Audit Letter Edit: I'm sorry, I mean't to write $27K in deductions NOT $7K?

Question

http://answers.yahoo.com/question/index;_ylt=Ale.Acdk9gyriTrmZi4PaP2kxQt.;_ylv=3?qid=20071225143438AA72qua

These were all business expenses - I'm self-employed.

Answer 1

No jail, but without proof of expenses, you may have penalties and interest.
If you have any proof, and you have filed for 2006, you can submit an amended return.

Answer 2

Worst case scenario is that they are going to disallow the deductions and you will have to pay tax and penalties on the full 30k plus interest and penalties.

That is unlikely though since it's nearly impossible for businesses to operate without expenses.

If you had a bank account which the activity ran through, then you may have some avenue through there to document your expenses and substantiate them.

However, I do not know your full situation so I am only speculating. I highly suggest hiring a CPA firm to deal with your audit as they have the tools and knowhow to fully assess your situation and help you best with your appeal.

For future years, like others said, pay by check/credit card and keep better track of your records. in addition, maybe use some type of accounting software. I know that Quickbooks has a free version called Simple Start which is fine for most small businesses.

Good luck.

Answer 3

You paid $27,000 of expenses in cash? Ouch! The auditor isn't real likely to buy that, so you are almost surely going to have to pay the tax, plus penalties and interest, on those amounts unless you can turn up the receipts. And if you were self-employed the previous year, with similar types of deductions, don't be real surprised if they look at previous years also.

From now on pay by check, and clean up your filing system for business receipts so you can prove the expenses in the future.

Answer 4

Call Irs, they can help. I'm pretty sure you will have to file an ammendment. They should be able to tell you which forms you will need to send in.