What is Stock Audit?

Do I have to respond to an audit for a corporation I used to own, but that now has been dissolved? (2007)?

• I was sole owner of a corporation that sponsored a retirement plan. I was the only participant and owned only company stock in the plan. The company failed, I terminated the plan (in 2007), filed for bankruptcy in 2007, and in 2008 I completely dissolved the corporation. The IRS now wants to audit the retirement plan for 2007. I keep saying that the corporation was the plan sponsor, not I, but they keep telling me they will disqualify the plan if I don't respond to the audit. Why would I be obligated to respond? I'm afraid of the potential tax ramifications of disqualification even if I ended up with no money in the plan at the end of 2007. Could they tax my beginning balance in the plan if the plan is disqualified? I thought they couldn't tax beyond three years -- but aren't there some exceptions? I've called some attorneys, but no one has called me back. Please weigh in your thoughts. Thanks!

• Answer:

  You'll be much happier in the long run if you cooperate. As the sole shareholder and a corporate officer, you may be held responsible for the actions of the corporation. As to the 3 year rule, tax year 2007 was due on April 15, 2008 so they have until April 18, 2011 to assess any further taxes. If significant understatement is involved, that extends to 6 years. If fraud is involved, there's no SOL. If you don't cooperate they will proceed without you and make the audit determination based upon whatever information that they have available to them. When it comes down to that, they will always use numbers that are most favorable to the IRS, not you. If you disagree at that point, you'll have to take it to the Tax Court for redress.