Audit trigger

[strongsilence]

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.

[sjrcpa]

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.

[IRonMaN]

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.

[BobKamman]

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?

[strongsilence]

No question provided but lots of advice given!

I'm just wondering why people in their later stages, living a good live full of grandkids and relaxation and sun and vacations, would want the <1 % of examinations and associated penalties.  Maybe that is what makes life interesting to them.

[TaxGuyBill]

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@strongsilence wrote:

and associated penalties

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Penalties?  Are you assuming he does not have the proper record-keeping or is doing something fraudulent?

I think it is funny how many people are afraid of audits.  The purpose of an audit is to make sure the taxpayer did things correctly.  With the proper record-keeping, audits are usually not a big deal.

[BobKamman]

@TaxGuyBill "I think it is funny how many people are afraid of audits. The purpose of an audit is to make sure the taxpayer did things correctly. "

I think it's funny how many people are afraid of colonoscopies.  The purpose of a colonoscopy is to make sure the patient does not have cancer.

[strongsilence]

Are you assuming he does not have the proper record-keeping or is doing something fraudulent?

yes.