Don't pay the amount right away, because the IRS isn't always accurate. You may not have worked for the company in question—a mistyped Social Security number could be the cause—or you could be the victim of identity theft. In one case we handled, the IRS believed that a 1099 form for $1,600 was for $16,000. The agency's computer had added a zero.
Even when the IRS is correct about income missing from your return, re-run the new figures in your tax preparer's program to make sure the new totals add up. All too often the IRS computer makes an "error" in the government's favor. But to be honest, more than once the numbers presented by the IRS have been better for our clients than those created by our system. I just want you to be sure.
Itemizing and Audits
When you itemize your expenses as a performer, you are putting yourself in the IRS's spotlight. It's just a fact of life that you can expect to be audited at sometime during your career.
In the past, we could usually tell whether a client's total deductions placed him or her in the "audit zone," but as the IRS has made greater use of correspondence-audit offices, there no longer seems to be an identifiable pattern. These offices expect you to mail in all your receipts and paperwork, and a "tax technician" goes through them without you being present.
Unfortunately, correspondence offices should never be auditing actors' tax returns, because they have no understanding of our business. That's not my opinion; that's a comment (paraphrased) from an appeals officer of the IRS in the Los Angeles area, who has had to deal with these cases being brought to him all too frequently. I therefore urge you to always demand that your audit be transferred from a correspondence office to a local IRS office, so you'll have the benefit of the greater understanding and experience of IRS examiners in local offices.
In addition to not understanding valid show business–related deductions, correspondence offices demand that you provide them with a letter from an employer outlining the company's reimbursement policy for your performing expenses. But if your income was earned under a union contract, you will not be able to provide one. The reimbursement policy is established through a collectively bargained agreement or contract, negotiated by the union and the producing organization, and, in general, it would be a violation of the agreement for an employer to write this letter outside the contract.
Second, almost all performer deductions are essentially job search–related, not reimbursement-related. Most of these offices don't understand this concept either. The result is that even when you can validate your expenses with all the receipts and records normally required, if you don't have the letter outlining the employer's reimbursement policy, a correspondence office will routinely deny your deductions in total.
Whatever you do, though, don't just pay the bill thinking that doing so will get you off the IRS "hit list." It actually works the other way: They consider it an admission of guilt and will pursue you for other years.
Know both the rules and your rights with respect to the IRS. Challenge the results of the audit if you believe the examiner is wrong. If you can prove your deductions, you will ultimately win.