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I am being audited. I have all my receipts to back up my…

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I am being audited...

I am being audited. I have all my receipts to back up my expenses, except for one area... its about $3600 worth. The expenses, I think, are legit... but probably logged in wrong to quick books... how do I explain this to the accountant/audit people. What are my consequences? I have dug through my records and I just can't figure out what the heck I did in this one area!

Accountant's Assistant: The Expert will know how to help. Is there anything else important you think the Expert should know?

I've been in business for 17 years. First time being audited. They are really more concerned with my milage and car usage, and that is all accounted for. I am a photographer and this is to do with my frames. I cannot figure out where this 3600.00 is... so I will own up to it, but I would rather not have further digging as this has taken so much of time...

Submitted: 10 months ago.Category: Tax
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9/29/2017
Tax Professional: Tax.appeal.168, Tax Accountant replied 10 months ago
Tax.appeal.168
Tax.appeal.168, Tax Accountant
Category: Tax
Satisfied Customers: 4,795
Experience: 3+ decades of varied tax industry exp. Tax Biz owner
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Hello. Thank you for choosing this Q&A service for assistance. My name is Angela. I will be assisting you.

If you can't locate the documentation to substantiate the expense, it will likely be disallowed. All you can do in this matter is to let the auditor know that you are unable to locate the documentation to substantiate the expense. I am almost certain the expense will be disallowed. You will have to pay taxes associated with the increase in your income relating to the disallowed expense. If the auditor is not a nice person, he or she may impose an accuracy related penalty on the disallowed amount as well.

-----------------------------

Accuracy Related Penalty:

Internal Revenue Code (IRC) §§ 6662(b)(1) and (2) authorize the IRS to impose a penalty if a taxpayer’s negligence or disregard of rules or regulations caused an underpayment of tax, or if an underpayment exceeded a computational threshold called a substantial understatement, respectively. IRC § 6662(b) also authorizes the IRS to impose five other accuracy-related penalties.1 We did not analyze these other accuracy-related penalties because during our review period of June 1, 2012, through May 31, 2013, taxpayers litigated these penalties less frequently than the negligence and substantial understatement penalties.

REFERENCE SOURCE:

http://www.taxpayeradvocate.irs.gov/2013-Annual-Report/downloads/Accuracy-Related-Penalty-Under-IRC-6662-b-1-and-2.pdf

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