{"id":16688,"date":"2021-07-28T09:40:13","date_gmt":"2021-07-28T13:40:13","guid":{"rendered":"http:\/\/privacyfight.io\/?p=16688"},"modified":"2023-06-25T07:19:38","modified_gmt":"2023-06-25T11:19:38","slug":"u36-auditing-the-audit-process","status":"publish","type":"post","link":"https:\/\/privacyfight.io\/u36-auditing-the-audit-process\/","title":{"rendered":"U36 &#8211; Auditing the Audit Process"},"content":{"rendered":"\t\t<div data-elementor-type=\"wp-post\" data-elementor-id=\"16688\" class=\"elementor elementor-16688\" data-elementor-post-type=\"post\">\n\t\t\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-b7a3130 elementor-section-boxed elementor-section-height-default elementor-section-height-default\" data-id=\"b7a3130\" data-element_type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-037aca8\" data-id=\"037aca8\" data-element_type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-d0efe0c elementor-widget elementor-widget-text-editor\" data-id=\"d0efe0c\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t<div class=\"vidseo_wrapper\" style=\"width: 100%;\">\r\n\r\n    \r\n    \r\n        <div class=\"vidseo_vimeo\">\r\n\r\n            <iframe title=\"vimeo-player\" src=\"https:\/\/player.vimeo.com\/video\/722542855\/?\" width=\"100%\" frameborder=\"0\" allowfullscreen><\/iframe>\r\n\r\n        <\/div>\r\n\r\n    \r\n    \r\n    <div class=\"vidseo_collapse\" style=\"\">\r\n        <div class=\"vidseo_btn\" style=\"\">\r\n            U36 \u2013 Auditing the Audit Process\r\n0:03\r\nWhy they are doing?\r\n0:05\r\nPardon me, this is John Jay, and I\u2019m going to talk about audits today.\r\n0:10\r\nI\u2019m going to give you a couple unusual examples, OK, just to illustrate some points.\r\n0:15\r\nNot all audits need to be handled this way. IRS Audits, O&#8230;        <\/div>\r\n        <div class=\"vidseo_collapse_content\" style=\"\">\r\n            <p>U36 \u2013 Auditing the Audit Process<br \/>\n0:03<br \/>\nWhy they are doing?<br \/>\n0:05<br \/>\nPardon me, this is John Jay, and I\u2019m going to talk about audits today.<br \/>\n0:10<br \/>\nI\u2019m going to give you a couple unusual examples, OK, just to illustrate some points.<br \/>\n0:15<br \/>\nNot all audits need to be handled this way. IRS Audits, OK? You can just pretty much for the most part.<br \/>\n0:21<br \/>\nWhen you file tax returns, do the right thing.<br \/>\n0:23<br \/>\nDon\u2019t try to get more deductions, and you should be getting.<br \/>\n0:27<br \/>\nSo maybe you\u2019d like to play it on the edge, that\u2019s fine.<br \/>\n0:30<br \/>\nBut typically, you can go to an audit, and you should probably, in my, in my opinion, an audit should not take more than one meeting.<br \/>\n0:39<br \/>\nAnd maybe it might take a few weeks of IRS agents looking over documents, and things like that.<br \/>\n0:44<br \/>\nMaybe it takes some communication between you, and the auditors, or you\u2019re assistant.<br \/>\n0:49<br \/>\nYou\u2019re CPA, EA, whoever you going to want to have help you.<br \/>\n0:54<br \/>\nBut for meeting in person, if you\u2019re gonna go to audit an audit, unless you\u2019re McDonald\u2019s, or some big corporation, you probably should only have one meeting, and if you\u2019re having more, especially if you have 6 or 8 meetings, you\u2019re probably being taken for a ride and overcharged by your account. I probably didn\u2019t even have that account. Or he or she doesn\u2019t know what he\u2019s doing.<br \/>\n1:16<br \/>\nSo, or he\u2019s just trying to create billable hours. I\u2019ve heard some really crazy thing. So, I just want to share with you a couple of examples. These are literally two audits I\u2019ve worked on in the last 3, 3 years or so.<br \/>\n1:30<br \/>\nAnd the first one was prompted because the couple had opened foreign accounts in different countries.<br \/>\n1:39<br \/>\nThey had ABC\u2019s international business companies. They had trust accounts, they had LLCs in Panama and all kinds of Belize, whatever and there was no real purpose for them other than I don\u2019t know. Maybe they thought they were going to do something with them. They really didn\u2019t do anything.<br \/>\n1:53<br \/>\nIt just cost them a lot of money And so, what happened is they didn\u2019t comply with the Financial Crimes Network or FinCEN disclosure reporting rules And I\u2019ll give you a quick reference here.<br \/>\n2:05<br \/>\nIt was, If you, if you go look under Form Iris form 54 71, and look under the instructions for that form, You\u2019ll see what I\u2019m talking about. They\u2019re very complicated.<br \/>\n2:17<br \/>\nIn fact, it\u2019s so complicated that you can probably never comply now, and I\u2019m gonna get into things, some things here.<br \/>\n2:23<br \/>\nI\u2019m going to, I\u2019m going to show you two examples. OK.<br \/>\n2:25<br \/>\nThere\u2019s two categories of audits, I\u2019m going to explain to you.<br \/>\n2:28<br \/>\nIn the first example, there are two different cases. I\u2019m going to tell you the different things of what happened here.<br \/>\n2:35<br \/>\nThe first example was a couple that I began working with, and so what we did is we shut down these foreign companies and got out of that, but the problem is they had already had all these penalties for, like the last six years, or four years or something where they didn\u2019t meet the disclosure requirements.<br \/>\n2:49<br \/>\nSo what we had to do was, there\u2019s a 90 day notice period where the IRS tells you, you know, the IRS enforces Financial Crimes Network, the FinCEN rules.<br \/>\n3:02<br \/>\nThat\u2019s how that works. So, the IRS sent this notice, and you have 90 days in which to file your disclosure forms, if you haven\u2019t done that, which we did, and the penalties are huge.<br \/>\n3:10<br \/>\nI mean, it was tens of thousands of dollars per year, and it\u2019s double that because if it\u2019s double that, if you don\u2019t fill out the forms late. So, when we got the notice from the IRS, when we saw that, I had them go ahead and fill out.<br \/>\n3:23<br \/>\nThey\u2019re disclosure forms, That\u2019s required, in which they did, and that cut the penalties in half, while they still had probably a quarter million dollars in penalties. It was crazy.<br \/>\n3:33<br \/>\nSo, what we did is, we finished that, then there were, they were already in the middle of an audit because of it. So I got it. I got into it right at that point. So, what my purpose was, is to get rid of half of the penalties or reduce the dollar amount, Not that, it\u2019s not really going to matter when I explain you what we actually did in the end. But I\u2019d just like to just do that because in the Financial Crimes Network or FinCEN rules, you actually have criminal penalties that could that. The civil penalties could morph over into the criminal side, but while the IRS is talking with you, there is no criminal aspect to it.<br \/>\n4:07<br \/>\nSo just be aware that when the IRS is talking to you about a matter, there is not, well, there\u2019s not supposed to be a criminal investigation or criminal implication.<br \/>\n4:19<br \/>\nSo, you always want to ask them to, by the way, but in any case, we did all that. And then, because we\u2019re in the middle of an audit, we had to answer a bunch of questions, and that was all done by the mail. And so I had the clients go to, I think I think they had already been to one meeting in person with the agents.<br \/>\n4:36<br \/>\nAnd so I told him, let\u2019s just have one more meeting. And I think we did that. I think maybe we had to go to two. I don\u2019t remember it as a general rule. I try to keep it at one.<br \/>\n4:44<br \/>\nSo in this case, I figured that because of what had transpired previously and judging by the communications from the IRS agents, I felt it would be a prudent two, have a court reporting service take the transcript of the audit. So they went to the audit.<br \/>\n5:02<br \/>\nAnd I explained to them to not use the Fifth Amendment to go ahead and answer all the questions. And we had some strategy about answering the questions you always want to tell the truth, and, but you don\u2019t want to give out too much information. And what we\u2019re just trying to do is get through the audit without creating more drama.<br \/>\n5:16<br \/>\nLet\u2019s just call it, all right, with the least implications as possible.<br \/>\n5:21<br \/>\nSo, lo and behold, they complete the audit, and the IRS didn\u2019t like it because it didn\u2019t get any more information we did.<br \/>\n5:29<br \/>\nIn my opinion, we did a pretty good job of complying with the summons and then not given the IRS a lead into some other new investigation. That was my purpose. So, well, but the thing is, we had a transcript from and a transcript.<br \/>\n5:43<br \/>\nMean, that was probably an all day audit.<br \/>\n5:45<br \/>\nsix hours, I mean, I\u2019m sorry, but sometimes that happens. And so we had the whole thing transcribed. It was expensive, was probably, I don\u2019t know, maybe a thousand maybe $1500. I didn\u2019t want to get into too much detail there, but, I had the clients do that, and then we had, that we bought the transcript. Because I figured my calculation was that those agents, we\u2019re going to go to the Department of Justice.<br \/>\n6:06<br \/>\nThey have to do referral and the Department of Justice would then go to the US District Court and claim that the people they were being audited relied upon the Fifth Amendment at the audit, OK, which you cannot do because it\u2019s a civil matter.<br \/>\n6:19<br \/>\nEven with FinCEN criminal penalties, OK, that you still, You can\u2019t just say Fifth Amendment. There are other ways of dealing with that and I can\u2019t provide them attorney client privilege and it wouldn\u2019t have helped them anyways. So, what we wanted to do is document the fact that we didn\u2019t use the Fifth Amendment because I figured that they would try to use that to intimidate them and to getting more information. Which there was really nothing else to give anyways. It was, you know, there\u2019s harassing people, so, anyways. Sure, enough, I took a few months. They got Sued civil summons for refusal or failure to comply with an Iris summons. That\u2019s what it was all about, OK.<br \/>\n6:53<br \/>\nAnd they were telling the US District Court judge that they that the two people use the Fifth Amendment and refuse to comply.<br \/>\n7:02<br \/>\nThat\u2019s the only thing they can say.<br \/>\n7:04<br \/>\nAnd so we filed a motion to dismiss, and we provided a copy of the transcript, and we said, hey, judge, look, we complied, we answered all these questions, and here\u2019s the transcript, and you can see and hear that not one time that one moment throughout all those hours of transcript did the defendants\u2019 rely upon or state or claim the Fifth Amendment as a response to any information requested.<br \/>\n7:28<br \/>\nAnd as a side note, because I I like to have a bit of a sense of humor, I did say, and you all know, you should know, if you don\u2019t already that. The US.<br \/>\n7:35<br \/>\nConstitution does not apply in an IRS audit. Why are you even mentioning that?<br \/>\n7:41<br \/>\nThis is a frivolous claim period that was hit in my motion. And the took about maybe two months, maybe a month.<br \/>\n7:51<br \/>\nAnd the IRS Department of Justice, dismissed the case with a two line motion to dismiss, end of it.<br \/>\n7:59<br \/>\nThat was the end of it, not the end of the debt. Just the end of the examination, whatever.<br \/>\n8:05<br \/>\nNow, what they\u2019re doing is something called running the clock, we just arrive at a dollar amount that they owe. You\u2019re not going to get around it because the penalties. I\u2019m not going to get there\u2019s no way around it.<br \/>\n8:16<br \/>\nBut what we can do is file returns and stay current and not pay.<br \/>\n8:22<br \/>\nAnd just you can either work out a payment plan if you, if you want, or you can.<br \/>\n8:27<br \/>\nif you\u2019re uncollectable, which, a lot of times, people qualify for that.<br \/>\n8:31<br \/>\nYou can submit a payment plan or a proposal to say that you\u2019re not collectable right And have the IRS agree with you. Sometimes that happens in this case.<br \/>\n8:39<br \/>\nWe just, we didn\u2019t want to do that, because it requires all kinds of new financial disclosure. So, we don\u2019t want to go that route. We just got out of that situation.<br \/>\n8:46<br \/>\nSo, what we\u2019re what they\u2019re doing is they\u2019re going to file and stay current, but not pay that amount of money, not even try to pay it.<br \/>\n8:54<br \/>\nThey\u2019re subject to levy with wages, but it\u2019s only 15% of the wages, the rest of their property and income or whatever it is protected. So, it\u2019s it\u2019s optic. It\u2019s called off the radar, so to speak. It can\u2019t be levied.<br \/>\n9:04<br \/>\nSo they\u2019re pretty well protected.<br \/>\n9:07<br \/>\nEquity is stripped out, and so the IRS can\u2019t levy. And so they\u2019re going to continue filing and for it\u2019s going to take probably another eight years.<br \/>\n9:15<br \/>\nAnd by that time, the debt will probably be approaching three quarters of a million dollars. It might be $700,000. And then on that 11th year, it\u2019ll turn into zero.<br \/>\n9:25<br \/>\nIt\u2019ll have expired because of the statute of limitations and you can only do that when you file returns.<br \/>\n9:31<br \/>\nSo, that\u2019s an example of how we, I like to say, we ended the problem.<br \/>\n9:35<br \/>\nI mean, really, it took a year and a half for the whole thing to end with a court, but I think we ended the problem in about a week.<br \/>\n9:43<br \/>\nThey\u2019re never going to have to pay, We cut the bill in half.<br \/>\n9:47<br \/>\nKnow, by catching up the filing, and just a word of caution, don\u2019t do things off shore, and identify yourself as a US citizen. Get a second passport. Or use nominee directors, OK?<br \/>\n9:58<br \/>\nPretty much anywhere in the world, except probably Taiwan or Iran isn\u2019t isn\u2019t is going to report on you.<br \/>\n10:03<br \/>\nAll right, so that was way different than this other case. Very similar set of facts, very similar.<br \/>\n10:12<br \/>\nNow this other person did have business in another country and ran into the same situation. Didn\u2019t do the proper disclosures.<br \/>\n10:22<br \/>\nIn this case, she hired an attorney, and for 6 years 6 years, that attorney took a fifth of a million dollars to represent her and to guide her to the point where he created drama. He created litigation. He created the need for him to keep being involved and keep billing her.<br \/>\n10:39<br \/>\nAnd he got her into a situation where the Department of Justice, Souter, Justice Souter, and claimed that she Wilfully and fraudulently refused or failed to disclose these facts.<br \/>\n10:54<br \/>\nAnd the, the reality is is that she, they are correct that she didn\u2019t use the right form, but she did disclose the fact. So there\u2019s just saying that because you use the wrong form, that was fraud. That\u2019s what their their claim is.<br \/>\n11:06<br \/>\nWell, the attorney got her to a point where they sued her and after about five months of not answering the complaint the attorney didn\u2019t answer the complaint.<br \/>\n11:14<br \/>\nHe told her that, he should just give up, and default on the case, because the United States always wins.<br \/>\n11:21<br \/>\nAnd when I heard that, I was like, Oh, no, no, no, no. You don\u2019t want to. You want to default. On a case where there\u2019s criminal implications, not that, that\u2019s gonna manifest in crime. An indictment of some kind but with Financial Crimes network involved. You\u2019re looking at Title 18 penalties.<br \/>\n11:37<br \/>\nBut, at this time and it never has turned into that, neither of them have but they just wanted property. They thought they could get some big windfall from this person and they just, They were wrong, in any case.<br \/>\n11:48<br \/>\nSo, we we went ahead and made, we got permission from the court to answer late. And then we force the government to go ahead and present its case and meet its burden of proof, which it really has struggled. And I don\u2019t know which should probably end up owing some money, but it\u2019s way better than defaulting. And so, she\u2019s probably got a claim now against the attorney for actually being competent and being kind of a jerk. And he should have told her in the beginning that he wasn\u2019t competent to help.<br \/>\n12:14<br \/>\nIn any case, that can happen. I\u2019m not saying all attorneys will end up in that situation, but it just, it just happened. I\u2019ve seen a lot of it, a lot of times. It happens like that.<br \/>\n12:26<br \/>\nI guess the lesson from that is document what\u2019s going on, understand what the law is, understand that the US Constitution doesn\u2019t pertain to IRS audits? I know you guys are probably gonna get angry when you hear this.<br \/>\n12:39<br \/>\nJust, I\u2019ve been to a lot of these, probably 100 around the, around the country.<br \/>\n12:44<br \/>\nI used to travel to people\u2019s places, and I would sit with them for a couple of days, I would stay over their place, and I would help them with their audit. Sometimes idea, actually go into court, and talk to the judge and try to work it out. And just say, Look, what this person is. You know, he\u2019s my friend, and I\u2019m going to help him. He didn\u2019t quite understand, he hates the IRS like everybody. But I told him it has to be done, and he\u2019s, he\u2019s OK with that, and I\u2019m gonna help them with you, that\u2019s OK with the court. And the judges are always amenable to that. I\u2019ve never had a problem with them.<br \/>\n13:12<br \/>\nAnd it\u2019s funny, because they don\u2019t care if I\u2019m an attorney or not, in many cases. So, but any case, I don\u2019t do that too much anymore, But, that\u2019s why I\u2019m doing this video. I want to explain that. You don\u2019t have to be afraid of it. Just document an audit. Yeah, you might end up with a bill. Lots of times. You can negotiate out of it.<br \/>\n13:28<br \/>\nYou know, just try to do the right thing, But document everything.<br \/>\n13:31<br \/>\nDon\u2019t be afraid of these guys, OK, and then.<br \/>\n13:36<br \/>\nYou don\u2019t need to protract an audit it that there\u2019s a tendency to have that happen.<br \/>\n13:41<br \/>\nGiven that, I\u2019ve had this a few times where a person comes to me and is already in that situation, he\u2019s going into his third audit, No meeting. And I\u2019m asking why, and he says, I don\u2019t know. My enrolled agent says, I have to, and I\u2019m thinking, or are you building a paying by the hour, you know.<br \/>\n14:00<br \/>\nSometimes that happens, and maybe they don\u2019t mean to do it that way, but, you know, it\u2019s the nature of the beast.<br \/>\n14:05<br \/>\nAnd so, I just tell the IRS, I, you know, I get the permission first, You know, the person\u2019s permission, I\u2019d just say, hey, I read alleged the IRS. And I say, Hey, I\u2019m not gonna go to any more of your meetings. if you can\u2019t determine whether or not I owe more money or whatever the deal is, you can\u2019t conclude the audit.<br \/>\n14:20<br \/>\nWith the information you already have, then you don\u2019t know what you\u2019re doing.<br \/>\n14:23<br \/>\nAnd, you know, have a nice life, that\u2019s the end of it, and then, of course, the enrolled agent or whoever gets scared and quits and sends a letter of termination and my clients like, yeah, we don\u2019t need if anymore, you know?<br \/>\n14:35<br \/>\nAnd so, either you get a bill or not, and if you get a bill, so why don\u2019t you just negotiate it out?<br \/>\n14:41<br \/>\nIn the meantime, you know, you want to strip assets and income if you can, and all that sort of thing. So, I don\u2019t want to get too far into that, You\u2019ll see a lot of my other videos, I talk about that.<br \/>\n14:49<br \/>\nI don\u2019t say the reasons, but this would be one of the reasons.<br \/>\n14:53<br \/>\nAll right. So.<br \/>\n14:55<br \/>\nAnd so, and in that case, those are two examples.<br \/>\n15:00<br \/>\nFinCEN issue was OK, not a great situation to be in FinCEN Issue, that was a disaster.<br \/>\n15:07<br \/>\nExhausting really took a lot of this this woman\u2019s time.<br \/>\n15:11<br \/>\nUh, but she was a good sport about it. She did a pretty good job and I think we did pretty good there.<br \/>\n15:17<br \/>\nNow, here\u2019s where it\u2019s the most practical.<br \/>\n15:20<br \/>\nNow, keep in mind, I\u2019m not saying that every audit should be undertaken in this way.<br \/>\n15:25<br \/>\nRemember, I get cases where it\u2019s there\u2019s an abuse going on, someone\u2019s being exploited. I\u2019m trying to protect somebody, put out a fire, so to speak.<br \/>\n15:34<br \/>\nThis is not your typical Joe Smith that just has a business or no a website, and he\u2019s getting a routine audit.<br \/>\n15:43<br \/>\nThis is an abusive situation.<br \/>\n15:44<br \/>\nSo now, here\u2019s a case where a person who was a high net worth person did it file for more than three years.<br \/>\n15:53<br \/>\nAnd when you don\u2019t file for more than three years, when you get into that fourth year, there\u2019s a presumption of fraud for every year that\u2019s beyond the three.<br \/>\n16:00<br \/>\nAnd so when there\u2019s a presumption of fraud, that doesn\u2019t mean you\u2019re going to get arrest hit or anything like that. It just means there\u2019s a presumption of fraud.<br \/>\n16:07<br \/>\nAnd so, to protect the client, what I had them do is go to a tax attorney.<br \/>\n16:12<br \/>\nWe do not need the tax attorney for tax advice.<br \/>\n16:15<br \/>\nWhat we\u2019re going to use the tax attorney for is the attorney client privilege. I can\u2019t provide that. So, we go to a tax attorney.<br \/>\n16:22<br \/>\nWe take all that. And this is a case where we\u2019re going to file. There\u2019s a reason why we do this. Sometimes, we don\u2019t, but sometimes, if you want to catch up and file for those years, you didn\u2019t file for it, for whatever reason.<br \/>\n16:33<br \/>\nThere\u2019s a strategy there. In this case, we had to file.<br \/>\n16:36<br \/>\nSo it was more than three years out, so we go to a tax attorney. It probably costs. it was like $900 to do this.<br \/>\n16:42<br \/>\nIt\u2019s worth it. You\u2019ll see why?<br \/>\n16:46<br \/>\nHigh net worth person?<br \/>\n16:48<br \/>\nWe did a re-organization of his assets, and that\u2019s kind of a side issue, but to confront the reached the initial problem, we had to get him back into filing, and we wanted to get the attorney client privilege so that what happens is, when you file after so many years of not filing, it generates an audit. Now, the reason why this happens, it\u2019s not only I know it because I\u2019ve seen it.<br \/>\n17:09<br \/>\nIt also is, if you look at the Internal Revenue Manual, OK, it\u2019s on, It\u2019s on the Internet, I think it\u2019s called the 6209 Internal Revenue Manual. You can look at it, It\u2019s kind of really extremely boring reading, But anyways, if you\u2019re, if you\u2019re motivated, you can find out what these guys do. So, anyways, I know what they do, what they do, so, I knew they were gonna audit him and, so, we went to the attorney, We got the attorney client privilege.<br \/>\n17:29<br \/>\nWe gave all the documents, we had the attorney pay a CPA and now, I think the CPA worked in the attorney\u2019s office. That\u2019s probably the better situation.<br \/>\n17:38<br \/>\nSo, most attorneys will qualify for this criteria. They\u2019re not, they don\u2019t have to be smart. They don\u2019t have to be specialists. They just need to be an attorney who\u2019s working with a CPA. Maybe that does accounting, That really helps, but not necessarily. anyways.<br \/>\n17:51<br \/>\nSo, we give him all the documents. The accounting accounting person prepares all the returns.<br \/>\n17:57<br \/>\nThe client signs them and files old old school style by mail. That\u2019s just my way of recommending it. I don\u2019t like doing the online stuff.<br \/>\n18:06<br \/>\nAnd so sure enough, we get an audit.<br \/>\n18:09<br \/>\nSo before we get to the audit part, I\u2019m going to explain what I had them do is claim standard deductions and everything. That means, now this person was a high net worth person because he was a real estate investor, so he had all kinds of really cool deductions. He could have lowered the debt quite a bit.<br \/>\n18:24<br \/>\nAnd I told him, make it as reasonably high as possible.<br \/>\n18:29<br \/>\nSo that means be naive, complete your tax returns, and only claim standard deductions. Don\u2019t take advantage of all your deductions that you could easily take advantage of.<br \/>\n18:38<br \/>\nAnd he didn\u2019t really, except that when I told him and I explained why not and you guys will hear why I\u2019m doing it this way, because by making the debt higher, it was easier to negotiate a payment plan later on like a year or so later.<br \/>\n18:53<br \/>\nBut, I explain this. And it was a very uncomfortable situation, because he didn\u2019t know me very well, and I said, please, if you\u2019ll just trust me, it will work out really well.<br \/>\n19:02<br \/>\nAnyways, so, it was funny, As I got a call from his wife shortly after that she was a little upset. Why are you telling my husband to do this? And so, I try to explain myself again.<br \/>\n19:13<br \/>\nI said, if you\u2019ll just please be patient, trust me, it\u2019ll work out just fine.<br \/>\n19:17<br \/>\nSo, anyways, we got the debt as high as possible, OK, with standard deductions, and it was ugly.<br \/>\n19:24<br \/>\nAnd, uh, we did the returns, we got a bill. OK, we sent the returns, and with No money. And, got a bill. And I saw title them every step of the way. I said, OK, here\u2019s what\u2019s going to happen next.<br \/>\n19:34<br \/>\nAnd so he gets this bill, and he goes, Hey, I got the bill, and, so we go to the, we go to the audit, Actually, I\u2019m sorry, we will get the bill later, but we go to the audit, after filing, and they wanna look at his books and records. And so he goes in there, and he says, one thing. I heard him say one thing, now, he brought his books and records.<br \/>\n19:53<br \/>\nAnd I told him to explain that these records, the tax returns, OK, we\u2019re prepared under the attorney client privilege, and the communications between himself and the attorney are privileged.<br \/>\n20:07<br \/>\nAnd, and of course, the accountant as well because he was paid under the same retainer.<br \/>\n20:13<br \/>\nAnd that what you see is what you get, OK. This is what we told the IRS on Form 1040, on the four corners of the form.<br \/>\n20:21<br \/>\nWhat you see is what you get, because all of the communication was to prepare those returns, and it\u2019s under the attorney client privilege.<br \/>\n20:28<br \/>\nNow, apparently, they\u2019ve heard this before, because he didn\u2019t even finish the sentence, and they were so polite to them, They said, It\u2019s OK.<br \/>\n20:36<br \/>\nThank you for coming in.<br \/>\n20:38<br \/>\nHave a nice day. We\u2019ll be in touch.<br \/>\n20:40<br \/>\nAnd it was funny, because he didn\u2019t even open up anything. He\u2019d even sit down.<br \/>\n20:44<br \/>\nHe left, it was like one minute, less than one minute, he left, he was calling me on the phone, on his way to his car in the parking lot and he was laughing, and I said, Hey, hello, is laughing, and he says, Man, how did you know they\u2019re going to do that? I said, I didn\u2019t really know they\u2019re going to do that, but that\u2019s was, that was likely.<br \/>\n21:01<br \/>\nI mean, worst-case scenario, you would have sat there for awhile, they want to be jerks, but I\u2019m glad you\u2019re out of there. So we\u2019re done with that, because what\u2019s going to happen next? I said, you\u2019re gonna get a bill.<br \/>\n21:10<br \/>\nIt\u2019s going to be ugly.<br \/>\n21:11<br \/>\nDon\u2019t tell your wife, I don\u2019t know.<br \/>\n21:13<br \/>\nAnd it\u2019s like, you laugh it again, and sure enough, he gets a bill. It was, it was a bill for them, was called examination changes. I believe you can find the form on the internet. It\u2019s called form 4549.<br \/>\n21:24<br \/>\nSo he gets a big, fat bill, as I like to call it, and so then he calls me. He goes, OK, I got the bill, it\u2019s, it\u2019s bad, it\u2019s bad, And I said, OK, so, let\u2019s do this. Now, remember, I\u2019ve worked with him for this is, we\u2019re about a year into it now by year and a half or so.<br \/>\n21:37<br \/>\nAnd so, we had re-organized everything so that it\u2019s amenable to making an offer with the IRS. Let\u2019s just say it that way.<br \/>\n21:45<br \/>\nAnd I said, Well, let\u2019s make an offer in compromise based on doubt as to collectability. And the way you do that, you guys want to check this out. Right now, it\u2019s form 6, 5, 6. It\u2019s actually a booklet used to come in a great booklet. Now, it\u2019s on the Internet, So it\u2019s a large PDF file. In the PDF file. The most comprehensive one you\u2019re gonna find, it\u2019s going to be a PDF.<br \/>\n22:07<br \/>\nI believe you can fill them out online, but I think you can print them and do it by pen. I don\u2019t think you can do both.<br \/>\n22:14<br \/>\nI, for myself, I like to do them by pen. So Form 656, basically, it\u2019s a financial disclosure statement. It\u2019s a balance sheet.<br \/>\n22:22<br \/>\nNow, there\u2019s some detail in there, one has to do with your individual master file and one has to do with your business master file. Business master file just means things like 10, ninety nine\u2019s.<br \/>\n22:30<br \/>\nIndividual master file means, things like W, fours, W twos, OK? So there you have employment income, you have independent contractor or business income, or investment income.<br \/>\n22:41<br \/>\nSo those two categories are covered by Form 656, which is a General Balance Sheet, financial disclosure form, And the supplemental disclosures are on Form 433, A.<br \/>\n22:53<br \/>\nThat\u2019s your individual master file disclosure documents pertaining to your W two type situation and then Form 433 B, that pertain to business 1099 K 1, things like that.<br \/>\n23:05<br \/>\nSo we fill all that out.<br \/>\n23:07<br \/>\nI know it\u2019s, you don\u2019t want to fill it out, but if you\u2019ve already been, you know, prepared for an audit and you\u2019ve already, the IRS says you owe some money. It\u2019s and we\u2019ve already done the proper re-organization.<br \/>\n23:16<br \/>\nWhen we disclose all that, the IRS is going to, if you\u2019ve done it correctly, if you\u2019re able to do it, the iris will usually conclude.<br \/>\n23:24<br \/>\nThat\u2019s your uncollectible and this is what happened in his case. So, it took a few months. We did the often compromise based on doubt as to collectability, not liability, collectability.<br \/>\n23:34<br \/>\nIt doesn\u2019t matter because he\u2019s never gonna pay him anyway. So we did the offer. Iris came back, send them a letter and said, we\u2019ve examined your offer and concluded that you\u2019re uncollectible at this time and we will review your file in six months, which I don\u2019t know if they did, or not, because nothing\u2019s ever come of it. So, what\u2019s happened since then?<br \/>\n23:52<br \/>\nAnd it\u2019s been about nine years, I would say, nine years.<br \/>\n23:56<br \/>\nWe did that 8 or 9 years, Um, the debt went from about a half a million dollars. It\u2019s probably about $700,000 now.<br \/>\n24:05<br \/>\nIt\u2019ll be close to $750,000 in a couple of years, Well, by the year 20, 23, I suppose, 2024, maybe, 2023, it will expire.<br \/>\n24:17<br \/>\nThose debts will expire, or they\u2019ll start to expire. He\u2019s got a period of time where they\u2019re going to start to expire. And hello them, nothing, and he\u2019ll have paid them nothing because of the statute of limitations. And the only way to do that is to, like I just described. You do the best you can to mitigate the debt. You use the attorney client privilege and it kind of didn\u2019t matter anyways because we only have standard deductions. We didn\u2019t care about arguing over deductions, right? We don\u2019t, we want the debt to be higher.<br \/>\n24:41<br \/>\nWe don\u2019t want to be annoyed with an audit or risk disclosing something that might give the iris a lead for something else. I had, I didn\u2019t know if that were, what\u2019s going to happen, so we try to eliminate having to answer more questions, right?<br \/>\n24:53<br \/>\nSo they, they made that conclusion, and since then, from what I understand, there\u2019s been no change.<br \/>\n24:59<br \/>\nHowever, he does file a return every year, he reports his income, and it\u2019s just a nominal amount, which is reasonable for his demographic, and that\u2019s the end of it, his assets are not, no, they\u2019re not his anymore. We\u2019ve, we\u2019ve taken care of all that.<br \/>\n25:13<br \/>\nSo, that\u2019s a general description of some of the things that I\u2019ve used over the years with the kind of results that are typical.<br \/>\n25:23<br \/>\nThose are the few most recent examples.<br \/>\n25:28<br \/>\nLet\u2019s see here. I\u2019ll make sure I didn\u2019t miss anything.<br \/>\n25:30<br \/>\nYeah.<br \/>\n25:31<br \/>\nSo, yeah. We cover pretty much everything.<br \/>\n25:36<br \/>\nAnyways, just, you know, be pragmatic.<br \/>\n25:38<br \/>\nKnow that you can document things, you can bring a court reporting service. I would not recommend just using a tape recorder or a recording device like your phone or something. I mean, you could do that. Ultimately, if you need the transcript, like I just explained, if you need the transcript, you\u2019re going to have to get the official transcript from the core reporting service.<br \/>\n25:55<br \/>\nAnd then you\u2019re gonna enter it into the court if it\u2019s if that\u2019s what you\u2019re using it for. If you just need to take notes, OK, fine, Just make an audio recording. And also like you would in college, just, you know, make notes with your your pen, OK.<br \/>\n26:07<br \/>\nSo in any case, my, my purpose here is I hope that it dispels some fear, OK.<br \/>\n26:15<br \/>\nIt is manageable manageable to do an audit, and yeah, I know audits in most people\u2019s mind is probably accurate, equal, audits equal having to pay more money.<br \/>\n26:26<br \/>\nUm, if it\u2019s a lot more money, that\u2019s actually better, as I just explained, OK, That\u2019s the way I look at it. Anyways.<br \/>\n26:34<br \/>\nAll I care about is my client has the most access to the most money possible, and not break any laws.<br \/>\n26:41<br \/>\nSo All right.<br \/>\n26:42<br \/>\nWell, thank you for listening. I hope this helps.<\/p>\n        <\/div>\r\n    <\/div>\r\n\r\n    \r\n<\/div>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-7234e8c elementor-section-boxed elementor-section-height-default elementor-section-height-default\" data-id=\"7234e8c\" data-element_type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-a1f8fd3\" data-id=\"a1f8fd3\" data-element_type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-2998c1f elementor-widget elementor-widget-spacer\" data-id=\"2998c1f\" data-element_type=\"widget\" data-widget_type=\"spacer.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t<div class=\"elementor-spacer\">\n\t\t\t<div class=\"elementor-spacer-inner\"><\/div>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-7f57be2 elementor-section-boxed elementor-section-height-default elementor-section-height-default\" data-id=\"7f57be2\" data-element_type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-1b1ec93\" data-id=\"1b1ec93\" data-element_type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-c02919c elementor-widget elementor-widget-text-editor\" data-id=\"c02919c\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t<p><strong>Summary<\/strong><\/p><p style=\"padding-left: 40px;\">1. John Jay, the speaker, discusses the auditing process, advising listeners to handle audits correctly and efficiently, as he believes most should not take more than one meeting.<br \/>2. He gives an example of a couple who faced hefty penalties for not complying with the Financial Crimes Network (FinCEN) disclosure reporting rules due to their foreign accounts and international business companies.<br \/>3. The speaker intervened during their audit, helping to cut the penalties in half by ensuring they filled out their disclosure forms.<br \/>4. Despite this, the couple still had a large amount of penalties, so Jay worked towards reducing this further while navigating the ongoing audit.<br \/>5. The IRS accused the couple of using the Fifth Amendment and refusing to comply, which the speaker disproved using the transcript from their audit.<br \/>6. Jay advises to avoid doing offshore business without proper understanding of the tax regulations and to avoid using nominee directors.<br \/>7. In another case, Jay recounts a woman falsely accused of tax fraud, who was told by her attorney to give up the case, but Jay stepped in and was able to get the case dismissed. <br \/>8. Jay cautions against frequent unnecessary audit meetings, as he suggests these are often tactics used by accountants or enrolled agents to rack up billable hours.<br \/>9. Jay also advises filing tax returns on time, even if one can&#8217;t pay, to reduce future penalties and to keep the IRS informed of one&#8217;s financial status.<br \/>10. In a final example, he explains a strategic approach for a high net worth individual by filing a high amount of debt with standard deductions, leading to an offer in compromise based on doubt as to collectability.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-69cd19a elementor-section-boxed elementor-section-height-default elementor-section-height-default\" data-id=\"69cd19a\" data-element_type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-74693b1\" data-id=\"74693b1\" data-element_type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"<p>U36 &#8211; Auditing the Audit Process<\/p>\n","protected":false},"author":131,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_uf_show_specific_survey":0,"_uf_disable_surveys":false,"footnotes":""},"categories":[124],"tags":[],"_links":{"self":[{"href":"https:\/\/privacyfight.io\/wp-json\/wp\/v2\/posts\/16688"}],"collection":[{"href":"https:\/\/privacyfight.io\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/privacyfight.io\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/privacyfight.io\/wp-json\/wp\/v2\/users\/131"}],"replies":[{"embeddable":true,"href":"https:\/\/privacyfight.io\/wp-json\/wp\/v2\/comments?post=16688"}],"version-history":[{"count":7,"href":"https:\/\/privacyfight.io\/wp-json\/wp\/v2\/posts\/16688\/revisions"}],"predecessor-version":[{"id":25358,"href":"https:\/\/privacyfight.io\/wp-json\/wp\/v2\/posts\/16688\/revisions\/25358"}],"wp:attachment":[{"href":"https:\/\/privacyfight.io\/wp-json\/wp\/v2\/media?parent=16688"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/privacyfight.io\/wp-json\/wp\/v2\/categories?post=16688"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/privacyfight.io\/wp-json\/wp\/v2\/tags?post=16688"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}