Discussion:IRS Field Audit

Would you or would you not let the auditor meet your client? I have initially agreed to let them meet. My client's very sharp but can be arrogant so this could get interesting.

The biggest item they are scrutinizing is a section 179 deduction for a limo. The client's primary job is a realtor (Sch C). Over 700K commissions but he started out his career as a limo driver. As a result, now that he is a successful realtor he formed an LLC for a limo co., found someone to run the limo company and bought a limo in 2005. The initial hire didn't work out and the LLC had under 5K in receipts for 2005. In hind sight I probably shoudn't have, but I deducted 100% of the limo creating one Sch C with a large loss. In 2006 the limo LLC made a profit and will have a larger one in 2007. My client didn't keep a mileage log and doesn't want to reconstruct one. (I realize reconstructed logs are acceptable and should be marked as such.) He now admits of 4,500 miles maybe 100 were personal. Without a log, I beleive leaning on the nature of a Limo that there is some logic that my client wouldn't drive it much for personal use.

I realize the second question is open ended to say the least but any guidance or advice would be greatly appreciated.

Disclaimer: This is not indicative of my normal conservative nature but this is a client who wanted to push the envelope and not something I would do for any other client.

My client is of the mind set that he can make more money else where and doesn't want to spend more energy on this. In addition to their assessment, I'm concerned they will expand the audit to 2004 or 2006. Isn't that a possibility?

1. Episcopalian minister met District Counsel a week before trial on his travels to Europe. They saw him talk, drop names of good people and conceded then and there. They realized this guy would slaughter them on the stand.

2. A ditz, but a ditz who spoke German and whose records were mostly in German, which I do not read. Auditor was to do three years on various issues but mainly a property in Germany....after an all day sitz, she made a small adjustment for year one on EBE and told us to get out of her cubicle, that she never wanted to see us again. Client had four cases of records, all in German, crowded in there, including the cost of building the house by herself.

3. A woman reporter who insisted she wanted to see what an audit was like; with her southern drawl and friendly way, we were done in 90 minutes. During that time, as the examiner was looking and writing, my client kept notes.

These cases are rare, and from the poster's description, this man almost sounds like a potential PDT if goaded.

If you have power of attorney, and you are able to answer the agent's questions and provide the necessary documentation, there is no reason for the agent to meet the client. I was an auditor for the California Franchise Tax Board for 7 years, and often did field audits at the rep's office. No problem as long as the information was available and I didn't feel they were holding out on me.