Ah, the IRS
While I had more money in my bank account on Friday than I ever expected to have in my lifetime, it was fleeting. I wrote four checks today - two to the IRS and two to the OK Tax Commission - for 2006 extensions and first quarter 2007 estimated tax payment. I had a momentary thought that I could flee to a Caribbean island and live on my cashier's check. However, it was not quite seven figures, so I had my doubts on whether or not I could really live off of it. I have expensive tastes. And then I have kids, too, and they are not cheap.
So while I have to write the checks, I also have to again address the issues the IRS auditor has brought up about last year's corporate tax return. Ah, fun.
Let me just say that the auditor is not a bad guy, but his job is to find areas in which the company should have paid taxes. Therefore, he is taking the most extreme position and asking for data that seems to be absolutely irrelevant.
It seems that construction companies are supposed to file a Form 8697, Interest Computation Under the Lookback Method for Completed Long-Term Contracts. Our former accountant never filed such a form and it is standard procedure in the construction industry to ignore this little requirement. It is a complicated that requires a company look at completed projects with an average value greater than 1% of the average of it's last three-year's gross income. For our purposes, let's say taht the three year average gross income, before the tax year in question, was $40 million. So, any project that is $400,000 or more and lasts more than 2 years, is under question. Basically, the IRS wants to ensure that they are receiving their "fair share" when it is due, not at the end of the project. As a company, we are traditionally conservative in our estimates and tend to have "profit pick-up" at the end of the project. If we had put out a low estimate, then we would be recognizing profit fade at the end of the project, something no company wants to recognize. It is better to be conservative, hedge your bets, and look like a hero than to have to explain why your project lost any amount of money in the final months. In an ideal world, there would be neither pickup nor fade, but that is never going to happen, folks.
So, the IRS has this complicated formula to calculate when they should have received their "fair share" and will assess interest for not having received their money when they deem they should have received it. They got it in the end, but it seems they want it when they think they deserve it.
Yuck.
So, I am in the process of identifying what projects qualify. Oh - and the two year period is when the contract is signed, not when the notice to proceed is issued by the owner. Those two dates can merely days apart, or months.
Yeah. This is fun.
I have nightmares that my kids are going to grow up to be an IRS auditor.
So while I have to write the checks, I also have to again address the issues the IRS auditor has brought up about last year's corporate tax return. Ah, fun.
Let me just say that the auditor is not a bad guy, but his job is to find areas in which the company should have paid taxes. Therefore, he is taking the most extreme position and asking for data that seems to be absolutely irrelevant.
It seems that construction companies are supposed to file a Form 8697, Interest Computation Under the Lookback Method for Completed Long-Term Contracts. Our former accountant never filed such a form and it is standard procedure in the construction industry to ignore this little requirement. It is a complicated that requires a company look at completed projects with an average value greater than 1% of the average of it's last three-year's gross income. For our purposes, let's say taht the three year average gross income, before the tax year in question, was $40 million. So, any project that is $400,000 or more and lasts more than 2 years, is under question. Basically, the IRS wants to ensure that they are receiving their "fair share" when it is due, not at the end of the project. As a company, we are traditionally conservative in our estimates and tend to have "profit pick-up" at the end of the project. If we had put out a low estimate, then we would be recognizing profit fade at the end of the project, something no company wants to recognize. It is better to be conservative, hedge your bets, and look like a hero than to have to explain why your project lost any amount of money in the final months. In an ideal world, there would be neither pickup nor fade, but that is never going to happen, folks.
So, the IRS has this complicated formula to calculate when they should have received their "fair share" and will assess interest for not having received their money when they deem they should have received it. They got it in the end, but it seems they want it when they think they deserve it.
Yuck.
So, I am in the process of identifying what projects qualify. Oh - and the two year period is when the contract is signed, not when the notice to proceed is issued by the owner. Those two dates can merely days apart, or months.
Yeah. This is fun.
I have nightmares that my kids are going to grow up to be an IRS auditor.
4 Comments:
I worked in an accountant's office for 3 1/2 years and only one of our customer's got audited in that whole time. My boss told said customer he had two options for filing and the one would probably get him audited...it did. I still remember how nervous everybody was, including my boss who had been an accountant for 30 plus years. It all went Ok, but it was a long week.
OMG Tree, just reading your post makes my head hurt let alone living it. May it soon be over and you be able to assume your pre-audit bliss.
I'm dreading the day. My guess is that I would probably come out ok, but I can't imagine the hours and headaches and the angst.
It's enough to make this Liberal think that we need a flat tax - something I never thought I would think.
That makes my eyeballs dry up.
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