For Tax Audits
From JoongAng (Op-Ed)
Feb 21, 2003
By Lee KyungLim (Certified Public Accountant)
We live in a nation of freedom. The founders of America left Europe
and moved to a new land seeking freedom. Therefore, freedom is the
most important value in America. There remains, however, one thing
most Americans are afraid of the tax audit. There could be
nothing worse than having tax authorities chasing after you.
For those who file and review annual tax returns carefully and
accurately, there's nothing to be scared of. Not all taxpayers,
however, file the documents perfectly each year. In other words,
the majority of taxpayers are fearful of tax audits because they
inadequately file their taxes.
The possibility for ones tax return file to be audited remains
very low. Once facing an audit, one has to realize that the tax
bureau will perform a thorough examination and one has to learn
the rules of the procedure. Accordingly, one will be required to
provide an accurate response to thorough questionnaires and examinations;
if information provided does not correspond successfully, one could
be given a large financial penalty and even worse a criminal
Even though only a small percentage of people will be under tax
audit, we can find cases of houses or businesses closed or sent
to an auction as a result of a tax audit. We have to realize that
these events can happen to us too.
Mr. S, who runs a deli, received a notice of a sales tax audit
by New York State. Many transactions of the deli, such as the purchase
of products and the sales expenditure, were done through cash. Therefore,
it became hard to report an accurate record of expenses and deductions.
The accountant first hired to respond to the audit accepted the
charge of a tax audit without any review and told Mr. S that he
had to pay the entire amount charged. This totaled about $ 120,000
and including the penalty and interest became about $150,000.
Facing a serious financial difficulty and disappointed by his accountant,
Mr. S came to me and asked me to take his audit record and try to
lessen the charge. After a careful review, I realized that the tax
auditor had calculated the revenue of the deli by only counting
customers during the morning and lunchtime hours, when the store
is the most crowded. From these customer numbers, he calculated
the customers expenditures, and multiplied by 10 hours, the
stores hours of operation. The calculated result, thus, was
much higher than Mr. S's actual revenues, and the tax charge under
this audit was much higher than it should have been.
I argued that about four-fifths of the daily revenue were earned
during the four hours from morning to lunchtime, and proved this
by showing the recorded video tape which showed the hourly sales
income in the deli. As a result, the charge was decreased to around
The process required many correspondences and arguing with the
tax auditor, his supervisor and me. Despite these struggles, we
won the case based on the grounds of reason and common sense.
Additionally, Mr. S was called for the tax audit every year in
the past three years, another reason why Mr. S was dissatisfied
with his previous accountant. There should be reasons why he received
audit notices and paid for the charges three times. An unreasonably
low revenue report, relatively low payroll or income of the owner,
relatively low percentage of selling tax returns, or other unreasonable
reports of tax returns can all be the possible reasons. Unless Mr.
S corrects any one of these in the next year, he can again be called
for a tax audit.
The number of Korean Americans in this country sharply increased
since the 1970s and they are settling as a middle class. Thus, it
becomes important to protect their household and businesses, which
were obtained by hard work in investment or other legal means. Also,
consulting with professional accountants and getting ready for tax
audits by filing thorough and accurate tax returns every year should
be necessary and can make one a wise tax payer.
Translated From Korean by JooYeon Lee
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