Level 10

Audit trigger

Forum|Forum|2 months ago
March 22, 2026
2 replies
1 view

Schedule C, a general contractor, has classic audit triggers (High COGS, low margins, high meals). TP is 75 and spouse is 65, social security, Medicare, loads of travel to their vacation home. They are living comfortably with nice lifestyles. ADN, they are risking an audit. And it isn't my primary job but I have told them of the "flags" in their returns. That they are living the high life, and wish to "invite" an audit, is an interesting choice.

Tax Talk

sjrcpa

Level 15

Is there a question ?

Have you explained the business meals rules to him? Our engagement letter, which clients must sign, states they understand they must have documentation for business meals, etc. and they are responsible for what's on the return.

And to paraphrase Bob, when is the last time you saw an audit? Although of course we do not take return positions based on chance of audit.

The more I know the more I don’t know.

IRonMaN

Level 15

I last saw an audit during COVID but that was a client that came in for help after he had been mucking up his own return and two corporate returns. Prior to that, I don't recall the last audit. As far as the return in question, I wouldn't be worried about audit risks. If you are more worried about audit risks because you think you are dealing with less than reliable numbers, it's time to sit down with the client to see what really makes up those numbers. If flakey, tell them you can't prepare the return without making some adjustments. If they say no, there are more fish in the sea and clients on land, so tell them to have a nice life and replace them with a client that is more trustworthy.

Slava Ukraini!

BobKamman

Level 15

Primary trigger here is filing Schedule C, when he should have turned it into an entity filing 1120-S long ago. No one ever suggested that?

Show him the very narrow strip at the bottom of this chart, and tell him that's where his audit likelihood can be found. The most important number is gross receipt, but ZIP Code is important too. How remote is the vacation home?

Sign up

Login with SSO

Let's get you signed in

Login with SSO

Scanning file for viruses.

This file cannot be downloaded