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This is one of the best web sites on the internet for audit help. It is the law office site of  Frederick W. Daily, Attorney   http://www.taxattorneydaily.com If you never have gone to audit or appeals, this is a must.

Information Central

To all of my colleagues who need a Audit guide, this is what I give my clients. The only items not included are my IRS guidelines for charitable contributions and areas for notes. Please feel free to copy, cut and paste as you see fit.

Dear Tax Client:

It is unfortunate that you have been chosen for an audit by the Internal Revenue Service (IRS) or Franchise Tax Board (FTB). I have designed this little packet to help you with your responsibilities to provide the required records or documentation to sustain your claims as to deductions taken. It is imperative that you accommodate me by providing all of the information I request from you. I can not help you if you don’t do this, and I will not ask repeatedly for this information. This is not a game, the IRS takes audits very seriously and so should you.

Please read and follow these instructions very carefully.

1.     I need all, and I mean ALL, of the following information in this packet. Without it, you are Dead Meat and there really is nothing I can do to help you.

2.     You must start  to get your income tax records or documentation together immediately. The following pages tell you exactly what the IRS or FTB is asking for. As the client, you must make every effort to obtain and gather the following information.

3.     Any correspondence from the IRS must be faxed or sent to me immediately to me so that I may be continually updated as to your status.

4.     If you want me to personally represent you before the IRS or FTB or just want me to talk to them, then I need you to sign, date, and return the enclosed Power of Attorney, Form 2848. If the filed return was a joint one, both you and your spouse must sign and date the form. If you do not sign this form, I am still able to help you but I am unable to communicate with either the IRS or FTB on your behalf.

Please pay particular attention to the following items.

                         a.                         Employer Verification Letter

                         b.                         Employee “Business Expenses”

                         c.                         Contributions

All of these items are extremely important. In the subsequent pages I will tell you what I need, and I will also tell you exactly what the IRS will ask for. The last page in this packet is condensed version of the IRS Guidelines for Records. Pay close attention to them because this is exactly what the IRS uses to determine adequate records.

The form letter you received asks for many items that may or may not pertain to you. I realize that you may not be able to provide all of the requested information. Do the best that you can, and we will go on from there.

I understand that no one likes to receive letters from the IRS or FTB. I am here to help you through this nightmare, however, it does require your help and assistance. Remember, it is up to you, the client, to provide this information. I can only show the IRS or FTB what you give me, I can not make things up. Give me nothing, you will get nothing, except a tax bill from the IRS, FTB, or both, and a bill from me too!

(insert your name here) Robert



IRS or FTB Contacts

List any and all people who you have personally talked to at the IRS or FTB and the date you talked to them.

ASK FOR A NAME. I may need to know just who it was, that you talked to and so will you. They will give you a name, title, and ID number, if you ask for it.

(insert some lines for notes)

Know this; it is the IRS’s job to insure that you pay the correct amount of tax due. Some agents are much more aggressive than others. If you decide to go this alone, at anytime during an audit, you have the right to stop it and ask for representation. If you feel you are forced into something which doesn’t seem right, or overwhelmed by the system, just stop it by saying “Let’s stop, I want (or need) professional help”. DO NOT CONTINUE with the interview, even if the examiner wants too or says “it is in your best interest”. If you think you might need me, I will give you a Power of Attorney, Form 2848, already filled out and signed by me. Simply sign it in front of the examiner and hand it to her/him. Tell them to talk to me and:

Walk away and Agree to Nothing.

(insert some lines for notes)

Schedule’s C, E, and F

Caution: If the IRS asks for Bank Statements, Credit Card Statements, and your Business Ledger, you may need profession help. There is a hidden agenda and your worst nightmare has yet to begin.. Before you see them, at least call me, and arrange to have a bookkeeper go over your records thoroughly. Evil is coming your way.

Schedule’s A, C, E, and F

You will need to substantiate each claimed deduction as indicated in the enclosed Form 4549, Report of Income Tax Examination Changes. The supporting documents on each item must be complete enough for the IRS to make a fair determination.  If you are going to the audit by yourself, then bring the records and documentation with you. If this is a correspondence audit, then send only photocopies of documents used for verification.


1.             Send copies of the expense vouchers submitted to your employer.

2.             Send copies of logs, diaries or other records of expenses showing all expenses incurred, job locations dates you were at each location as follows:

Letter from your Employer, Very Important!!!

The IRS will ask for, or direct you to obtain;

1.  Send a statement from your employer showing:

                a.                A copy of your job description or a brief outline of your duties.

                b.                A copy of the reimbursement policy or a statement that there is no reimbursement policy.   

                c.                Whether or not reimbursement is included on your W-2, and if so, where the reimbursement is reported

                d.                The amount and kind of expense reimbursed, charged or provided.

                e.                The specific expenses not covered by reimbursement policy.

                f.                 The territory assigned to you and the dates and locations of temporary jobs.

Why would you work for someone if it cost you money to work for them? The IRS or FTB want to know why, and there are many good reasons why, so this letter from your employer detailing your duties is very important. It provides a framework and explains why you are able to deduct certain  unreimbursed business expenses as miscellaneous deductions on your tax return. One letter per employer should be obtained, including spouse’s employer if they have taken expenses too.

If you work for a small firm that does not have a human resources department to help you with this, I suggest using the enclosed sample letters. (If your in construction, make sure your employer states that you are required to show up at the main place of employment and sent from there to the job site. This will eliminate any confusion about commuting mileage to and from work.)

These are some sample letters for (Sales, Law Enforcement, Construction).

Again, these are sample letters, but demonstrate how this letter should be written. Remember, that it is important to show what expenses are particular to your profession, be it a school teacher, sales manager, or registered nurse. Each profession has its own catalog of expenses. Notice how the letters are worded to include almost any cost you may incur. Though the letters may vary from employer to employer, the idea is that there are duties that are required of you beyond just commuting to and from work.

To emphasize the importance of a well written letter, I will highlight in Green, all of the issues that could be covered by a letter. As you will see, a simply written letter from your employer will address most of these issues. Additionally, this letter will address other issues later on in the examination.

Point being, you must get a letter.

Today’s Date

To Whom It May Concern:                                       (Sales)

                This is to verify that Jane Smith was employed for our company during all of 2000 (or the year being audited). Our company employed Ms. Smith and her job description was outside sales. As a condition of her employment, Ms. Smith was required to use her own personal car and home in the performance of her duties. According to our records, Ms. Smith drove 15,000 business miles (or approximate a weekly amount). She was only reimbursed for these expenses through her wage. As is customary with this type of employment, our employee may have also incurred additional expenses such as rent, telephone, office equipment, traveling, education and client entertainment. I hope this will help clarify this matter.


Owner or Hiring Supervisor



Today’s Date

To Whom It May Concern:                              (Law Enforcement)

                John Doe has been an officer of the law since 1996. The County of Orange requires that Mr. Doe purchase and maintain his uniform, safety gear, as well as firearm equipment on a continual basis. Every officer is expected to maintain a high level of physical dexterity which is achieved through frequent exercise. In order to maintain his job position, Mr. Doe must take educational courses that improve and further his skills. Mr. Doe is only reimbursed for these expenses through his wage. There are numerous expenses that this employee may have incurred by the very nature of this profession, of which 1 have only listed a few. I hope this explains what is required of this job.


Owner or Hiring Supervisor

Today’s Date

To Whom It May Concern:                                    (Construction)

                 John Smith has been employed by our company since 1999 as a (carpenter, electrical, etc.) . As a condition of employment, he/she is required to provide tools and equipment of this trade, a vehicle suitable for carry working supplies to and from a job site and report to our office for work assignments daily.  He/she is responsible for continuing education to enhance his/her skills at the rate of 3 or more continuing educational units as provide by local community collages or equivalent per year. Additionally Mr./Ms is expected to attend at least two or more major trade shows per year to keep abreast of current technology. His/her only reimbursement for these expense is through current wages as is customary though this industry.


Owner or Hiring Supervisor


Telephone, Cell Phone, Fax, or Pager Expenses

 1.   If you have Telephone, Cell Phone, Fax, or Pager expenses, the IRS will ask for;

                a.                Cancelled Checks or Actual Bills, and a real good reason why you, of all people, need a cell phone.

                b.                Log, diary, or call records, showing time, date, purpose of call.

2.   I will need the following.

                a.                Phone records showing charges and highlight the business calls and total their costs.

                b.                (Letter from employer, condition of employment?) Why do you have a cell phone?  Was it a condition of employment?

 Travel, Lodging, and Other Expenses

 1.    If you have Travel, Lodging, and Other Related Expenses, the IRS will ask for the following;

                a.                Credit Card Statements detailing where and what was expended including lodging, incidentals, and transportation costs.

                b.                Send copies of documents showing that this travel was related to your business.

                c.                Send copies of transportation tickets, receipts and cancelled checks to substantiate the expenses you claimed.

                d.                Send copies of lodging receipts and verification of the number of days away from home overnight for business purposes.

                e.                Send copies of brochures, activity schedules and agendas for all conventions, cruises or meetings.

2.   I will need the following;

                a.                Credit Card Statements detailing where and what was expended including lodging, incidentals, and transportation costs.

                b.                Send copies of transportation tickets, receipts and cancelled checks to substantiate the expenses you claimed.

                c.                Send copies of lodging receipts and verification of the number of days away from home overnight for business purposes.

            Meals & Entertainment

1.   If you have  Meals And Entertainment expenses, the IRS will ask for the following;

                a.                Send copies of the records and receipts for entertainment expense and meals you claimed.

                b.                The records must have been made timely and must show the name(s) and business relationship of the person(s) entertained. The records also must show the date, place and purpose of the entertainment and the amount of the expenditure.

                c.             For entertainment facilities, send copies of the records showing the expenses you incurred. Show total use, and business use of the facility if you maintained it.

2.   I will need the following;

                a.                Five conditions must be met in order to deduct meals under $75 w/o a receipt (date, where, amount spent, who was entertained, and what was discussed)

 Office in Home

 1.   If you have office in home expenses, the IRS will ask for;

                a.                Statement from your employer stating that you are required to maintain an office in your home;
                b.                Copies of cancelled checks and receipts verifying expenses incurred, such as interest, taxes, insurance, repairs and utilities;
                c.                Calculation of the total square footage of your home and the total square footage used for business; and,
                d.                Copies of the documents that establish the cost or other basis of the home, including the value of the land.

2.    I will need the following;

                a.                Rent/Utilities

                b.                Cancelled Checks

                c.                Actual Bills (even a few in order to extrapolate for the entire year)

                d.                Otherwise, letter from landlord detailing how much rent was paid in that year.

Automobile Expense

 1.   If you have Automobile or Vehicle expenses, the IRS will ask for;

                a.                 Send copies of repair receipts, inspection slips, and other records showing total mileage for the year.

                b.                Send copies of logbooks and other records to support business mileage claimed .

                c.                Provide a copy of your appointment book or calendar of business activities for the year.

                d.                If you are claiming actual expenses, please provide copies of paid bills, invoices and cancelled checks or automobile expenses. These would include gas, oil tires, repairs, insurance, interest, tags, taxes, parking fees and tolls.

                e.                Send a copy of the bill of sale or other verification to establish cost or other basis in the vehicle, including the trade-in of another vehicle.

2.    I will need the following;

                a.                Recreate a mileage log that shows when and where you drove for each day/week beyond to and from work.

                b.                Gather all gas receipts, insurance invoices, maintenance records on vehicle which will show odometer readings.

Job Hunting Expenses

 1.   If you had Job Hunting Expenses, the IRS will ask for the following;

                a.                Send a copy of the  log or diary showing your job-hunting activity and copies of cancelled checks or receipts showing expenses paid, including payments to employment agencies;

                b.                A statement from your employer showing the amount of reimbursement, if any; and, documents to establish the type of job sought.

2.   I will need the following;

                a.                Mileage log where you went and what company you saw

                b.                Out of pocket expenses such as meals travel, resumes and periodicals.

Education Expenses:

1.    If you have education expenses, the IRS will ask for ;

                a.                Send a statement from your employer explaining whether you needed the education keep your job, salary or status.

                b.                Explain how the education helped maintain or improve the skills needed in your job and how much reimbursement you received. Break down the reimbursement by category of expense send copies of cancelled checks and receipts to amounts you spent for tuition, books, transportation and other educational expenses. If you were away from home overnight for educational purposes provide expense verification for your meals, lodging and travel.
                c.                Send documents such as transcripts, course descriptions and catalogs showing our period of enrollment in the educational institution and the principal subjects studied, and, provide complete information about any scholarship or fellowship grants, including amounts you received during the year.

                d.                 Explain whether the education qualified you for a new job or kind of work.

(Be very careful how you answer this.)

2.    I will need the following;

                a.             Tuition, Book receipts, and transcripts of course taken.

Uniforms, Equipment, Tools, and Supplies

1.   If you have uniforms, equipment , tools and supplies, then the IRS will ask for the following:

                a.                Describe the items claimed and explain how they related to your employment;

                b.                Send a statement from your employer stating whether or not the expense was required and provide your employers description of the reimbursement policy and the amount reimbursed on the allowance paid;

                c.                Send copies of cancelled checks and receipts verifying expenses.

                d.                Itemized list of supplies, gear,, and equipment document by Cancelled Checks, or cash receipts.

                e.                Itemized list of tools in possession documented by Cancelled Checks, cash  receipts, or statement from private party.

2.     Uniforms or Work Clothes/Dry Cleaning

                a.               Itemized list of work clothes and cleaning expenses documented by Cancelled Checks, or cash receipts.

3.     Tax Preparation Fees/Union Dues

                a.                         Cancelled Checks

                 b.                         Statement from the union hall saying the dues have been paid by you.

4.        Subscriptions/Professional Memberships

                 a.                         Itemized list document by Cancelled Checks, or periodical invoices.

5.     Legal Fees (must be income producing or protecting, cannot relate to divorce or child support)

                 a.                         Cancelled Checks or Actual Bills

                 b.                         Statement from Attorney

6.    Legal. Tax and Investment Counsel Fees

                 a.                         Send copies of cancelled checks, receipts, and statements showing the amount of the payment and  the purpose of the expense.

7.   Computer

                 a.   Condition of employment. (Letter from Employer.)

Business Gifts

1.    If you have business gifts, the IRS will ask for the following;

                a.                Send copies of records and receipts showing the cost of the gifts you provided, the persons to whom the gifts were given and their business relationship.

2.    I will need the same information.

3.    Other Miscellaneous Deductions

                a.                Verify the deductions claimed on your tax return and provide an explanation of each.

This section relates to items that more correctly should have been depreciated instead or directly written off of your expenses. The “Depreciation” expense reported on your Schedule A under “Business Expenses.” Depreciation relates to an item that you either purchased or placed in service that year which you use for business purposes such as a computer or office equipment. The easiest way to document this expense is through a customer invoice, receipt, or bill of sale. Particularly if you purchased any items through a private party, you can have them verify and record such a transaction through a bill of sale.

First, it must show the date and year that it was purchased, what exactly was purchased, and must be signed the individual.

I.       Example of Items:

a.               Computer

b.              Desk & chair

c.               Lamps

d.              Rugs/Carpeting

c.               Printer/Scanner/Copier

f.               Fax machine

g.               Telephone system/Cell phone

h.              Paintings

I.               Typewriter/Keyboard

j.               Cable Modem/Ethernet Cards

II.       These are sample bill of sales:

a.               I, John Doe, sold to Jane Smith on June 1, 2000, one IBM Pentium IV 2.4 GHz computer along with a 17” IBM monitor, a Hewlett-Packard printer, and miscellaneous software for $2850 cash.


b.               On June 1,2000, I, Jane Smith, sold to John Doe one solid walnut desk, teak credenza, two leather chairs, a Canon all-in-one printer, and AT&T telephone system for $4110 cash.

 Received in cash (or Check) Signed,  The Seller

 Just for future reference, I would put a value on every item that you buy. In example a., I would have said computer for $2000, monitor for $350, printer $300, software for $250, for a total of $2850. You may be very well asked to put a value on each item.

Contributions   (e-mail for this. It is in a PDF format) 

This is what the IRS will ask for.

1.    Send copies of your cancelled checks and receipts for contributions to churches or other organizations.

2.    If the contribution was other than money, send the name and address of the charitable organization and the description of the item(s) contributed. Send a copy of the appraisal of the fair market value of each item on it contribution date and its original cost.

3.    If you claimed expenses for attending a convention or similar activity, provide a statement showing you were an official representative of the organization. Also, provide the organization’s reimbursement policy, expense receipts and an itinerary or agenda for the activity.

I will need the following information;

Here is a list of ways to substantiate the contribution expenses reported on filed return. It is important that you try to come up with as much of this documentation as possible. The contributions can be documented through one way or through a combination of these ways:

1.    Cancelled Checks for any donations

2.   I Statement from religious organization

3.   Statement from Taxpayer. Examples:

                a.     I, John Doe, gave United Chapel of Rancho Cucamonga $2,500.00 for the 2001 year

                b.     I, Jane Smith, give $75 weekly to Friends Church of Upland which totals $3900.00 for the 2001 year.

4.   Gather receipts from Goodwill, Salvation Army, AM Vets, or any other non-profit organizations that accept non-cash goods. For every receipt, make an Itemized list of Items given and total their value.

For example:

          Item         Cost

         12 boxes of Clothing     3,600
         1 couch                          823
         I mountain bike              300
         I Maytag washer& dryer         1050
         I bedroom set              2,000
         4 lamps                      400
         1 32” Hitachi television     675
         I Sony stereo system        300
         7 stilts                         2,400
         25 pairs of shoes           650
         dishware set         425


 5.   Volunteer expenses for any religious organizations, support groups, or non­profit entities.

            a.    Gather Cancelled Checks, or cash receipts for any out-of-pocket expenses such as meals and gas receipts.

6.   Payroll deductions such as United Way

             a.    Verification through payroll stubs.


I have included this information because I thought it was important that you understand exactly what record keeping is all about. This straight from the IRS. This is a very condensed version of what the IRS thinks records are and what record keeping is all about. 

What Records Must Be Kept

To meet the adequate records requirement, you must maintain an account book, diary, log, statement of expense, trip sheet, or similar record or other documentary evidence that, together with the receipt, is sufficient to establish each element of an expenditure or use. It is not necessary to record information in an account book, diary, or similar record if the information is already shown on the receipt. However, your records should back up your receipts in an orderly manner.

Elements of Expenditure or Use

The records or other documentary evidence must support:

1)  The amount of each separate expenditure, such as the cost of acquiring the item, maintenance and repair costs, capital improvement costs, lease payments, and any other expenses,

2)  The amount of each business and investment use (based on an appropriate measure, such as mileage for vehicles and time for other listed property), and the total use of the property for the tax year,

3)  The date of the expenditure or use, and

4)  The business or investment purpose for the expenditure or use.

Written documents of your expenditure or use are generally better evidence than oral statements alone.  A written record prepared at or near the time of the expenditure or use has greater value as proof of the expenditure or use. A daily log is not required.  However, some type of record containing the elements of an expenditure or the business or investment use of listed property made at or near the time and backed up by other documents is preferable to a statement prepared later.


 The elements of an expenditure or use must be recorded at the time you have full knowledge of the elements. An expense account statement made from an account book, diary, or similar record prepared or maintained at or near the time of the expenditure or use is generally considered a timely record if in the regular course of business:

1)  The statement is submitted by an employee to the employer, or

2)  The statement is submitted by an independent contractor to the client or customer.

Business Purpose Supported

An adequate record of business purpose must generally be in the form of a written statement.  However, the amount of backup necessary to establish a business purpose depends on the facts and circumstances of each case. A written explanation of the business purpose will not be required if the purpose can be determined from the surrounding facts and circumstances. For example, a salesperson visiting customers on an established sales route will not normally need a written explanation of the business purpose of his or her travel.

Business Use Supported

An adequate record contains enough information on each element of every business or investment use. The amount of detail required to support the use depends on the facts and circumstances. For example, a taxpayer whose only business use of a truck is to make customer deliveries on an established route can satisfy the requirement by recording the length of the route, including the total number of miles driven during the tax year and the date of each trip at or near the time of the trips.

Although an adequate record generally must be written, a record of the business use of listed property, such as a computer or automobile, can be prepared in a computer memory device using a logging program.

Separate or Combined Expenditures or Uses

Each use by you is normally considered a separate use. However, repeated uses can be combined as a single item. Each expenditure is recorded as a separate item and not combined with other expenditures. If you choose, however, amounts spent for the use of listed property during a tax year, such as for gasoline or automobile repairs, can be combined. If these expenses are combined, you do not need to support the business purpose of each expense. Instead, you can divide the expenses based on the total business use of the listed property.

Uses which can be considered part of a single use, such as a round trip or uninterrupted business use, can be accounted for by a single record. For example, use of a truck to make deliveries at several locations which begin and end at the business premises and can include a stop at the business in between deliveries can be accounted for by a single record of miles driven. Use of a passenger automobile by a salesperson for a business trip away from home over a period of time can be accounted for by a single record of miles traveled. Minimal personal use (such as a stop for lunch between two business stops) is not an interruption of business use.

Confidential Information

If any of the information on the elements of an expenditure or use is confidential, it does not need to be in the account book or similar record if it is recorded at or near the time of the expenditure or use. It must be kept elsewhere and made available as support to the district director on request.

Substantial Compliance

If you have not fully supported a particular element of an expenditure or use, but have complied with the adequate records requirement for the expenditure or use to the district director’s satisfaction, you can establish this element by any evidence the district director deems adequate.

If you fail to establish that you have substantially complied with the adequate records requirement for an element of an expenditure or use to the district director’s satisfaction, you must establish the element:

1)  By your own oral or written statement containing detailed information as to the element, and

2)  By other evidence sufficient to establish the element.

If the element is the cost or amount, time, place, or date of an expenditure or use, its supporting evidence must be direct, such as oral testimony by witnesses or a written statement setting forth detailed information about the element or the documentary evidence. If the element is the business purpose of an expenditure, its supporting evidence can be circumstantial evidence.

Sampling *

You can maintain an adequate record for portions of a tax year and use that record to support your business and investment use for the entire tax year if it can be shown by other evidence that the periods for which an adequate record is maintained are representative of use throughout the year.


Denise Williams, a sole proprietor and calendar year taxpayer, operates an interior decorating business out of her home. She uses her automobile for local business visits to the homes or offices of clients, meetings with suppliers and subcontractors, and to pick up and deliver items to clients. There is no other business use of the automobile, but she and family members also use it for personal purposes. She maintains adequate records for the first three months of 1995 showing that 75% of the automobile use was for business. Subcontractor invoices and paid bills show that her business continued at approximately the same rate for the remainder of 1995. If there is no change in circumstances, such as the purchase of a second car for exclusive use in her business, the determination that her combined business/investment use of the automobile for the tax year is 75% rests on sufficient supporting evidence.

Example 2.  Assume the same facts as in Example 1 except that Denise maintains adequate records during the first week of every month showing that 75% of her use of the automobile is for business.  Her business invoices show that her business continued at the same rate during the later weeks of each month so that her weekly records are representative of the automobile’s business use throughout the month.  The determination that her business/investment use of the automobile for the tax year is 75% rests on sufficient supporting evidence.

Loss of Records

When you establish that failure to produce adequate records is due to loss of the records through circumstances beyond your control, such as through fire, flood, earthquake, or other casualty, you have the right to support a deduction by reasonable reconstruction of your expenditures and use.

How Long To Keep Records

For listed property, records must be kept for as long as any excess depreciation can be recaptured (included in income).

For property placed in service after 1986, recapture can occur in any tax year of the ADS recovery period.