Sunday, November 1, 2009

My Big Fat IRS Audit: The Details

As many of you know, Uncle Sam gave me a financial colonic this week. And on Saturday, just four days later, I received this heavily redacted (for my own privacy and security as well as that of my IRS agent) but incredibly gratifying letter:

Here's the part that matters:

Yup! I came through with flying colors. "No change!"

That doesn't mean it wasn't a traumatic experience. When the letter came in late July, somehow I had no reaction whatsoever. They wanted to check out my 2007 returns, come on down. Since I began freelancing and requiring the assistance of an accountant a decade ago -- I was doing pieces for US News & World Report and the Advocate, among others, as far back as when I worked at the Review-Journal -- I have retained a gazillion scraps of receipts, driving logs, the works. Come on down.

For some reason, that was about the last thought I gave it for a while. I informed my dad and my accountant, both of whom said it wasn't a surprise given that I work at home for myself and take lots of deductions. Sooner or later, it would happen, they reassured. I set up a date for the IRS agent to come to the house as she requested for Oct. 28 and I moved on to focus on the matters immediately at hand.

And then, last Friday, it dawned on me: This is serious! So when I got to work on getting all the materials organized and making sure everything made sense, Miles asked me on Saturday whether I was nervous and I shrugged him off.

By Sunday, I was confused and frightened and by Monday I was in near-tears in my accountant's office worried about this receipt that I couldn't find or that trip that might have -- but didn't -- result in a story. Since so much of what I do requires me to do research for which I am not paid or ever reimbursed and since a lot of journalism is deciding when there's NOT a story as much as when there is one, I began to see trap doors all over the place that an IRS investigator, should she be so inclined, could fall down.

I could justify every last thing, but how was I to know that my explanations would be accepted? I'm also toiling in a new frontier for the IRS, how to deal with deductions taken for things that bloggers and podcasters do that seem personal but that provide fodder. When your personal and professional lives are so impossible to separate, will the IRS do it for you to your maximum disappointment? It's not a coincidence or an irony that I wrote a piece precisely about that conundrum for Wired.Com in April 2008 -- exactly when I was filing the 2007 returns that the IRS wanted to audit. How many great story ideas have I turned into articles based on personal experiences? And what about the potential stories that editors didn't bite on?

This is crazy-making and, indeed, I went nuts. Literally, I became physically sick. My longtime accountant, Alecia Dewsnup, was amazing, calming me down and showing me exactly what I needed to do, step by step, to illustrate for the IRS that the figures I had provided were accurate. I became so intimately re-familiar with my 2007 life -- the spending, the investments, the pieces I wrote -- that it was all I could think about to write about for this week's Las Vegas Weekly column.

I shut out the whole world. I stopped answering the phone or email, stopped blogging, delayed editing the podcast. There was nothing in my universe beyond the fear that I might be unprepared for some curveball from the IRS agent. The thing that worried me most was that she had also asked for me to have my 2006 and 2008 returns ready and I didn't have the time or emotional ability to be as thorough with those years.

Then it was Wednesday. This is what the kitchen table looked like at 8:30 a.m. when she arrived...

My kitchen table waiting for my IRS agent to arrive: on Twitpic

...and then about an hour into the visit:

Auditor at work. Going quite well, though I wouldn't recommen... on Twitpic

I was going to call it an "ordeal" rather than a "visit," but it was extremely pleasant. Really. Other than the fact that she couldn't accept coffee or even water from me because of IRS regulations, it was almost a social experience. She was very kind, thanking me for being hospitable and friendly and providing her with some comfortable space to work. Shockingly, some people are rude and difficult and try to make it harder for the taxwoman to do her work. Can you imagine?

The first 20 minutes, in fact, was her explaining why she was there and what she was looking for and almost apologizing for the inconvenience. When I mentioned I had told an editor I couldn't take an assignment at 1 pm, she told me to call him and tell him I could, that she was not there to interfere with my ability to make a living. That was almost a direct quote. I did end up handling that assignment, about the would-be Michael Jackson museum in Gary, Ind.

As it turned out, the reason for this audit was that I had taken a significantly higher travel expense deduction in 2007 versus 2006 and 2008. There happened to be a pretty great explanation for that: I wrote two travel guidebooks in 2007, "Gay Vegas" and the map-intensive one for Random House. Hard to write a travel book without traveling, I always say. And I had included in those deductions a variety of expenses for Vegas hotels, show tickets, meals and other activities.

My IRS agent not only believed me, but she began to very nearly make a case for why I should have written off more. Where, she wondered, was the cost of cab fares and tips that I surely had to pay out? Yes, the IRS lady was concerned I'd short-changed myself. Wow, huh?

We spent a lot of time talking about how I do my work. At one point, strolling through my driving records, she asked about some notations that I had covered a Rock, Paper, Scissors tournament. That was good for a laugh. I showed her the piece I'd done for The New York Times.

I was surprised to hear her ask, unbidden, about the podcasts. It was clear she had Googled me -- I had Googled her, too, and asked about a prior job to show her so -- which made my accountant's forewarning that maybe I ought to play down the same-sex live-in partner thing a bit irrelevant since she had read about Miles on the blog and knew I had written "Gay Vegas." (My accountant, it should be said, is in business with her gay son and is a champion of gay rights. She just didn't want me to be unfairly discriminated against should I get a real SOB of an agent. About three hours in, I asked my agent about this concern and my agent AGREED that some of her colleagues could have issues with it.)

My agent spent most of her time calculating my income from my bank statements and determining that they accurately reflected what I had declared for my income. And by the time my agent was ready to pack up, she was clearly very satisfied. In fact, she was really embarrassed when I told her about an incident in 2007 when the IRS spontaneously sent me a check for about $1,200 and then, a few days later, wrote to say I owed them the same amount plus penalties. I'd resolved that odd glitch in my favor, but it was one of the reasons why, when she was leaving, she said, "I'm going to go back and tell them to leave this guy alone."

And so that was that. She promised me I'd be getting that letter above and, sure enough, I did.

While it wasn't fun, I did learn something: I've got a rock star of an accountant. My IRS agent could not sing more praises for Alecia's preparation, comparing the returns I presented with those of others she's seen. They were organized and easily readable. "That automatically ups your credibility dramatically," the agent told me. So if you're in need, call her at 702-435-5117 or email accountable[at]

You know what else got me through? Miles, of course. And...

The dog and the audit: on Twitpic

That's Black, sitting in my lap the whole time. Jack snoozed on through, but I'm sure he meant well.


Michael said...

Glad to hear that went well for you. I can only imagine the anxiety, especially after not being concerned leading up to it.

Bay in TN said...

Awwwwwwwwww, good ol' Black! I'm glad the audit went well, Steve.

Steve said...

Glad to hear you're in the clear, Steve. That sounds like a harrowing experience that could have gone much, much worse. I'm glad it worked out the way it did.

alissa said...

This is really an amazing story, Steve, thanks for being so honest and transparent about the whole process. It doesn't sound nearly as terrifying as I imagine it to be...although I'm guessing it really does depend on your auditor!

Susan Johnston said...

Steve, I'm a fellow UPODer and I'm so glad to hear that your audit went smoothly. It sounds like you didn't have this issue, but I'm curious what would happen if they want to see your home office from, say, 2007 and you'd already moved to a new place. In any case, it sounds like it gave you some good fodder for a blog post!


Hi Susan - As a matter of fact, a minor question they had was why the percentage of my home used for business had changed -- and i think it actually went down -- from 2006 -- and the answer was that in 2006, we moved from a different house. I think they're looking for what they can reasonably see and moving would be a good answer to why they can't see the old office. But this lady didn't take out a tape measure or anything -- she paced around the room making some rough calculation and i told her how big it was and she said ok. really. that was it. that said, my accountant told me to take even a dog dish out of my home office for fear it might be seen as personal.

Melissa Walker said...

This was really great to read. I've always wondered how this worked... thanks!