Tax auditThe letter arrived three-and-a-half months ago, a missive from the Internal Revenue Service that strikes fear into the hearts of the bravest of people.

“Your tax return has been selected for examination,” the notice declared. Uncle Sam wanted a closer look at our business return from our first year in Floyd. That was the year we opened Blue Ridge Creative at The Jacksonville Center and spent far more money than we made, normal for starting a new business. Blue Ridge Creative never made any money and we closed it three years later.

I called and made an appointment. A second letter arrived the next day with details of what the auditor wanted for the initial meetings: Tax returns from 2003 through last year; receipts, bank statements and all other supporting material. I had three weeks to search through boxes and gather what I could find. In some cases, I had to contact vendors and customers and obtain information from them.

A couple of years ago, the IRS stepped up audits of small businesses because a study showed such businesses are often cash operations where large sums of incomes go unreported. Most of our customers at Blue Ridge Creative paid with credit cards or check. A number of local artists in Floyd tell me they have undergone audits. Some told horror stories of contentious meetings with examiners and bills for new taxes along with fees and penalties.

So I drove down to Roanoke in September a little nervous about the meeting at 10 a.m.  I felt our taxes were in order but you can search the Web and find hundreds of frightening stories about others who felt the same and found the IRS didn’t agree.

At the IRS office just off Campbell Avenue in Roanoke, I was led into a windowless room with plain white walls and a small table. The IRS agent was young, courteous and extremely professional. Most of the 45-minute interview tuned out to be questions about how we operated our business, our bookkeeping methods and our operations.

He made copies of my documentation, asked a few followup questions, and sent me on my way, saying he would call if he had any more questions.

A week went by, then a month, then three months with no word from the auditor. Finally, last Friday morning, the phone rang: The caller ID said “U.S. Government” with a Roanoke number. It was the long-awaited followup call.

“I’m ready to close out this examination,” he said, adding that he would meet with his supervisor that day to get signoff on the final report. His report should arrive in the next few days.

On Monday, the official notice arrived: No change in tax liability, no taxes due, no penalities, no interest, no fees. He made a couple of adjustments but the changes did not affect the bottom line. The notice asked us to sign and and return the report if we agreed with the auditor’s conclusions. If we did not agree, we could exercise our rights to appeal.

Appeal? My mother drowned the dumb ones. We will sign and return the report. The boxes of receipts and records that have sat in our living room and den over the past three months will be packed up this week and returned to storage.