What does it mean to have your amended tax return transferred to the IRS's Internal Examination department?

Question

My husband is military and we were told by a professional preparer that his uniforms, gas for driving to work, hair cuts, etc... were deductible, so we filed an amendment for 2003 and 2006. Called the IRS to check the status and they told me that it had been transferred to the Internal Examination dept. She said it doesn't mean it will be audited, but it's being looked at. Is this a common thing to have happen? What i'm really worried about, is we don't have receipts for all of those things if they request them. The preparer said we would be fine without them since a lot of military claim those things and it's common knowledge that they have to purchase/use those things for their job.
PLEASE help as I'm starting to freak out! Also, how much time with this add on to the 8-12 week window?

So, if this is a scam, as i'm beginning to suspect, what will happen? I've received the refunds from the orignal returns (which i'm sure are squeaky clean. Standard deductions, no EITC, etc...) but not from the amendments. Will they just dis-allow it and let it go?? Thanks again everyone!

Answer 1

Hopefully your tax preparer is not either Lou Ann Moser or Carla Newman, but I hate to be the bearer of bad news, but your tax preparer is trying to claim expenses that are not deductible on your tax returns. Also, unless you filed an amended tax return for 2003 by 4/17/07 it would be too late for that year. I've attached an article about a tax scam claiming the very expenses your "professional" preparer is trying to deduct.

Answer 2

Wow! It's amazing what some tax preparers will say. Everyone here is right, though. Those things aren't deductible whether you have receipts or not, except for the uniforms which are limited. It's possible that they will allow a standard amount based on the average military deductions, which will probably be less than what you actually claimed, but it's not probable. Once the other expenses are declared non-deductible, depending on your other itemized deductions, it might not help anyways.

Also, the statute for claiming a refund on your 2003 tax return ran out on 04/15/07, so if you filed your amended return after that, you weren't eligible for a refund to begin with. The good news is since it's an amended return, if they disallow all of your extra deductions, it should just be spit back out and your originally filed return should remain in place... unless you've already received the refund.

Examination is different from an audit, but you should definitely start looking for a new tax preparer. Even I know you can't take those deductions and I'm not even an accountant yet! This year return preparer fraud was once again on the list of "dirty dozen tax scams" that the IRS releases each year. Just know now that regardless of who prepares the return, you're ultimately responsible for its accuracy. They'll still get in trouble, but you might have some penalties and interest depending on which route they take.

Sorry to hear this has happened to you. Find a new preparer ASAP. Below is a link to this year's Dirty Dozen.

Hope this helps!

Answer 3

When you say "filing the money as income," I assume you mean you deducted the amounts from income on your own return. People try to comply with tax law on their own, and usually make up their own rules. This is a perfect example of why it's a mistake for most people to prepare their own returns. You have a big mess on your hands. First, while it can be perfectly legitimate to hire a child to perform services for a BUSINESS and deduct those payments, you cannot deduct amounts spent for personal items. Work on your house? Nondeductible. Period. From your information you probably have a business, and you have issued 1099-MISCs for the labor costs, then deducted it from your business income. Again, personal expenses, such as work on your home, are not deductible. Second, your child was your EMPLOYEE, not an independent contractor who would get a 1099. You should have been paying FUTA, FICA, withholding income tax fed and state, and issuing a W2 to your child, not a 1099. There are exemptions from FUTA and FICA for the children of BUSINESS owners, depending on age 18 or 21, but that's for businesses only, and that is for children treated as employees only. If you don't treat the child as an employee, you don't get those exemptions. Third, your son got the letter. However, they still have your return on someone's desk waiting for the information to come in. It's going to cost your son over $2,500 in self-employment tax alone, then you add on federal income tax and state income tax, and that number could more than double. You'd better hope the huge tax hit wraps it up and they put the accounts to bed, because if they don't, you'll end up having to amend your returns to increase your taxable income for those years by the amounts you illegally deducted. You could have worked out a gift scenario where everything would have been neat and clean, but you decided you wanted to write off the amounts. For your sake I hope you didn't go and do something like reporting the payments as charitable contributions.

Answer 4

I do not know your tax situation, or how you deducted them, but gas for driving to work isn't deductible, I doubt the hair cuts are, although you might be able to make this arguement.
The Uniforms should be allowed.

It means exactly what it sounds like it means, that they are looking more closely at your tax return.

Is your preparer a CPA? Be wary of preparer that are not, they have no training requirements.

Answer 5

Amended returns always go through a manual look by an employee.

but.......

You may want to find a new preparer. Haircuts for Miltary members, though required, are not deductible. Neither is gas for commuting back and forth to work.

Answer 6

Personal items such as gas and haircuts are not deductible. The uniforms should be deductible subject a 2% of AGI floor.

Answer 7

Don't freak out, it's pretty normal for them to look closely at an amended return claiming an additional refund.

Good luck.

Answer 8

Busy work; people occupying a desk need to look busy to keep their jobs. Call up and complain about the delay, your husband is in the military, the kids are starving, yaddah.