On 8/15/06, Roach, Bill J. <[log in to unmask]> wrote:
>
> >>The one saving grace was I wasn't Incorporated.  As an individual, you
> can be audited for CY+6,<<
>
> Correct me if I am wrong, but I believe the audit period is 3 years,
> unless there is a finding of gross over or under reporting of income
> (defined as +/- 25%.  And that determination must be made within the 3
> year timeframe.


No, I think you're correct. My scenario happened in 1999, and they were
auditing 1997.  After all of the dust settled in my case, the CPA explained
to me how it works/worked.  The IRS processes returns as received, and
enters certain fields of information into a database and runs an algorithm
to find "exceptions", which as you described it may be based on 25%
over/under reporting or whatever... in my case, it was related to a severe
spike in reportable income and an even more severe spike in expenses related
to the income.

Then, what they do after identifying possible "candidates" for audits is
have their returns pulled from NARA and sent to the investigating office.
When they met with me the first time, they had the actual wet-ink return
that I had completed, not a copy, and they had also requested the prior 3
years of returns to be pulled and held, pending completion of the
investigation... and these were all placed in a case file being maintained
by the investigating office.

At the time this all happened (prior to the filing of 1999 taxes), NARA
still had on file 1998, 1997, 1996, 1995 and 1994 (CY+4).  If they weren't
pulled when the investigation first started, by the time the case was
resolved in late 2000, they would have already destroyed 1994 and 1995.

Once found, the IRS can go back an additional 3 years.


So, this is sort of true... actually, what they do is "once suspected", they
pull and hold an additional 3 years, just in case =)

All limitations are triggered from date of filing or payment, whichever
> is later.  If fraud or failure to file is found, the timeframe extends
> back to Genesis 7.  All records before that time are presumed to have
> been lost in the flood.


Okay... well, to a certain extent this is true.  I know of someone who was
being audited last year.... a BIG AUDIT... they owned a business, filed for
divorce, there was a property settlement, and it all got pretty ugly...
eventually, the IRS and State Tax Board got involved, because the spouse was
claiming taxes had been under reported and earning and value of the business
was mis-stated in an attempt to reduce the settlement.   So, when it went
before the IRS, they asked for the past 10 years worth of tax returns... and
according to the accountant, the business was only required to retain 3
years worth of returns, so they told the IRS to produce the other 7
themselves (knowing full well they were already discarded) and it ended up
there were only minor discrepancies on the three years produced.

So, not necessarily "lost in the flood", but destroyed in accordance with
normal business practices.

In my case?  I was hiring staff through a 3rd party, who was responsible for
all of their employment taxes.  100% of their labor costs were an expense to
me, and the difference between what I billed my client for their services
and what I paid for their services was my income... and 100% of their labor
was an expense.  In addition, because I had transaction level receipts for
all but one year of my expenses, and those years were within 1% of accurate,
they dropped the claim requiring receipts for the other year.  Bottom line?
They ended up owing ME over $6k for the 4 years in question, as I had over
reported income and under reported expenses, and YES, I still have the same
Tax Accountant today.

Larry

...and thanks very much for the offer, Mr. W but I'll stay right here in
NORTHERN California as long as I'm able, and while I may have been exposed
to many substances over the years (indirectly, I might add), similar to
another well-known liberal, I have NEVER inhaled =)    As far as Freud goes,
he and I would have had great conversations about some of my acquaintances
and the comments they have made to and about one another and what all of
that has meant.  And as far as healing me, well, as Bert Lance said in 1977,
http://www.phrases.org.uk/bulletin_board/6/messages/651.html ...

"If It Ain't Broke, Don't Fix It"
-- 
Larry Medina
Danville, CA
RIM Professional since 1972

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