Santa gets Audited! Special Edition

One Stop Consulting Shop has a team of trusted tax professionals to help with any kind of tax situation, return or audit!  Even for Santa!  My Chief Tax Advisor, Kenneth Hoffman, was recently approached by Santa Claus who was quite stressed with his preparation for the delivery of toys and dealing with the inconvenient problem of an IRS Audit at the same time!  In trying to assess the situation, Ken conducted an interview and documented his findings.  While tax information is strictly confidential, Santa agreed to allow us to share his experience to inform all of our readers about the importance of transparency, documentation and getting sound advice!


Written Interview with Santa Claus by Kenneth Hoffman, Chief Tax Advisor:


Recently, Santa was audited by the IRS. Unfortunately, it did not go all that well. I was able to catch up with Santa who shared his experience with me. Here is my exclusive interview.


ME: So, Santa, you were audited by the IRS? How did that go?


Santa: Not well, the revenue agent questioned my credibility. First, he told me that many people do not believe in me, including him.


ME: How did you respond?


Santa: I told him non-believers are rebels without a Claus.


ME: What else did the revenue agent question?


Santa: He told me I had a lot of unreported income. I explained that I only work for a few hours on December 25th of each year.


ME: How did he respond to that?


Santa: He told me that was hard to believe because nobody works on Christmas.


ME: What was the unreported income the revenue agent say you did not report?


Santa: In explaining that he did not believe I only work one day, he produced a mountain of 1099s from malls all over the country. He asked me explain why I was taking pictures with kids and not reporting the income.


ME: How did you respond to that?


Santa: I told him the income was for the pain and suffering I suffered. My knees have never been the same. So, the money simply offset my medical expenses.


ME: What about your foreign source income? Was that an issue?


Santa: Yes, the revenue agent was so insistent on that issue it felt as if he was continually raising the FBAR with every response I gave.


ME: I can imagine, the revenue agent would be scrutinizing your payroll. Did he question the way you pay your helpers who actually make the toys?


Santa: From my perspective he was “Scrooginizing” my payroll. He had the audacity to say that I should have issued 1099s reporting their Elf Employment Income?


ME: Wow. What were some of the other issues?


Santa: Well, he told I had to report as income the value of the cookies and milk that I get to eat at each stop?


ME: How did you respond to that?


Santa: I told him I had a cafeteria plan, so the milk and cookies were tax-free.


ME: Did he question the deductibility of the meals you actually paid for?


Santa: Yes, when he said he would disallow them, I reminded him they were deductible travel expenses because I was away from Nome, overnight.


ME: Did the revenue agent question any of your other expenses?


Santa: Extensively. I produced a list of what I considered to be deductible expenses. Looking dubious, the revenue agent checked it twice and tried to intimidate me by declaring that he knew when I was naughty or nice.


ME: Wow. That seems rather harsh. How did you respond?


Santa: I told him I resented that as I am always good for goodness sake.


ME: Sounds like you had a lot to watch out for. Was there anything else?


Santa: Yes, he accused me of promoting tax shelters?


ME: How so?


Santa: He said many of my followers were singing tax protestor music?


ME: That is unbelievable. I never heard of tax protestor music?


Santa: According to the revenue agent, many carolers who gathered around a picture of me were heard singing “En O El, En O El, En O El, En O El.”


ME: I am sorry you had such a bad time. How did the audit end?


Santa: At the very end of the audit, the revenue agent said he had one last question. He asked me if I had ever delivered a gift that was defective.


ME: That surprises me. I always thought the gifts you deliver are perfect. How did you respond?


Santa: Very honestly as I wanted to be transparent. I told the revenue agent that in all my years of delivering gifts, the only defective gift I ever delivered was a computer to Lois Lerner. And with that the audit came to a crashing stop.


ME: Thanks, Santa