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Amanda Russell
Amanda Russell,
Category: Tax
Satisfied Customers: 14
Experience:  Accounting & Tax Educator at Self-Employed/Ut Du LLC
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Does the IRS ever do an audit that results in refunding

Customer Question

Does the IRS ever do an audit that results in refunding money back to the taxpayer AND then taking back any social security credits that might have been earned in error?
It's a long story, but I'm self-employed and trying to earn social security credits. I don't make a whole lot of money working part time. I am probably the exact opposite of most people - I want to pay maximum income tax and minimize my deductible expenses in order to earn as many SS credits as I can.I do a variety of things to earn money and it's possible the IRS could disagree with something I'm claiming as income or an expense. My concern is that I don't want social security credits to be deducted from my account. How likely is it that the IRS would ever reduce a person's taxable income and/or increase expenses, thereby reducing any earned SS credits?I'm trying to play by the rules and I do my best to accurately reflect income and expenses. Is this something I need to be concerned about? I would hate for monthly SS payments to stop (when they start in a few years) because an audit brought me under the required number of credits.
JA: The Accountant will know how to help. Is there anything else the Accountant should be aware of?
Customer: Could I speak to an IRS "enrolled agent"?
Submitted: 1 year ago.
Category: Tax
Expert:  Chad EA, CDFA®, CFP® replied 1 year ago.

W​elcome to JustAnswer!

I see this question hasn't been picked up yet so I will assist you today.

Speaking on the phone is a Premium service we offer. This question is best handled over the phone and I will offer you the premium service option.

Social Security credits are earned over at least 30 years, adjusted for cost of living and averaged.

Any one or two years of earnings generally wouldn't have a great affect on your social security credits in retirement.

Again, I would be happy to speak about this over the phone.

Thank you!

Customer: replied 1 year ago.
I really have some complicated questions about bartering as a way to earn social security credits and I would prefer to talk to a tax attorney. I've already spoken to other people at TurboTax and HR Block and I'm getting either conflicting information or no information.
Expert:  Chad EA, CDFA®, CFP® replied 1 year ago.

Bartering is reportable income

Customer: replied 1 year ago.
Of course it is. We need to go a lot deeper than that. How do I talk to a tax attorney?
Expert:  Chad EA, CDFA®, CFP® replied 1 year ago.
https://www.irs.gov/businesses/small-businesses-self-employed/bartering-tax-centerHere's the link to the IRS, I am qualified to represent people in front f the IRS.
Expert:  Chad EA, CDFA®, CFP® replied 1 year ago.

I​'ll opt out. Good luck

Expert:  PDtax replied 1 year ago.

I'm PDtax. I'm a CPA. I can assist.

Expert:  PDtax replied 1 year ago.

I've recommended this strategy for my pen clients. Good for you. This really only works if you are closer to retiring.

Expert:  PDtax replied 1 year ago.

Own, not pen. Sorry.

Before you adopt this, use a good social security benefits calculator and figure out what this extra benefit is worth. And that depends on your wage history, and your top 35 years earnings.

Thanks for asking at just answer. Positive feedback is appreciated. I'm PDtax.

Customer: replied 1 year ago.
Stand by. Are you still there?
Customer: replied 1 year ago.
Chad and PDTax did not answer my question.
Expert:  Chad EA, CDFA®, CFP® replied 1 year ago.

No professional is allowed to give you a quote about a percentage or odds of getting audited. If you would like to discuss tax and social security planning or strategies then please let me know. I previously​ offered you a premium service call and will again make that offer.

Thank you.

Customer: replied 1 year ago.
Hi Chad. Thanks for coming back. I am not asking about odds. Here is my first question again (I'm scratching my head wondering why you thought I'm asking about the "odds" of being audited): Does the IRS ever do an audit that results in refunding money back to the taxpayer AND then taking back any social security credits that might have been earned in error?
Customer: replied 1 year ago.
In other words, I'm referring to actions taken *after* an audit happens - not the odds of getting one in the first place.
Customer: replied 1 year ago.
3rd of 3 posts since your last response...) I can only consider a phone call when I'm sufficiently confident we're on the same page. But I need someone who knows IRS rules regarding bartering inside and out, as well the rules regarding earning social security credits. Full disclosure: I am very familiar with the information the IRS and SS have posted about bartering and credits, respectively, but my questions pertain to the gray areas (so information like "bartering is income" is not helpful). My questions are not easy, and two other sources have not been able to answer them definitively.
Expert:  Chad EA, CDFA®, CFP® replied 1 year ago.

"How likely is it that the IRS would ever reduce a person's taxable income and/or increase expenses,"

"Is this something I need to be concerned about? I would hate for monthly SS payments to stop (when they start in a few years) because an audit brought me under the required number of credits."

You asked how likely it was if the IRS were to reduce your taxable income.

Q:Does the IRS ever do an audit that results in refunding money back to the taxpayer AND then taking back any social security credits that might have been earned in error?

A: I have seen audits where the taxpayer has received an additional refund then what they originally received. The key is to do your taxes properly and if in the event you are audited then you will have no issues. If there is a contested deduction, you will have an opportunity to make your case with the IRS before any increase or decrease of tax liability is assessed.

Since Social Security is based on earned income, any decrease in earned income will have a slight affect on your benefits. The timing of when you start receiving social security benefits are more important then any one particular years income, in my opinion.

Bartering is not a difficult topic. If you performed a service and received compensation in any form, then you have a completed contract and earned income. In my opinion, there isn't a grey area with bartering. Either you made an agreement for a set price or for something of value and both parties fulfilled their contractual obligations.The only grey are, in my opinion is when people don't claim bartering income because they haven't received cash or check. There are certain rules around how to value a job for reporting purposes. That type of reporting is a job by job, case by case situation.

If you give me a little more detail I will be able to answer your question more thoroughly. .

Customer: replied 1 year ago.
Chad, I appreciate your perseverance and willingness to answer. I do have a lot more questions and will take you up on your offer for a phone call. Say 12:30 eastern? Or name a time. And if you don’t know an answer, will you research it and get back with me?
Customer: replied 1 year ago.
Looks like we missed 12:30. Name a time up til 3 pm eastern today. I should be able to make it.
Customer: replied 1 year ago.
Chad, something came up and today's not good after all. Suggest a date and time and I'll confirm. Thanks.
Expert:  Amanda Russell replied 1 year ago.

Aloha - Amanda here. I'm a financial and tax expert, with an EA distinction (IRS Enrolled Agent). I have a master's in accounting, MBA and big four public accounting background in taxation. I've also been a tax expert for Intuit for many years. I specialize in making the complex simple, so that you can focus on what you do!

****

It seems your question was left unanswered and I think I can clear this up for you.

In short - I don't think you have anything to worry about because you're trying to report everything accurately. Every penny you earn is supposed to be included in your income. So being extra careful about that and recording every business deposit, as such, would actually be the accurate thing to do (albeit many don't do it).

Additionally, be sure to keep documentation for all of the amounts you report for income (this can be as simple as hand written receipts, but be sure to include dates, customer name, work provided). Of course, additional documents such as invoices, contracts and deposit slips, is even better.

To answer your question directly, YES, it is possible for the IRS, during a full blown audit, to reduce your income (if it was inaccurately overstated) and for that to be updated for SS income. That being said, it would be extremely uncommon for that to be the trigger because they are far more focused on the underpayment of tax. The social security administration is not part of the IRS. Additionally, it is far less common for there to be full blown audits these days. Instead, it's more common for the IRS to audit individual expense items on your return.

Let me know if this clears up your concern or if you have follow up questions.

Customer: replied 1 year ago.
What happened to Chad? Is he okay with you taking over? I do have a lot more specific questions. What I wrote so far is mere background. Extraordinary knowledge of bartering and SS credits will be required of the person choosing to answer. I know because to date nobody has been able to answer my questions. I've checked with the IRS, SSA, two accountants and the forums on two tax preparer sites. They can answer some, but not all. The IRS and SSA were the least helpful, ironically.Here's an example of what I need: I volunteered to teach English in Spain in exchange for room and board. I estimate the value of the room and board to be around $1300. This seems to meet the definition of bartering, so do I report $1300 as income? Are there any issues with the volunteering taking place in a foreign country? What proof of the value of the room and board is required, if any? Would the IRS say this is a "hobby" or a "vacation" and not allow reporting it as income? If they disallowed it as income, would the SSA take away the one credit I earned for the $1300? (That last question about the SSA taking away a credit is the most important to me because when the time comes to get SS benefits, I will only have the minimum 40 credits, so reducing my taxable income and in turn taking away a SS credit would, as I see it, ***cancel*** my monthly SS payments!!!)And I have more questions along these lines about bartering and earning social security credits. As you can see, an uncommon mastery of bartering and SS credits will be required, so if it's not your thing, no problem, I'm confident I'll eventually get answers somewhere.
Expert:  Amanda Russell replied 1 year ago.

I don't know about Chad, but since you hadn't accepted his answer, I thought I could clear up your question. You are welcome to wait and see if he comes back! The tax rules are very clear in regards ***** ***** hobby vs. business and income classification.

Customer: replied 1 year ago.
Chad didn't get back to me about a phone call, so Amanda, do you think you'd be able to answer my questions?