October 01, 2010 | Written by: Mark D. Olander, EA, USTCP
Our mission at TaxResources is to provide our members with the best income tax audit representation and the best taxpayer education available, and to exceed our members’ expectations. This month’s case is an example of how our Audit Representatives fulfill this mission, day by day and audit by audit.
The members received a letter from the IRS disallowing all of their itemized deductions, including medical expenses, charitable contributions, employee business expenses and investment expenses. The amount due on the letter was more than seven thousand dollars, which included an accuracy-related penalty of about twelve hundred dollars.
The Audit Representative assigned to the case conducted a painstaking initial review of the member’s return, during which he made a list of questions concerning each deduction that had been disallowed. He called the member and they went through each item on his list. The list kept their discussion focused, saving both the member and the Audit Representative valuable time. The Audit Representative noted the answer to each of the questions, and he explained to the member what documents would be needed to defend his return and why.
The good news was that the member had documentation to support all of his expenses, and he sent them all in to the Audit Representative. But even though the Audit Representative had guided the member on how to organize his documents, he had a number of concerns with the package he received. Among other problems, the member’s document summary “spreadsheets” were handwritten, which made them difficult to read, and they were not in the same order as the receipts. The Audit Representative warned the member about his biggest concern, which was that some of the business travel expenses he had deducted for conducting “educational research” in Europe seemed to be more personal in nature. There was a huge possibility, he explained, that the deduction for those expenses would be disallowed by the IRS.
The Audit Representative added up the expenses he believed were likely to be rejected. He recommended that the member post a bond with the IRS for $3,000 to help stave off the accruing of additional interest in the event that the deductions were in fact disallowed. The member sent a $3,000 check to TaxResources made out to the US Treasury Department, and the Audit Representative submitted the check on the member’s behalf.
Meanwhile, the Audit Representative explained to the member that there were certain weaknesses in the package he had submitted. A busy college professor, the member asked if there was any way the Audit Representative could “redo” the package to make it stronger. The Audit Representative explained that, while our Audit Defense service does not include “bookkeeping” services, for an additional fee he would be able to recreate the spreadsheets and reorganize the documents to make them easier to understand and a better presentation to the IRS. The member, who admitted he had never created a spreadsheet in his life, was happy to pay the bookkeeping fee and to be done with his foray into the world of audits and accounting.
The Audit Representative reorganized the member’s documents and information and submitted the package to the IRS. When he called to check on its status a few weeks later he was told that the case had been closed with no changes to the originally filed tax return.
The member was delighted to receive the full amount of his bond back with interest. Here are some excerpts from emails the Audit Representative received from the member:
My apologies for not contacting you sooner. Received the $3,000 check (+interest) as a refund, and two days later notification that everything was accepted. You must be a miracle worker! Will call you tomorrow.
Thanks for all your guidance... Will use the format you taught me for any future audits, and when I do future returns.
The member also responded to our survey with the following comments:
He not only assisted me in responding to the IRS audit, he educated me as to the appropriate method of organizing future returns.
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