Survive an IRS Audit

 What caused our audit

 How we survived it

 Lessons learned

Survive an IRS Audit

For the Washington Association of District Employees June 2012

Today…

 Our story: what, how it happened

Clackamas County SWCD

 1,879 miles2, from urban SE Portland to

summit of Mt. Hood

 11 miles2 of surface water

 Most farms of any Oregon county

 Second in gross farm sales

 Listed species

Imagine more money…

 District income way up

 Great expectations from

public, board

 Desire for more results

means hiring more staff

Imagine being overwhelmed…

 Swamped!

 Things begin to fall

through the cracks

 Pressure to do it better

than before

Growing pains…

 Rapid hiring of staff

without good job

descriptions, policies, procedures in place

 Payroll reporting went

from 3 to 10 people

 Gaps in accounting

What triggered our audit?

Who knew?

 Key people left

 Bookkeeper  Manager

 Board chair

 Board treasurer changed

Emotional stages…

 Surprise, shock

 Panic

 Anger and betrayal

 Disappointment

 Acceptance

Call the IRS

 Called the auditor March 2011

 Arranged meeting for May 2011

 Began preparing for audit:

 Pulled requested payroll

documents

Audit response steps…

1 – Receipt of notice

 Employer usually receives IRS audit notice by mail

 We received ours in March 2011

 Letter states the documents you must have ready

2 – Gather information

 Closely follow instructions in

the audit request

 Payroll audit documents:

 Payroll registers  W-2s

 Tax filings (forms 940, 941)  I-9 forms

3 – Last-minute check

 Before the audit, made sure we had all required

documents

 Note: if you do not have all required documents,

you can fail the audit for failure to provide all requested information!

4 – Audit day

 Auditor reviewed

requested documents

 Auditor interviewed

staff and Treasurer

 Auditor reviewed list of

additional items needed

 Auditor explained next

Information Document Request

4 – Audit

 After reviewing payroll records, the IRS auditor

also reviewed our 457(b) plan

 The District had not paid Social Security and Medicare

taxes on the employer-paid contributions

 We learned that Social Security and Medicare taxes

apply to all contributions…even those made by the employer

5 – After audit

 The District accepted the IRS examination letter

and paid the additional payroll taxes

 IRS report – Form 4666 Summary of Employment Tax

Examination

 If you don’t retain this letter you can be audited

for the same thing and the results may change!

 We amended 10 employee W-2s and mailed

What went wrong…

 Employee volunteered extra information

 Sent Auditor down a rabbit hole!

 No Board approval for 457(b) plan

 Poor recordkeeping

 Errors by staff, missing documents  Unobserved access to documents

To fix…

 Had to reverse course of IRS Auditor

 Trust damaged

 Much effort to become believable

 Deep records search to find extra

documentation

 Worked with accounting professionals

 Kept conversations professional and

Lessons learned: IDRs…

 Respond to each IDR by specified deadline date

 Mail responses to address provided by IRS agent

 Request clarification when needed

 If extension needed contact IRS agent 3 to 5

business days before deadline

Lessons learned: more…

 Answer only the questions asked

 Don’t volunteer extra information

 Answers must be true, accurate, complete

 Check what IRS auditor tells you and calculates

 Expect many more questions if you mislead or

amend previous answers

We survived our audit!

Thank you

 Contact information

Tom Salzer, Manager

Clackamas County Soil and Water Conservation District Web: conservationdistrict.org