What Do You Do When the Tax Auditor is Being an Idiot?

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It ranks right up there as one of the worst pieces of mail you’ll get. And it always seems to come on a Friday, when there is nothing you can do about it right away.

It just sits there. On the table, the desk or maybe in the trash because you REALLY don’t want to deal with it.

But it’s the thing you know you can’t ignore. It’s not going to get better. Ignoring it only makes it worse.

It’s a love letter from the IRS (or the state). But, as Lady GaGa tells us, it’s a bad romance.

The next move you make will make all the difference in how your next few weeks, months or years will go.

If you ignore them, they will find you. It may take a while, but once they’re on your trail they are relentless. Unless you plan on going completely off the grid, make no mistake.

They’ll find you. And they won’t be happy or in the mood to negotiate a better deal for you.

If you have a problem or haven’t filed in a while, it is always better to come forward voluntarily, but with a strategy.

The worst thing you can do is ignore them.

The second worst thing you can do is call them right away. It’s slightly worse to call them right away and spilling your guts. That’s what they’re hoping you do and it’s very easy to get caught up in the trap of explaining away all your problems. Oh, and while you’re at it, telling them about the things you did wrong.

Confession is good for the soul, right?

Maybe, but it’s definitely harder on the pocket book when it comes to a taxing agency.

Sometimes it is better to strategically give them something to look at during the audit, but the key word is always STRATEGIC. And NEVER during the initial phone call.

During that first call, the IRS or state auditor is doing a fishing expedition. They’re looking for how big of an audit this is going to be. Is it just going to be limited to the initial items they asked about or does it need to extend to other people and entities and additional years? At the end of the call, the auditor makes a judgement call decision.

Make the audit small. Or make the audit big.

And it all depends on that phone call.

That’s why the second biggest mistake you can make is making that call yourself, without a strategy. They’re hoping you do.

It’s just like those confessions you see on crime documentaries. Someone comes in to talk to the police and thinks since they’re innocent, the more they talk, the better it will be. That never turns out well.

The same is true with the IRS and state tax. You need to be strategic. Your whole goal in that first phone call is to contain the size of the audit. It’s not to convince them that you’re innocent or to bare your soul.

But what happens after the audit starts? What can you do then?

We had a case recently where a client was selected for audit by a small southern state. I won’t name names because my client is a big fish in a small pond and someone might put this together.

His most lucrative business is online. He sells a lot of stuff. The state auditor wanted a print out of the sales for the year. Well, normally that would be okay, but in this case the download in Excel created 20,000 pages.

The first request, a paper print out, finally got dialed back to an electronic file.

And then the auditor asked for the detail of the sale for EACH AND EVERY entry. At first, we thought that was a joke. Did the auditor plan to spend the rest of her natural life conducting this one audit? At some point, the statute of limitations was going to run out so even that wasn’t possible.

“Are you sure you don’t want to take a sample and check those?” we suggested.

Nope, she wanted them all.

After a little back and forth, we finally had to ask for her supervisor.

The supervisor backed her up. Yep, we want to see ALL the detail of ALL the sales.

Um, could we talk to YOUR supervisor?

And finally we talked to someone who was reasonable. And not only was he reasonable, he was embarrassed, so he waived the whole audit.

No change. No audit.

There is a good strategy for every audit. Make sure you know what yours is before going in.

If we can help, give us a call. Richard can tell you a little bit more about what we do and see if that’ll be a good fit for you. Contact Us 

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