269: Is the IRS Going to Audit You?

I remember when I got out of surgical training and started my new life as an adult (at 33 years old), I was terrified by anything related to audits or legal issues. Any time I got a letter from the IRS about anything, I broke out into cold sweats. Every time I got a letter from an attorney I would do the same—-even though most of those letters were actually advertisements. Now, 47 years old and owner of multiple businesses and complicated financials, I don't have visceral reactions to any of this stuff anymore. Why? Well, when it comes to taxes, I would venture to say that any business owner making a lot of money will likely get audited eventually. After all, what is an audit? An audit is an inspection. If you aren't doing anything wrong, then what are you worried about? I've been through three tax audits now. In all cases, I did nothing wrong. I broke no laws. The audits mostly focussed on documentation. In some cases, the documentation was not done as well as it could have and that's what the auditor wanted to focus on. In my experience, the tax audit process is just a negotiation. If you get audited, they are going to find SOMETHING no matter how ridiculous it may seem. Then you come to some kind of settlement. The legal system in general works on these principles. That's why I don't really fear frivolous lawsuits anymore. Very rarely do things go to court. The dirty little secret is that whoever has the most money usually wins disputes simply by draining the opposition of financial resources that cover legal fees. Once you realize that complexity of the real world, it's much easier to sleep at night with audits and legal issues. One more point. If you have good asset protection, that's another reason not to worry about frivolous lawsuits or even legitimate personal liability. Talk to my attorney friend Doug Lodmell about that one. But getting back to taxes, I want to emphasize that most of the tax code is gray and you need to have a quality tax professional on your side rather than a robot who just keeps telling you why "you can't do that". As you know, my CPA is Tom Wheelwright and I highly recommend you consider someone on Tom's Wealthability team. However, it's really good to get different perspectives as well. That's why this week's interview with tax attorney, Stephen Moskowitz was really eye opening for me. If you make a lot of money and worry about taxes and audits, you are not going to want to miss this episode of Wealth Formula Podcast!