I have represented several clients before the IRS over my thirty years of experience. I recently represented a client and I am going to describe the procedures required to defend your position before the IRS. I strongly recommend that you hire a professional as these items are very technical and you do not want to give the IRS any additional information that might lead to further adjustments of your return.

The area that is most targeted by the IRS are Form 1040 Schedule C Profit or Loss from Business. It is the IRS belief that this schedule is the most subject to abuse or fraud. Within this schedule there are several items that are of particular interest to the IRS – These are Income, car and truck expenses, meals and entertainment, travel, legal and professional services, and contract labor. Several of these items were examined during my recent audit. I will briefly describe the efforts to resolve these items.

The IRS examiner first tried to find unreported income. The examiner compared the income reported on the return to the income included in the bank statements. You should keep receipts of your deposits. Items that may not be income include – loans, gifts, transfers from other accounts, and refunds. By reviewing all of the deposits, I was able to significantly reduce the amount of unreported income claimed by the IRS.

The IRS examiner then reviewed automobile expenses. For automobile expenses you will need a log. You will need to include on the log – the dates of your trip, the round trip mileage, the name of the client that you travelled to visit, and the business purpose of your trip. Since my client had this log, I was able to successfully claim his deduction for automobile expenses.

The IRS examiner then reviewed meals and entertainment and travel. The IRS requires significant documentation since these items are subject to abuse. First, you will need to have a log that shows the dates of the meetings, the name of the client, the business purpose of the meeting, and the cost of the event. In addition, you will also have to match the cost to either the bank statement or a credit card bill. It is important to provide the auditor with this information at the outset of the audit. The records are supposed to be contemporaneous with their related event and should not be recreated at a later date. This issue remains unresolved.

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