USA IRS Audit EIC related

May 1, 2021
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United States
I've been audited twice because I claimed earned income credit for my two grandchildren that live with me. The first audit was for my 2015 taxes, initiated in 2018. While attending college, I was an event bartender with mostly cash receipts. With the help of a tax advocate and submitting my spreadsheet detailing event dates, revenue received from venue, tips received from guests, etc ... "and" providing 12 months of bank statements that proved deposits totalling revenue, the audit concluded positively for me at reconsideration phase.

Then, not long after conclusion, the irs hit me with a second audit for 2017. I submitted all of my documentation (spreadsheet detailing dates, amounts, tips, etc) during pandemic. I could not get a hold of anyone in the audit department. I also never received any additional notices, determinations, etc ... until? I completed my 2020 taxes. I still haven't received my refund. Instead, I received a collection letter reversing my entire 2017 income and charging me interest, penalties, and wanting earned income credits received, etc ..

I talked to collection department, a person working from home representing auditor division. They suggested I resend my documents. So, I faxed 113 pages of material to include Facebook posts in which I promoted the events I worked, information of the venue that hired me and didn't provide 1099 form, bank statements, court documents pertaining to legal custody of my grandchildren I raise, and detailed work logs of dayes, amounts, form payment, etc...

I received a response. They are not reversing their decision. They claim that my cash received must be deposited exactly as stated on my bank statements to correspond to dates worked in the exact amounts. Also, they stated "it appears, you may be at an income level where you are using state assistance" and that they didn't receive documents from my case worker verifying income reported to them. They then reminded me of my requirement of keeping good records to monitor the progress of my business.

I am floored!! Has anyone heard of such nonsense?? I dont have a caseworker!! In 2017, I didn't have permanent custody of my grandchildren yet. They simply lived with me. As they did the years before. I receive child only assistance since 2018 "after" custody called kinship care. If I netted a million dollars, I would still receive this benefit for taking custody of my grandchildren. I deposited most of my earnings in my account, but not all of it to pay my bills. But, not necessarily the same day, sometimes just once a week or two. I kept impeccable records of the income I received, to include dates,, addresses, venues,, source of payment.. And, submitted tons of proof that I worked these events. I feel I'm being bullied by this IRS agent. Do I need an advocate again or an attorney? They are holding up my much needed refund for this year, I assume in order to steal it from me. I currently am still self employed, but now in a different industry in which I receive 1099s.

Is there a tax law that I must deposit all of my income into a bank account? My relationship with the venue I worked was that of an independent contractor. This was a verbal agreement. I provided the audit department with the venues name, address, state certification, and contact information. I don't know why they didn't send me a 1099. I received over $600, so they should had. I thought we were required to report our earned income. I sure did, but because I received a refund, now I'm called a liar. Im livid!!!

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