I got audited.
I saw it coming. I got a letter in the mail telling me it was going to happen. Fortunately I was able to set my own execution date. I even got a letter from the auditor reminding me what I needed to bring with me, and adding to the list I’d already received.
They invited me to watch a video on-line to give me an idea of what I should expect out of the meeting. It didn’t do a whole lot to put my mind at ease.
I’m an honest guy, mind you. Trying to hide income from the IRS is a difficult and risky proposition. Not only will you have to pay interest and penalties if they find you tried to cheat them, but it’s all retroactive to the date it was due. That could be years. I do everything I can to try and not call attention to myself. The problem comes when circumstances beyond your control run you up the flag pole. If you’ve reported a six figure income over the course of eight or ten years, then suddenly throw half the amount on the 1040, someone is going to want to know why.
Okay, fine, I can live with that. But when the ones who start asking questions are the same ones who put you in that situation, the irony can’t be denied. Especially when you tell them you’re no longer in business. Washington’s policies of the last few years drove us out of business. Fewer and fewer people were able to afford our services. Pretty soon, we couldn’t justify staying in business.
They, you know, the nebulous THEM, were very short-sighted. Not only did they cease receiving revenue from us, but they no longer got anything from the people we employed. That’s one-upped by the fact that they had to start paying unemployment to our now out of work employees. Unfortunately, entrepreneurs and the self-employed don’t get that benefit. Those who contribute the most, receive the least.
Anyway, back to my audit.
I did my own taxes for the first time in about five years in 2011. I let H&R Block do it once. You get to choose the tax professional you want to handle your returns. I picked this guy because he had 200 years worth of experience. While he was entering my data, I questioned something he was doing. He was reporting my taxable gross income in two different places. I argued with him and told him he was double-dipping and doubling my tax liability. He fought to keep it there. His boss walked up, looked at the computer screen, and told him I was right.
Another year I had a local CPA do my taxes. Paid them almost $700. When I got the package I knew something wasn’t right, but I couldn’t find the problem. I asked my brother-in-law (the gozillionare CPA) to look at it. He found the error in fifteen seconds. Turns out the CPA made a mistake that would cost me $1800+. When I brought it to her attention she argued it was right. After I talked to my bookkeeper and had my CPA talk to her, they fixed the returns and sent an amendment. A couple of weeks later I received a bill for $2100, which was $300 more than the mistake.
I went and talked to my friendly CPA. The bill was for the time to repair and resubmit the return and for all of the phone calls I and my brother-in-law had made, plus calls to my bookkeeper. I told her she was full of shit and left. Okay, I didn’t use those words, but she got the point.
A week later I got a letter with a bill for $800. That was the lowest they could possible reduce their fee to. Negatory Pig-Pen. I wrote a two page letter back. Not just no, but HELL no. She later wrote that she was sorry our business arrangement had met such an unfortunate demise and wished me luck in the future.
Yep, I was gonna do my own taxes again from now on.
I got all of my papers together. Got onto my bank’s web site and printed out copies of cancelled checks. Went through everything to make sure it all added up. Made myself familiar with my 2011 returns inside and out. I wanted to reach into my briefcase and pull out exactly what the auditor wanted to see. Everything was clipped and labeled with sticky notes. I asked God to soften the woman’s heart and not allow me to become the subject of a witch hunt.
Like I said, I’m not out to cheat the government. I don’t agree with the enormous tax burden the self-employed are expected to bear, and I certainly don’t like it, but trying to screw the IRS will eventually only backfire. Even though I was sure I’d done everything right, it’s possible I could have made a mistake that could cost me plenty. All they have to do is dig deep enough.
I was informed that it would take about four hours if, If, IF, it could be done in one day. If not, I might have to go back for more.
When my auditor began questioning receipts, and separating them into little piles, I started to get nervous. I kept my tone polite, relaxed, and confident, and even injected tasteful humor where I could. Although she started out frosty, she warmed up and even sympathized with what a horrible year we’d had. Not only did she listen, she made an effort to understand what I claimed and why. She didn’t look for reasons to exclude something, she worked with me to document my justifications. Not that it took any feat of creative writing, just some clarification.
A little over an hour later I was given a No Change declaration, along with a preliminary letter of same. All that was left was for her supervisor to give it a look-see and confirm it. She didn’t give any indication that it would be a problem, and I was looking for one.
All in all, it wasn’t a horrible experience. Don’t get me wrong, I didn’t enjoy any part of the entire process, but God pulled me through without a bruise.
The Bible says that the honest sleep well, but the wicked worry when no one pursues them. Remarkably, I lost more sleep preparing for my promotional interview a couple of weeks earlier. More on that later. I would think of things I wanted to include in my package, and worked on ways to get them on short notice, but I was less nervous talking to an IRS agent for the first time than talking about a job I’ve been doing for 30 years and know absolutely everything about.
I had nothing to hide. I wasn’t afraid.