What is a successful tax audit? To answer that question we must answer this question: What is a boring audit?
It goes something like this. After the initial exchange of pleasantries the auditor begins his or her work. She asks a few questions and begins checking our work out. The room gets to be very quiet and then I find that I am using my computer to check emails, and then work on other projects. At the end of the day we exchange a pleasantries and the auditor goes home. At some point she finishes her work and creates a report. It is about what we expected and both the client and I are pleased with the results.
Here's the thing about me: I started in audits when I was a business manager for several Connecticut State agencies. The auditors were friendly and stayed for about six months at a time. Because I spent so much time being audited I became interested in the process. When I later worked for the City of New Haven, I spent a lot of time preparing for the year-end audit and closing out the books. As a tax attorney, I realized that my most important function is to make every audit as boring as humanly possible.
Why do we like boring audits?
We know that we are well prepared and we know that we will prevail. We have crossed every 't' and dotted every 'i'.
How do you get to a boring audit?
The key is tax audit preparation. We gather as much information as possible — even if some facts aren't favorable. Attorney Parent wrote about this here. If the taxpayer has kept accurate records and produced a good set of books, he is well on his way to boredom. He does, however, need to insure that his books have been portrayed accurately on his returns.
Can you give me an example?
A taxpayer who is self employed is able to take a deduction for his home office. Part of the office expense is the interest on his mortgage. But, if the taxpayer is in a wealthy part of the country and has a million dollar mortgage, the share of that mortgage income will greatly increase his home office expense. It could easily exceed the amount that he would have paid for office space in a commercial building. At that point the IRS would become curious.
What if my records are not all that good?
This requires a lot of reconstruction work on both our parts. If you are a business owner and have a checking account you should have your bank statements. If not, you can obtain those from your bank. The statements should have copies of the checks. Moreover, your vendors can supply you with a copy of their billing history. If you kept a calendar showing your daily activity we can do a lot with that. All this is a source of documentation.
We have many legitimate ways to help you re-create your books, even if you've lost records in a flood or fire. If you need assistance with tax preparation, or an audit, contact us. We can help. Call us at 888-727-8796 or email email@example.com.