Audit

[SueBaby]

I have an audit coming up on the 23rd for the year 2006. My client is in Nebraska and he will not be in for it. He is a constructor in pipe fitting and makes over $200,000.

I have his receipts for all but not his 2106. He said he has all on his credit card receipt statement in what he does out of town , but the IRS does not except it!! Now what?

What will I expect if no receipts for the 2106? That is the main thing they are looking at is his travel and if they don't except that then he will probably pay it back? I have never went on an audit like this when they don't except the credit card statements. They want receipts for his eats and hotels and other; SO what can I tell them to satisfiy them or can I?????

[Lion]

Cc

How much detail do the CC statements give? Did he add his notes re who he visited, what business was transacted, etc., on the statements? He should contact his CC to obtain copies of the receipts. Yes, he'll pay for that service, but that's his cost for not retaining receipts. Or, if there are not a lot of vendors, contact each of them for receipt copies. This is his money, he can work to keep it.

[SueBaby]

How much detail do the CC statements give? Did he add his notes re who he visited, what business was transacted, etc., on the statements? He should contact his CC to obtain copies of the receipts. Yes, he'll pay for that service, but that's his cost for not retaining receipts. Or, if there are not a lot of vendors, contact each of them for receipt copies. This is his money, he can work to keep it.

Thanks I will start on that now. It is hard since he is in Nebraska and I am here in Louisiana but you do what you HAVE to do. Thanks for the input. Helps.

[BOB W]

How about taking the standard per diem rates allowance for out of town business expenses.

Check out TTB 8-3

[DaveO]

Does his employer have a written policy

regarding travel expense? In the last audit I had on this topic the auditor needed a copy of the policy requiring the employee to pay their own expenses. Their reporting of meals was pretty shaky but I was able to piece together the number of days they spent on the road and used the standard meal allowance.

Be careful the auditor doesn't try to say he is intenerate, without a tax home, and disallow all travel. Certain receipts should be apparent, gas, hotels, repairs etc. Remember the auditor's performance is judged not only by how much tax he collects but also in how quickly he finishes. He doesn't get a gold star on his performance review if his cases end up in appeals. Ask to speak with his supervisor if necessary. I had an auditor that refused to allow any travel without a detailed log and receipts. We had a conference with his supervisor and were allowed 80% of the claimed expenses.

SueBaby, you seem to have an interesting group of clients, never a dull moment around your office.

[joanmcq]

Without the employer's reimbursement policy or a letter stating nothing is reimbursed for necessary travel, you will get nowhere, and it will all be disallowed. For hotel, you will need the actual reciepts; a CC statement won't work because the hotel charge could have meals which are only deductible by half, or nondeductible expenses like pay-per-view etc. included. he could possibly call the hotels and get copies of the reciepts.

BTW, you want the auditor to 'accept' the statements as proof. If they 'except' them its kinda the opposite.

[SueBaby]

Without the employer's reimbursement policy or a letter stating nothing is reimbursed for necessary travel, you will get nowhere, and it will all be disallowed. For hotel, you will need the actual reciepts; a CC statement won't work because the hotel charge could have meals which are only deductible by half, or nondeductible expenses like pay-per-view etc. included. he could possibly call the hotels and get copies of the reciepts.

BTW, you want the auditor to 'accept' the statements as proof. If they 'except' them its kinda the opposite.

Yeah, you are right. What a headache I do have. Thank you all!

[FEDUKE404]

The problem might be...

I would guess the auditor might be sniffing around not only lodging/meals but also travel, especially if there was a "local area" issue and/or no overnight stays.

Most employers will pay something for legitimate overnight out-of-town travel for their employees, even it is something as simple as per diem backed up by an expense account filing. The guy could also be receiving a regular travel allowance and/or mileage reimbursements, which would of course have to offset the expenses shown on Form 2106. Frequently the absence of any employer reimbursement is a good indication the "expenses" were not deductible in the first place!

Aside from that, remind your client that mere credit card receipts are not the best for tax records. It's no different from a receipt from Handy Pharmacy being used for a "medical" receipt, or using a check made out to your church as the sole proof of a contribution.

Good luck!

[SueBaby]

I would guess the auditor might be sniffing around not only lodging/meals but also travel, especially if there was a "local area" issue and/or no overnight stays.

Most employers will pay something for legitimate overnight out-of-town travel for their employees, even it is something as simple as per diem backed up by an expense account filing. The guy could also be receiving a regular travel allowance and/or mileage reimbursements, which would of course have to offset the expenses shown on Form 2106. Frequently the absence of any employer reimbursement is a good indication the "expenses" were not deductible in the first place!

Aside from that, remind your client that mere credit card receipts are not the best for tax records. It's no different from a receipt from Handy Pharmacy being used for a "medical" receipt, or using a check made out to your church as the sole proof of a contribution.

Good luck!

Yes, I found out the hard way. The IRS will NOT allow credit card statements NOR canceled checks.
So this is going to be a little harder than I thought; especially when client said" I am working in Nebreska and don't have time for this so YOU do the best YOU can do that day." GRRRRREAT!!!! Since my name is on this thing too I will try to do the best I can. But thanks to you people it made it easier.

[FEDUKE404]

The guy could have a problem

Not knowing the facts, don't be surprised if the auditor takes the approach his "tax home" was where he worked and therefore no travel. This would be reasonably consistent with no (apparent) employer reimbursements.

And, as others have noted, worst case scenario is the "itinerant" status which is at least a reasonable possibility.

You have not even mentioned any vehicle expenses - that could open an entirely new can of worms. (I'm sure the guy kept a daily log??)

Oh yes - be sure to remind this guy that he will need to file a Nebraska tax return for 2008, in addition to his home state(?).......and maybe others?? That should make his day!

Some other just FYI advice, after many years in the tax trenches: For some clients, you are better off being "difficult" in the first place asking for records, explaining the rules, etc. So you may lose a client, but the loss of some problem clients who expect you to smoothe over their problems is not such a great loss.

And finally - keep those billable hours flowing.........

Have fun!

FE

[Jesse]

So how did it go?

[SueBaby]

So how did it go?

Great!!! It took only 45 minutes and I had all my paperwork in order and receipts and they all liked my answers to their questions too!! What saved me was taking the Tax Book and highlighting mileage rates and the per diem of all the states they worked; they were impressed by that work.

After 45 minutes they were pleased with everything and closed the file on my clients and said everything was a GO! They let my clients off without receipts with 2106 (thanks to the Tax Book)!

It was short and Sweet and I had to pat myself on the back afterwards; that was after I sent a bill to my clients.

Thanks to this board, you people and the Tax Book for a GOOD audit!!!!!!
HAVE A GREAT SUMMER YOU ALL!

[BOB W]

Suebaby> Glad to hear all went well, but I'm a little hurt when I posted "that since you did not have receipts for travel expenses and I suggested that you use the pre diem rates", I was ignored throughout the thread.

Anyway, great job................

[Nashville]

Happy to Hear It

SueBaby - I'm so happy for the results of your audit. To be honest with you, I was expecting a worse outcome, but many auditors will give you credit if they believe you are being forthright. They may also believe that the receipts can be retrievable at the cost of extending the audit.

I know this is a relief and a blessing, and I congratulate you for your personal qualities that contributed to this positive result. You have to give yourself credit, as well as being thankful that you drew a reasonable auditor.

Bob, I picked up on your per diem post even though I didn't join in. The entire purpose of establishing the per diems is to eliminate the need for saving bits and pieces of paper. And I know very few people who would exhaust the "meals" portion of per diem. Many meal tickets are no more authoritative than a cancelled check - there is one in particular printed and used throughout the USA called "Guest Ticket." Almost every truck stop uses them. Does not accommodate the date, time, location, or name of restaurant. Contains only enough space for the waitress to scribble the meal, and a control number at the bottom. But IRS accepts these as gospel. I am a huge proponent of per diem.

Amazing as well, Sue, that your client considers all of this to be "your show" and is taking very little of the responsibility himself. I hope he knows how fortunate (i.e. lucky) he is to have such a reasonable auditor and such a good representative. You have accomplished so much with so little, that next time he will expect you to accomplish everything with nothing.

[FEDUKE404]

One more follow-up

Sounds like a great "save" for the tax person - kudos!!

The per diem rate IS the path of least resistance, but not knowing all of the facts I was a bit surprised the client had so many "temporary" deductible work locations.

In metropolitan areas, client could have lost on the "commuting" issue. If the time factor was not correct, client could have lost on the "itinerant" issue.

I still would like to know, if these were "employee" expenses and therefore apparently claimed on Form 2106, why the employer did not somehow throw some funds in the pot to cover the employee travel expenses. Inquiring minds would like to know!!

FE