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Originally Posted by Choker
I've never heard of a audit where you have to show docs on where you spent your money. Was that federal? That sounds very intrusive. Did you have to pay sales tax on money you spent that you couldn't show docs on?
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The purpose is to see if you are spending more money than you are declaring. I believe it's called a "lifestyle audit"
"What was your declared income ..... What are your expenses, what was this check for, where did this deposit come from, why so many cash withdrawals, how did you pay for your car, where did your jewelry come from, etc ..."
It was time consuming and expensive. My attorney insisted my CPA be the one that took all questions. It was embarrassing to be honest, made worse because some petty civil servant was drooling to find something. To make matters worse we were building a house at the time and that also fell under scrutiny as well as my retail business being audited.
The state was interested because any monies hid from tax concerned them also.
I ended up paying more in legal/accounting fees than taxes on disputed income.
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