Things That Go Wrong in Audits

This month, I settled a Tax Court case - with a no-change, naturally.  That's the good news.

We always love that feeling, don't we?

Finally, I'll be able to return the box (crate) of documents to my clients - that have been sitting in my office since late 2008.

Yup, the initial audit invitation was dated October 2008. The final Tax Court settlement will be dated October 2010.

The battle took two years.

It should not have taken more than a few months, including down time for sudden hospitalization (emergency gall bladder removal).

What took such a long time?

An examiner who simply could not communicate.

Oh, he could talk - a lot. And pontificate - at great length. And boast - that his determinations never got overturned.

But he could not communicate the simple facts behind his determination that there was over $40,000 of unreported income.

As I was discussing in my EA Exam class last night about Appeals, the wonderful thing about numbers is that they are definable. You have a number, it came from somewhere. In an audit, the big question always is -  What is the source of the number on the audit report?

The examiner never defined how he arrived at the number he listed on the Income Tax Examination Changes Report (Form 4549) . Even after a FOIA request, none of that information was in his workpapers. I devoted my energies to battling a big issue - a substantial amount of money deposited in the client's account as repayment of an officer loan.

Instead, it turned out that examiner had done a series of proofs of cash on half a dozen bank accounts and came up with unidentified deposits. Something that simple. Wow!

All he had to do was say so. Nothing could be easier than clearing up that issue.

OK, it did take quite a bit of extra time because the taxpayer had SO many bank accounts with transfers between them, to reconcile...but, this shouldn't be a Tax Court level issue. It's not a dispute in tax law. It's a pure accounting issue - just numbers and details. You just sit down and grind out the numbers and reconciliations.

I didn't learn the source of the problem from the examiner, or from the Freedom of Information documents. The Appeals Officer who received the case from Tax Court somehow managed to get the documents from the examiner - which clearly, were not in the case file when FOIA pulled the records.

In discussing this with some peers, they suggested I file a complaint with IRS about the way this case was handled. Interesting thought. I don't generally do that.

However, there is a better way to register this complaint. More effective, providing the client with even more satisfaction than a demerit in someone's file. Do you know what that is? 

I'll give you a week to post an answer - then I will tell you THE way to handle this.

 

 

 

This blog

Eva Rosenberg, MBA, EA, is the publisher of TaxMama.com, and author of the weekly syndicated Ask TaxMama column. She provides answers to tax questions from taxpayers and tax professionals worldwide.

More from this blog

Bloggers crew

Steve Knowles has spent 25 years in business and practice in the UK, but he also worked in the states and the years haven't dulled his way of seeing an alternative view to everyone else, and every day is a new adventure.

48181

Joel M. Ungar, CPA is a lifelong resident of the Detroit area and a graduate of The University of Michigan. He is a principal with Silberstein Ungar, PLLC, a Top 15 auditor of SEC public reporting companies.

81196

Allan Boress, CPA, with over 25 years as a practitioner and consultant to the accounting profession. Mr. Boress is the author of 12 published books in 6 different languages, including a best-seller, The "I-Hate-Selling" Book.

53326

Larry Perry, CPA, CPA Firm Support Services, LLC, is the author of accounting and auditing manuals, author and presenter of live staff training seminars, and author of webcast and self-study CPE programs. He blogs about small audits, reviews, and compilations.

96100
Sandra Wiley, COO and Shareholder, is ranked by Accounting Today as one of the 100 Most Influential People in Accounting as a result of her prominent role as an industry expert on HR and training as well as influence as a management and planning consultant. She is also a founding member of The CPA Consultant's Alliance. Sandra is a certified Kolbe™ trainer who advises firms on building balanced teams, managing employee conflict and hiring staff.
24429

Maria Calabrese, CIR, Human Resources manager for Fazio, Mannuzza, Roche, Tankel, LaPilusa, LLC in Cranford, New Jersey, Maria's topics revolve around the world of: Mentoring, Performance management, and The "Y Generation," a.k.a. "The whY generation".

60624

William Brighenti is a CPA, Certified QuickBooks ProAdvisor, and Certified [Business] Valuation Analyst, operating an accounting, tax, and QuickBooks consulting firm in Hartford, Connecticut, Accountants CPA Hartford.

86238

Ken Garen, CPA, is the co-founder and President of Universal Business Computing Company (www.ubcc.com), a software development firm of high-volume, high-productivity accounting and payroll technology.

28382

Eva Rosenberg, MBA, EA, is the publisher of TaxMama.com, and author of the weekly syndicated Ask TaxMama column. She provides answers to tax questions from taxpayers and tax professionals worldwide.

69321

Amy Vetter, CPA, CITP is the CPA Programs Leader for Intacct Corporation responsible for leading the CPA/BPO Partners nationally.

37994
Brian Strahle is the owner of LEVERAGE SALT, LLC where he provides state and local tax technical services to accounting firms, law firms and tax research organizations across the United States. He also writes a weekly column in Tax Analysts State tax Notes entitled, "The SALT Effect." For more info, visit his website: www.leveragestateandlocaltax.com
108957
Scott H. Cytron, ABC, is president of Cytron and Company, known for helping companies and organizations improve their bottom line through a hybrid of strategic public relations, communications, marketing programs and top-notch client service. An accredited consultant, Scott works with companies, organizations and individuals in professional services (accounting, finance, medical, legal, engineering), high-tech and B2B/B2C product/service sales.
29802

Rita Keller is a nationally known CPA firm management consultant, speaker, author, mentor and blogger. She has over 30 years hands-on experience in CPA firm management, marketing, technology and administrative operations.

57591
Stacy Kildal is the mom of two fantastic kids, an Advanced Certified QuickBooks ProAdvisor, Certified Enterprise Solutions ProAdvisor, Sleeter Group Certified Consultant, a nationally recognized member of the Intuit Trainer and Writer Network, and co-host of RadioFree QuickBooks.
31809
Michael Alter's blog specializes in providing practical advice to those who seek greater profitability and practice management tactics that enhance deeper client relationships.
36341

Sally Glick, CMO, Principal, Marketer of the Year in 2003 and AAM Hall of Famer in 2007, leads a lively discussion of the constantly expanding roles of marketing and the professional marketers that drive this initiative in accounting firms of all sizes.

107444

The IMA Young Professionals Blog features the insights of IMA’s Young Professionals Committee. Committee members share advice and experiences on careers, continuing education, work/life balance, and other issues affecting young accounting and finance professionals.

37653

FEI Financial Reporting Blog provides highlights from SEC, PCAOB, FASB, IASB, and other regulatory news, including reporting under Sarbanes-Oxley Sect 404. It is written by Edith Orenstein, Director of Technical Policy Analysis at FEI.

118691

Sue Anderson has 30 years of experience in continuing education for accountants. Currently she is the program director for online CPE provider CPE Link.

66543

Jim Fahey is COO of Apple Growth Partners, a regional CPA firm in Ohio. His focus is on the effective and efficient use of technology within the firm by all team members.

43455
Caleb Newquist is the Editor-in-Chief of Sift Media US, overseeing content for both AccountingWEB and Going Concern.
70994

Leita Hart-Fanta, CPA, CGFM, and CGAP is the author of "The Yellow Book Interpreted" and owner of Yellowbook-CPE.com a website devoted to training for governmental auditors.

97694

AccountingWEB is more than just a U.S. team of journalists and financial and technology experts - we have an international side, too! Members of our British team who publish AccountingWEB.co.uk share their ideas, insights, and perspectives from across the pond.

58376