Discussion:Audit stalemate

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Discussion Forum Index --> Basic Tax Questions --> Audit stalemate


Discussion Forum Index --> Tax Questions --> Audit stalemate

ATL Tax (talk|edits) said:

10 April 2014
I have a client who is being audited for his employee business expenses. We provided a nice log on his vehicle along with repair receipts to verify total miles. The problem is we were not able to produce a reimbursement policy statement from his employer. My client left on bad terms with them, and they refused to cooperate with us. I gave the auditor (correspondence audit) the name, address, and phone number of the business, along with a contact person. The auditor ignored this, and sent out a report with all of the auto expense adjusted to zero. I appealed, and now I get a letter from the Appeals Officer stating "appeals cannot require third party to provide information." I don't know what to do now. Any suggestions?

Ckenefick (talk|edits) said:

10 April 2014
Are there any other employees at the old company, admin people, or similarly situated employees, that might be willing to provide an affidavit?

Southparkcpa (talk|edits) said:

10 April 2014
Considering AMT etc... Im curious how much was deducted in relation to total AGI. In my practice, 95 percent of clients cant get on a 2106 due to AMT and or 2 percent floor.

Coddington (talk|edits) said:

10 April 2014
Sounds like Exam didn't do their job, so you might consider asking Appeals to send it back to Exam.

Ckenefick (talk|edits) said:

10 April 2014
I don't know if this is something Exam would even try to do, even if it wanted to. The burden is on the taxpayer to produce the reimbursement policy. Of course, if the IRS is uncooperative, and the employer is too, and if this thing ends up in Tax Court, the employer can be compelled to produce it via subpoena.

Coddington (talk|edits) said:

10 April 2014
The Service has procedures for making third party contacts during audit. Whether the third party cooperates...that's a different matter. Whether Exam has summons authority for third parties in situations like this, no idea and I doubt they'd use it. But it's worth a shot.

Ckenefick (talk|edits) said:

10 April 2014
Indeed, see Sec 7602. Exam can certainly do it, the question is, will they.

Coddington (talk|edits) said:

10 April 2014
It doesn't hurt to ask.

Terry Oraha (talk|edits) said:

10 April 2014
Appeals send it back to exam. Exam might not do it at all. I'm guessing by exam we're talking about the correspondence Exam people, good luck with that. How big is this persons mileage deduction anyway?

Ckenefick (talk|edits) said:

10 April 2014
It doesn't hurt to ask.

Totally agree...and I suppose we'd be asking for a change of venue, to the local office. And as part of that request, we'd ask the local office to make the third party contact with the taxpayer's former employer. And, as part of this request, we might say something like:

The taxpayer insists that the expenses in question were lawfully deducted and were not subject to reimbursement by the taxpayer's employer. The taxpayer simply does not have, and cannot obtain, a copy of the employer's expense reimbursement policy that existed at the time the expenses in question were incurred. The taxpayer has since left his employment with A-hole, Inc. The taxpayer has made a good-faith effort to obtain a copy of the former employer's reimbursement policy. The taxpayer has also asked that the employer draft a letter outlining the pertinent provisions of the reimbursement policy. However, the taxpayer's former employer, A-hole, Inc., has been largely uncooperative. In the event the Service refuses to make a third party contact as the taxpayer has requested, and issues a 90-day letter, the taxpayer will file a petition with the United States Tax Court and will subpoena the taxpayer's former employer for said records and related testimony. At which point, the policy in question will likely be made available. The taxpayer is hopeful, however, that this matter will not get that far. And, it does not have to get that far if the taxpayer's case is moved to the local Exam unit with said unit making the requested third party contact. We would also like to point out that the taxpayer has been overly cooperative in this matter and has fully complied with all requirements under IRC Sec 7491 so as to shift the burden of proof to the IRS.

Coddington (talk|edits) said:

10 April 2014
Exactly, Chris.

Ckenefick (talk|edits) said:

10 April 2014
I was hoping someone would challenge my wild assertion about the burden being shifted...but note, this is just a letter, so we can say whatever the hell we want to. But in reality, if it came down to it, I don't know how a judge would interpret the specific element of not having the employer's reimbursement policy - if that might preclude a burden shifting.

ATL Tax (talk|edits) said:

11 April 2014
Thanks a million everybody. You've given me some great ideas. Sorry to respond so late. I took a rare tax season early-quit and was home by 3 sipping on some raspberry rum and coke watching the Masters with two friends and my kid, so for y'all to help me out during crunch time I have to say double thanks.

The amount of the adjustment is about $2,000, so it's not a huge deal. If the appeals officer would work with me a little, which they have the power to do (unlike exam), I would be open to waiving my fee and maybe even throwing in some future discounts just to make this thing go away. Not really looking forward to going down to the Summit Building again in downtown Atlanta. I've been representing clients since 1992, and I still hate this part of the job. As you all know, these things can sometimes be luck of the draw; you can get reasonable auditors or you can get those who try to play the power game with you. I will let you know how it turns out.

On a lighter note, I saw these spellings this month: One guy's worksheet had some expenses for "innernet". Another had some expenses for "intertain". And the latest was a carpet installation contractor (hope his mileage doesn't get audited) who has to take the old carpet to the dump so he had expenses for "Land Field". And I can't even remember how many ways they have spelled ad valorem over the years.

Hope everybody made lots of money during tax season and gets to have some fun on the beach or wherever you go for fun. Don't kill yourselves out there working too much. I tried to stop taking on any new clients many years ago when I found I had too many miserable Sundays of work on my hands(anybody out there who has watched more than 5 Daytona 500's on a portable TV at the office?) And work my rear off during tax season only to have to come back and file 54 payroll tax returns (now I only have about 12) by April 30. It's easy money, but payroll always seems to come at the wrong time. Some clients have died, some have moved, and some I guess I just couldn't fool like the others, so now I have managed to reduce my workload so I only work half day Saturdays, and very few Sundays (not this coming one unfortunately - a friends and family deal - which we have discussed on here before)

Time for me to sign off; I've taken too much of your time already. And in five hours it will be time to get up and do it again (as Jackson Brown once said). Thanks again.

Tax Nerd (who remembers?)

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