IRS Audit

[AnIntentionalRoad]

I received an audit by mail notice from the IRS back in January for our 2012 return. They claimed we owed an additional 33k because of some business expenses that they were denying.

After 9 months of submitting proof of the expenses and getting additional pushback from the auditors, they finally sent me a letter this week congratulating me on the fact I now owe 0.

Yay! Except all of this unasked for attention cost me countless hours of my time and $600 in CPA fees.

Now I got a letter today from the State of Illinois saying I owe THEM 3k in additional taxes on my 2014 return.

Sheesh. Here we go again.

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[wanaberetiree]

I received an audit by mail notice from the IRS back in January for our 2012 return. They claimed we owed an additional 33k because of some business expenses that they were denying.

After 9 months of submitting proof of the expenses and getting additional pushback from the auditors, they finally sent me a letter this week congratulating me on the fact I now owe 0.

Yay! Except all of this unasked for attention cost me countless hours of my time and $600 in CPA fees.

Now I got a letter today from the State of Illinois saying I owe THEM 3k in additional taxes on my 2014 return.

Sheesh. Here we go again.

Sent from my SM-T237P using Early Retirement Forum mobile app

Wonder if you understood what triggered those audits?

 

[JoeWras]

Argh. Illinois is so annoying this way. Once the IRS reverses something, IL gets the memo and are on it.

My dad had an issue with dementia and forgot to file some stuff (told the CPA he didn't have those accounts). Well, he did have them, and he owed the IRS a few hundred, for real. We paid it.

Then IL came along and demanded their share. Problem was he was exempt since he had almost no taxable income in IL as a retiree. Called the CPA and she agreed he owes nothing to IL, but her fee to fix and file would be more than the bill IL sent us.

I could have filed myself for nothing, but decided to pay the $60 or so just to make them go away and close the estate.

I did a lot of grumbling over that little mess. I usually fight and fix this on principal, but sometimes you just need stuff to end. Hope you enjoyed your bonus, IL. You didn't deserve it.

 

[AnIntentionalRoad]

Wonder if you understood what triggered those audits?

Ostensibly the Federal audit was that they wanted clarification and proof of my "other" business expenses that we claimed. I'll never know what actually triggered them.

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[golfnut]

Argh. Illinois is so annoying this way. Once the IRS reverses something, IL gets the memo and are on it.

My dad had an issue with dementia and forgot to file some stuff (told the CPA he didn't have those accounts). Well, he did have them, and he owed the IRS a few hundred, for real. We paid it.

Then IL came along and demanded their share. Problem was he was exempt since he had almost no taxable income in IL as a retiree. Called the CPA and she agreed he owes nothing to IL, but her fee to fix and file would be more than the bill IL sent us.

I could have filed myself for nothing, but decided to pay the $60 or so just to make them go away and close the estate.

I did a lot of grumbling over that little mess. I usually fight and fix this on principal, but sometimes you just need stuff to end. Hope you enjoyed your bonus, IL. You didn't deserve it.

I'm sure Illinois found a way to spend that $60. They are good at spending!

 

[Greencheese]

Illinois is broke, they need a way to fix that budget somehow!

 

[I earned it]

I went through an audit I think 3 years ago it dragged on for a year, it had some initials NPR? It was a random audit that 13,000 people get . I was one of the unlucky ones. They wanted receipts for everything, and wanted to see my bank statements for 13 months ,every deposit needed an explanation. Cost me 1600 for the CPA, he told the accountant in a normal audit he would allow the items if I had some receipts but in this one I I claimed 100 dollars but only had receipts for 97 that's all the credit I would get. I spent endless days trying to figure out why I deposited 200 bucks on this day or that, . Long story short I found more receipts than I deducted , but on charities I never deducted because I couldn't originally find them, the auditor told my accountant I owed 780 dollars and if I was going to play games they would go back 3 years. He told me it would probably cost me another 2
Or 3 THOUSAND dollars for his time to represent me if they did 2 more years . I told him fine who do I send the 780 to. They strong armed me but it cost me more to fight it.

 

[easysurfer]

I went through an audit I think 3 years ago it dragged on for a year, it had some initials NPR? It was a random audit that 13,000 people get . I was one of the unlucky ones. They wanted receipts for everything, and wanted to see my bank statements for 13 months ,every deposit needed an explanation. Cost me 1600 for the CPA, he told the accountant in a normal audit he would allow the items if I had some receipts but in this one I I claimed 100 dollars but only had receipts for 97 that's all the credit I would get. I spent endless days trying to figure out why I deposited 200 bucks on this day or that, . Long story short I found more receipts than I deducted , but on charities I never deducted because I couldn't originally find them, the auditor told my accountant I owed 780 dollars and if I was going to play games they would go back 3 years. He told me it would probably cost me another 2
Or 3 THOUSAND dollars for his time to represent me if they did 2 more years . I told him fine who do I send the 780 to. They strong armed me but it cost me more to fight it.

When I got a letter from the IRS a couple of months ago. I actually was happy that only my tax info got hacked and this wasn't some kind of audit. From the description of such a headache of the audit, looks like getting the tax info stolen isn't so bad after all.

 

[I earned it]

I would have settled for that

When I got a letter from the IRS a couple of months ago. I actually was happy that only my tax info got hacked and this wasn't some kind of audit. From the description of such a headache of the audit, looks like getting the tax info stolen isn't so bad after all.

Yeah I agree

 

[gauss]

I went through an audit I think 3 years ago it dragged on for a year, it had some initials NPR? It was a random audit that 13,000 people get . I was one of the unlucky ones. They wanted receipts for everything, and wanted to see my bank statements for 13 months ,every deposit needed an explanation. Cost me 1600 for the CPA, he told the accountant in a normal audit he would allow the items if I had some receipts but in this one I I claimed 100 dollars but only had receipts for 97 that's all the credit I would get. I spent endless days trying to figure out why I deposited 200 bucks on this day or that, . Long story short I found more receipts than I deducted , but on charities I never deducted because I couldn't originally find them, the auditor told my accountant I owed 780 dollars and if I was going to play games they would go back 3 years. He told me it would probably cost me another 2
Or 3 THOUSAND dollars for his time to represent me if they did 2 more years . I told him fine who do I send the 780 to. They strong armed me but it cost me more to fight it.

Thanks for the pointer on this. I generally enter all of my transactions into Quicken with a brief memo, but historically I thought that I would be the only one using this information.

In the future, I will remember that the IRS may wish this information also.

I was curious if you had a business (ie Schedule C) at the time. I could see them looking for unreported business income, but this seems a bit surprising for someone who is not a business owner.

I am also curious about how much time lapsed between the time you filed the return and when it was selected for audit.

Thanks
-gauss

 

[I earned it]

It's 100 % the truth

Thanks for the pointer on this. I generally enter all of my transactions into Quicken with a brief memo, but historically I thought that I would be the only one using this information.

In the future, I will remember that the IRS may wish this information also.

-gauss

Ever since that letter / audit I put in the checkbook details like , anniversary gift from kids etc, escrow refund . The one that threw us was a return of our security from the electric company it was 600 dollars, the irs was viewing it as unreported income from something or gambling winnings or something , and wanted to tax us.

 

[I earned it]

No ,no business just one w-2 and a bunch if statements from banks and investment firms. I did get a 1099 from a company that I did security for 10 weeks but I wrote off maybe 100 dollars in transportation that's it. Maybe it was the 1099 job that prompted the bank statement thing. The cpa said this audit is everyone's nightmare thing. I had to get papers proving how much I paid in home taxes, the legwork involved was tremendous.

 

[gauss]

Ever since that letter / audit I put in the checkbook details like , anniversary gift from kids etc, escrow refund . The one that threw us was a return of our security from the electric company it was 600 dollars, the irs was viewing it as unreported income from something or gambling winnings or something , and wanted to tax us.

Often banks can produce copies of old checks that were deposited long after they are no longer available on the web site.

There is generally a small fee (ie $5-$10) for each check copy. Something to keep in mind if anyone gets into this situation, or perhaps verify with their bank now how far back they can go.

-gauss

 

[I earned it]

It was paid by direct withdrawal , no check , I had to show a paid bill from the city with the amount and then the bank statement , showing the electronic deduction. I paid quaertly so times 4

 

[I earned it]

The bank was hugely helpful for some checks I deposited , they had photocopies that's how we figured out some things. But the utility refund didn't have their name on it, it had some other holding company etc,

 

[Car-Guy]

I received an audit by mail notice from the IRS back in January for our 2012 return. They claimed we owed an additional 33k because of some business expenses that they were denying.

After 9 months of submitting proof of the expenses and getting additional pushback from the auditors, they finally sent me a letter this week congratulating me on the fact I now owe 0.

Yay! Except all of this unasked for attention cost me countless hours of my time and $600 in CPA fees.

Now I got a letter today from the State of Illinois saying I owe THEM 3k in additional taxes on my 2014 return.

Sheesh. Here we go again.

Sent from my SM-T237P using Early Retirement Forum mobile app

Just wait until you can collect Social Security. They'll try to deny your payments and/or say they overpaid you and want their money back. That's happened to me twice in the past year. I won the first claim but it took three months of paperwork, phone calls and office visits. I'm just starting the second one now but should win that one too since it based on the same "bad assumptions" they made the first time. (seems they don't check your history)

I found the best way to handle such claims is VIA real paper in the US mail. (no email) Phone call are useless (if you can get a real person) and a visit to the local office will really scare you after talking to them in person. I'm convinced that they if they are being paid just half of the current minimum wage, then they are vastly overpaid.

 

[Texas Proud]

Thanks for the pointer on this. I generally enter all of my transactions into Quicken with a brief memo, but historically I thought that I would be the only one using this information.

In the future, I will remember that the IRS may wish this information also.

I was curious if you had a business (ie Schedule C) at the time. I could see them looking for unreported business income, but this seems a bit surprising for someone who is not a business owner.

I am also curious about how much time lapsed between the time you filed the return and when it was selected for audit.

Thanks
-gauss

Just as an FYI, I earned it got caught in a random audit that the IRS performs rarely.... if you are unlucky and get picked, every number on the return is looked at and verified.... this is what they use to determine where people might be cheating and adjust their normal audits where they pick you for a number that looks bad....

One time when this happened, the news had a story that a kid that filed a 1040EZ was being audited.... but, they had to do the audit because it was chosen at random....


I mentioned it before, but when I was doing taxes the picked a return of a very wealthy client who had died... so the return was very complex... I forget how long the IRS agent was there, but it was months... I had to show all my schedules etc. of how the income was split between him and his wife and what he earned when he was alive and what he earned after death..... after death earnings are not on your last 1040.... there were zero changes to the return, which I was pretty proud of....

 

[I earned it]

yeah NRP audit real unfun affair I felt like al Capone, lost sleep , found cpa he told me not to worry, I felt much better, after I hired him I didn't even get letters he got them, I just wrote the checks. Now I go to him for tax prep , I probably could use h and r block but after the audit experience I'd rather spend the money on him to stop the aggravation. Before the audit I went to some mom and pop tax guy, when I got the letter all he could say was no man this is all good, you got proof, but he was useless to represent me, he never even heard of a NRP audit

 

[gauss]

Thanks for the additional info Texas Proud.

I have always been prepared (for the most part) to defend what is entered onto the tax forms.

What was new to me, with this post, was that it seems you need to be prepared to defend every bank account transaction also.

-gauss

 

[braumeister]

yeah NRP audit real unfun affair I felt like al Capone, lost sleep , found cpa he told me not to worry, I felt much better, after I hired him I didn't even get letters he got them, I just wrote the checks. Now I go to him for tax prep , I probably could use h and r block but after the audit experience I'd rather spend the money on him to stop the aggravation. Before the audit I went to some mom and pop tax guy, when I got the letter all he could say was no man this is all good, you got proof, but he was useless to represent me, he never even heard of a NRP audit

It's a remarkably nasty and overly intrusive program, IMHO.
I sure hope I never get caught in it. Not that I haven't always been scrupulously honest in my tax returns, but the hassle is apparently overwhelming.
IRS Updates National Research Program for Individuals

 

[I earned it]

Yes it was, as you can see I'm still stinging from the experiance

 

[JoeWras]

Thanks for the additional info Texas Proud.

I have always been prepared (for the most part) to defend what is entered onto the tax forms.

What was new to me, with this post, was that it seems you need to be prepared to defend every bank account transaction also.

-gauss

Wow, new to me too. Holy Toledo, I didn't know they went that deep. This is indeed obtrusive.

If the link about the NRP is correct, last year's batch of notifications is probably going out now. Here's to hoping we all don't win this lottery this year.

 

[FUEGO]

I've had a couple of fat envelopes from the IRS. Once was them looking to garnish wages of a guy I paid for 1099 work years earlier. Like $100-200 total or something like that - very small. I guess they mailed out letters to everyone who had ever paid this guy anything.

The second fat IRS envelope was saying we owed $30k in taxes or something like that because we under reported by $63,000. Turns out a 1099 from a company we worked for had a decimal after 640 and before the 00 so it said $640.00. The IRS computer scanned it as 64000, missing the decimal place. After freaking out, it was relatively easy to get fixed. But facing a huge tax bill like that was scary.

 

[petershk]

Honestly I have no idea why they waste money doing that. If the goal is to reclaim the most amount of tax revenue with the least amount of investigation I'd go about it all different.

I'd look at your current assets: house, car, stuff as well as big expenses: vacations, jewelry, etc and then look at your stated income. If it fell within some reasonable range, I'd move on. If it didn't I'd dig a bit deeper.

Getting 700-800$ out of people probably costs thousands (the plane ticket for the auditor is probably more than 700 ).

If I walk into your 3m$ mansion and see a 35k tax return with no investment income... Well... That requires some explaining . If you live in a 300k house and paid 50k in taxes , spend 50k a year in expenses and have 5k in deductions and contributions... Is getting that 10$ error really worth it?

I suspect it's because auditors are evaluated in their precision and not their value... So maybe an incentive problem.

When I do my taxes they are sometimes very messy (e.g. right no I live overseas and own a rental in CA which having stock options vest). I'm SURE I made a mistake on my taxes... In fact I got a refund from CA last year because of a reporting error so you can imagine... Getting money from CA is like blood from a stone . So I try to fall within somenband of reasonability (I.e. look at what my tax bracket is and make sure my actually paid taxes are within reason). I suspect my return raises every flag there is but if you ask me in 3 years why I withdrew 2000 rmb in Shanghai on August 13th I'd have no clue and no way of finding out



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[JoeWras]

Getting 700-800$ out of people probably costs thousands (the plane ticket for the auditor is probably more than 700 ).

If you are talking about the NRP audit, the point is not to get anything. It is to develop algorithms to determine the future of who are the fat targets.