would have any problems and said she would help me any way she could.

Linda F

[ChEAr$]

so far so good!

The IRS agent called me this morning. She is a field auditor. She either goes the the office of the taxpayer or to my office. She will call me back Thursday afternoon to set up the date for the first field meeting which she said the first she has available is the end of June. She said they usually set it up for 2 days.

She said that it is better on the first day for the taxpayer to be there as she will ask questions about how the business is operated and I may not have all the answers she needs. But the second day when she is going over the records the taxpayer would not necessarily need to be there.

At least I know now that we have a month to make sure everything is in order. But I am still apprehensive about this.

I spoke with a friend who is also an EA in town and asked her if she wanted to do this audit and let me watch. After discussing the business, she didn't think I would have any problems and said she would help me any way she could.

Linda F

However STILL, I think all will agree, client should not be there, for either day.
It's not required when you have POA, and if you start your first audit off by producting
the client, same auditor will expect same in future years.

[WhiteOleander]

The IRS agent called me this morning. She is a field auditor. She either goes the the office of the taxpayer or to my office. She will call me back Thursday afternoon to set up the date for the first field meeting which she said the first she has available is the end of June. She said they usually set it up for 2 days.

She said that it is better on the first day for the taxpayer to be there as she will ask questions about how the business is operated and I may not have all the answers she needs. But the second day when she is going over the records the taxpayer would not necessarily need to be there.

At least I know now that we have a month to make sure everything is in order. But I am still apprehensive about this.

I spoke with a friend who is also an EA in town and asked her if she wanted to do this audit and let me watch. After discussing the business, she didn't think I would have any problems and said she would help me any way she could.

Linda F

Yes it's better for the auditor to have the T/P there. Not necessarily better for the T/P. Since you are an EA you can represent the T/P with a POA and I would not have the T/P there. If you are asked why, tell the truth. The T/P had to work, or asked me to represent him, or whatever the case may be.

You can make note of any questions the auditor has and take them to the T/P for a reply.

I would be very pleasant, but firm.

If you really believe it would be better for your coleague(sp) to go with you and handle the audit, I see nothing wrong with that. Just make sure you both are on the POA.

[BOB W]

Yes it's better for the auditor to have the T/P there. Not necessarily better for the T/P. Since you are an EA you can represent the T/P with a POA and I would not have the T/P there. If you are asked why, tell the truth. The T/P had to work, or asked me to represent him, or whatever the case may be.

You can make note of any questions the auditor has and take them to the T/P for a reply.

I would be very pleasant, but firm.

If you really believe it would be better for your coleague(sp) to go with you and handle the audit, I see nothing wrong with that. Just make sure you both are on the POA.

Bringing two EA to the audit may create more problems than you want. If I were an auditor I would feel much like I was being audio taped and do everything by the book and cover every issue to the hilt, with no mercy.

[WhiteOleander]

Bringing two EA to the audit may create more problems than you want. If I were an auditor I would feel much like I was being audio taped and do everything by the book and cover every issue to the hilt, with no mercy.

Well, again. Just tell the truth. Say you do not have alot of practical experience in audits and are learning the process. No need to make the auditor feel you are guning for them.

[oceanlovin'ea]

Do audit alone

I think she meant she would help me with preparation for the audit. I think that she thinks I can handle it by myself. But she will help me make sure I have everything she thinks I will need.

I don't plan for him to be there. He and his wife both work so it would not be convenient for them to be there. I will sit down with them and try to cover all aspects of the business with them to make sure I can answer her questions on the first day. If she asks something I can't answer, she will have to wait for the answer till I can contact him.

He is usually available by phone, but I don't think I will tell her that.

Linda F

[BHoffman]

Linda - preparing the substantiation paperwork is easy. You just follow the IDR. Dealing with the nervousness of meeting with an IRS auditor for the first time is the only hard part.

I repped one client in a garden-variety field audit years ago and was too green to even be nervous. I knew my client was clean, and figured they might find a mistake or two, but no fraud or anything that was going to create any fireworks. No change.

I referred out the last two audits because they weren't garden-variety. One was the dreaded TCMP, which I probably should have repped because it too easy but didn't want the bother in March. Small change in my client's favor. The other was weird because it looked like the IRS was auditing the client in order to make a larger case against some organization they've got their eye on. I didn't want anything to do with that. No change.

Relax. This isn't much different than just delivering the response to a correspondence audit and hanging around to answer a few questions. You'll be great, and you'll feel good to have this experience under your belt. It's a pain in the neck, and only that. Nothing to lose sleep over.

[oceanlovin'ea]

Thanks

Thanks for the encouragement. I really appreciate it.

After I became an EA, that is what I have told all my clients that I can represent them before the IRS. So I really feel like I should do this. I do have a month to make sure we have everything.

I will take my nerve calming herbs before the meeting and I will be fine.

Linda F

[BHoffman]

Yep. And make sure you wash them down with some good scotch whiskey

LOL!!

[DaveO]

Nerve Calming Herbs?

Who says tax pros don't know how to have fun?

Just relax, take a few deep breaths, you'll be fine. Preparation is the key. If you address the document request line by line you'll have what you need. Read and re-read all correspondence from the auditor to be sure every item is covered.

The auditor is human too, try to connect in a casual way.

A friends father taught me the "P" rule years ago and it has stood me well.

Prior proper planning positively prevents pi** poor performance.

Good luck.