Getting audited by State Tax & Revenue--Anyone got tips?

[furnishedowner]

Here's an update on the state tax audit that was started last summer.

We went ahead and paid the items we couldn't or didn't want to dispute--the 7% tax on the 1% of rentals that had fallen under 30 days, the compensated expenditures tax, and 1 quarter's state employment tax that the CPA had overlooked in error.

The tax attorney filed an appeal on the BIG tax, the one where they thought we were doing property management. He argued it very well in a letter. He said that all the home owners that we leased homes from will have to amend their taxes as well, as they did not report gross rents. Also that my relatives stayed in some of those leased houses, and that the owners had no knowledge of any of the sub-tenants. In other words, we DID LEASE those homes! We do not yet have an answer from the state. It could go either way, and the state is very hungry just now.

The bright spot in all this is that it has made us scrutinize those leased contracts and the profit like never before. Consequently, we learned that some just weren't generating enough income. We have not re-upped those leases. We are down about 8 leased homes now. We are able to function with less staff. Our office expense is at an all-time low. Stress is down. We are still meeting bills, but cleaning less. I like having to deal with tenants more than I like dealing with owners.

We have paid principal and stopped the interest meter running. We may be able to plead out of penalties since we had no intent to do wrong and we threw open our books. Our auditor said we were "very cooperative."

Once there is a ruling, the business will be more clearly defined. Are we fish or fowl? We are not regular rentals, not property management, and not a hotel.

Furnishedowner

[furnishedowner]

It is over, it is over, it is over!  I think.

The state tax department finally sent a letter stating that they (contingently) will abate $10, 585.24 in taxes.  As long as we send them the $1,378.08 penalty for flouting the tax laws.

So there is now a legal state tax opinion that it is okay to rent out furnished rentals, that they are not property management even if leased from other owners.  Just like we told them.

Our big city tax attorney did a great job, our CPA danced an ever faster tango to avoid getting any mud on the hem of her dress.  We could have avoided that final penalty payment with a letter from her.  But she would not do it.

Sometimes you just have to pay and move on.  When you live in a small town you don't pick fights with people whom you are going to see at the supermarket or the 4th of July parade.

I have a whole filing cabinet drawer devoted to the tax fight.  Now I can seal that sucker up and get on to happier things--like making some money.

Furnishedowner

[Bluemoon06]

Remember that bribes go a long way.

[motivatedceo]

Maybe if you are Bobby or JR Ewing. =D

Remember that bribes go a long way.

[Dave T]

Congratulations on bringing this ordeal to a satisfactory close.

[furnishedowner]

Thanks, Dave T.
Looks like it finally nearly over, except for the $1800 attorney's bill that just came in.  I don't mind paying it.

Funny how we hate attorneys until we need them.  Like hating the dentist until we get a toothache.  This has been a big toothache because I didn't know if it was just a cavity, or was I going to lose my whole jaw.

Furnishedowner