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I am an Enrolled Agent, but have never participated in an audit. A client received a letter for an in person audit on 2 years of his Schedule C expenses. While we probably have 99% of the documents they are asking us to provide, the list looks more like a fishing expedition than a real concern about expenditures. How should I approach this to ensure the best possible outcome for my client.

The client has been in the same business (construction) for the past 14 years. He was audited in 2003 (before my time) with no consequence. The last two years his business has been steadily growing. He has a substantial workforce and manages several commercial construction projects.
Audits
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Tax Professional Answers

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Kathryn Morgan
Professional, have copies of everything they are asking for that you can provide. Don't give the examiner the originals, let them review them and provide copies to for them to keep. If they ask you a question you don't know the answer to don't be afraid to tell them you don't know, but will find out and get back with them. And then follow through. Unless the client has been summonsed to be there it's probably a good idea to not have them in the meeting. Don't bring anything to the meeting you are not prepared to turn over. If you are also the original preparer you need to make sure you don't have a conflict of interest as you may be subject to preparer penalties. Make sure you can explain the "ordinary and necessary" reason for each expense, that seems to be a hot button on Sch C audits recently. Good luck! You can do this.
Leave a Comment 514 weeks ago

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John Stancil
Katheryn makes some good comments but I would add that, if the client goes to the audit, you instruct the client in how to respond. If the agent asks the client a question, tell the client to answer the question only and do not go beyond what is asked. If the question relates to something on the tax return, have the client defer to you as the expert.
Leave a Comment 514 weeks ago

 

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