Posted by JustANotary on 7/14/11 12:36am
Msg #389660

IRS audit and Self Employment tax...

The auditor is asking for me to show copies of every invoice & to show in my journal how many notarizations I did so I can prove how much of my income is not subject to the self employment tax.

Reply by Marian_in_CA on 7/14/11 1:23am
Msg #389661

Well... you should have invoices for every job, with everything itemized out.

As for the journals? You're in CA, right? Don't just hand over your journal... you may want to contact the SoS on this...

There are provisions about surrendering our journals to peace officers... though I'm not sure if an IRS auditor counts.... that's probably something for your attorney to look at. Unless you've been issued a subpoena of some kind to produce evidence as part of your audit.

From CA Gov't Code 8206:

"The notary public shall not surrender the journal to any other person, except the county clerk, pursuant to Section 8209, or
immediately, or if the journal is not present then as soon as possible, upon request to a peace
officer investigating a criminal offense who has reasonable suspicion to believe the journal
contains evidence of a criminal offense, as defined in Sections 830.1, 830.2, and 830.3 of the
Penal Code, acting in his or her official capacity and within his or her authority. If the peace
officer seizes the notary journal, he or she must have probable cause as required by the laws
of this state and the United States. A peace officer or law enforcement agency that seizes a
notary journal shall notify the Secretary of State by facsimile within 24 hours, or as soon as
possible thereafter, of the name of the notary public whose journal has been seized. The notary
public shall obtain a receipt for the journal, and shall notify the Secretary of State by certified
mail within 10 days that the journal was relinquished to a peace officer. The notification shall
include the period of the journal entries, the commission number of the notary public, the
expiration date of the commission, and a photocopy of the receipt. The notary public shall
obtain a new sequential journal. If the journal relinquished to a peace officer is returned to the
notary public and a new journal has been obtained, the notary public shall make no new entries
in the returned journal. A notary public who is an employee shall permit inspection and copying
of journal transactions by a duly designated auditor or agent of the notary public’s employer,
provided that the inspection and copying is done in the presence of the notary public and the
transactions are directly associated with the business purposes of the employer. The notary
public, upon the request of the employer, shall regularly provide copies of all transactions that
are directly associated with the business purposes of the employer, but shall not be required to
provide copies of any transaction that is unrelated to the employer’s business. Confidentiality
and safekeeping of any copies of the journal provided to the employer shall be the responsibility
of that employer.
(e) The notary public shall provide the journal for examination and copying in the presence
of the notary public upon receipt of a subpoena duces tecum or a court order, and shall certify
those copies if requested.
(f) Any applicable requirements of, or exceptions to, state and federal law shall apply to a
peace officer engaged in the search or seizure of a sequential journal."

Reply by DaveCA/CA on 7/14/11 9:41am
Msg #389676

Auditor looks at it while in your presence

I have been audited twice this year. They block out about 4 hours for the audit. The auditor will look at your journal. If you show where you made xxx.xx for appt and each notarization, you can deduct $10, you will subtract the number of signatures from xxx.xx to get the amount needed for self employment tax.

Reply by Glenn Strickler on 7/14/11 10:56am
Msg #389682

Re: Auditor looks at it while in your presence

Last audit, the breakdown on my copies of the invoices were enough (client's names were blacked out). I had a letter ready written by my attorney, but it wasn't necessary. The letter simply stated that I would show a sample of how I kept records, covering up the information unrelated to the audit such as identities of clients. At no time would I be able to surrender custody of my journal under state law. But like I said, it wasn't necessary.

The key is to have your paperwork organized and accurate.

California audits are up 350% this year. Seems like they have plenty of money to hire agents for the Franchise tax board.

Reply by Glenn Strickler on 7/14/11 2:09pm
Msg #389711

Re: Auditor looks at it while in your presence

Should have also said that California doesn't care about SET, but their audits can be a bigger pain than the feds.

Reply by Lee/AR on 7/14/11 2:25am
Msg #389662

Sometimes what they say they want and what they will accept are two different things. For example, I was IRS audited and they wanted proof of auto expenses which, at the time, might have been on any of 1/2 dozen different credit card statements & mixed in with other non-auto expenses. However, they accepted a one-page QuickBooks printout of all funds allocated as 'auto expense'. What I thought would take hours of digging, sorting, copying was actually accomplished in 5 minutes.

Reply by John Tennant on 7/14/11 5:58am
Msg #389664

Is this the same audit from July of 2010??? n/m

Reply by Linda_H/FL on 7/14/11 7:13am
Msg #389666

Is this the same one you posted about back in March?

Msg #375125

If so, sounds to me like this auditor really has it in for you....and so sorry you're going through this - I imagine an angry, distrustful auditor can be a difficult thing to deal with. If this is the same one, I'd say the auditor really did not like the meal deduction and now doesn't trust anything.

I would have no problem showing him my journal and invoices (PII blocked out though) - would I give him copies of my journal? Only if they followed proper state protocol in requesting journal entries. And even then, I'd redact the signers' PII.

Wonder what this auditor would do in a state where no journal is required, like Florida..hrrmm

Good Luck.

Reply by FlaNotary2 on 7/14/11 8:24am
Msg #389668

I use carbon-copy receipt books, and I

separate the notarization fees from the travel fees, if any. Give original to the client, and I have the copy for myself. This makes it very easy for me to do my taxes at the end of the year.

Of course, I understand that with loan signings you wouldn't have anyone to give a receipt to... but you could very easily keep a plain ledger/record book that has the date of the signing, the fees collected (minus the state-allowed notarization fee), the number of notarizations, and then the fees alotted for those notarizations. I would think that the IRS would accept that as a written record.

But yes, doing things like counting meals will throw up a red flag. Last year I only claimed $800 in SE-exempt notarization fees. Everything else was taxable.

Reply by Linda_H/FL on 7/14/11 8:40am
Msg #389671

For GNW I use a receipt book also

itemize the number of notarizations @ $10/not. and the balance for time/travel..

For loan signings, in the journal I break down the fee as notarizations/fee - so a loan signing for $150 with 8 notarizations at $10/not. would be listed in my journal as 80/70....I then have an invoice for the signing for the $150 but at the top of my copy I write the 80/70 - and do my bookkeeping from there so I always know the first number is the "stamp fee" if you will, the second number is the balance of the fee charged allocated to SA fee and expenses.

Sounds convoluted but it's really not and it works for me.

Reply by jba/fl on 7/14/11 11:45am
Msg #389694

Re: For GNW I use a receipt book also

I do much the same although I list what the document name, ie, Owner's Affidavit, Mortgage, etc. being notarized. I just don't want a single item disallowed.

Reply by Linda_H/FL on 7/14/11 2:18pm
Msg #389713

BTW...did forget one thing...

for GNW I generate an invoice and mark it paid when I get home so all work I do is SOMEWHERE is my quicken program and I have an invoice for each and every job I do..even if only mileage.

Reply by ME/NJ on 7/14/11 11:10am
Msg #389685

Audited 2005 and every year after till corp ended

Get use to it now, once audited they will do it every year till you end the business.

Reply by JustANotary on 7/14/11 11:13am
Msg #389686

Re: Audited 2005 and every year after till corp ended

How many years all together?

Reply by Michael Edmonds on 7/14/11 11:25am
Msg #389688

Ended Corp in 2009 5 years of audits (had pro's)

Cost me every year, still paying off IRS. I call it my car payment. Will be paid off next year. Had accountant and lawyer for last three audits.

Reply by ME/NJ on 7/14/11 11:29am
Msg #389689

IRS agent in 2005 audit was amazed at Notary Income n/m

Reply by MW/VA on 7/14/11 11:55am
Msg #389698

I can see where this exemption might be a red flag for the IRS.
Every year, I have many more notarizations (hundreds per mo.) to claim against my profit that would bring it to a -0.
I keep a record of every transaction & the # of notarizations. Would I be able to prove that?-- probably not. Considering that the average loan pkg. is 10 or more notarizations, it doesn't take long to rack up some hefty notarization nos.
Maybe you can explain that the the IRS agent, since this is a unique business.
I'm aware that some notaries are using spreadsheets that keep track of mileage & no. of notarizations.
I keep separate records of those from my QB accounting program.

Reply by TSA on 7/14/11 2:50pm
Msg #389720

So sorry you are going through this. Hang in there kiddo! As a signing agent I never went through it, but did last year as a Signing Agency. What a stressful experience. They went through every nook & cranny! I had an attorney and CPA and ended up paying $$$$ for representation. The IRS Agent went through boxes and boxes of files. ALL payroll & accounts receivable. It was exhausting. They gave me a passing grade and asked me to be better about making sure I have an actual invoice from every Notary for the next audit. Notaries often ask me “why do I need to invoice you? Other companies’ don’t ask me to.” I reply “They may have never been audited by the IRS.” Invoices are super important.