IRS Audit Party
March 30, 2017 5:43 AM   Subscribe

I just received a letter notifying me that an examination of my 1044's for 2011 and 2015 is about to begin. The letter is asking for a ton of information some of which I have no idea how to get. We have always been above board, filed our taxes, and paid what we owe. We did live overseas for part of 2011 and stuff got complicated. Looking for advice on having fun while attending a IRS party!

We are being asked for a ton of information including: 1044's all the way back to 2001, bank / credit card / wire transfers back to 2011, passports, cancelled checks, a schematic of any business entities we are involved in, and records of things we have no involvement in, e.g. trusts, foreign businesses, etc.

The complicated bits are that we lived offshore for 10 years and moved back in November of 2011. We had to transfer our pensions back here, sold a condo we owned on another island. All of which were part of our filing. In the meanwhile, we have started an LLC, started new jobs, done consulting. Let's just say we don't do an EZ filing.

So....what is the best way to handle this tactically and emotionally? Do they really want to see 5 years of credit card statements and my 400 trips to Starbucks? Cancelled checks? I have no idea how to get those. We have given our CPA power of attorney and won't hesitate to get a tax lawyer if required. I am confident we will be fine but I am of course nervous that maybe we made a mistake in our filings and missed some obscure rule within the tax code. Help me not completely stress during this process.
posted by jasondigitized to Work & Money (5 answers total) 2 users marked this as a favorite
I would schedule a meeting with your CPA to determine next steps. Good luck!
posted by Hanuman1960 at 6:21 AM on March 30, 2017

Let the CPA attend the meeting. You won't attend, thus you won't be asked any questions or expected to prepare any documents. The CPA will then prepare a sensible list of what you really need, based on what they tell him or her at the meeting.
posted by JimN2TAW at 6:39 AM on March 30, 2017 [1 favorite]

If it helps with the stress, my experience is that the IRS doesn't want to hurt you, they just want to make sure you paid your taxes. If you made a good-faith effort and missed something, they want to collect those back taxes, with interest, but still without undue pain – they are pretty understanding about what you can afford to pay now. Remember that you're dealing with hardworking bureaucrats who also just want to get through their work day with minimal stress.
posted by nicwolff at 7:23 AM on March 30, 2017 [5 favorites]

Best answer: I am not an auditor, but I handle a lot of (non-income) tax audits as part of my job function. Hopefully your CPA has audit experience, because I find this is the most important factor in an audit going smoothly. Set up a meeting so that they can speak confidently about the main financial changes each year.

If you can be there in person and be confident, it goes a long way to establish transparency. That goodwill can turn a 3 month audit into a quick meeting with zero findings. If you would be visibly anxious or uncertain about your finances, you could do more harm than good. You don't need to be certain about taxes. Your CPA is the subject matter expert on how your income is taxable, while you are the subject matter expert on how you earned and spent your income.

The first document request is basically a list of every possible thing that could apply to every possible taxpayer. So the reference to 2001 is based on the idea that you have a tax carryforward amount (Net Operating Losses are common here) that references 2001 data. You can pretty much disregard it and rely on your CPA to determine the relevant documentation.

Your CPA should already have an idea of what red flags triggered the audit. They don't need to have everything requested, but they should know the timeline if the auditor requests additional documentation. So find out how long and how much it would cost to get your credit card and bank information. If something would prove difficult to access, I've had a lot of success asking "what are you trying to validate, and is there an alternative way to prove that fact pattern"

Again, I am not your CPA, and I don't work with the IRS. But I've found that auditors are under pressure to spend their time on obvious tax deficiencies. By demonstrating transparency and competence, it's hard for them to justify much more than a cursory review.
posted by politikitty at 1:02 PM on March 30, 2017 [1 favorite]

I'm confused I thought the statute of limitations was 3 years unless they find something in 2015, then they can ask for additional information.
posted by cda at 3:45 PM on March 30, 2017

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