I survived an IRS tax audit

By Amy Haimerl, personal finance editor


NEW YORK (CNNMoney) -- There are no red hot pokers or other instruments of extreme torture hanging from the walls. No wicked cackling. Not even an evil eyebrow raised.

No, the IRS tax audit division in Brooklyn, N.Y., looks like any cubicle farm in any anonymous corporate office park. There's the harsh fluorescent lighting. The beige walls. The personal mementos -- teddy bears, family portraits -- punctuating the sameness.

My road to this second-floor office started with a standard white envelope emblazoned with the dreaded words: Internal Revenue Service. When it arrived at my house in December, I found a five-page letter explaining that my 2008 taxes had been selected for audit. I needed to call "WITHIN 10 DAYS to schedule an appointment."

Terror.

About 1.6 million people found themselves in this situation last year, according to the IRS. That means 1.1% of all filers drew the short end of the stick -- and about 300,000 of them were selected because of deductions related to a business venture.

That's why I got called to answer for myself.

My husband had an art gallery in Denver and the IRS had a few questions about his 2008 Schedule C, the form where you report income and deductions for your business. I'd filed the form for him, along with the rest of our taxes, using TurboTax.

Thankfully, when that big scary letter arrived in the mail, it told me exactly what expenses were in question -- all $23,000 of them. That was a relief: I always thought I'd have to show up and answer questions about any part of the return, rather than being able to prepare.

In our case, the IRS wanted to know about the rent and utilities he paid for the building, as well as a line item for "vehicle deductions."

So I dutifully called Ms. Green, the name at the top of the letter. The problem was, I told her, it was my husband's business. And we're in the middle of a divorce.

And he lives in Colorado.

And the business was gutted in a fire in 2009 -- along with all of its records.

Didn't matter, she explained. Because I live in New York City, and my name was first on the tax filing, the audit was triggered here. It was going to happen in Brooklyn with or without him.

As for the records, Ms. Green suggested I find some and call back when I did. Then we would set a time for the appointment. (At least the IRS was being flexible and not demanding that everything happen on a rigid timeframe.)

So I went out begging for documents. With me and my ex not exactly speaking, I figured I'd have to put together the proof myself.

I called the power company in Denver, and they said that I wasn't on the account, so they couldn't help me. I begged and, I'm embarrassed to admit, burst into tears. The nice manager sent me all the records. Ditto his former landlord. (That one I got through without the crying.)

One whammy remained: the vehicle deductions. The records my ex had were now ashes. So I called Ms. Green back, set the date, and figured I'd hope for the best.

I already knew the worst. If I couldn't prove any of the deductions, we'd owe the IRS about $8,000.

So on a bitter Wednesday morning in February, I dressed carefully in my "tough outfit" -- a t-shirt with a cat skull (covered by a big sweater), slacks and stripey socks -- and entered the belly of the beast.

I passed through security that would make TSA jealous and found the waiting room. The only thing I knew to expect was this: The audit could take up to four hours, according to my letter.

Within moments, Ms. Green appeared and walked me to her cubicle. She told me about how she'd started at the IRS, never expecting to spend most of her career there. She was friendly and pleasant. Not at all scary.

I showed her all my documents. She said she wished I had the lease, not just the accounting statement from the landlord. Why? Because a lease is more official and harder to forge.

She asked what my husband did. What was his business? Why did he rent a building when we owned a house? Why did he need to rent equipment? What repairs did he make?

I reminded her that I only had documents for the rent and utilities. I tried not to cry.

In the end I was there about an hour, and she accepted most of my documented proof. Some things she disallowed. For the items I didn't have any receipts for, she approved 40% of what we'd claimed, calling it a "customary business expense."

She reminded me that I had the right to appeal her decision. And then she gave me the bill: $1,874.10.

I wrote the check -- though you can set up a payment plan -- and got the hell out. I didn't want to wait and see if there was something lurking behind those innocent cubicle walls. To top of page

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