Volume 8 Issue 1
Surviving a Tax Audit: Part II
© by Tax & Business Professionals
In dealing with a tax audit, there are certain basic guidelines
that should be observed. Many of these relate to controlling the flow of information to
As was suggested in the last issue, having a tax professional
respond to the auditors inquiries and provide the necessary information is usually
the best choice.
Do not have a variety of employees providing taxpayer records
to an agent. In some cases audits are precipitated by disgruntled employees and one can
imagine how such an employee may respond to request for information.
Assuming you have decided to use a tax
practitioner, what if the IRS wants to conduct an audit during what is commonly referred
to as the "tax season," January April 15th. During this period most of
tax practitioners are quite busy doing tax returns.
Tax Season Audits
Since many taxpayers handle audits by themselves there is ample
for the IRS to do year around. Delaying an audit involving a tax practitioner will not
cause unemployment in the ranks of IRS auditors. Usually, reasonable requests to delay an
audit or speed one up so as to avoid the "tax season," will be entertained by
the IRS. Of course not all such requests for rescheduling can be honored, but many are.
In some cases involving tax representatives the
auditor may believe, correctly, that there should be a face to face meeting with the
taxpayer or the officers of the taxpayer. While there are a host of reasons for such
face-to-face meetings, often the perceived need stems from a failure of the tax
practitioner to provide needed information to the agent.
What if the IRS insists on meeting the Taxpayer?
Some times tax practitioners needlessly delay audits or clients
fail to provide information on a timely basis. A book could be written on the myriad
scenarios in which the agent may ask, and then insist upon, such a meeting.
In such cases the best thing to do is have the
meeting. Let the taxpayer respond to the agents questions and then try to regain
control of the process. Remember, the IRS has tremendous information obtaining abilities.
Among other things it can issue a summons (like a subpoena) to the taxpayers and third
parties for information. If necessary a summons can be enforced by a Federal District
Dealing with Disagreement
Dont Argue with an IRS Agent. It is a losing game, no
matter how or by whom provoked, to get into a heated argument with an agent.
In addition to a full arsenal of information gathering systems,
there is the "presumption of correctness." Stated differently, and unlike in
criminal law, IRS adjustments (a notice of deficiency) are presumed correct.
This means that if all communications fail and a notice of
deficiency is issued, the burden of proving the IRS wrong rests on the taxpayer. Many
litigated cases grow from the seeds of discontent between IRS agents and taxpayers. Cooler
professional heads could have interceded in many such situations.
If it seems an agent is wrong in some respect, delays the
process unreasonably, is overly aggressive, or the like, consider the following strategy.
Explain your belief to the agent. The "world wont
end." If the agent persists in a questionable course of action, then call the
agents immediate supervisor and relay the substance of the conversation with the
agent. While there is no guarantee that the IRS supervisor will agree with you, most of
them want to know about errant IRS agents.
In any event, it is important to remember that the IRS wins
about 80% of its litigated cases (or at least the ones you hear about). Many of these
victories grow from an unhealthy mixture of taxpayer-agent friction and odds that clearly
favor the government.
Taking a sound approach to handling an audit can
improve the chances of a favorable result. Usually, the best chance for success comes
while the matter is still in the auditors hands. Once the audit is completed, the
chances of reversing an unfavorable result go down dramatically.
The Basic Audit Steps
- Plan how to handle the audit and who will do what.
- Explain the methodology to the Agent.
- Provide, within reason, requested materials through just one
person and let a tax professional respond to all or most questions, particularly
- Refrain from futile arguments.
- If a problem develops with an agent, discuss it first with the
agent and then if you believe the agent is clearly wrong ask to speak with the
agents immediate supervisor.
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