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Old 07-15-2015, 06:22 PM
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Join Date: Jul 2015
Posts: 3
In Office Examination Notice

Hello,
This is my first post, am hoping someone with experience can help answer a few questions and maybe calm my nerves.

I recently received a notice in the mail requesting an in office examination of my 2013 taxes. It listed 3 areas to address, "Gifts to Charity/Cash Donations", "Home Business/Office" and "Capital Gains/Losses".

I called the IRS agent to confirm my meeting, and have gathered all the requested receipts and documents to each question asked. I actually have 95% of everything requested, a few questions pertain to things I did not claim "show receipts of business rental equipment, etc" ...I had no business rental equipment nor did I claim any (I double/triple checked this and there was nothing claimed here). So not sure why that was asked? I got my church to write me on their letterhead an itemized list showing every check I wrote, ..I go to church and donate quite a bit ...for someone who does not go to church I could see how this may look excessive? But I have evidence to prove my cash contributions (I also printed out each check and bank records to show each item my church listed was actually cashed from my bank account).

Okay,
I found 3 things that have kept me up at night.

1) I accidentally entered a 1099 from my home business twice. I should have only entered that 1099 one time, but did it twice (this is in the IRS's favor) --I would believe.

2) On my Cash vs Non Cash gifts I accidentally entered each in the wrong box (cash gifts in the non cash gift box and vice versa). This doesn't seem huge, right? The difference when fixed only changes my taxes a couple hundred dollars at best.

3) I did not report interest income earned on a mutual type fund I have. I never saw a dime of the interest dividend, it was re-invested in the account. In fact the 1099-div (I think that is what it is) was never even mailed to me, ..they sent me an email stating I could log in to my account to go get it. That is how I missed it, i never got it in the mail. The amount was for about $500 total or thereabout. So again, I don't think i'd be liable for more than a few hundred bucks. But geesh, how did I make this mistake and forget it?!

4) Here is the big one, I accidentally entered my home mortgage interest and home property taxes as a "DIRECT" business expenses. It should have been an "INDIRECT" business expense. I don't know how I did this, but I don't think I even knew what the difference was when I entered this information. I used TaxAct software which just asks you questions, so what is actually entered on a sheet is never really seen or known. I assumed that I answer all the questions, hit enter and submit to the IRS for refund. All is good. Sadly I am learning the difficult way that I shouldn't use online software if I am unfamiliar with taxes and finances. The difference in taxes on this one goes from me having received a $4,000 return to owing about $5,000 give or take. ...so looking at a $10K mistake I think.

So,
I have been up all night every night letting this eat at me. I feel horrible that I made these mistakes. I feel worse about what the IRS agent may say during my "examination". Here is the deal, I have no problem paying what I owe, in fact I WANT to make this right. I think it is the unknown that is eating me up.

Will this be forgiven? Will I just have to pay the tax difference plus interest? Or will penalties be added to this? Would a hypothetical $10k mistake be just that, or will it be more like $15k with tax and penalties?

Since the examination is focussed on my 2013 tax year will it most likely stay at that, or will the examiner also look at my 2014 tax year return as well? I guess I'd like to pay what I owe and just move on, ..fearing this will escalate into a saga that never ends? I don't have anything to hide, but just can't deal with this anymore. My meeting isn't for another 3 weeks.

Oh, should I go to the meeting and present what I found and the errors listed above? (along w/ all my receipts, etc).

Any advice would be helpful.



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Old 07-15-2015, 10:00 PM
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Join Date: Oct 2010
Posts: 5,219
Quote:
Originally Posted by eR1c View Post
Hello,
This is my first post, am hoping someone with experience can help answer a few questions and maybe calm my nerves.

I recently received a notice in the mail requesting an in office examination of my 2013 taxes. It listed 3 areas to address, "Gifts to Charity/Cash Donations", "Home Business/Office" and "Capital Gains/Losses".

I called the IRS agent to confirm my meeting, and have gathered all the requested receipts and documents to each question asked. I actually have 95% of everything requested, a few questions pertain to things I did not claim "show receipts of business rental equipment, etc" ...I had no business rental equipment nor did I claim any (I double/triple checked this and there was nothing claimed here). So not sure why that was asked? I got my church to write me on their letterhead an itemized list showing every check I wrote, ..I go to church and donate quite a bit ...for someone who does not go to church I could see how this may look excessive? But I have evidence to prove my cash contributions (I also printed out each check and bank records to show each item my church listed was actually cashed from my bank account).

Okay,
I found 3 things that have kept me up at night.

1) I accidentally entered a 1099 from my home business twice. I should have only entered that 1099 one time, but did it twice (this is in the IRS's favor) --I would believe.

2) On my Cash vs Non Cash gifts I accidentally entered each in the wrong box (cash gifts in the non cash gift box and vice versa). This doesn't seem huge, right? The difference when fixed only changes my taxes a couple hundred dollars at best.

3) I did not report interest income earned on a mutual type fund I have. I never saw a dime of the interest dividend, it was re-invested in the account. In fact the 1099-div (I think that is what it is) was never even mailed to me, ..they sent me an email stating I could log in to my account to go get it. That is how I missed it, i never got it in the mail. The amount was for about $500 total or thereabout. So again, I don't think i'd be liable for more than a few hundred bucks. But geesh, how did I make this mistake and forget it?!

4) Here is the big one, I accidentally entered my home mortgage interest and home property taxes as a "DIRECT" business expenses. It should have been an "INDIRECT" business expense. I don't know how I did this, but I don't think I even knew what the difference was when I entered this information. I used TaxAct software which just asks you questions, so what is actually entered on a sheet is never really seen or known. I assumed that I answer all the questions, hit enter and submit to the IRS for refund. All is good. Sadly I am learning the difficult way that I shouldn't use online software if I am unfamiliar with taxes and finances. The difference in taxes on this one goes from me having received a $4,000 return to owing about $5,000 give or take. ...so looking at a $10K mistake I think.

So,
I have been up all night every night letting this eat at me. I feel horrible that I made these mistakes. I feel worse about what the IRS agent may say during my "examination". Here is the deal, I have no problem paying what I owe, in fact I WANT to make this right. I think it is the unknown that is eating me up.

Will this be forgiven? Will I just have to pay the tax difference plus interest? Or will penalties be added to this? Would a hypothetical $10k mistake be just that, or will it be more like $15k with tax and penalties?

Since the examination is focussed on my 2013 tax year will it most likely stay at that, or will the examiner also look at my 2014 tax year return as well? I guess I'd like to pay what I owe and just move on, ..fearing this will escalate into a saga that never ends? I don't have anything to hide, but just can't deal with this anymore. My meeting isn't for another 3 weeks.

Oh, should I go to the meeting and present what I found and the errors listed above? (along w/ all my receipts, etc).

Any advice would be helpful.
In my opinion, the best way is to contact a tax pro, an IRSEA/ a CPA doing tax in your local area for more accurate info/ professional advice for your fed/state returns.



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Old 07-16-2015, 10:44 AM
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Join Date: Jul 2015
Posts: 3
Thank you for your response.
My wife spoke to a CPA yesterday (a friend) who told her this wasn't a big deal and that the IRS would just correct the return and tell us what we owe. I am thinking I may just go to the initial meeting and see if we can settle everything up in that first meeting. Like mentioned its not so much the money but the desire to make this right. Wouldn't the IRS agent be able to do that for us?
I guess my fears are related to not knowing what the examination will be like and how reasonable the agent will be.



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Old 07-16-2015, 05:47 PM
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Join Date: Oct 2010
Posts: 5,219
Quote:
Originally Posted by eR1c View Post
Thank you for your response.
My wife spoke to a CPA yesterday (a friend) who told her this wasn't a big deal and that the IRS would just correct the return and tell us what we owe. I am thinking I may just go to the initial meeting and see if we can settle everything up in that first meeting. Like mentioned its not so much the money but the desire to make this right. Wouldn't the IRS agent be able to do that for us?
I guess my fears are related to not knowing what the examination will be like and how reasonable the agent will be.
My wife spoke to a CPA yesterday (a friend) who told her this wasn't a big deal and that the IRS would just correct the return and tell us what we owe. I am thinking I may just go to the initial meeting and see if we can settle everything up in that first meeting. Like mentioned its not so much the money but the desire to make this right. Wouldn't the IRS agent be able to do that for us? ==========>>>>>>>I can not tell(tough I mostly agree what your CPA states, as you cna see, When your return contains a mistake , you , as a filer typically, have the chance to correct the error by filing an 1040X.) however, I guess it depends. In general, An audit/exam can be concluded in 3ways:
1. an audit in which you have substantiated all of the items being reviewed and results in no changes.Then it is OK .Then, You can settle everything up in that first meeting.
2. an audit where the IRS proposed changes and you, as a taxpayer, understand and agree with the changes. Aslongas you agree with the audit findings, you will be asked to sign the examination report or a similar form depending upon the type of audit conducted. Most taxpayers agree to changes proposed by examiners, and their case is closed.
3. an audit where the IRS has proposed changes and you understand, but disagree with the changes.In this case, a conference with a manager may be requested for further review of the issue or issues. In addition, Appeals Mediation Programs or an Appeal request may be filed. If you do not agree, however, you can appeal any proposed change to your local Appeals Office, within 30 days of receiving the letter notifying you of the proposed changes and your right to appeal; this is called a 30-day letter.
As you know, basically, an IRS audit is a review/examination of an organization's / individual TP’s accounts and financial information to ensure information is being reported correctly, according to the tax laws, to verify the amount of tax reported is substantially correct; an audit may be conducted by mail or through an in-person interview and review of the taxpayer's records. The interview may be at an IRS office called office audit or at the taxpayer's home, place of business, or accountant's office called field audit. The IRS will tell you what records are needed. Audits can result in no changes or changes. Any proposed changes to your return will be explained. You will be provided with a written request for specific documents needed.The law requires you to retain records used to prepare your return. Those records generally should be kept for 3 years from the date your return was filed.
If you think that you will owe additional tax at the end of the examination, you can stop the further accrual of interest on the amount you think you will owe. You can send an amount either in the form of a deposit ,cash bond or as a payment of tax for all, or part of the amount you think you will owe. Both a deposit and a payment stop any further accrual of interest, however, making a deposit or payment of tax will stop the accrual of interest on only the amount you sent. To stop the accrual of compound interest, you need to include payment for any interest that is due.

I guess my fears are related to not knowing what the examination will be like and how reasonable the agent will be.========>>>>>>>Agreed; the IRS may decide to audit you for a good reasons in your case. So, the reasons will vary, depending on the circumstances .Thus, never make a transaction that you cannot convincingly explain to an auditor. You never know when you will have to. in general, after a return is selected for audit, it is scheduled for a review by an IRS agent in either a correspondence examination, office examination, or field examination. The type of examination to which you are subject is generally determined by the audit potential of the return, the nature of the asserted error, and the type of taxpayer.Throughout the examination, you can act on your own behalf or have someone represent you or accompany you (please read below). If you filed a joint return, either you or your spouse, or both, can meet with the IRS. If you want someone to represent you in your absence, you must furnish that representative with written authorization. If you want to consult an attorney, a CPA, an IRSEA, or any other person permitted to represent a taxpayer during an interview for examining a tax return, or collecting tax, the IRS will suspend the interview if you are there because of an administrative summons. So UNLESS you are able to prove elements,i.e., dedcutions/expenses or etc on your return and the IRS suggests a face-to-face meeting, you need to hire a tax professional to represent you before the IRS.


Note; you may represent yourself in the meeting, and you may bring another person with you to support your position. If you want to be represented by someone, the person you choose to represent you must be an attorney, a certified public accountant, or an IRSEA authorized to practice before the IRS. If you plan to have your representative talk to us without you, you need a copy of a completed power of attorney Form 2848.



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Old 07-19-2015, 11:14 AM
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Join Date: Jul 2015
Posts: 3
Thank you for the additional information. I do have all my receipts, docments and other requested info for my case. I found a few errors, and feel I will fall into your #2 scenario above. I have another two weeks until my meeting, I will post the outcome afterwards.



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