Put That Audit To Rest

I finally finished up work on the IRS audit this morning. The discrepancies they caught were all errors on my part, except for the amount of taxable retirement income. There was a legitimate difference, properly calculated and reported on a supplemental form to the tax return. My guess is that the IRS software isn't good enough to match non-standard pages of the return with source documents.

But for the three mistakes I did make, the amounts were small enough that we still won't owe any taxes for 2010. No taxes owed means no penalties or interest for underreporting. Yay! Even if we did owe money, I'm pretty sure I could get any penalties waived since the transactions omitted were just honest entry mistakes. Our brokerage didn't include all our taxable accounts in the upload to my tax software, and I thought it did, so that explained two of the missing transactions. The third I just didn't report since I wasn't sure where exactly on the form I was supposed to report it, but since it was an adjustment in my favor, I just left it off rather than spend hours researching for something that wouldn't make any difference in the amount of money we owed anyway.

Although the letter and attachments I prepared should put this audit to rest, I wouldn't be entirely surprised if they came back to audit us for something else on the return. I'm sure we triggered all kinds of red flags, when a previously high income household pretty much just stops earning income and starts adding dependents. It's not a usual pattern.