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Confessions of an I.R.S. Auditee

Last April, we wrote a column about tax cheating. It included a passage about the I.R.S.’s National Research Program, “a three-year study during which 46,000 randomly selected 2001 tax returns were intensively reviewed.” The goal was to determine some of the specifics of tax cheating: what kind of incentives work and don’t work, what kind of people are more likely to cheat and how, etc. “The I.R.S. doesn’t specify what these 46,000 people were subjected to,” we wrote, “but it may well have been the kind of inquisition that has earned the agency its horrid reputation.”

The other day, we received an e-mail from a reader who was among the subjects of the National Research Program. Although she wants to remain anonymous, she is willing to share her experience. I wish I could at least name her accountant; he sounds worth hiring:

I was one of the “lucky” 46,000 participants, and I wanted to tell you I “won.” They did ask VERY probing questions, and it was a much more in-depth audit than I guess regular audits usually are. My accountant was very helpful and took it as personal challenge, thankfully charging me very little of what he could of, considering the hours and hours we both put in to contest it.

I work in the entertainment industry “below the line” as a costume and prop builder. 2001 was a slow year due to an impending strike that never went through, and I only made $21,000 that year (less than 1/2 of what I usually make) and larger than usual percentage of that was 1099 income. I keep meticulous records, and claim everything, down to a $15 pants alteration. We held all meetings at the accountant’s office, and the binder the IRS guy had on me was enormous. And he wouldn’t let us look at it. He asked me over and over about where I keep my cash in the house, rephrasing it like a lawyer or a cop, and I kept telling him how I keep no cash in my house other than loose change. That question must have come up 6 or 7 times.

They went through all of my bank statements line by line for the entire year, making me justify every single deposit, which I did, including a $30 birthday check from an elderly aunt. After everything was said and done, we found that I was probably OWED another $450 back from the IRS that year, and by that point I was so mad I wanted to fight for it. My accountant wisely counseled me to just let it go, and call it even.

I paid the IRS nothing. I paid my accountant a couple hundred dollars, which was then deductible the next year. He probably could have charged me $1500 at least, and we used his offices as home base for weeks.

He now has a loyal client for life.

It was a pretty shitty July, but it was one of those experiences that helps put the rough times in life in perspective.