Audit #2 Wrap-Up

This second audit turned out to be MUCH simpler than the first. To prepare for this audit, I used the same procedure as last time:

-Assemble all tax related documents from last year.
-Redo the math and make sure the total claimed on the tax return matches the total from all charitable contribution receipts.
-For each charitable contribution, match the donation receipt with a withdrawal from an account (checking, credit card...)
-Compile all this data in a nice spreadsheet to make the job of the examiner easier.

This self-audit revealed a small error I had made in the return and after thinking it over a bit, I decided to highlight this on the spread-sheet rather than hope nobody would ask about it. Honesty with the IRS seemed the most trouble-free course of action. (It turns out that the examiner asked up-front if I had found any errors during my preparation. Unless I wanted to lie, this question pretty much made irrelevant and rationalization I might have had for not mentioning the error. )

I made my way through security and on my ride up the elevator with the examiner, our conversation revealed that I had just been here eight months ago for my 2004 audit. This surprised him and he made a point of mentioning this to his supervisor who was going to sit-in on the audit.

We went through the cursory is-there-any-income-you-are-forgetting-to-tell-us-about questions (Any income from gambling? Trusts? Bartering? Garage sales?) and then proceeded to dig into the issue at hand: charitable contributions. I handed the examiner my spread-sheet and after unfolding it, he spent several seconds looking stunned. I don't know what he was expecting to see but the number of transactions he was going to have to check must have seemed daunting. He slowly turning around in his desk to grab a calculator and, with a sigh, started to ask me about the first item on my list.

At this point, his supervisor jumped in.

"What did you say your 2004 audit covered?"

Same as this one, charitable contributions.

"How did the 2004 audit turn out?"

No change to the filing was made.

"Tell us about the mistake that you found in your filing."

Due to the weird way my church reports my financial donations with them, I accidently counted $65 I paid for men's retreat as a charitable contribution. A closer examination of the receipt clearly shows that this was not a tax-deductable contribution.

"$65? That's it? If that's the extent of the error, I don't see any reason we need to continue with this. Do you have the 'case closed' letter they gave you at the end of the last audit?"

Now I was the one who was stunned. I slowly turned to my stack of folders to find my records from the 2004 audit. I handed the examiner the letter, he went to make photo-copies, and that was that.

As the supervisor explained, the IRS customarily does not examine the same person for the same item two years in a row. My impression was that this practice was not governed by law, but more by some internally-established procedures. If there had been other items of examination in the audit, they would have proceeded checking those and my charitable contributions. He said the computer that figures out who needs to get audited doesn't take into account any previous audits and when it saw my abnormally high charitable contributions, it flagged me and I got a letter. This also means that if I get flagged again in 2006, instead of scheduling an appointment I can simply call the examiner and let him know I've already been examined twice for this item.

With that, I was done. In and out in under an hour. Best of all, I don't have to file any kind of amendment to my return for that silly mistake I made. The fact that I don't have to do any extra paper-work is reward enough for me.