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Financial Planning / Tax Strategies


Subject:  Re: The Cost Basis Crisis Date:  7/3/2006  10:26 PM
Author:  Wradical Number:  87667 of 123001

(Eric:)A couple of questions, though, if the answers won't violate your confidentiality requirements: what was your purpose in inviting an audit, and did that get screwed up when the IRS gave you the no-change letter without further argument?
Perhaps I wasn't clear. And no, it's Ok as long as I don't name the client, or describe the details of the transaction too specifically.

We filed an amended return for a large refund, to which the client was clearly entitled, based on the facts as we knew them. The issue was the amount of deductible losses, as limited by stock basis in two related S Corporations. For the sake of illustration let's say the amount of the refund was about $50K per shareholder.

Our purpose was simply to get the clients (multiple parties - that's part of the complications here) the refunds to which they were entitled.

However, we knew that the nature of the claim, and the size of the refund, was likely to generate some scrutiny. That's what I originally meant by "we were practically asking for it". So we knew we would have to have all the documentation on hand and accounted for in case of an audit, so we were organized and prepared for the audit before we sent in the amended returns.

As an