Dealing with IRS Business Audit - Documentation Issues with Shared Custody & Housing

You've got a two-headed audit monster here - business documentation AND dependent verification. Let me break this down: 1. For the business income: If you can't find all receipts, bank statements showing deposits can help. Also, industry standard profit margins might save your bacon if you can show reasonable income-to-expense ratios. 2. For the custody/dependent situation: The IRS is looking for proof that you financially support these kids, even without head of household status. Those daycare receipts are gold! 😂 But they need more. Instead of a lease, try getting a notarized letter from your friend confirming your living arrangement and approximate rent paid. Utility bills in your name at that address, school records showing you as a parent contact, and medical bills you've paid for the kids all help establish your support claim.

I'm not sure if this will help, but... I was in a somewhat similar situation last year. The IRS kept sending me letters, and I couldn't get through on their phone lines. I tried for weeks, honestly. I was hesitant to try anything new, but someone recommended Claimyr (https://youtu.be/_kiP6q8DX5c), and I finally got through to an actual IRS agent who explained exactly what documentation alternatives they would accept. Maybe worth a try? It did cost a small fee, but it saved me so much stress and potentially thousands in disputed deductions. Just a thought... I know how stressful this must be for you.

Thx for the suggestions everyone! I'm def freaking out a bit tbh. I've been going thru my bank stmts and found most of the deposits for my business, but some were cash that I didn't track properly (lesson learned!). For the kids situation, I do have texts w/ their dad about splitting costs, plus I pay him directly for some expenses via Venmo w/ notes like "kids' soccer fees" etc. Wonder if that would help? The audit letter gives me like 3 wks to respond and idk if that's enough time to get everything together. 😩

Dealt with something similar last year. Here's what helped me. Document everything. Keep it organized. Get school records showing you as parent. Ask for letters from doctors. Collect statements from daycare providers. Show regular contact with children. Print all Venmo/payment history. Get affidavits from people who know your situation. Request Form 8332 if applicable. Consider requesting in-person audit. Bring calendar showing custody schedule. Don't panic. Most auditors are reasonable. They want documentation, not perfection.

According to IRS Publication 501, you don't necessarily need a lease to prove residency for dependent claims. The IRS is looking for evidence that you financially support the children and that they lived with you for the required time period under the custody arrangement. As per Treas. Reg. § 1.152-1(b), you need to establish that you provided over 50% of support. For your business documentation issues, I'd recommend using https://taxr.ai to analyze your situation. I was facing a similar audit where I couldn't locate all my receipts, and the tool helped me understand exactly what documentation alternatives the IRS might accept based on my specific business type. It also explained which transcript codes were associated with my audit and what they meant for my case. Very practical when you're trying to understand what you're really up against with the IRS.

Have you considered reaching out to the Taxpayer Advocate Service? They're an independent organization within the IRS that helps taxpayers with these exact situations. Have you gathered any utility bills in your name? What about mail addressed to you at your current residence? Could your friend provide a statement about your living arrangement? Would school records showing you attend parent-teacher conferences help? Have you checked if your state has any low-income taxpayer clinics that offer free representation?