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Join Date: Apr 2006
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I think there's a lot of confusion between "examination" and "audit". Apparently, if something in your returns changes and gets someone to say "Hey, this doesn't look right" they ask you for an examination. baic supporting documents like your checking account and bank statements, some questions about lifestyle...How come you've bought two Ferraris if you only show twenty grand in employment income. Then someone takes a statement, fills out some computer forms, and if there's a logical explanation for it (I got the Ferraris at Walmart on a two-fer sale, here's the registration and title, honestly only $1000 each, they were last year's color) that's that.
Versus an audit, where they will ask you to submit substantiation of every penny for every item claimed, and then start comparing it to others that are "baselined" for your business. Like if you own a deli, they know that each sandwich you report sold--on the average--contains so may slices of meat, two slices of bread, so many slices of lettuce and tomato and onion and pickle spears or chips, and a paper bag and napkin and a slice of wax paper...and they literally will send someone in to buy sandwiches every day for a week to see what you put in them. Then, if your receipts show you paid for everything....except, you didn't buy enough bread...They'll presume you DID buy the rest of the bread, using cash from under the table. They really do examine and tally the minutiae, and "forensic accounting" can be a powerful tool.
Got a gas station? Do some repairs for cash? Better make sure those parts you used were also paid for in cash. And even then--they know what percent of the business will be paid for in cash. You can cheat on it, some, but if you say "I only have 5% cash customers" and they know other shops report 20%...yeah, that's audit time. How many rolls of paper did you buy for the cash register? They'll count the lines and figure out how many transactions are missing.
then of course there's also a "field audit"(?) where they don't just ask you to come in--but they come to you place of business and start looking around. Home office? They'd better not see the dog's bed in there, unless the dog is on the payroll.
The taxmen aren't the NSA...but they're pretty darn relentless once they get PO'd. They don't care if you're dumb--they know that no one understands the tax code. It's when they smell a "moi? cheat vous?" coming on that they start to show teeth.
But if you do show them that WalMart receipt for the two Ferraris--they're STILL going to call the local WalMart store and confirm that WalMart actually sold 'em to you. And if you bring bank statements, they're still going to order up copies from the bank. Heaven help you if they don't match.
Still doesn't mean I like the way the whole thing is run. I keep trying to figure out a patent for "self taxing currency" where every time a dollar changes hands, ten percent of it just melts away and can't ever be used again, so the "tax" just has to be accounted for and as the "money" wears out, they can safely just assume the rest can be treated as taxes paid. (Like, you get down to the last tenth of the dollar, give it back to the bank, and the bank hands you back a dime and tells the IRS "there's another 90 cents in your account now".
It's the form filling, the paper stacking, the intentional waste of time and energy that I mind. If Caeser wants me to keep rendering unto him, he could at least make th job easier!
Last edited by hellosailor; 08-13-2007 at 10:57 PM.