Reply To: IRS Representation

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Lisel Sutter

Not sure if this is the appropriate place to post this one or not. Please redirect me if not.

Client under audit is Sole Prop, Garment Industry, Clothing design small lots of denim related clothing products. Sole Prop shows low net income on return,approx $25k net, out of gross income of $275k. Client also has W2 income working in his Father’s business of approx $27k. Wife is homemaker.

A few potential issues in my opinion might be the following:

1) 1099’s were issued to several contractors over a 3-5 yr period, a few of which have come back er the years with bad SS#’s. The Garment industry in LA should explain some of that. My concern would be that this may alsobe an employee reclassification audit.

2) Sole Proprietor/individual under audit, also purchases home in Palos Verdes in year now being audited. The home is now worth 1.2 million, was purchased for $775k several years prior. The Client under audit has his father on the loan paperwork because he assisted him in obtaining the home, client would never have qualified. FYI, side note – client has massive credit card debt due to business expenses, and history of loans that continue. Lifestyle audit?

This started as a F2F audit in Long Beach, but because I am in San Diego and not LA, I requested a transfer to San Marcos office. The auditor manager agreed to a correspondence audit with them instead. We complied by sending all that was requested. Priority Mail Audit package was signed for as received.
Schedule C Audit is focus. In response, We submitted a 1200+ page package via correspondence audit to assigned auditor in March, but still nothing from the auditor. I have called multiple times requesting status.

The audit itself began in late November 2018, was halted due to government shutdown, and then resumed late January 2019, at which time auditor gave us 20+ days only after we had received IAR. I called fo request more time, auditor never responded. Submitted package early March when all docs and records were assembled. No response still. Shall I hold and wait, or call the auditor manager? Is this a usual practice? Client is getting slightly concerned. Recommendations?

Thank you!

  • This reply was modified 2 years, 4 months ago by Sandi Leyva.