Tax audits - advice needed

[netochka9]

What is the name of your state? NA

I was investigated and net worth audited. My accountant says he has only seen this type of audit one other time in 35 years of practice. Why? I am not entirely certain. Perhaps it was the nature of my business or the fact that my common-law partner was behind in filing. How much did I make in total for the two years audited? A whopping 30,000 over two years. I claimed just over half that amount. I have a disability and was going through a rehabilitation training program at the time. Not banking on the rehab program (which never resulted in a job making minimum wage) I started an online business which started to grow during these two years making 20,000 in the seond year of audit. Now I am doing fine. I did not claim the entire amount because this would expose the violation of the terms of my rehab program - I was not allowed another source of income. For someone who has never been able to hold a fulltime job, the thought of relying on the rehab program alone was a scary thought - and my gut instinct turned out to be correct. The program they trained me in worked out to pay $3.00 per hour for piece work.


I have appealed to no avail and I am still awaiting my day in court as they are claiming I made far more than I ever did - they have already cut their claim almost in half. How they came up with the original amount is anyone's guess. My accountant says they often use junior accountants who are inexperienced for small personal accountants like mine which explains the mess.

My accountant says they will probably audit me again soon. For the first time in my life, I am finally able to support myself with my business I have started and grown. Am I forever flagged and condemned to tax hell? I don't think I can ever go through anything like this again. Short of saving up to leave the country to avoid this, what else can I do?

 

[tranquility]

Um...it appears you have just admitted to three felonies. Two counts of tax fraud (one for each of the years) and one other fraud depending on the enabling statutes of the disability program.

The IRS often does a "T" analysis where they take all the money that came in and out to see if there is an explination of all the amounts that hit your accounts, is this what you mean by a "net worth audit"? When there is a substantial understatement of income it seems like the taxpayer is often audited in the following year. Which seems like a good thing because you are paying less than your fair share now.

What are you looking for? An estimate of the chance you will be audited again next year? Why would you need to know that? Just for reference purposes or for determining how creative you will get in your accounting?

 

[netochka9]

Um...it appears you have just admitted to three felonies. Two counts of tax fraud (one for each of the years) and one other fraud depending on the enabling statutes of the disability program.

The IRS often does a "T" analysis where they take all the money that came in and out to see if there is an explination of all the amounts that hit your accounts, is this what you mean by a "net worth audit"? When there is a substantial understatement of income it seems like the taxpayer is often audited in the following year. Which seems like a good thing because you are paying less than your fair share now.

What are you looking for? An estimate of the chance you will be audited again next year? Why would you need to know that? Just for reference purposes or for determining how creative you will get in your accounting?

Under some state laws, how I was feeding myself previously to survive was also a felony. Ever felt you had no choice but to commit a crime to survive? Given a choice over felonies, I'd do the tax fraud all over again anyday to avoid the other. Perhaps the feds could use their time more effectively by audting all the grow ops and meth houses in my neighbourhood they seem to leave alone instead of targeting disabled people trying to leave behind a bad life and start paying taxes!

Yes, I would like to know the chances of being audted again, preferably without any moral judgement in the advice. Thanks!

 

[tranquility]

Well my fraudulent friend, bad news. It is likely that the IRS, after an audit which results in changes, will look at the following year's return (from the one audited) to see similiar treatment of items. The taxpayer may not know this happens, but I've heard and seen repeatedly it does.

This "look" does not seem to be a general look at dishonesty, but a specific look for the same items and structures. If your return does not report things the same way the look will not cause an audit--unless something stands out at the reviewer.

By the way, have you amended your state returns too? The IRS has recepriocal agreements with most states and will report the audit changes to them. People tend to ignore state income tax issues because the amounts are less. However, states tend to be the bulldogs of collections. Once they start stuff, stuff happens.

 

[LdiJ]

Odds are that you are going to get audited again....maybe several times. Therefore the best way to ensure that you have no problems is to keep impeccable business records.

 

[Some Random Guy]

If you feel that their time would be better spend examining the books of "all the grow ops and meth houses in my neighbourhood ", then perhaps you should point them out to law enforcement. Your crummy hellhole neighborhood won't get better until residents like yourself get involved.

 

[netochka9]

If you feel that their time would be better spend examining the books of "all the grow ops and meth houses in my neighbourhood ", then perhaps you should point them out to law enforcement. Your crummy hellhole neighborhood won't get better until residents like yourself get involved.

Tell that to the politician and cops that also live in my neighbourhood. Its no hellhole. The dealers do quite well. And here's the real clincher - one of the meth dealers is a tax collector. They were reported and suspended from the job. Justice system couldnt prove it and the dealer is back collecting taxes!

Yep, it's always easy to turn the responsbility back onto the "residents" isnt it??