Some advices about Audit By Irs
Q.On a field examination, there was a audit by IRS is examining 2002 for a S Corp. IRS is also requesting copies of the 2001 tax return and the 2003 tax return. They are also requesting copies of the 2002 (1040) tax return for the single shareholder. How much information and/or documentation can they request for the 2002 shareholder return since the 2002 1040 was not part of the examination. How much information and/or documentation can they request for 2001 and 2003 for the 1120S return. It seems that they are looking at three years for the price of one and two entities for the price of one. Any info?
A.On "S" corp exams they always look at the shareholder(s) returns. And what they are looking for on the year before and year after corporate returns is carryforward items (inventory being one of them). You'd be surprised at how little information they have access to from their records. When you meet the for audit, tell him/her that you are still looking for the 2001 corporate return and see how pale they get. Then supply it the next day. They'd have to order a copy from where ever you or I would order copies from, and wait just as long as we'd have to wait. The request for prior and subsequent 1120S forms is supposedly just for information to point to consistent treatment of items. Well, that's THEIRS story and they're sticking to it. Be alert,however, for any affiliated companies. Once I had an audit for a corporation, and of course they wanted prior and subsequent returns, plus the 100% shareholder's personal return, which I was not the preparer. So I had to get his POA on that one. Then during audit they somehow discovered an affiliate corporation co located, and while not extending the audit to that one, did examine some dealings between the two. BTW, I stopped the audit and required the agent to go back to office and issue another letter request in order to see the returns of the second company. Strange, though, they never did find out about, nor ask to see any records of yet another affiliate. And I forgot to volunteer that there was one.
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