Tax audits

I did a search for state tax audit and unreimbursed business expenses, finding this article about one state's program focused on increasing revenue by targeting unreimbursed business expense deductions:

Dear Taxpayer: State cracks down on unreimbursed business expenses | PennLive.com

One more search found your state has contracts with the same company helping Pennsylvania.

See if H&R Block will help you pull together the documentation and bully the Department of Revenue. I'm checking with a tax lawyer friend in your state to see if she knows anything and if she can recommend a reasonable state auditor to contact to make this go away.

 

According to my local tax lawyer contact, the State has instituted some fraud detection projects, using a company that identifies potential cases of fraud in return for a percentage of revenues generated. This likely falls within this project because someone having both a W-2 and unreimbursed business expenses raises a red flag. She said if your deduction was pulled out of the air by H&R Block, based on things other than actual unreimbursed business expenses, just pay up now.

Both of us think if the number is based on actual expenses, pull together as much as you can to document expenses, any reimbursed amounts, and evidence of your employer's policy to not reimburse all business related expenses, as well as an explanation, if any, of why you don't have complete documentation. A good faith effort at producing records will not only reduce the audit change to the extent you have documents, but may buy you goodwill to get the rest of the amount you claimed but can no longer document. May not, but you never know.

If you need more time, ask for it. In my experience, reasonable extension requests are always allowed - but get it in writing!

Your submission will get to a DOR auditor, no way to get one you want.

My strategy if you have some documentation is to play nice and not hardball. You want the auditor to understand what an honest, helpful person you are so may be willing to give you a benefit of the doubt on the undocumented stuff.

A local accountant who does a lot of work representing individuals at DOR may have knowledge of what kind of documentation is acceptable and what leeway is allowed and may even have relationships with the auditors that can make things go more smoothly.

My contact did not know if DOR sends its audit info to the IRS and wondered whether the changes would meet the IRS's materiality level. However, that means playing the audit lottery, something that as tax lawyers we won't recommend as a legitimate tax filing strategy.

 

Thanks for the help everyone, and not that anyone cares, but after reading the other tax thread figured I'd provide some closure to this one.

I dug through my records and couldn't find a shred of the supporting documents to go with this, only the printout of the tax return that I filed electronically. I immediately called the number on the letter from the state and told the woman I was having trouble finding it, but I was still looking and would respond by the deadline. She seemed surprised I called so quickly and said she'd put with my file that I was responsive to their inquiry.

Talked to a tax accountant, and they told me I was basically screwed, and estimated it would be a few thousand dollars in taxes, penalties and interest. I kept looking and could find nothing. About a week before the deadline, I called the state again and told them I wouldn't be able to get them anything but the documents they wanted that were part of my return. This woman told me to just send what I had.

I scanned and e-mailed those couple of pages of the return to the state, and wrote in the body of the e-mail that I know I screwed up, assured them that I was very conservative when it came to claiming those work-related expenses, but I understand if they are disallowed and I need to pay a "stupid tax" for not keeping my records long enough.

About 4 days later, I got a letter from the state saying I provided everything they needed and the matter is closed from their end.

I guess they get so many people that just ignore those inquiries that they will go out of their way to help people who do respond.