Who had been audited by the IRS?

[Trek]

I read a lot about keeping documents for years because if you're ever audited you will need them. Out of curiosity I have been asking people I know or run into if they have ever been audited, just as an informal little poll and have yet to find one who has.

So who on the boards have PERSONALLY been audited by the IRS regarding your annual income tax filings? Not stories about other people who may have been and not business/company related audits.

Also, if you were audited, how long ago was it and what where they accusing you of and/or looking for? Was there something specific on your return that threw up a red flag (extra creative deductions, etc)?

 

[Texas Proud]

Trek...

I was just when I was out of college when I was doing tax work... they were not mine, but I have been involved in a few dozen IRS audits...

Also, my BIL was audited and I went in with him...

And just as a final matter... YOU might have been 'audited', and not know it... they do a number of audits and never talk to the person... some are computer audits that spit out your return, a human looks at it and sees everything is OK and it goes through as an audit...

OH, my last comment... I have not put on a 1099 once and got a letter.. that is also an 'audit'... even though it is by the computer...

 

[kjpliny]

I had an IRS guy come to the house asking to talk with me after not filing for two years in a row. My dad told him I was not home, but that I was a full time student and wasn't working. I had to send the IRS proof (college transcript) to get em off my back.

 

[Nords]

So who on the boards have PERSONALLY been audited by the IRS regarding your annual income tax filings?

We've received a few letter queries over the years on home sales, Roth IRA conversions, and the occasional 1099.

California was especially vicious about a home sale-- it was real easy to gain the impression that you had to pay or else Malibu Barbie & Ken were going to break your kneecaps. And the IRS' latest letter about the Roth IRA had plenty of blocks to "check here and send us a check" but no block to say "Our computers read our tax returns and we have no idea what they're doing".

It doesn't matter whether a 1099 is right or wrong-- only that the tax return match exactly what the 1099 has on it. If they don't match then you might as well spend the time changing one of them before the IRS computer gets annoyed and sends you a letter.

 

[free4now]

I've never been audited in the traditional way where I had to prove what I reported on my return.

But a couple of times when I was in college filing handwritten 1040-EZ returns, I had the IRS say I overpaid or underpaid my tax by some small amount.

From what I have been reading it is extremely rare these days for individuals to get a full audit where they have to prove everything on their filing.

 

[wabmester]

California was especially vicious about a home sale-- it was real easy to gain the impression that you had to pay or else Malibu Barbie & Ken were going to break your kneecaps.

How did you get out of that one? I'm pretty sure California does consider the gain on the sale of investment property to be taxable California income even if you live in another state, so you would own them taxes unless you had the personal home-owner exemption.

 

[Nords]

How did you get out of that one? I'm pretty sure California does consider the gain on the sale of investment property to be taxable California income even if you live in another state, so you would own them taxes unless you had the personal home-owner exemption.

Well, yeah, that's exactly what we did, but California's not going to tell you that. As far as you could tell from that letter, everyone who's ever sold a CA home pays the state 25% of the profits.

I guess that's what happens if the state/govt teaches you about taxes. I wonder how many people get a letter like that, gasp & clutch their heart, and then write a check. Assuming that they can read Taxlish in the first place...

 

[dex]

OH, my last comment... I have not put on a 1099 once and got a letter.. that is also an 'audit'... even though it is by the computer...

What does it mean "not put on a 1099"?

 

[Lakewood90712]

Got the IRS letter in late 2005 for tax year 2003. It was over 1099 and sch D issues.

I made an error by using the corp. sch D rather than the 1040 D form. (last minute rush to download the form and file) .

So because it was not on the correct sch "D" , the IRS just trashed the sch D and made no entry. (I filed my mail that year).

I actually OVERSTATED income, because of a bond fund DRIP. I ended with a refund on an ammended return , rather than owing.

Problem is, the audit section refused to meet in person, and out of 5 "Tax Examiners" on the phone, only one knew what a dividend reinvestment prog. is and how shares are accumulated at various prices and dates.

I had sue the IRS in federal tax court , and just by coincidence , the IRS corrected my return on the date the tax court served notice .

Yes , I made an error, but the folk's at the IRS could have sent back the return with the wrong sch D at time of filing , but no, they wait 2 years.

 

[Nords]

What does it mean "not put on a 1099"?

Whoever sends you a form 1099 (capital gains, dividends, interest, mortgage interest paid, retirement benefits, royalties, rental income, miscellaneous income) is required to send a copy of that 1099 to the IRS.

Depending on the diligence of the guy filling out the paperwork it's quite possible for a 1099 to be reported to the IRS without you receiving your own paper copy in the mail.

The IRS computers automatically compare your return to the IRS copies of the forms 1099 that they've received for your Social Security number. If the IRS can't match a $$ number off a return to a similar number on a 1099 then the letters start going out.

 

[Bram]

We got an audit letter in Feb '06 for our 2003 tax year. Trouble was we were 2000 miles from home, just starting a 3 month work assignment. So I had to fly home & gather up the things the IRS requested.The audit was directed specifically to claimed deductions related to DH's expenses for travel/work. I had done our taxes that year & my records, looking back, were ummm... not so great. I "prettied up" the spreadsheet that I had used for record keeping & highlighted some items that answered some of their questions. I had to copy some sales receipts....... some of them fade or don't copy well (eek!) as in *unreadable*. I think the red flag for the IRS was that I had increased the base value of a depreciation item over the value that had been listed in 2002..... so I added an explanation for that increase. I thought the packet I sent them in response was more than thorough & quite organized & felt that I'd given it my best shot. But still I was on pins & needles because I thought they might at a minimum, not allow the unreadable receipts (which I hand wrote off to the side the $ values, etc) as well as find no validity in my unsolicited explanation.

I think it took a couple of months to hear back & they accepted the info provided by me & no further inquiries, taxes, nor penalties were inflicted!! BIG sigh of RELIEF!

I might add... in going over & reviewing all the stuff I'd gathered I did spot some rather minor errors (numerical mostly, I think) within my records, but I left it "as is"-- sleeping dog theory. They didn't spot, or point out, anything as being remiss.

I learned a lesson.... be more organized. I didn't have all the "stuff" in one place & even had pitched some info on insurance (but was able to get the ins.co. to send me the needed from their records).

 

[LEX]

This is not to be used as tax or legal advise. It is being posted for entertainment purposes only.

IMHO the IRS uses 'selective enforcement" as their way of compelling compliance. If you make less than 100K there is not much upside for them to put you through their compliance audit. It has become a matter of data base review. If you are colorably correct, the adminstrative process will typically work in your favor despite some clerks initial brazen conduct. They have the burden of proof. Make them earn every cent if they disagree with your good faith tax filings.

I get audited at least once every three years due to much of my income being from overseas resource ventures. I represent myself and line up my documents and the regulations in a position paper.

The key is to make certain that you have your documents, the applicable regulatory support for your position, and present a copy to the examiner at the initial meeting such that the IRS staff member sees that all you have to do is place it in the form of a petition and file it with the Tax Court.

This tends to keep the meetings short and professional. I have never had to follow up, place a petition masthead on the position to make the IRS show their hand in open tax court.

During this process I do not volunteer that I am a lawyer. I list my profession as an investor. It takes all of five minutes for the IRS examiner to size me up as whether or not I would make a possible complaince target and soon understands any good faith dispute is going to be well litigated on the merits. If he has a valid point I will concede. If he is simply posturing or, more typically, has not done his homework, I will help him better understand what I believe the misapplication of the regulation is based on my opinion. Being "pro se" I take the time to represent the issue. I am always polite.

I have yet to have the several audits result in any adverse subsequent IRS action. I do follow up with the examiner and require that they either send me a clearance letter on the issues under review or advise them I will seek the same through a private advisory letter in a formal request. This always triggers the clearance letter, since they do not like bad precedent of record.

The most important aspect of all this: So long as you are trying to comply in good faith, defend your position and make them bear their burden of proof. Reasonable differences of opinion can be resolved. Irrational behavior by either the IRS staff or the taxpayer is seldom rewarded by the tax courts.

 

[firewhen]

We have never had a problem because we only have W-2 income and some dividends, and fairly normal deductions. How far can we stray before it might cause attention? Our charitable giving usually winds up being about 2%, which is in the average range I have seen published, but would kicking that or any other computer unverifiable deduction up a couple thousand cause problems? Some years when I owe I am tempted to fudge a bit, but I am reluctant to have the IRS start asking questions (and I have also heard that once they review you they sometimes look at future or prior years as well). Thoughts?

 

[uncledrz]

Audited twice, 10-15 years ago. Both time having to do with verification of expenses regarding real estate matters.

I met with the examiner, provided the documentary verification. Professional on both sides both times.

 

[Texas Proud]

What does it mean "not put on a 1099"?

I was sent a 1099 but never received it, so I did not know about it... thought I had them all... so, I did not put it on my return..

 

[LOL!]

Months after filing my 2005 tax return, I received an amended 1099DIV and separately a 1099R. Rather than me going to the time and expense of filing an amended return it looks like from the above posts that the IRS will just send me a bill for the tax on the additional income if they get around to it. Or should I worry about this?

 

[Nords]

How far can we stray before it might cause attention? Our charitable giving usually winds up being about 2%, which is in the average range I have seen published, but would kicking that or any other computer unverifiable deduction up a couple thousand cause problems? Some years when I owe I am tempted to fudge a bit, but I am reluctant to have the IRS start asking questions (and I have also heard that once they review you they sometimes look at future or prior years as well). Thoughts?

I know that it's a bad idea to misread your property-tax statement and to accidentally depreciate the land under the rental property as well as the structure itself.

That earned a family friend an immediate audit and about a decade of followups.

The deduction rules have generally been getting tighter and there are new rules this year. If you're tempted to fudge then you may be a test case for the enforcement division. If, on the other hand, you maintain the proper records and stay within the lines then deduct to the max extent of the regs.

Months after filing my 2005 tax return, I received an amended 1099DIV and separately a 1099R. Rather than me going to the time and expense of filing an amended return it looks like from the above posts that the IRS will just send me a bill for the tax on the additional income if they get around to it. Or should I worry about this?

Ruh-roh.

They're both a PITA, but it's less work to file an amended return than it would be to let the IRS bring it up. If it was something that didn't generate its own separate paperwork to the IRS then maybe you'd be able to get away with the evasive maneuver, but not in this case. I'd say that the chances of their computers tracking down the 1099s is about 99.99% and the only question would be when, not if, you get the letter.

Penalties & interest accrue from the date of the offense, not the date it's discovered...

 

[Texas Proud]

To the guy that was overseas....

You reminded me of one audit that someone else did in my office... the IRS was being jerks and were not giving us an inch... SO, we decided to request an audit at the taxpayers address (I don't know if you can do this anymore... but you could way back when).. we informed the agent the taxpayer was in Saudi Arabia and was looking forward to meeting him... they change course quickly and made no changes...

To the guy about how much you make...

Well, again from a long time ago, but I think it is still valid... They have a computer that grades every return... you get a score and then the various offices looks at how many people they have, how many they can look at and pick the highest scoring exams... if you live in Kansas, you can have a low score and get audited, but have a higher score in New York and not...

They also used to have 'red letter' issues. I know for awhile if you claimed a home office you were automatically audited... I think there have been a lot of litigation that has settled this a bit, so it might not be one anymore..

 

[Nords]

They also used to have 'red letter' issues. I know for awhile if you claimed a home office you were automatically audited... I think there have been a lot of litigation that has settled this a bit, so it might not be one anymore..

The IRS also searches discussion boards to see who's been asking questions about audit triggers!

 

[Donzo]

I once recieved a letter from the IRS requesting some backup info for a couple things on my return - I sent them in - and a couple months later got a letter saying they were satisfied - I am holding on to that letter!

 

[Robert the Red]

I was audited about 20 years ago, while in graduate school. The first issue (that triggered the audit) was my exclusion of income from a required teaching assistantship -- which WAS excludable for the tax year in question. Then the auditor went on to the entire return, and accused me of fraud at one point, and slapped me with a tax due and fine notice for about $8000 -- about 2/3 my gross annual income, and money I didn't have. I ended up owing nothing at all, because he had made a mistake in interpreting my return and the tax code.

I do not think he was professional, and still have negative feelings about him. He quite literally accused me of a committing a felony, based on less than 2 minutes looking at the relevant form. My $200 payment to an accountant to straighten out the matter still rankles a little.

The whole thing was part of a wave of audits on this issue at that time in Southern California. I have no idea why anyone thought that they were going to make a lot of money by auditing graduate students.

 

[Nords]

My $200 payment to an accountant to straighten out the matter still rankles a little.

I wonder if that was tax-deductible.

 

[Brat]

Some how the IRS thinks I represent a taxpayer I do not know. I am not in the tax business at all. First I called them, then I sent a letter. They sent a form for 'withdrawal of representation'. Since I didn't ever represent them I didn't see how I could withdraw. I keep getting envelopes addressed to them c/o me upon which I now write, "return to sender" and continue my blurb that the addresses are unknown to me, that I do not represent them. I even told them to check their original representation records for the taxpayer. Arrah!!!

 

[Trek]

Of course, when you get down to it, there is no law that says you must pay taxes at all. There are only judicial rulings against people who have challenged the legality of paying taxes.

 

[LEX]

From Texas Proud: "They have a computer that grades every return... you get a score and then the various offices looks at how many people they have, how many they can look at and pick the highest scoring exams..."

Bingo, you get the prize cowboy! While my friends who practice tax law do not know the c/c++ versions or assembler terms in the custom software commisioned by the IRS that is used for audit trigger scoring, that is precisely the basic result of the 'call the issue and audit" range built into the application of the audit trigger program. You can go loose with the 1040 and still get some serious mileage in high desity income jurisditions like LA, NY and CHI. Its a relational data base program that flags % distribution outlyers. If you really want to test the boundrys of the tax code and the computer program that acts as its rational filter, file based on your domicile being based in Nevada.

Its thie high risk cash intake dentists and plastic surgens that actually replace common sense with greed that get in trouble in those locales, according to classmates of mine that know the scoop.

"Gawd I love the law..."