Back to top

Subscribe to our Newsletter

Audits & Notices

Watch My Left Hand...Ouch! The Right Hit You!

The IRS Audit is Back

It never went away for high fraud areas like NYC, California, Miami, Chicago and Texas. An audit increase of about 500% means that IRS will be looking more closely at Schedule C -Self Employment expenses when there is a net loss. The focus area has always been:

Travel & Entertainment
Business Meals
Business Use of Vehicles
Office in Home
Depreciable Assets

These have always been the high visibility issues.

Does this mean you should not claim an office in your home? No, it means you should keep records. Without an OIH deduction, your first and last stop of the day are commuting miles. With an OIH your commute is the steps you walk from the personal part of your residence to your business OIH, assuming you always leave from your OIH J.

A Notice of Proposed Adjustment or Change

It Is just that, not an audit. IRS is saying that the items reported to them do not agree with the items you reported on your tax return. Most frequent reasons for a notice:

Unreported stock or mutual fund sales (you have to provide the other half of the transaction-what you paid for the investment that was sold)

Unreported home sale (may be non-taxable, but it is still reportable)

Exercise of Stock Options. You may have paid taxes at the time, but there may be a gain not added to your W-2 income. Until you report your sale and cost basis, IRS will treat the entire Gross Proceeds of the sale as reportable ordinary income.

Unreported Interest & Dividend Income. Too many separate sources? Small accounts forgotten in the last move? Your mom's xmas stock gift 20 years ago? Ooops.

1099 income reported in the year before you actually received payment. Did you save the envelope? Can you prove it? Some people live by the rule: "Why report next year what you could report this year?"