Then We Got Audited…

Helensville, NZ

With Greg’s mom’s departure came the next phase of our adventure.  And, like every other part of this journey, it was not what we expected.

This time was different though because the surprise was not a good one.  What this entry should have been about were the chronicles of us finding and holding a job in New Zealand for a few months, meeting Kiwis and basically enjoying ourselves.

What the next few months ended up being about for us was getting audited by the IRS.

We actually have been dealing with this for some time now.  What we were promised would be a “quick and easy process” and actually ended up being a 6 month odyssey of pain and suffering, started all the way back in Moorea when we were with Tiffany’s mom.  It was during that first conversation we should have realized what we were in for.

Auditor: “We’ll have to come and visit your office to complete this.  Where is your place of business currently located?”

Us: “We work as crew and our ship is in Moorea, French Polynesia.”

Auditor: “Ok, will next Monday work for a meeting?”

Us:* *moment of stunned silence**
“Miss, please go on Google maps and search for ‘Moorea, French Polynesia’ ”

Auditor: “Why?”

Us:  “Just humor us for a second.”

Auditor:**Typing**

“…. Oh”

Us:  “Yeah”

Auditor: “Oh, well, do you get back from your vacation next week?”

Us:  “We’re not on vacation.  We work as crew on ships.  This is what we do.”

…and it just went downhill from there.

What was supposed to be a 1 month “quick check” of a “couple of questions” regarding a “random, routine, audit” (their words, not ours) was actually a total, line-by-line, completely invasive, “I want to see every single receipt for every single thing for the maximum extent of the years I am legally allowed to audit you for.”  Tens of thousands of dollars of fines were threatened.  Felony charges, while never formally discussed, were mentioned in a conversation the auditor had with our new CPA.

FELONY CHARGES!?  Excuse the hell out of us but what!?  We pay our taxes!  We can understand a few arguments over deductions, we can understand a few extra dollars.  Heck, you know what, we were late last year filing.  In the past few years we left the military, started a business, joined another partnership, paid off a lot of debt and sold a business in order to chase our piece of the American Dream and travel the world.  Our taxes were, to say the least, complicated.  Therein why we hired a CPA and PAID OUR TAXES IN GOOD FAITH.  We had actually left additional money with the IRS to pay future taxes as a precaution when we left the country (Yeah, you can do that; they’ll happily hold your money for you and collect the interest for themselves.)

And you have the audacity to mention, even in passing, to two former US military officers no less, the words “FELONY CHARGES”!?

HOW DARE YOU!

Needless to say those scenes in cop shows (like Castle, which is awesome) where the cop interrogates a suspect later found to be innocent and just tosses out comments like “you’re going away for 25 years to life” and whatnot just to scare them into talking?

Yeah, we don’t like those scenes anymore.

 

To go over every detail of what happened with the audit would be extremely painful for us and extremely boring for you. Let’s jump to a few take away points –

1)      As Americans, we have confidence in the knowledge that when accused of wrongdoing we are “innocent until proven guilty.”  This is not true when you’re audited and you are presumed to have done just about whatever the auditor decides you might have done until you can prove specifically that you did not.  The burden of proof is on the accused.  In other words, the absence of evidence does not clear you; it convicts you.  This sucks beyond belief.  We never completely appreciated how powerful this particular right was until we went through this ordeal and lost it.

2)      The auditor will lie to you.  To your face.  Ours did.  They offer to settle things and simply not do it, say they need just one more piece of information and then immediately ask for something else before looking at what you gave them.  Our CPA didn’t believe it until the auditor started doing it to her.  There is no recourse to hold them to their word, because again, the burden of proof lies on the audited and even when we had an email to prove our point, our CPA asked us “Is it really worth it to piss her off?”

Greg will go into this later but the short of it is that, again as a former military officer, very little makes him angrier than people who abuse the power entrusted to them by their citizens and government.

3)      Every time your CPA and the auditor interact it costs you money (in you paying the CPA by the hour) and actually makes the auditor money (they are paid by the government…which means you’re kinda paying them too just not as directly).  The auditor knows this and will use it to their advantage in an attempt to bleed you out.

4)      We had been previously told if you had a business expense that cost less than $75.00 you didn’t need the receipt.  Not true.  An auditor can demand a receipt or invoice for anything they want, no matter how small and remember if you can’t produce it then the lack of evidence says you are the party at fault.  They can also say to you, literally, “Produce all receipts for the past 5 years and anything you don’t have we immediately declare as not valid, with interest and penalties applied of course.”  Imagine going line by line through every single email for the past 5 years looking for emailed transaction verification and attempting to cross reference that with your line by line tax return and your line by line checking accounts.

Imagine making a phone call to a Las Vegas hotel, from New Zealand mind you which is literally half a world away (thank you God for Skype and cheap calls) and requesting a receipt from a company for a $40 transaction from 5 years ago.  Imagine how long and how much effort would be required on your part and theirs to find that.  Now imagine making hundreds of phone calls a day…for over a month.

On the upside to this, we discovered that once most people found out that we were being audited they would really bend over backwards to help us.

And people, seriously, keep your receipts.  That would be all of them.  If they are on your tax form, then they are up for grabs no matter how small.  Keep them forever.  Digital photo them if you have to but KEEP THEM.

5)      Not all CPAs are equal.  We found out that the first CPA we were working with “did not do audits.”  This made no sense to Greg, it’d be like a lawyer that doesn’t do courtrooms (then Greg find out those exist too, WTF!?) In our minds a CPA exists for 2 reasons:

  1. To keep their clients form getting audited
  2. If failing at the previous, then to defend said client (aka – their work that they were paid for) through the audit.

Get a good CPA.  Right now.  One that knows the game, is experienced with audits and most importantly: has a heart for people going through things like this.  Our new CPA is awesome.  She’s a former IRS auditor (huge plus, this is a rarity) who is now a licensed CPA and has her JD (yes, she’s also a lawyer.  This is also huge).  She was reasonably priced and did not charge us more because we were getting audited (some CPAs do that).  She took the time, more specifically, her time, to answer our silly questions and explain everything that was going on.  Not to mention she worked with two people on the other side of the planet.  Finally, she gave us options, cost estimates and helped us navigate the extremely difficult and emotional world of having the IRS rip our personal financial life apart and deciding which battles are simply too expensive to fight.

Greg spent a few weeks researching and interviewing CPAs to take on this issue when he was home last time and if you are looking for someone who will do a darn good job while not taking it as an opportunity to gouge you for every nickel they can get, you should check out our (California based) CPA by clicking on this link.

We could go on, but in the end, this blog isn’t about that.  The audit happened.  It was horrific and we wanted to document it for the purposes of recording our trip, but while going through it then we promised ourselves we wouldn’t let it ruin our time and now we won’t let it take over the blog.

We had to wait the better part of a year to find out the results of this debacle, but we’ll spare you that.

After everything, the IRS demanded $6000.00.  We decided to cash in an investment to pay it off.  Not exactly the best time to do that right now.  In fact, specifically a really bad time to do it but it was either that our dip into our travel funds and really, this is a once-in-a-lifetime thing we got going here.  We can make more investments.  We can be grateful for having investments in the first place.

A few months later the IRS sent us a check for $8000.00.

Yeah, WTF!?

Remember how, at the beginning of this article, we said we put money away with the IRS to pay future taxes?  Well, at the beginning of the audit they locked what remained of that money away and made it unavailable (cuz that’s fair), and then refunded it to us after the fact.  As it hadn’t been mentioned since the start of this process, we had assumed it was already counted into the overall balance we had with them.  It wasn’t.  Our CPA was also not told and was equally surprised.

So after all that, after all the grief and suffering and months of work and thousands of dollars spent defending ourselves, after being coyly told on the sly of the possibility of going to freaking PRISON the IRS ended up owing us $2000.00.

And they still made us lose money on an investment in order to pay them off before they paid us.

Salt-in-wound anyone?

Once Greg’s mom left we found a little place in Helensville, which is a town about an hour’s drive away from Auckland.  According to our Auckland friends, it’s “forever away in the middle of nowhere!”

This would be our own “Castle Kiwi,” our retreat where we would spend our days working on getting through the audit as quickly as possible.  We decided that we would still have our living-in-New-Zealand experience but instead of sheering sheep we would just have full time jobs defending ourselves from the IRS.

So while it’s not what we were planning, we still got to experience a piece of living on a small farm in the countryside of New Zealand.  We got to shop at local markets, cook the local foods, get to know the local people and every evening we took a walk on the local country roads.

And that ain’t too bad.

 

PS –If you are someone who is facing an audit and you want to talk to someone who has been down that road please feel free to contact us via email or leave a comment.  We’d be happy to help with pointing you to people who can help, or even just letting you vent your frustrations.  Again, if you’re looking for a good CPA to represent you, “amazing” does not being to describe the work Natalya did for us. 

PPS – And no we don’t blame Obama for this.  That would be like blaming Bush for our Academy experiences when we were in the military.  But the IRS and the tax code is badly, badly broken, has been for some time, and needs to be fixed.

PPPS – Thanks to all of you took on the job of keeping us sane when we went through this.  You know who you are.   It meant and still means the world to us that we have friends who will let us scream incoherently for an hour or two and not think we’re crazy for doing so.

 

About the authors

Greg and Tiffany are traveling around the world on sailing yachts and keep a video blog of their (mis)adventures.  If sailing to Tahiti on a 44 ft sailboat, 3-day delays for wine tastings, getting pooped on by seagulls, opening coconuts with dull machetes, sailing past tornadoes and ukulele Christmas carols are for you, then check them out at www.CoastGuardCouple.com!

This entry was posted in travel and tagged , , , . Bookmark the permalink.

6 Responses to Then We Got Audited…

  1. Erica says:

    Just… WOW. I’m not sure what I would do. Like, it is offensive how they can do some of this (expecially since technically the IRS isn’t supposed to have the power it does but that is a whole other argument unto itself).

    • Greg says:

      Kinda ironic and all, being as how the reason we’re not all speaking with British accents right now is excessive over-abuse of taxation.

      The wheel keeps on turning.

  2. Leslie H says:

    Oh you guys…such an awful thing to deal with. It is kinda my big fear especially now w/my own biz. I am so glad you got thru it, had the right help and the good humor to deal with it.
    I am sure you’re trying to have extra fun now!!!

    • Greg says:

      Leslie,

      One of the few upsides to this whole ordeal is that now that we’ve faced it, we know a heck of a lot more about it and what tripwires to avoid. Since Tiffany & I know you’re a Californian we highly recommend you give our new CPA a call for a chat. She’s really nice and can help you not live in fear. The link is in the post.

Comments are closed.