Case Study: Audit Changed From $57,000 Tax Bill to $200 Refund After Appeal

Our client, a self-employed attorney, fought with the IRS for several months over business expenses before retaining AB Tax Law APC.  The IRS auditor held fast to the position that our client did not meet their burden of proof for the claimed business expenses.

After filing a US Tax Court petition, attorney Adam Brewer was able to successfully argue before IRS appeals that the business expenses were incurred, necessary, and reasonable.  As a result, a $57,000 tax bill was changed to a $200 refund.

Obligatory Disclaimer: Every tax case is different. The following case study is presented because we are proud of the result and it serves as an example of what is possible when working with AB Tax Law APC. There are a lot of misconceptions about resolving tax problems.  If you have tax problem then contact us for a free evaluation of your tax case.

Background

Our client is a self-employed attorney.  They had not filed tax returns for several years.  When they did file a tax return, one year was promptly selected for examination.   After multiple attempts to resolve the audit themselves, our client retained AB Tax Law.

Issue Under Audit

Every single deduction claimed on Schedule C was selected for exam.  These were: Advertising, Car and Truck Expenses, Commissions and Fees, Contract Labor, Depreciation, Insurance, Interest, Legal and Professional Services, Meals and Entertainment, Office Expenses, Other Expenses, Rent, Repairs and Maintenance, Supplies, and Utilities.

Complicating Factors

Because the return was filed late not all records were available at the time of exam.  In addition, most of the transactions were paid in cash which eliminated bank statements as a source of information.

Outcome

During a meeting with IRS Appeals in the Los Angeles documents were presented for each expense categories.  Where written evidence was lacking or missing entirely legal arguments were made as to the legitimacy of the business expense deduction.  Following the meeting, supplemental document were requested and provided to IRS appeals further supporting the rent expense deduction.

Through the course of audit we maintained the claimed deductions and established $2922 in additional expenses which were not claimed on the original return.  As a result, a refund of $219 was due to the taxpayer.