On being ... a rite of passage

By Ingrid Sapona

A few columns back I mentioned I was notified about being audited by the IRS. Well, I’m happy to report that it’s over. In terms of tax, it was pretty much a non-event (though I owe about $25 plus interest). In other respects, it was quite an ordeal.

It started with a letter notifying me that my 2007 return was selected for a “compliance research examination”. The letter explained that the IRS “must examine randomly selected tax returns to better understand tax compliance and improve the fairness of the tax system.”

The letter went on: “If we find any errors during the examination, we will give you the opportunity to explain them. The results of this and other compliance research examinations will improve our effort to help taxpayers understand and follow the tax law, reduce unnecessary and costly examinations, and reduce burden on taxpayers.” Well that sounds reasonable, I said to myself. The letter instructed me to call Agent John Doe (not his real name) by a certain date.

I immediately phoned my accountant Ted (not his real name). Ted was aware the IRS was conducting a “research project” related to Americans living abroad -- other clients of his firm have been contacted. Lucky me -- I was the first person in Toronto that he’d heard about.

Ted reassured me that I have a straightforward return and he thought it would probably be handled as a “desk audit”, which meant that I’d have to provide specific backup documents related to various items on the return and that would be it. He also offered to be on the line when I phoned Agent Doe. I took him up on the offer and we placed the call.

A gruff-sounding voice answered: “Agent 1234567, John Doe here”. I kid you not – he gave his IRS agent number before his name. I suddenly felt like I was in a Monty Python skit about an officious tax auditor. I took a deep breath and introduced myself.

Agent Doe immediately explained that the examination is related to a research project and that I’m not being audited. Whew -- that’s a relief, I thought. He then added, however, “Of course, if there’s any discrepancy I’ll have to make an adjustment and if you owe anything you’ll have to pay it, along with interest and penalties, if applicable.”

Then, to make me feel better (I assumed), Agent Doe commented that my return is fairly straightforward. Ted and I both voiced our agreement to that. Then I asked about the procedure for this “examination”. I was quite floored when Agent Doe explained he’d be coming to Toronto for the “interview” portion but that in terms of reviewing my records it was my choice: he could either review them “on-site” or he could take them with him.

Ted asked what “on site” meant, given that I work from home. You guessed it – it meant at my home. Then I asked how long it would all take and I was stunned when Agent Doe said probably about five days. “Five days? But you just said my return is straightforward,” I protested. That’s when Agent Doe explained the real difference between this and an audit: “On an audit I would pick a few items and verify your backup documents related to those items to make sure things look right. If things are off by a few bucks, that’s ok. With this research project, however, I have to look at everything and account for things to the penny,” he said. My earlier relief suddenly evaporated as I realized this would be more like a “super audit”.

We settled on a date for the “interview”, leaving for later the decision of whether Agent Doe would be examining my records on my dining room table. Before ending the conversation Agent Doe said he’d courier me information about what he wanted to see. Two days later I received a three-page list of questions.

I immediately began compiling the requested information. I found it all, but I got nervous when I couldn’t come up with the exact figures Ted used on the return. Fortunately, a few days before the audit, Ted walked me through it all. Though I was disappointed to find a few minor errors (basically figures that were transposed), I consoled myself with the idea that Agent Doe was bound to find something. (I hate to sound cynical, but I figure he has to justify the cost of his trip.)

So, at 8:45 a.m. (sharp) on Monday the 19th, I met Agent Doe at the security desk of my building. Taking my cue from our initial conversation, I decided the best approach was formal and all business. So, after asking to see two forms of ID (can you say officious?), I escorted him in. After interviewing me for 90 minutes we started on the specific questions about the return. By lunch time I think it was clear to him that: 1) my operation truly is small and straightforward -- a year’s worth of business receipts fit into one (thin) file folder, and 2) he wasn’t going to need the three days(!) he had scheduled to go through my stuff.

I think he could have plowed through all my information that day, but since he didn’t have another appointment in Toronto until Thursday, he called it quits around 3:45 p.m. Because I was unavailable on Tuesday, he took some of my documents with him and we agreed to meet here on Wednesday. Before leaving, he commented on how organized and thorough my information is. (Damned right, I thought!) Oh, and he mentioned that no one’s ever asked him for two forms of ID. (Damned right, I thought!)

I didn’t know how long it might take on Wednesday, or whether he’d ask for additional information. Turns out, it took less than a half hour. He told me the adjustments he proposed (they were the mistakes Ted and I had caught) and approximately what I would end up owing as a result. I agreed, and that was it. He thanked me for my cooperation and again commended me on my organized and thorough record-keeping.

When all was said and done, though the amount I’m out of pocket is negligible, the whole thing cost me more than 25 man-hours. (Kind of ironic that the alleged reason for this research project is to “reduce unnecessary and costly examinations” – but never mind.) And it was quite stressful. As I was preparing for the audit, I couldn’t help think that I must have been singled out because I did something wrong. Though I take my business seriously and I consider myself a professional, I don’t use any sophisticated software or complicated filing systems. I kept wondering if I should be doing things differently.

Mind you, some good did come of the experience. For one thing, as I was responding to Agent Doe’s questions, I began to feel more confident in my business practices. Indeed, the fact that he complimented me on my records was gratifying. But perhaps the most unexpected positive to come out of the whole thing was my new-found appreciation for what a great role model my father was and how much he taught me about owning a business.

You see, Dad had a small restaurant and starting in junior high he let me earn my allowance by doing his books. I did his weekly payroll (complete with payroll deductions), his weekly income and expenses ledgers, and the monthly, quarterly, and year-end totals. This was long before we had PCs and computer programs. Of course, now we do -- but I never really thought of doing it any way other than the way my father did it.

So there you have the story of my non-audit audit. Or, as I prefer to think of it: the story of my rite of passage as a business person.

© 2009 Ingrid Sapona

On being ... priceless

By Ingrid Sapona

Last week a friend and I went to a taping of a well-known Canadian talk show. The show attracts interesting guests from all walks of life. The taping we attended featured a Billboard-topping Canadian singer, a venture capitalist, and the first couple voted off “Battle of the Blades”, a popular Canadian reality show. (Yes, Canadians like reality shows too and, not to be outdone by the U.S., last year the CBC premiered this uniquely-Canadian show -- it features former NHL players teamed with well-known women figure skaters in a pairs figure skating competition.)

Though my friend and I hadn’t ever watched an entire episode of the hour-long talk show, we thought going to a taping would be fun. What clinched the deal was the fact that ordering the (free) tickets on-line was a breeze. I thought we’d have to order tickets weeks, if not months, in advance. Instead, we got tickets for a show later that week.

We were asked to be there promptly at 2:45 p.m. So, at 2:40 we joined about 30 others who were already in the check-in line. At about 2:50 we noticed a second line forming and we speculated that that line probably was for people who hadn’t pre-booked tickets. (The day before the taping the guests were announced on-line and, given the popularity of the Canadian singer that was scheduled, I figured people who hadn’t pre-ordered tickets might have shown up in hopes of their being space.)

When we finally made it up to the check-in person, we were asked to sign in and then join the other line. Apparently that other line wasn’t for the ticket-less -- it was just where you stood after signing in. We dutifully joined that line and waited. Finally, at about 3:30, a bunch of us were ushered into a freight elevator to be taken up to the studio. Well, taken up to the floor the studio was on. There we joined another line. We didn’t get into the studio until about 4:15. By then -- despite my best efforts at staying cheery -- my enthusiasm had diminished quite a bit.

The first segment featured the singer performing two Christmas songs (this was being recorded for airing December 24th). After finishing the second song they decided to re-do the first song because we were, well -- too polite and quiet. On the second take we were urged to let loose, sing along if we wanted, and clap and cheer louder. I guess our efforts were good enough that second time because after that we were ushered back into the hall to wait so they could remove the drums and piano and re-set the seats for a normal interview. When all was said and done, we finally left the studio at about 6:15.

While we were in line and I felt myself getting antsier and antsier, I thought about how I used to be much better at handling such waiting. Indeed, I have many fond memories of my sister and I buying inexpensive lawn seats at concerts and getting there hours early to scope out a prime place and spread our blanket and wait. Mind you, in those days no one frisked you on entry and they didn’t mind if you brought in a sandwich or something to munch on along with your blanket. Nowadays, if you and your blanket make it through the security search, the best you can hope for is concession stands with junk food costing top dollar.

There was a time, too, when friends and I used to think nothing of waiting in line at sold-out documentaries and shows in hopes of snagging one of a handful of rush tickets that might be released minutes before the show starts. I’m not sure when it happened, but at some point a few years back I guess we came to the realization that if there’s something we want to see we should try to get tickets in advance. And, if we don’t manage to get them, we’re fine with that because we realize there are lots of other enjoyable ways of passing time.

On the way home from the taping my friend and I agreed that the guests were entertaining and all, but I don’t think either of us would rush back to attend another taping. And, I think it’s fairly telling that the next day, when another friend asked me how it was, my first comment had to do with the long wait, rather than with anything the guests said or did.

Since then I’ve been thinking more about my impatience that afternoon. I won’t deny that as we were waiting a voice inside my head kept chiding me with: “you get what you pay for” and “there’s no such thing as a free lunch”. And yet, I’m not one of those who goes through life thinking “time is money”. Indeed, I realized long ago that one of the best things about working for myself is the fact that I don’t have to account to anyone else for my time. (Measuring things in tenths of an hour, as I used to have to when I practiced law, is enough to drive anyone crazy and it’s even worse if you start believing that those tenths are worth $X at your charge-out rate!)

Ultimately I think my growing impatience with lineups is a sign of age. Though I didn’t have anything particularly pressing to do that afternoon, I couldn’t help think that life is short and my time could have been better spent than standing in line.

Ah well, I guess I’ll just have to chalk it up to a first hand reminder of something MasterCard has been telling us for years: there’s a difference between free and priceless.

© 2009 Ingrid Sapona