I am getting audited and can't find my receipts?

Question

I am in a panic. The IRS is going to audit me in 3 weeks. They have ask for receipts for items I claimed on a Schedule C, however, try as I might, I am unable to find them and dont know what to do. I am scared. I did my own taxes. This is for year 2004, but they want to see 2003 and 2005 tax returns as well. At this point I don't really know what to do. The schedule C relates to equipment, software and a class I took. I have tried to remember the when and where of it all, but just can't. If I just tell them I can't find them, what am I faced with? I don't have the money to get an attorney, or CPA. I am beginning to think I am really screwed. Any advise from you folks out there?

Okay with what everyone has said and thank you. What I what to know now, is what is the worst that can happen to me if I can not produce what the IRS wants? I have ordered bank statements. The bottom line here is, I did not take the time to keep good records.

By the way I am in Texas.

One more bit of information....The IRS wants to meet at my home instead of their office. Is this right? Can I request the meeting be held at their office? If so, how?

Answer 1

They want to see 2003 and 2005 to see continuity of operations.

First tell the auditor that you do not have all your receipts and why you do not have them.

Try to legally recreate them. For example you purchased a typewriter for your business. Get the instruction manual and warranty card for it, find a office supply cataloge that shows what the purchse price would have been then. Get what ever support you can to justify your deductions. Look at your credit card statements (get copies if you have to or download them). If you went to a seminar in Miami call them and have them fax you a statement saying you were there and what the dates were, same with the hotel where you stayed. Get the software books and boxes to prove you purchased them.

Once the auditor starts looking at your return he will narrow in on only a couple of areas. You did not say what type of Schedule C you did but the usual places they go are Entertainment Expense and Travel Expense.

The one thing he will do is ask you for all your bank statements. I mean ALL of them(personal and business accounts). Have them for him. If you do not have them now call the bank to get copies, or download them off the net.

What he will do with the bank statements is add up all of the deposits that went into every account, subtract from this transfers that came from other accounts. This is the income that you should have reported as Gross Receipts on your schedule C. If not you better be able to account for every difference. If it is higher he will increase your income by that amount.

If there were deposits to your account for reasons other than business income then you need to show proof where it came from. For example your brother gave you $5,000 as a birthday gift.

Give him every thing in a nice orderly package, tie each amount on the return to the package. DO NOT GIVE HIM A SHOEBOX. If the auditor feels you are not hiding anything then he not ask for more information if you are upfront with a lot of information.
But do not give him more than he really needs to know.

If he asks you "Do you know what time it is?" the correct answer is "Yes" the wrong answer is "It is 9:45am"

If you do not know the answer tell him "I will check and get that information for you" Do not lie, make up information. you will trip over your own toes. Do not have any one else there with you, they will give out useless information that can bite you.

Before your first meeting you will get an IDR#1 this is called a Information Document Request #1 and will list every item on it that he will need. It will narrow down where he will be looking at.

At the end of the first meeting he will ask you for more information. Ask him for another IDR. Do not give him more information unless it is listed on the IDR!

Also keep a list of what information you do give him.

If you feel you are getting into trouble CALL A CPA from a local cpa firm spend the money because he may save you from thousands if you are really going to get into trouble. Or talk to your friends, one of them may know someone who works at a firm that could advise you for a small fee.

Be aware that Schedule C returns are the most audited 1040 returns out there.

Answer 2

do you have your bank statements and cancelled checks for the schedule C bank account? If you can show the majority of items using cancelled checks maybe you could argue the Cohen Rule for other items. That is a rule where you would logically have a expenses for an item duringthe year.

Answer 3

You will be screwed unless you come up with receipts. How did you come up with the numbers? If you put things on credit cards you might be able to get something from them, by check? get copies of the check. Did you keep a calendar for that time period? Any kind of backup? Good luck.

Answer 4

The IRS rules specify that you must have proper substantiation for all deductions that you claim. What they can do, is disallow all of the deductions that you have claimed and charge you tax, interest and penalties. If they believe that you are negligent in maintaining required records, they can go back more than 3 years in examining your returns.

Answer 5

Dude you are screwed! It's worse when they come to you instead of you meeting at the office. Did you get copies of your credit card statements. I'll say a little prayer for you.

Answer 6

You can request the meeting be held at their office. They want to be in your home so they can access your lifestyle and to nip the "I didn't bring it" excuse in the bud. If you can make a good estimate of your expense invoke the Cohan rule. (look it up so you know what it is)