Bad Audit Today

[Edsel]

...so much for the bad audit.

[Roland Slugg]

Why not?

The bottom line here is that he can no longer be my client.

Why not? Don't let your ego get in the way. If your client wants to let the auditor have her way, that's up to him. Don't lose a good client over this ... he made the decision. Besides, after the auditor does her field work and issues her report, you can advise the client what to do next.

[BHoffman]

Diatribe

I had an experience with a state auditor. She insisted that my client could not claim the exemption for her 92 year old mother because my client listed a different address on her tax return (she said she did this in order to vote in a different district), although she certainly provided all of her mother's support and did reside with her. The auditor also disputed that my client's mother was not "disabled". The auditor also wanted to disallow the HOH status for my client.

My client argued with the auditor. The auditor "relented" and said she would allow the HOH, but not the exemption (?!). That was when my client called me.

In my state, filing status follows Fed rules. There is also an increased exemption for providing support for disabled ancestors.

I provided the auditor with both the IRC and the state statutes. She responded by asking for all documentation proving support. We buried her in paper.

That audit evidently got surveyed because my client never received a final determination letter. I called the auditor to find out the status and she told me the audit had been closed with no change.

If you feel you are in the right, then I'd suggest you provide the statutes and codes, chapter and verse, that support your position and present them to your client, but still consider the "cost/benefit". How much are we talking about here? If it's very little, then would the tax increase be less than your fee for researching, or less than the risk of further examination? The client won't stand on principle.


I had a recent ego-buster occur. Meeting with contractor client and their bonding agent. Bonding agent went over the fact that they need lots of working capital in order to increase their bonding capacity. Bonding agent then went on to tout the benefits of an S Corp vs. the C Corp that is my client. Announced that they can take cash out of the company "tax-free"! That got their attention. He went on enthusiastically about the payroll tax savings. He continued to provide tax advice about the horrors of C Corp double taxation. When I tried to explain how that isn't exactly true and that now is not a good time to make a S Election, Bonding agent ignored me and looked past me to my clients and suggested they talk to their attorney about the S election. I wanted very much to choke him, but etiquette forbids.

The result of this meeting was that I offered the client a referral to another CPA, and they seemed grateful to accept my offer, so p*ss on them. I'm not real sure they didn't set this meeting up in order to have the Bonding agent belittle me with the hopes I'd voluntarily quit, but that could just be paranoia. I bill out about $10k a year to this client, so this hurts in more ways than just my pride which has been salvaged because I am sure the S election is not the right choice for them right now.

[JON]

Working Capital

They need to increase working capital so they should become an S so stockholders can take out money easier???? You ran into an idiot that is too bad. Call the client tell them about 2005 and 2003 audit program that were just for S Corps. Tell them Rep Charlie Ringold's,head of house ways and means committee, bill last December did away with UTI distributions to employees not paying FICA. Although not submitted I think his bill is what will happen with Dem control 2009.

If I were you and you want to keep the client arrange a meeting and go over the pros and cons of being a C or an S Corp-(PPC has some good points). If your trying to increase working capital for bonding you know the first corp profits will be taxed at 15% and the state rate. If taxed at the individual rate will it be that low. If working capital has to grow for bonding it will be because of profits left there or additional capital put in, not by taking more out.

Good luck...

[BHoffman]

Thanks, Jon. I turned them over to my old boss, as sort of a gift. He has continued to mentor me through the years. And - I'm tired and burned out and need to rest this summer. There will be other clients.

[Snaggletooth]

Thanks to All

I want to say "Thank you" to all who have replied. Some good thoughts here and from some of the best comrades on the TMI board.

I'm going to start another thread dealing with some of the fallout -- so it may be treated as a separate discussion.

Thanks again - Ron Jordan