my agent arrived 5 minutes ahead of schedule, dragging a suitcase in one hand, holding a cup of coffee in the other. "do i need a parking permit?" he asked. i told him where to park so he didn't need one. i'd turned up the heat in my house to a cozy 68 degrees (cozy for me at least) and wore a clean white shirt with some nice pants. a stack of manila folders stuffed with financial documents sat on the living room floor, a glass of cold water resting on a coaster on the coffee table.
|"is this considered an audit?" i asked him... "yes," he said.|
first thing he asked about was the large chunk of change i didn't report for my 2005 tax returns. after he showed me the numbers, i was able to match it up to some 1099's. the problem was client X submitted two 1099's for two different years but for the same work. i filed for 2004 but didn't for 2005, so that raised a flag with the IRS. i talked to client X about it at the beginning of this year, but apparently they did nothing, which ended up screwing me over, but i had e-mail printouts supporting my claim. next he asked me to produce the deed to my house, wanted to make sure i actually owned it and i wasn't just funneling money away to someplace.
up to that point there wasn't any problems, i wasn't going to get penalized for anything. then he asked about the utilities deduction on my 2005 returns, how apparently i seemed to have deducted those expenses twice. it was a mistake on my part, or if i had to blame somebody, it was turbotax's fault. he'd have to adjust my numbers, which meant i'd have to pay back some money. "can i see your home office?" the agent asked. exactly what i was afraid of! although i work from home, i don't have a legitimate home office space, and i showed him my two bedrooms. "technically, this doesn't count as a home office," he said, but because my deduction was so small, he told me he'd overlook it, but asked that i convert one of the rooms to an office right away, otherwise he might lose his job.
okay so far, until he brought the pain: "can i review your 2005 bank statements?" he went through my numbers with a finetooth comb. it actually felt sort of humiliating, my financial records under close scrutiny, like i was being violated somehow. even though i had nothing to hide, it still felt weird. the agent told me that sometimes people refuse to divulge their financial records but the IRS has the power to subpeona them anyway, so resistance is futile. he wasn't so concerned as to what i was spending my money on (which is good, because there were probably some embarassing purchases), but more focused on how much money i was bringing in every month.
after he was done, matching numbers with check stubs and 1099's and invoices, he told me there was still several grand unaccounted for. while he took his lunch break ("i'm allowed one hour for lunch," he told me), i went through his calculations to make sure he counted correctly. "you said you had some china photos?" he asked me; i directed him to my flickr account while he finished his sandwich. my stomach growled.
now i keep a record of my expenses, but they're not the best records in the world: as long as i'm making enough money to pay the bills, i could care less where the money's coming from. most distressing was the several months i was away in southeast asia, when my parents were taking care of my finances. i saw some numbers in my statements that i had no idea what they were, and i couldn't explain why unless i told the agent the truth. and why was i afraid to do that? because during that first month i was in southeast asia, i was still collecting my last bit of unemployment, which technically is illegal. but i had no choice, so i finally revealed to him that i was away during those lost months, and any activity in my bank account were from my parents, who concerned with the possibility i didn't have enough money to pay my mortgage, might've added some money into my account (and wouldn't you know it? my mother actually called, and i got confirmation that she did indeed supplement my account a little bit). the agent looked in my passport to verify i was telling the truth about leaving the country, and seemed satisfied with my answer, and didn't seem to care if i'd been collecting unemployment or not. however, there was still a few grand unaccounted for towards the end of 2005, and since i had no documentation to support if it was untaxable income, the agent told me the IRS would have to tax me on the amount. i basically agreed, still not quite sure what was going on, and he printed out a report for me (on his portable printer inside his travel suitcase), and i wrote him a check for the same amount you'd pay for a brand new macbook. he also asked for a copy of my resume, for when he writes my report to his boss. "is it true that if i get audited once, there's a greater chance i'll get audited again?" i asked him. "your name will be flagged, and the IRS will pay more attention to your filings for the coming year," he said.
my agent drove me to the copy center on mass ave so i could make a few copies for him (some 1099 forms, the deed to my house, my 2004 tax returns). instead of getting a ride home, i shook his hand and told him i'd walk. i also thanked him, which later i thought was sort of stupid, like thanking a cop when you get a speeding ticket. either way i was going to pay some money to the government: the IRS doesn't come a-knocking with an audit if they don't think they can get some money from you. but my agent definitely cut me some slack, and said i looked like an honest person, and gave me the benefit of the doubt whenever possible.
it was 1:30 by the time i walked back to my house. i picked up the documents scattered all over the living room, and spent the rest of the day just watching movies i've downloaded online. i felt like i owed it to myself to take a break, feeling a bit drained. now that i've experienced my first audit, i feel like i belong to a privileged class of other suvivors. i heated up some leftover meat buns for lunch. in the evening, some ramen for dinner. no more free food for the next two weeks, since my parents are away.