Heed the Warning Signs to Avoid an Unnecessary Audit

When the owner of a mid-size engineering firm asked members of a trade association that they and BPK&Z both belong to whom they recommended for a CPA firm, BPK&Z’s name came up. The engineering firm was unhappy with their current CPA and needed a second opinion on their financials.

Their CPA was hard to reach; often dropping out of sight completely and not returning phone calls or emails. His unavailability, their suspicions they were not receiving quality work and the referrals from the association lead them to give BPK&Z a call.

Three people from the BPK&Z team did an on-site visit with the engineering firm. During the visit, the team asked the owners what was important to them, listened to their concerns, told them a little about BPK&Z and offered them a complimentary review of their 2006 and 2007 tax returns.

After the review, BPK&Z wrote a two-page letter outlining issues they uncovered along with their recommendations. “What we found was some sloppy work,” said John Csargo, CPA, MBT, CFP®, one of BPK&Z's tax experts, "and other mistakes that could've easily triggered an audit and put them at risk."

One of the items was a bad debt claim, even though the firm was running on a cash basis that would never accrue bad debt. Mistakes like this could have easily cost them time and money preparing for an unnecessary audit.

A larger issue was the inconsistent reporting of shareholders’ income. If the IRS uncovers that an S-Corp has not been consistent with their income distribution to shareholders, they can pull the S-Corp status, which was at risk in this case. In addition, because the income was reported incorrectly, it could have thrown them into another tax level that would have cost them upwards of $80,000.

BPK&Z worked with the firm to recreate the income distributions and found that the firm had administered their part correctly, but their CPA had recorded the information incorrectly to the IRS. The lack of quality work, time and commitment shown by their CPA could have triggered an audit, pushed them into a higher tax bracket and put them at risk of losing their S-Corp status.

“The old adage, ‘you get what you pay for’ was evident,“ said Csargo. “Although their CPA charged cheaper fees upfront, an audit is expensive and time consuming. Paying for a CPA to defend you in front of the IRS is not how you want to be spending the firm’s money.”

When we review your tax returns we look at your tax situation, take every legal deduction on your behalf and prepare quality returns that will not send up any red flags that would trigger an audit. We don't take short cuts that put our clients at risk and we don’t think sending in your taxes should be a roll of the dice with the IRS."

BPK&Z offers a free review of your current tax return to make sure you are getting all the benefits and none of the risks. If you are interested in having us review your return, call John Csargo at (763) 546-6211 or email .

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