Should I Trust These Audit Results?

[judgediatl2]

Ohio

My parents, who are both seniors in their 60s/70s, recently received an audit for 2016/2017. After hiring Optima and paying them a $500 retainer, they contacted the IRS on their behalf and represented them during the investigation phase. The result was this is likely relating to a schedule c business deduction (which they said is the most common and easy to deal with). My parents had a few small deductions for supplies, materials, etc, but nothing major. They told us the IRS says my parent's compliance plus inaccuracy fees would run about $2,000 per audit year (so 2016 and 2017). They also said this doesn't count a third year audit, which is always likely. So in the ball park of around $5,000-$6,000 total (depending on how the next phase goes). But for the price of $2,000 in attorney fees they would continue to represent them and get these years negotiated down to a much smaller amount, possibly even eliminated altogether (since the deductions were all reasonable within my parents line of work).

This made me suspicious. Claiming the IRS could potentially come after my parents for thousands of dollars, yet for a fee Optima could make it go away, almost seemed like the perfect way to scare them into hiring them. Am I wrong about that? Should we trust Optima is generally telling us the truth? Or can we just contact the IRS directly and try to get some clarity if this is accurate (which is a big no-no from the research I've done, but now we're out of the initial investigation phase).

 

[LdiJ]

Ohio

My parents, who are both seniors in their 60s/70s, recently received an audit for 2016/2017. After hiring Optima and paying them a $500 retainer, they contacted the IRS on their behalf and represented them during the investigation phase. The result was this is likely relating to a schedule c business deduction (which they said is the most common and easy to deal with). My parents had a few small deductions for supplies, materials, etc, but nothing major. They told us the IRS says my parent's compliance plus inaccuracy fees would run about $2,000 per audit year (so 2016 and 2017). They also said this doesn't count a third year audit, which is always likely. So in the ball park of around $5,000-$6,000 total (depending on how the next phase goes). But for the price of $2,000 in attorney fees they would continue to represent them and get these years negotiated down to a much smaller amount, possibly even eliminated altogether (since the deductions were all reasonable within my parents line of work).

This made me suspicious. Claiming the IRS could potentially come after my parents for thousands of dollars, yet for a fee Optima could make it go away, almost seemed like the perfect way to scare them into hiring them. Am I wrong about that? Should we trust Optima is generally telling us the truth? Or can we just contact the IRS directly and try to get some clarity if this is accurate (which is a big no-no from the research I've done, but now we're out of the initial investigation phase).

No, you are absolutely right about that. What you should do is take that audit letter (along with your parents) to a local tax professional and get a second opinion. That is a LOT of money (fees to Optima) for what might be a simple letter audit. If its a simple letter audit the $500.00 might have even been way high. I cannot say for certain because I cannot see the paperwork myself, but a local tax pro could help you.

 

[adjusterjack]

Made me suspicious, too. A quick googling reveals that Optima's employees are on commission. That's a big red flag. Especially the scare tactics that one audit will likely mean future audits.

I agree with LdiJ that your parents sit down with a local tax pro and carefully go over the audit and the returns for those years and see where their errors were.

If your parents took deductions for which they have no documentation, I don't think any amount of negotiating is going to reduce or eliminate the audit results. If it's a matter of documentation maybe you can help them obtain or reconstruct documentation for those deductions.

 

[LdiJ]

Made me suspicious, too. A quick googling reveals that Optima's employees are on commission. That's a big red flag. Especially the scare tactics that one audit will likely mean future audits.

I agree with LdiJ that your parents sit down with a local tax pro and carefully go over the audit and the returns for those years and see where their errors were.

If your parents took deductions for which they have no documentation, I don't think any amount of negotiating is going to reduce or eliminate the audit results. If it's a matter of documentation maybe you can help them obtain or reconstruct documentation for those deductions.

AJ, there might be no errors at all. The IRS does randomly select returns for letter audits and sometimes its simply a matter of providing them with the documentation for the issues in question.

 

[Taxing Matters]

Get a second opinion from a local enrolled agent, CPA, or tax attorney. I won't say much about that firm your parents hired except to say that I don't have the highest opinion of the firm and their aggressive marketing tactics.