Case Studies

Real Estate Investor’s Tax Return Unchanged After IRS Two-Day Field Audit

After being audited three years ago, the IRS showed up on a long-time real estate investor's doorstep again. The IRS was now going to audit one of the tax returns filed after the previous audit. The IRS was interested in looking at all of the income and the expenses that were claimed on the investor's tax return for the many residential rental homes and apartments that he owned and managed.

The investor's accountant had carried forward losses from his previous years tax returns and applied them to the return year that the IRS was auditing. The investor hired Lazarow Law Firm, PLC to represent him during this audit. Attorney Sheldon Lazarow of the firm dealt with the IRS field auditor and arranged to have him come to his office to go over the investor's books with him.

The investor was not able to produce complete records for all of his expenditures so Mr. Lazarow had to work with him to reconstruct some of the financial aspects of his business for the year being audited. On the first day of the audit, the auditor was not happy with the amount of information that the investor had produced. Mr. Lazarow explained the investor's reasons for not having all of his records and negotiated an agreement between him and the auditor to arrange to have certain other records reconstructed. The auditor agreed to continue the audit for a couple of months so that the records could be reconstructed. (The investor was not present at the audit.)

On the second day of the audit, Mr. Lazarow met with the auditor who still was not completely satisfied with the records. Mr. Lazarow went through the records with him and persuaded him that not only did he have enough to look at, but that even if he disallowed a negotiated portion of the loss-carryforward it would not affect the investor's tax return enough to cause him to be taxed further. The audit was concluded with the auditor finding that the amount of the tax on the return would not be changed.