I have received a TAX Audit from IRS for Tax Yr 2007.I claimed the Travel,lodging and meal expenses under itemized deductions.They need an explanation for the above mentioned unreimbursed expenses. I am a consultant.I was on OPT during that period of work.

I worked in 2 projects where the client was in New Jersey and Atlanta.My Tax preparer said that I can claim those unreimbursed expenses and I did.I was not aware of any of these complications at that time.

Also, I would like to know the Definition of "TAX Home".In my case My University was in Louisiana.I don't have any lease or any vehicle registered (on the client location) during that period of work on OPT.As I know those are temporary projects I was staying as a paying guest.

While I was a student I received Pay-roll from University,So I did file my tax for those years of my study.

Now, after doing some research I am confused if I could claim those expenses.How should I handle this audit.Should I need a lawyer?Will this be considered as any sort of Fraud?How should I handle this audit so that it doesn't affect my future while solving this case.

Take a look at this and read it carefully: it answers most of your questions.

Nonresident Alien Students And the Tax Home Concept

Thank you.

I read the link.Since I had a pay-roll ,as I was working in my university and I did file taxes for the same during my study.Does that mean I have already established a Tax-Home in Louisiana?

If yes, will I be eligible to claim the expenses when I was at the client location.

And since I was a staying as a paying guest,( in the client location) I have been paying cash and hence no document /paper-proof to substantiate myself. Is is OK to estimate figures or is it mandatory to have any paper-proof.

What will be impact of this Audit on my future?Will I be audited every year? Will it affect my Green card process?

As long as your main place of business is Louisiana then that is your tax home.

If you had to travel to your clients place of business then your travel expenses, food, lodging, and other unreimbursed expenses are deductible. It's unfortunate that you have no records and let this be a guide to you in the future.
Did you keep a written accounting of your expenses? Can you contact the place you stayed and have them write you a note or reproduce a record of your expenses?

Taxpayers are routinely audited. It does not mean you're a criminal. It just means the IRS is seeking clarification on your filing. It is doubtful you will be audited frequently unless there are always questions about your return.

It will not effect your green card process.

You can claim travel expenses if you are temporary absent from your principal place of business.
Where were you living when you moved to NJ and Atlanta? How long was each assignment? Where did you move after completing work at Atlanta?

I am little confused when you say the place of business.I was working in Louisiana in my university( as a RA).But that has no connection with the projects I worked on, in the sense it was not thro' the university.

Each Assignment was 4 months,I was staying as a Paying Guest near my client's location.I was paying cash.and after that I joined another school in DE.I was in school till I got my H1b in December '07.

I have no contacts with them, and I am not sure if I could get documents on that.Will that be an issue? When I filed my taxes,my tax preparer asked for the expenses and I told him.He said it is OK to give those expense even though I don't have paper-proof.I had no clue about the IRS rules and regulations. Will this be a problem?

What is the worst that can happen?

The worst that can happen is that they disallow the temporary living expenses in Atlanta and NJ.

I agree with Five Rings that, since you worked in Louisiana, you established a tax home there. However, as the taxpayer, the burden of proof is ON YOU when it comes to your expenses incurred in Atlanta and NJ.

Contact the place where you stayed in Atlanta and NJ to see if you can get them to provide you a receipt for the rent you paid. It has been my experience that the IRS expects to see a receipt for rent paid. You will also need to provide receipts for your travel costs other than mileage, which is determined by a mileage rate of 14 cents per mile.

The meals and incidental costs can be determined using per diem rates published in IRS Pub 1452.

What could be the approximate Penalty charges?How do they calculate that?

14 cents a mile is for mileage for charitable activities.
In 2007 the standard mileage rate for business activity was 48 1/2 cents.

Quote:

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Originally Posted by reckyin

What could be the approximate Penalty charges?How do they calculate that?

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With your reply, you can always attach a page Request For Waiver of Penalty.
Interest rate is 5% per year and penalty is 0.5% per month.

What is waiver for penalty means?

I have claimed for my meals, stay and travel ( I did not give any miles, I claimed my taxi and train as I did not have any car at the client;s place).So this penalty is based on the amount of itemized deduction or the return I got from that amount.

Getting a waiver is like one time courtesy thing? so if we get waived we won't pay the 0.5% per month penalty but still end up paying the interest .Kindly Correct me if I have understood wrong.Kindly explain me.

Also I would like to know if your advice is to take a lawyer with me or go by myself for the audit.

Both Five Rings and I were BOTH wrong when it comes to the mileage rate.

For moving, the 2007 mileage rate is 20 cents per miles.

I have not claimed any miles.I have claimed for my taxi and train expenses.