Schedule E Red Flags

7 Replies

Hi,

I looked on my returns this year on my schedule E and on one of my rentals my CPA didn’t put an amount in my utilities section. Would that be a red flag for the IRS for audit? The building is a multi family 6 unit. 

Should I go back and file an amendment just to rectify that utilities issue? Is it worth it? Would it open a can of worms for more problems?

Thanks again for your response. 

Originally posted by @Brian Lee:

Hi,

I looked on my returns this year on my schedule E and on one of my rentals my CPA didn’t put an amount in my utilities section. Would that be a red flag for the IRS for audit? The building is a multi family 6 unit. 

Should I go back and file an amendment just to rectify that utilities issue? Is it worth it? Would it open a can of worms for more problems?

Thanks again for your response. 

That is not a red flagand no your should amend your return. 

Also, you should not be scared of the audit. If you have everything correct in your returns, audit is just another review of your return. 

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Agreed, an amendment should not be an issue and this should have been caught in either his review or your review of the return. That said if he missed it he should amend at no cost. Amendments are not in and of itself a red flag. If you have the documentation for the expenses you should never be afraid of an exam. 

The cost of the utilities is around 7800. 

True True. the only reason I was worried was because I was audited on my personal side and the irs agent went overboard and I had to hire a lawyer to protect me for harassment because he was going overboard on the auditing. That’s why I am all paranoid now. Not a fun experience at all

Thanks for everyone’s answers!

Did you provide your tax pro with a P&L for the rentals that included an amount for utilities?


Or did you not tell him/her about the $7k and he also didn't ask? 


Both aren't great- but if utilities weren't provided to them not all landlords pay for utilities so it may not have been a red flag to them.

That being said for an extra $7k in expenses I would suggest amending the prior year returns. 


Feel free to reach out to the tax pros here too if you're interested in switching- if there's an easy mistake like that there could also be more, never hurts to have another set of eyes on it. 

Originally posted by @Brian Lee:

The cost of the utilities is around 7800. 

True True. the only reason I was worried was because I was audited on my personal side and the irs agent went overboard and I had to hire a lawyer to protect me for harassment because he was going overboard on the auditing. That’s why I am all paranoid now. Not a fun experience at all

Thanks for everyone’s answers!

 Most people think its harrassment when in reality you should never represent yourself. There are tons of items they are legally required to ask. You do not have to answer each one of them. There are plenty of times where I don't provide something to the iRS because it may hurt my client worse.