The Motley Fool Discussion Boards

Previous Page

Financial Planning / Tax Strategies


Subject:  Re: The Cost Basis Crisis Date:  7/3/2006  10:26 PM
Author:  Wradical Number:  87667 of 127534

(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 added twist, we did not prepare the original returns. Those were done by the company's prior accountants, who limited the deductible losses in error. I can't describe the situation in more detail. We were sure we were on solid ground, morally, legally, as well as mathematically. But we also knew an audit could result from filing the amended returns.

And we did indeed get an audit as a result. With the multiple parties, the job was assigned to two different revenue agents. Eventually the related jobs got transferred to one of them (the less desirable one, in our view, but it worked out OK.)

So no, nothing got screwed up, and we couldn't have been happier with the result.

Copyright 1996-2018 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us