Why does IRS grill the little guys?

[andy158]

My first audit ever will be June 2 and I am amazed at the info they want. My wife and I made a total income of $68k and we had a refund of $1,740 for 2009. We filed married w/ one child. The IRS is doing a field audit on my wife's reported income of $28k. She is an independant contractor for a health care company. They are coming to my home to verify she has an office area in the house complete with computer, printer, fax machine, file cabinets and want to measure the office space (10' x12') I claimed. Also want to verify the odometer reading on the car I claimed milage on, all bank statments from 2007, 2008, 2009, and copies of my tax returns from 2007 to present along with reciepts, W-2's, etc. WOW! I feel like I am on trial and for what? A meazly refund? Our refunds have never exceeded $1,800 in our entire life. I have all the documentation they require and did not "fudge" anything on the return. Boy do I have questions for the auditor when he gets here. I guess they can't go after the big fish that got bail outs!

[MSbklawyer]

Why does IRS grill the little guys?

Because the big guys can hire armies of lawyers and accountants to defend themselves and you can't, that's why. Don't waste your time looking for a deeper, philosophical reasoning; there isn't one. I'd suggest you get a tax lawyer or an accountant on your side yesterday. Don't make the mistake of thinking like: "Well, we've done nothing wrong, and we have nothing to hide. All we have to do is put all our cards on the table and everything will be ok."

I.R.S. agents have the same sadistic "YOU WILL RESPECT MY AUTHORITAAAY!!!" pshychological profile as is common in cops, debt collectors and prison guards. They will find something wrong -- it's like a mission to them.

Boy do I have questions for the auditor when he gets here.

I bet you do. And about 2 seconds after you get the first one out of your mouth, you will be quickly set straight about who is going to be asking the questions and who will be answering them. What? Did you think you had some rights or something?

[LadyInTheRed]

Andy158, since your wife is an independent contractor, I assume your return includes a Schedule C. I read somewhere recently that a return with a Schedule C puts you at a higher risk for audit. So does a home office deduction.

[ryan]

I had one of these 'field audits' about 6 years ago. Lasted over 2 months. Not the initial part, but all the follow-up and back and forth between my Cpa and the IRS rep. And yes, they do look for a reason to bill you for something, anything. The IRS does not like self-employeds because they have more control over their income and expenses. They feel that self-employeds cheat, so that is the mindset they bring into an interview.

[andy158]

I read somewhere recently that a return with a Schedule C puts you at a higher risk for audit.

Yes, her income was on a 1099 and I filed a schedule C for her "buisness". My parents have had audits in the past, but met with the auditor at a federal tax office. I find it peculliar they are coming to my home with a microscope. I can't afford a tax lawyer due to being in bk 13 at this time. One of the other contractors for the health care company my wife works for has been audited for three consecutive years. What is odd is that I paid over $4k in federal taxes.

I can't afford a tax bill at this time. Spread thin enough as it is.

[justbroke]

The IRS is doing a field audit on my wife's reported income of $28k... She is an independant contractor for a health care company. They are coming to my home to verify she has an office area in the house complete with computer, printer, fax machine, file cabinets and want to measure the office space (10' x12') I claimed...

Claiming a home office is one of the number one reasons to be audited. I stopped claiming a home office back in 2003 to avoid any possible audits. It's just not worth it. Anyone who only makes $28K and is claiming a home office deduction and mileage -- and other business expense -- is much more likely to be audited than say someone making $150K a year who is a professional.

The home office is deduction is a red flag for the IRS. Don't ever use it unless the area is 100000000% exclusive to the business. The IRS will deny the deduction if they see a toy, your personal clothing, dog carrier, or anything looking like you use the "office" for things other than business. Even if it's less than 10% non-business use! They are sticklers about this. If you use that "business" office to pay or tend to "household" related bills or things... they will pounce as well.

Also, they go after the small guy because the small guys are the ones that are more likely to abuse the tax code. The bigger guys, like MSbklawyer eluded to, use accountants and hire attorneys when there are larger tax issues and complications.

[StartingOver08]

MSBklawyer and JustBroke have nailed it. I NEVER take the home office deduction and I have a home office that I use all the time for business. Its too easy to have 'personal business' files in the same location. It is just not worth the audit risk to me. I can tell you, don't come off with an attitude when the field agent gets to your home. They have the power, and authority to go back even further in your tax audit if they find anything in a prior year. I was audited in 1983 and I will never forget it -

[banca rotta]

I also agree with MSBklawyer and JustBroke. Not only is MSBklawyer very correct on IRS matters, but this also applies to filing bk.

Like the IRS the UST has a limited budget and resources and will always go after the little guy that can't afford an attorney.

Life is all about who has the better attorney and no one will ever convince me otherwise.

And everyone wonders why good people fly their small planes into the IRS building.

[Flamingo]

Anyone who is self-employed should have a CPA or tax professional do their taxes each year so that if an audit is done, it's the CPA who can provide all the information and records. There are CPAs who handle the little guys as well as the big guys. The IRS is well aware of what goes on as to people and tax returns and as stated above, certain areas automatically pull a tax return for further review and/or an audit. Self-employment, large contribution deductions and claiming insolvency through the IRS (i.e. form 1099s) are a few more.

[ssmdem]

MSBklawyer and JustBroke have nailed it. I NEVER take the home office deduction and I have a home office that I use all the time for business. Its too easy to have 'personal business' files in the same location. It is just not worth the audit risk to me.

I totally agree!! I'm an independent contractor for a health care company as well - have been for about 10 years - and nope, not taking that home office write-off. I did hire a CPA a couple of years ago as I was on a time crunch and just didn't have time to do the taxes. He was shocked that I wouldn't take it, told me I was entitled to 10% of my home square footage (not sure where he got that figure from - thin air I guess) and actually put it in the tax returns anyway. $400 later - I still ended up doing the taxes myself as he had thrown in all kinds of stuff. Nope, never again. Thank you, I do just fine doing them myself.

[BigJohn]

My first audit ever will be June 2 and I am amazed at the info they want. My wife and I made a total income of $68k and we had a refund of $1,740 for 2009. We filed married w/ one child. The IRS is doing a field audit on my wife's reported income of $28k. She is an independant contractor for a health care company. They are coming to my home to verify she has an office area in the house complete with computer, printer, fax machine, file cabinets and want to measure the office space (10' x12') I claimed. Also want to verify the odometer reading on the car I claimed milage on, all bank statments from 2007, 2008, 2009, and copies of my tax returns from 2007 to present along with reciepts, W-2's, etc. WOW! I feel like I am on trial and for what? A meazly refund? Our refunds have never exceeded $1,800 in our entire life. I have all the documentation they require and did not "fudge" anything on the return. Boy do I have questions for the auditor when he gets here. I guess they can't go after the big fish that got bail outs!

I had a 2007 business tax audit this year. The agent wanted to come to the business. I got on the phone and was able to get it switched so that I would go to him. It appears that this is a rare thing to get done.

After the 2007 records were audited and no tax was due, he asked to do the 2008 records.

Recently, I got a letter from the IRS demanding the 2009 tax return even though I asked for an extension. I went and got them done before their new deadline.


What I found with the audit is give them a lot of information - like way too much and make sure the data is accurate. I created a spreadsheet that kept a running tally of the cash that came into the business and left the business. I figured if there was anything they really wnted to investigate it would be where the money went, not so much the credit/debit receipts.

If you ever look at the IRS website's procedural manuals for field agents, they can do just about anything they want to do. Some of their tactics are very scary.


If you give them everything they want they will eventually leave you alone.

One person I know who got audited claimed they came to his house and checked the labels on his shirts to see if he was buying expensive shirts. So don't be surprised if the auditor does soom strange things.

[andy158]

One person I know who got audited claimed they came to his house and checked the labels on his shirts to see if he was buying expensive shirts. So don't be surprised if the auditor does soom strange things.

If it gets to that point I will draw the line and have the audit stopped and consult a lawyer (even though I can't afford one). That is an invasion of privacy. These auditors do not wield the power of the Nazi Gestapo. I mean really, its an audit for a $1,740 refund. Not a criminal investigation.

I do have one ace in the hole that may or may not work in my favor. Our entire basement is full of equipment/supplies that my wife depots to the health care events she manages. I did not claim one square inch of that space.

[LoadedGuns]

If it gets to that point I will draw the line and have the audit stopped and consult a lawyer (even though I can't afford one). That is an invasion of privacy. These auditors do not wield the power of the Nazi Gestapo. I mean really, its an audit for a $1,740 refund. Not a criminal investigation.

I do have one ace in the hole that may or may not work in my favor. Our entire basement is full of equipment/supplies that my wife depots to the health care events she manages. I did not claim one square inch of that space.

Yeah, I'm sure that will go over well.

[BCA2009]

If it gets to that point I will draw the line and have the audit stopped and consult a lawyer (even though I can't afford one). That is an invasion of privacy. These auditors do not wield the power of the Nazi Gestapo. I mean really, its an audit for a $1,740 refund. Not a criminal investigation.

I do have one ace in the hole that may or may not work in my favor. Our entire basement is full of equipment/supplies that my wife depots to the health care events she manages. I did not claim one square inch of that space.

Don't get hung up on the refund part. You could have gotten back $1 or $10,000. Instead it's your total tax liability compared to your gross income.

There are many, many triggers that can cause an audit. They compare average tax liablity for similar sized and type of businesses. As said earlier, the home office is trigger. Plus all kinds of other things.

There are a number of benefits to hiring a CPA. The CPA represents you during the audit, usually at the CPA's office. Also you have the ability to "blame" the CPA for mistakes or incorrect "positions" taken on expenses.

I also don't take the home office deduction although I could, for the same reasons as others have said.

Make sure all your ducks are in a row. Find back up for all expenses. Even if you have to re-construct schedules and data. I did not say fabricate. But if you took mileage on a car. Make sure you have a log. Look at a calendar, re-construct what you should have logged to begin with.

For other expenses that you can't come up wit exact support, make an excel spreadsheet and amounts that you estimate are correct. You need backup for all amounts on your tax return even if they are estimated.

There is nothing wrong with using estimates when calculating taxes, they just need to be reasonable and be logical.

Do not get an attitude with the agent, nothing good can come from it. If you have an office or other neutral space, set the appointment up there. You will be less nervous if you are not at your kitchen table.

Actually, it is very rare for an agent to come to your home. Thye usually just want you to send information and answer there questions with written correspndence or at there office. I was in public accounting for 10 years (primarily in financial audit, not tax). I don't remember a home visit by IRS agents. They always came to our office.

As long as you haven't commited fraud by flat out lying about expenses, you will be fine. They will probably adjust some expenses and increase (or decrease your tax liability - I've seen it happen). You then pay the additional tax due plus minor penalty.

It's not really as bad as people think. just like 341's. Be honest and give them what they ask for and you have nothing to worry about.

[epiphany]

It's not really as bad as people think. just like 341's. Be honest and give them what they ask for and you have nothing to worry about.

I agree with you. I was audited right in the middle of preparing for bk--worst possible timing. I have a small business and they audited 2005 and 2006. Four hours into it and we had only gotten one year done. The auditor asked me to reorganize my 2006 records and send them to her. She wanted running adding machine tapes on every page to track the totals. I did as she requested. Then I waited like eight months for an answer.

The only thing they nailed me on was the fact that I had claimed the entirety of my internet charges instead of say half. And only on one year (though I had done it on both but I think I had in in different places). It wasn't even enough to change the amount of the tax.

I think I may have been flagged because I had filed for an extension of my 2007 taxes and then was still late getting them in. I'd never done that before. I did not claim a home office deduction. My father told me once that he had done it and it was the only year he was ever audited so I just never have.

I remember being terrified at the time. I really wanted to hire a lawyer or tax professional but there was NO money. One professional I spoke to wanted 200.00 for an hour of her time. I was having trouble buying groceries at the time and just couldn't do it.

But I am really glad that I've had that experience. It's one less thing to be frightened of and it confirmed that I was doing my taxes right.

To the OP--you've had your audit by now, how'd it go?

ep