Dealing with the Internal Revenue Service (IRS) is sometimes a difficult and complicated process. Even more so now given the pandemic. Interactions with a Revenue Agent may not happen in person, but there will be contact with the IRS in some form. At times the procedure of communicating with the IRS is cumbersome, even for the most experienced tax practitioner. Experience shows that a taxpayer can be successful in dealing with the IRS at all levels with proper communication, preparation and presentation. This post will occur in two parts, the first part will discuss communication and the second part will discuss preparation and presentation.
The tax practitioner must communicate with the client and the IRS. It is important to ask both the client and the IRS many questions. If you do not understand something, then continue asking questions.
Before the Audit
Also, it is important to prepare the client for the audit before the audit. Educate your clients as to the type of records they need to keep and how to effectively organize these records. Help your clients set up good procedures and systems–this is also a good source of new business. Having periodic meetings with clients to review procedures and questionable items will help your clients avoid problems before they arise and allow for the documentation of items where necessary. Include the other advisors used by your clients to coordinate the work they are performing for the client. Advise the client and others who may deal with the Revenue Agent to give the Revenue Agent what is requested without any explanation unless one is requested.
After Audit Notification
When the client is notified about the audit, you should meet with the client and discuss the following:
- What is involved in the representation;
- The chances the client has for success in the audit;
- The fee that you will charge the client;
- The need for a power of attorney;
- Documents needed for the audit;
- Documents which are available;
- How contact between the client and the IRS will be handled (in most cases the client will never have any contact with the IRS and this should be made clear to the client);
- Your engagement letter;
- The possibility of settlement;
- The possibility of retaining an expert to assist in the audit; and
- The designation of someone at the client’s business to be the contact with the Revenue Agent during the audit.
Meeting with Revenue Agent
This first meeting with the Revenue Agent, once the client is notified about the audit, may be the most important meeting of the entire audit, since it will generally set the scope and tone for the audit. Consider the following: Be prompt, courteous and friendly. Many Revenue Agents are treated with a hostile attitude. You should try and treat the Revenue Agent the same way you expect to be treated. Be confident, positive and establish your credibility with the Revenue Agent. Be honest and do not mislead the Revenue Agent. It is not necessary to impress the Revenue Agent, but important to let the Revenue Agent know that you are a competent tax professional. Never agree to do anything that you cannot or are not willing to do. Always meet the deadlines set with the Revenue Agent or obtain an extension. Let the Revenue Agent know that you will be cooperative, but that you will also represent your client to the fullest extent possible. You need to be in control from the beginning.
Meet with the Revenue Agent to present the power of attorney form and to establish the ground rules for the audit. The Revenue Agent in a field audit is supposed to know the issues when the audit begins, but may add issues as the audit progresses. If the Revenue Agent does not know the issues when the audit begins, then you should request that the Revenue Agent follow the Internal Revenue Manual, and the meeting should be rescheduled after the Revenue Agent has done his homework. Otherwise, it is hard to prepare for issues both parties don’t know and fully understand. Once the issues are determined, then the client should assemble all appropriate records and documents for you to review. Which particular records and documents will be given to the Revenue Agent will be determined after receipt and review of a document request from the Revenue Agent.