Tax Prep by Deb Posted August 3, 2009 Report Share Posted August 3, 2009 I am going to my first audit with my client tomarrow, and I am feeling a bit nervous. Not because of the work I did for the client, and in going over everything it looks like she has all the doc's she needs to justify deductions and so forth, but I have no clue what to expect. I keep trying to prepare her and she although feeling confident is going into it with a terrific attitude. She feels and so do I that it is a learning experience, and even if she owes she is prepared. I know some audits are done by going to an IRS office, this one however is being done at my clients office. The original letter stated that they are wanting to review the automobile expenses, insurances other than health, cost of goods sold, and utilities. These are all on schedule C. However in the second letter they sent her it wants all kinds of info. When she read me off the list it sounded like they are looking deeper than the first stated things. Should I be worried more so because they are coming to my client or is this pretty normal. I have only had one other client that was audited and she went it alone and things turned out o.k. but she went to the IRS office they didn't come to her. Any thoughts would be appreciated. I have worked for this client since they started their business and from what I can see everything is on the up and up except for some small mistakes that I caught when reviewing their actual QB file. Again I don't forsee anything major, but I am sooooooo nervous! More so than my client! Deb! Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted August 4, 2009 Report Share Posted August 4, 2009 Sounds like you have no need to be nervous. You did not mention the type of business, but often they like to hold audits of small businesses at the business to see the operation. That should not normally be a problem. Of course, if it's an office in the home situation, they will be looking for anything that would indicate it's not 'exclusively' used for business. In a regular business office audit, they will be looking at how the business is run, how cash sales are recorded, for example, How inventory is accounted for, how the owner takes money out, etc, looking for whether personal use items are recorded as such, whether all the utility bills are business bills, whether the owner accounts for cash sales properly, etc. One way to prepare is to look at the MSSP for that type of business, as that is the auditor's guidelines. It will help you prepare not only for what is asked, but why they are asking it. http://www.irs.gov/businesses/small/articl...=108149,00.html Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted August 4, 2009 Report Share Posted August 4, 2009 I would NOT recommend allowing the audit to happen at your client's office. Call the auditor and tell him/her that you will represent your client, and the audit will be at the auditor's office. A neutral venue is the best. Do NOT take the client! Don't be nervous either. Most of the things the second letter ask for are routine, and may not even be discussed at the audit. Do not offer information unless the auditor asks. I just finished an audit for one of my clients on July 15. If you wish, send me an e-mail, and I will gladly chat with you on the phone about the process etc. There is no need to be nervous if your client has documentation, and you have done your normal due dilligence. My audit found a simple math mistake by the client, and the result will be an additional tax of $200 or so. He had a trucking business with nearly $1Million of income. Just relax and continue your same professional methods of doing things. Again, I will be glad to share my experience and information. Just contact me. Quote Link to comment Share on other sites More sharing options...
jainen Posted August 4, 2009 Report Share Posted August 4, 2009 >>I would NOT recommend allowing the audit to happen at your client's office<< No good can come from letting the auditor onto the premises, although it will not necessarily be bad. The idea is supposed to be that all the records are available there so the audit can go smoothly. But you may not want the audit to go smoothly and you certainly don't want all the records to be available, not to mention trying to hide the fact that some records don't even exist. It is perfectly reasonable to ask a field auditor to come to YOUR office. IRS will agree if you explain that accounting records are maintained by the accountant. If the audit is at the business, prepare a private office where you can leave the examiner alone without fear of snooping. This audit will take several hours and your client can't afford to have you there the whole time. Same thing if it is in your own office. You will give the examiner the box or file cabinet she needs and go about your own business until she calls your cell phone. Make sure you have some Diet Pepsi and Costco muffins for her. Remove (not just lock) all records including the computer, except those relating directly to the P&L and tax return for the specific year. Don't worry about looking like you have something to hide. Hide it. Of course remove all personal items like the guitars and quilt frame. I mean, put a lot of work into this. Do not allow the auditor to tour the facility--not even public areas or the parking lot (tell the client to leave her Beemer at home and drive her son's old pickup that day. No, I'm not kidding.) The auditor has no right to talk to any employee or even the owner, or to interrupt business operations in any way. You can remember all this but your client can't, which is why you should consider not having her around. The auditor will be very charming and friendly, but she's not kidding either. Quote Link to comment Share on other sites More sharing options...
TAXBILLY Posted August 4, 2009 Report Share Posted August 4, 2009 Unfortunately Deb's audit is today so we are probably too late to give advice. taxbilly Quote Link to comment Share on other sites More sharing options...
Lion EA Posted August 4, 2009 Report Share Posted August 4, 2009 The client called you from her sick bed, right? So, you're calling the auditor to meet her at her office, right? With only the info requested in the letters. Your answers are yes, no, and I'll contact my client when she's feeling better and get back to you. You'll hand over items as she asks for each one. Good luck. Quote Link to comment Share on other sites More sharing options...
jainen Posted August 4, 2009 Report Share Posted August 4, 2009 >>The client called you from her sick bed, right? << I meant what I said--field auditors are friendly but aren't kidding. If you waste her time, she won't be friendly anymore but she still won't be kidding. Field auditors are more experienced and know many more dodges than you can think of. Give her the box and the Pepsi, then get out of her way. Quote Link to comment Share on other sites More sharing options...
Karen Lee Posted August 4, 2009 Report Share Posted August 4, 2009 I have an audit with Labor and Industries (workers comp) in 40 minutes. I've turned off the A/C and will have water available. The auditor was a no show on the original appt time so let's see how it goes. Karen Quote Link to comment Share on other sites More sharing options...
MAMalody Posted August 4, 2009 Report Share Posted August 4, 2009 I agree that a field audit is not a joke and will be, generally, a pleasant experience, until you get the results. It is almost impossible to limit an auditor in record searches when on the business premises. It is entirely possible in the search for an legitimate answer that something could be seen that could expand the audit beyond the normal scope. I even know of a case where a field auditor was also performing a field audit and at the same time looking for info for CID (I was an auditor in the 70's) for a partnership issue that had nothing to do with the field audit under way. I can't remember if it was said, however, unless you have a rock solid reason based on law, don't challenge the auditor. You will generally never win and could poisen the whole audit and eliminate any discretion the auditor would choose to use in your favor. Quote Link to comment Share on other sites More sharing options...
Tax Prep by Deb Posted August 5, 2009 Author Report Share Posted August 5, 2009 Thanks to all who did respond. I apologize for waiting until the day before the audit to post my comment, but I have had a wacky couple of weeks and am trying to leave town in a day or two. The auditor was very pleasant and appears to want to work with us. He did find some descrepencies in the deposits to the bank verses what shows on the books. My client feels that it has to do with monies they invested into the business and he did take a close look at any deposits that were marked transfers and gave them credit as such. Even so there is about a $20,000.00 descrpency. He did say though that he may have missed a couple of the transfers so my client is going back and adding herself just to double check. I also suggested she pull a report of all her deposits and look carefully for anything non business. I had caught a mistake when I was reviewing her books, we addressed it and it doesn't seem to be a problem. He asked me to prepare an ammended return with the correction for his review but he and I feel it will result in no change. All in all today went fairly well. I wasn't there when he left as I had to leave early for another appointment, but my client did inform me he would be calling me for clarification on some items, and I have notes in my return that should settle them. I hope I never have a client with an audit again, but if I do I will definitely let you in on it and I will welcome any help that can be given. I will keep you posted as I hear more. Thanks again for your advice! Deb! Quote Link to comment Share on other sites More sharing options...
TAXBILLY Posted August 5, 2009 Report Share Posted August 5, 2009 The auditor was very pleasant because he/she is trained to be. You'll know how successful you were when you get the auditor's report. It may include penalties, such as understatement of income, which can be quite costly so please let us know before advising your client. There are ways to abate penalties and it's not a good idea to automatically agree with everything the auditor decides. taxbilly Quote Link to comment Share on other sites More sharing options...
Tax Prep by Deb Posted August 5, 2009 Author Report Share Posted August 5, 2009 The auditor was very pleasant because he/she is trained to be. You'll know how successful you were when you get the auditor's report. It may include penalties, such as understatement of income, which can be quite costly so please let us know before advising your client. There are ways to abate penalties and it's not a good idea to automatically agree with everything the auditor decides. taxbilly Thanks, I will definitely keep you posted. We are still trying to find the descrepency as my client is sure that nothing was hidden. I do agree with how he came up with the descrepency I just would feel better knowing if it is legitimate or if a transfer, cash advance, loan, ect... caused the problem. I will let you know what the final report shows and if anything else comes up along the way. Thanks, Deb! Quote Link to comment Share on other sites More sharing options...
JohnH Posted August 5, 2009 Report Share Posted August 5, 2009 You probably have plenty of ways to find the discrepancy and don't need my help, but QB's ability to print to Excel is extremely valuable in this situation. I'd set up a report showing only deposits, then export it to an Excel spreadsheet. Then add a column beside it and list each deposit directly from the bank statement. Anything that's on the bank statement that isn't in the QB column is probably the culprit. (you might have to do a little adjusting for in transit items at the end of each month, but that process flows pretty well once you identify one or two of them). Add a couple of "Comments" columns and you have your analysis to hand to the auditor. I'd expect to be able to knock out a minimum of 100 deposits per hour using this approach. Quote Link to comment Share on other sites More sharing options...
joanmcq Posted August 7, 2009 Report Share Posted August 7, 2009 She asked for more docs than on the IDR because she suspected underreported income. You'll have to prove all deposits that were NOT taxable income..that was the removal of the transfers. She found 20k at this point you couldn't justify. Figure out what it is or there will be a 20k adjustment upwards. Quote Link to comment Share on other sites More sharing options...
Tax Prep by Deb Posted August 8, 2009 Author Report Share Posted August 8, 2009 That is exactly what we are doing. The man doing the audit is sending us his deposit reconcilliation and wants me to go over my clients records of deposits with her to see if we can find the descrepency. My client is baffled at the difference but we will be looking it over and see if we can justify the difference. So far this seems to be the only concern so if we can clear this up we may be o.k. Deb! Quote Link to comment Share on other sites More sharing options...
Tax Prep by Deb Posted August 31, 2009 Author Report Share Posted August 31, 2009 I just received a phone call from the IRS Auditor to let me know that he is closing the audit of my client with no changes. I am so verrrrry happy! My client thinks I'm swell, and the Auditor and I are on first name basis. This was just the shot of confidence I needed. Thanks for all you offerred to help. If it happens again I will not wait until the day before to let you all know. You guys and gals are wonderful and I am so happy to be a part of this community! Deb! :P Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted August 31, 2009 Report Share Posted August 31, 2009 That is great. I knew you could handle it. Quote Link to comment Share on other sites More sharing options...
Tax Prep by Deb Posted September 1, 2009 Author Report Share Posted September 1, 2009 That is great. I knew you could handle it. Thanks KC for your vote of confidence. It means a great deal to me! When I grow up I want to be just like you too! Deb! Quote Link to comment Share on other sites More sharing options...
Margaret CPA in OH Posted September 1, 2009 Report Share Posted September 1, 2009 Deb, congratulations! Whether it's a first baby, first marathon or first audit, it's a bit intimidating no matter how well prepared and we here know you were well prepared. And KC has at least 2 in her groupies that want to be just like her. I won't measure up but will keep trying. You are well on your way! Quote Link to comment Share on other sites More sharing options...
Catherine Posted September 1, 2009 Report Share Posted September 1, 2009 I just received a phone call from the IRS Auditor to let me know that he is closing the audit of my client with no changes. I am so verrrrry happy! My client thinks I'm swell, and the Auditor and I are on first name basis. This was just the shot of confidence I needed. Thanks for all you offerred to help. If it happens again I will not wait until the day before to let you all know. You guys and gals are wonderful and I am so happy to be a part of this community! Deb! Congratulations Deb!!!! Now raise your rates! :lol: Quote Link to comment Share on other sites More sharing options...
Wayne Brasch Posted September 1, 2009 Report Share Posted September 1, 2009 I always arrange with IRS or the State (whichever it may be) to meet with them at their office or at mine. I never let the meeting be at the client's place of business. I go alone without the client. I had a client one time that insisted that he wanted to attend the audit on his Schedule C business. I told him he should not be there, but he insisted. I told him it would not be good for him. We went into the IRS office at the appointed time. The auditor started with her usual questions that appeared on her checklist. I began answering them until a point was reached that she said, "The client is here, let him answer ." Her question to him was then, "Do you have domestic help that comes into your home?" To that he said, "Yes, so what does that have to done with anything?" She then asked, "Did you file all the appropriate payroll tax forms?" He said, "What payroll tax forms? No, I didn't know I needed to do that. Needless to say the situation went downhill from that point. This venture cost him a lot of additional tax, penalties, and interest for the three years prior to the year that was under audit. Had he stayed at home and let me go alone, when she asked the question about his household domestic help, I would have said that I didn't know but would find out for her. Most of the time that would have been the end of that series of questions. From this experience I learned to not allow the client to be involved with a tax audit. I don't allow the client to go with me nor do I allow an auditor to meet at a client's place of business. I meet the auditor at their office or they meet me at mine. Wayne Brasch Quote Link to comment Share on other sites More sharing options...
jasdlm Posted September 1, 2009 Report Share Posted September 1, 2009 Congrats, Deb! I had my first audit this summer, also, so I know how terrifying it can be. Quote Link to comment Share on other sites More sharing options...
Lion EA Posted September 2, 2009 Report Share Posted September 2, 2009 Congratulations, Deb. It feel good to get that first one under your belt. Raise your rates now. Quote Link to comment Share on other sites More sharing options...
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