IRS Audit

[superdog]

I got the dreaded note in the mail yesterday.

Frankly, I am not very worried. I do everything by the book, and my CPA is all business. He plays zero games. I have not always liked his bedside manner, per say, but I always said, if the day ever comes, I want him by my side.

It is for 2020 which is the year I sold majority share of my business. So the spike in income is clearly what set it off.

So, while I am not very concerned, I am still of course not thrilled to be going through the process. Not sure anyone ever would be. My CPA says this will simply be a pain as there is a lot to do.

That all said, while I have looked online, I have not found too many real accounts of the process.

Anyone here ever go through and Audit. Would love to hear your experience and your advice if you have any.

Thank you,

[binArt]

I was audited a few years ago. Like you, I was well represented. The auditor was friendly and all business. It was more an inconvenience than worrisome.

Relax. I'm sure you'll sail through it.

[V25V]

Its just more money to spend, a shakedown if you will. Been through enough of them and you just need to bite your tongue and give them every little thing they ask for as they dress you down. Its awful and the most recent bill just asked for a very large increase in IRS agents. This will only get worse.

[Schmed]

Buddy of mine got audited in 2019, and he is horribly organized. All paper files, all a mess.

Auditor gave up after a few meetings and just say "we're taking you to court. I can't make heads or tails of what are doing here."

[Speedbird-1]

Many years ago, I had a VAT home visit, a weaselly, very dislikable type sat at our dining table for two hours, with his calculator and fine toothed comb, after which he triumphantly declared that my yearly accounts were, "in error, to the tune of £2.47p".
...I told him, that H.M. Revenue & Customs, now owed me 3p, as we charge £2.50 for the tea and biscuits, he'd consumed.
You should have seen his face!

[m j b]

It's got to be a tough job, being an auditor for the IRS, R&C, etc. They're just doing their job. Give 'em a freakin' cup of tea!

To me, an accountant must perform two primary tasks: minimize my taxes and keep me out of jail. Maybe not in that order, LOL.

Best of luck Seth!

[Speedbird-1]

Just in case you're referencing my anecdote, I've always given the Gestap...er Taxman, a cuppa when they visit.
I was just pulling his leg over his announcement of my being "in error" of a couple of quid......on £150K!!

"Just doing their job"

[superdog]

Originally Posted by Schmed

Buddy of mine got audited in 2019, and he is horribly organized. All paper files, all a mess.

Auditor gave up after a few meetings and just say "we're taking you to court. I can't make heads or tails of what are doing here."

I’m not well organized at all.

But thankfully I have bank statements for everything. I have my bank representative compiling all my accounts for the year.

My CPA is certainly more organized and has all he should need. I’ll likely not meet with or even speak to anyone.

[superdog]

Originally Posted by V25V

Its just more money to spend, a shakedown if you will. Been through enough of them and you just need to bite your tongue and give them every little thing they ask for as they dress you down. Its awful and the most recent bill just asked for a very large increase in IRS agents. This will only get worse.

I admit, this is where my biggest concerns are.

[HHIslander]

Originally Posted by superdog

I’ll likely not meet with or even speak to anyone.

I strongly urge you to stay home, send your CPA and have them handle all of it. It’s worth every penny.

[superdog]

Originally Posted by HHIslander

I strongly urge you to stay home, send your CPA and have them handle all of it. It’s worth every penny.

Yes sir. That is the plan.

[brandrea]

I went through a business audit in 2011. Same as you, I had an excellent controller, and accounting firm to back us up.

No worries as long as your records are accurate. I found the process a bit annoying as they spent about a week at our plant going through files etc. It will be harder on your accountant than you as they will have to make themself available to any and every question the auditor might have.

[superdog]

just spoke to my bank. this will actually be pretty tedious, indeed.

I closed my business accounts in 2020 due to the sale of the business. And opened a few new ones for the new entity.

But old business was an S Corp, and new business is an LLC. And not in my name.

So it will be old business accounts along with personal accounts. Oy.

But all is 100% legit, so not overly worried. Still, I am already looking forward to this being over.

[superdog]

Originally Posted by brandrea

I went through a business audit in 2011. Same as you, I had an excellent controller, and accounting firm to back us up.

No worries as long as your records are accurate. I found the process a bit annoying as they spent about a week at our plant going through files etc. It will be harder on your accountant than you as they will have to make themself available to any and every question the auditor might have.

I do not keep receipts of much. BUT, we used quickbooks and my controller is awesome. So is my CPA. So all is correct...but convoluted.

[binArt]

Originally Posted by superdog

just spoke to my bank. this will actually be pretty tedious, indeed.

I closed my business accounts in 2020 due to the sale of the business. And opened a few new ones for the new entity.

But old business was an S Corp, and new business is an LLC. And not in my name.

So it will be old business accounts along with personal accounts. Oy.

But all is 100% legit, so not overly worried. Still, I am already looking forward to this being over.

If you are worried, you can hide your car collection in my garage.

[superdog]

Originally Posted by binArt

If you are worried, you can hide your car collection in my garage.

Ha. That’s funny. But I do appreciate the kind offer.

[HHIslander]

Originally Posted by superdog

Yes sir. That is the plan.

I’ve been audited twice, first time I sent my guy but asked to be kept in the loop. That was a big mistake. The outcome was fine but the path getting there was a roller coaster and I worried about things I shouldn’t have been worrying about. Second time I just told him to call me when it was all over and leave me blind, outcome was fine again and no lost sleep.

Hope it goes well.

[77T]

I was audited once (before I used tax lawyers & CPAs), got through it via a series of emails with the agent with financial reports attachments. Fortunately, I was squeaky clean.

My cousin was an IRS Audit Chief in the Southern District so I got expert advice on playing nice and how to explain ambiguity.

Then several years later, I got a notice - my CPA had made filing errors. That’s when I learned about E&O liability insurance (of which he had none). Make sure yours do. I thought it was mandatory but learned it wasn’t then.

In the end, he went flipping crazy - actually lost it - John Nash type lost - the numbers talked to him and drove him over the brink. Then was evicted (Me? Unaware) - all my tax records that he had were thrown to the curb and carted away.

Felt sorry for his mental state. Took me a while to reconstruct 3 years of returns (this was before electronic filing) so it was all paper.

My learning from that experience was to keep my own records even if you have a firm handling things...


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[superdog]

I actually think this will be super straight forward and easy.

They want to investigate the spike in income. They will see why in moments. The rest is simply details.

We had an external accounting firm do all the tax stuff for the sale of the business. And then my own CPA, which was doing everything for me, for decades, did everything for my personal stuff.

The closed accounts notwithstanding, I think this will be quick and painless. Especially given the fact that NJ returned the overpayment after their own due diligence.

Might be wishful thinking. But I am very hopeful that is the case.

Anyway, thanks everyone for the comments. Very helpful.

[JimBianchi]

I got audited my first year filing, 1981. I had three jobs, made about $12K, good money back then. I had pay stubs and bank statements, nothing else. Filed under the old short form. No idea why they would come after an 18 year old kid. After all was said and done, they ended owing me $87.

Complete waste of worry and time on my part.

I had a few BIG income years in the early 2000's and always worried I'd get picked, I have excellent documents and accounting, but never it happed.

Good luck.

Don't wear your Rolex to the interview.

[OYptL]

Audits will increase in the near future with the addition of 87K IRS employees.

[Pw92676]

I have been audited 3 times. I handled the first one solo and did fine. But then got a cpa who handled the subsequent years. You are correct in that certain things trigger flags. In my first audit I spoke to an IRS agent for about 2 hours and surprisingly it was quite pleasant and I learned quite a bit about parts of the tax code. Don’t lose any sleep over this :)

[honuswagner13]

I’m a CPA, and have represented various business clients over the years in about 15 different audits. Feel free to PM me if you have any questions or concerns.

The last one I went through, lasted from October 2020, until June 2021. Very time consuming, but the agents are working from home due to COVID. Everything was scanned and emailed to them. Just took time.

They will probably ask for bank statements for the months of December 2019 and January 2021. They usually do to see timing of deposits in these months.

Good luck!

[CoveWatch]

ouch, good luck and hope it all goes smoothly as usual!

[Shmoopy]

Originally Posted by V25V

Been through enough of them and you just need to bite your tongue and give them every little thing they ask for as they dress you down.

This is terrible advice. The taxpayer's rep should be the one doing the dressing down, not vice-versa.

1) Generally, I advise to have a different rep at examination than the CPA who prepared the return(s) being examined. But based on the facts you mentioned earlier, it should not be an issue here.

2) Do not say a single word to anyone from the IRS. If an auditor calls you, ask them why they are reaching out to you when you have a representative. Let your representative handle EVERYTHING.

3) Make sure that your rep has extensive experience at the examination level. Some CPAs say they have experience with audits, then just basically bend over and give everything requested by the feds and allow them to make their determination, without doing the necessary damage control in advance.

Good luck! Seems like you are in good hands.

[Atone]

Hope it goes smoothly Seth!

[Screwly]

Good luck!

[donas]

Prior to retiring, my dad was once involved in all types of very large real estate deals, to the tune of tens of millions of dollars. The best audit story from him came several years after he retired, he got a notice out of the blue. Of course, he was squeaky clean and well represented. When it was all said and done, the IRS owed him money! The IRS agent is said to have just done a raised eyebrow with a, well, I didn't see that coming, comment.

Best of luck with your audit.

[RW16610]

Hoping the process will be as quick and easy as they possibly can, Seth.

[Patton250]

Originally Posted by m j b

It's got to be a tough job, being an auditor for the IRS, R&C, etc. They're just doing their job. Give 'em a freakin' cup of tea!

That was a weak attempt at satire right?