Form 1040 IRS Audit Issues

We are seeing a sharp uptick in the number of IRS audits for individuals (especially for 2010 tax returns).  Listed below are a few of the most common issues being reviewed by the IRS and the documents they are requesting. 

• Charitable Contributions
  • For contributions in excess of $250, cancelled checks, credit card statements, or payroll check stubs.  Also, as required by the Code, acknowledgment of the contribution from each organization (it is best if the acknowledgment is contemporaneous with the contribution – the IRS has, on occasion, disallowed contributions when the acknowledgment is dated more than one year after the donation).
  • For contributions less than $250, cancelled checks, credit card statements, or payroll check stubs.
  • If claiming charitable mileage, a log book showing dates, occasion, and mileage.
  • Non-cash contributions – detailing listing of items and support for fair market value of items claimed on your return.
  • Contributions carryover from a prior year – if you have a carryover from a prior year, the supporting documents (cancelled checks, credit card statements, payroll check stubs, acknowledgment from the charity for cash and a detailed listing of the items and fair market value of each item for non-cash) for the year of donation.  Also, if the contribution was an item (i.e. closely-held stock, conservation easment, artwork, collectible, etc.)  greater than $5,000, you will need to provide the signed Form 8283, a copy of the appraisal, and the acknowledgement letter from the charity.
• Rental Real Estate
  • Receipts or other supporting documents for all expenses claimed on Schedule E related to the property (i.e. insurance, advertising, repairs, maintenance, cleaning, etc).
  • Form 1098 showing mortgage interest and property taxes.
  • HUD closing statement related to the acquisition of the property.
  • Receipts for any subsequent improvements (i.e. roof or other major repairs).
  • If you hold yourself out as real estate professional, a copy of your real estate license.
  • If the property has not been rented out for any length of time, proof that you are attempting to rent the house (i.e. copies of ads, correspondence with an agent).
• Medical Expenses
  • Receipts for all expenses – these can be credit card statements (i.e. an AMEX summary), cancelled checks, doctor's receipts, or statements from your pharmacy.
• Schedule C
  • Receipts for all expenses – credit card statements, cancelled checks, actual receipts.
  • Auto – if you claim auto expenses, a mileage log showing dates, miles traveled, and business purpose for each trip.
  • Travel – a log showing dates and business purpose, as well as receipts for all expenses (i.e. cab fare, tolls, parking, airline travel, hotels, meals, etc).
  • Meals and Entertainment – receipts showing date, location, persons present, and business purpose.
  • Bank statements – typically, the IRS will ask for all of the bank statements for all of your business accounts for year under audit, as wells as the December preceding the year under audit and the January following the year under audit.  They will typically also ask for all of your bank deposit slips, credit card statements, and cancelled checks.  They may also ask for all of your personal bank statements as well.

With the IRS, paper matters.  The more documentation you have and the better organized it is, the more likely we can obtain a no change audit (or minimized any changes the IRS proposes).