Audit

[dyne]

more on IRS audits

IRS performs examinations, not audits. There is now an Examination Division, not an auditing division. The IRS Agents are required to perform the examination at the place of business or home and if not able to do so, must justify in writing why they can not. Sometimes they will begin at the business location and then go to the tax preparers office if the records are there, no space is available at the business office, etc. They are supposed to take a tour of the business.

[Mark Goldberg]

Place of business visits

Some of you are confused. IRS examiners are required to visit the premises. And I do mean visit. They are not required to examine records there or talk to employees or anything like that. They just walk around get a feel for the place and leave. The last exam like this the examiner told me of a case involving a rental property. The Taxpayer had claimed losses with zero income for 2 or 3 years. When she examined the building it had no windows. End of exam. The place was unrentable so all deductions denied. This is what the visits are about. They are looking to see if the business property and the return look like they go together. If the business shows $20,000 of gross income and there are high tech computers, file cabnets etc. then maybe they start aggressively looking for unreported income. But if the place of business is in line with the appearance of the owner and the business numbers, then it is just like a walk in the park.

[dmj4]

Armando

I'm sorry, there is no plant. Her business is a convenience store in the country, they lease the building. She does have employees, but just a few. His business is a sawmill, that he constructed on his farm. He had one employee because he does most of the sawing himself. The exam year (2003) is the second year for both businesses. Neither of them have any other income. They both show a profit, but they have two children. They tell me, they obtained loans in 2002 and 2003 to help with the expenses.

These people had never received EIC until opening these businesses, at least not in the years I have done their returns.

[jainen]

"supposed to"?

"supposed to"? Who does the supposing? The taxpayer has to comply with laws and regulations, not the agency's internal guidelines for writing a report. If the IRS has a problem with something on your client's return, make them state what the problem is and respond directly to that. Sure, that could include inviting the agent onto the premises, but if as you say he isn't doing an audit, what legitimate reason would an examiner have for viewing the plant, inventory or other assets? (I'm still waiting for dmj to explain why these two businesses might have surprises.)

[BOB W]

Visits

If I were an auditor/examiner, I would want to get a feel for the operation of the business and its personnel and equipment placements.

Looking at the business records only tells them what the business wants to tell them. Many businesses will pass that part with no problem, others will not be so lucky.

I would try to minimize exposure by scheduling such an appointment in order to preset appearances. But keep in mind, most auditors do a drive-by or a walk in prior to the appointment, if open to the public. They are just shoppers and do not introduce themselves.

[dyne]

place of IRS examination

IRS is given the authority to determine where examinations will be conducted by
Regulations 301.7605-1.

[Black Bart]

Worksheets

I wouldn't generate any worksheets that had not been done previously. I'd just give them what the client did by hand.

Think I'd maybe take "03 and '04. Tell them client couldn't find others. Chances are it's too much trouble to exhume old bodies. Agents have just as much trouble as we do in getting anything from their own bureaucracy that cares not.

An ex-IRS agent on the other board said several months ago that he was required to visit the business (think he said he worked there about 10 years or so ago). I don't know if he meant that was the IRS policy or his particular office's policy.

As far as what the agent's going to do; who can say? I've had more nice guys than bad guys, but none since the new commissioner, so maybe they're tougher now. I think you're right about getting your feet wet; the most brilliant heart surgeon once prescribed two aspirins for a headache. Play it by ear and trust your instincts. Think how much smarter you'll feel when it's all over.

[dyne]

Where to conduct the IRS examination & Tour

The Internal Revenue Manual 4.10.3.2.2 entitled Where to Conduct Interviews: states: "1. The time and place of interviews will be set by the Secretary as long as they are reasonably scheduled.....3. Field examinations should be conducted at the taxpayer's residence, place of business, or where the taxpayer's books and records are kept....."

The Internal Revenue Manual 4.10.3.3 entitled Tours of Business Sites: states: "1. The physical observation of the taxpayer's operation, or tour of business site, is an integral part of the examination process. Viewing the taxpayer's facilities and observing business activities is an opportunity to: A. Acquire an overview of the business operation......"

[S T]

Audit Information

I was looking for something else and came across this website that outlines some audit procedures. Thought it might be of some interest.

http://www.mckenzielaw.com/auditproced.html

Sandy

[gusser]

I would not send anything in advance of the audit but would be prepared at the time of appointment with the 2002 and 2004 returns. Never let them keep or photocopy those returns: Just explain that you don't have a POA for those years. They will normally just quickly look over those returns for obvious blunders or to see if a certain incorrect approach which was taken in the audit year was duplicated. Insist that they do that in your presence. If they want to audit those years, they need to send an audit notification to the client and THEN you get your POA.

The letter you got from theirs is nothing more than a canned letter asking for everything. There is supposed to be a new approach to audits whereby they get right to the nuts and bolts and specifics in their initial letter so as not to waste everybody's time. That's what I have been seeing. I guess some offices are still doing it the old way. Yes, go to the business to see the operations but be sure the owner is doing something else that day. T

Don't worry about your workpapers or financial statements - they are just looking for everything they can in a blanket letter. Just be curtious and professioanl. If you come across an issue that you don't know the answer to (or don't really want to discuss), just tell them you will research it and get some answers for them. Many times, as an audit drags on, they forget about certain issues, so avoiding these areas initially can be beneficial to your client. Don't be afraid to drag the audit out. The longer it takes, the more the agent will forget issues and the more pressured they will be by their manager to wrap things up. Time is always on your side. Good luck.

[taxmandan]

IRS visit to business

They will insist on a visit, you have the right to insist it does not disrupt the workplace, or cause fear and suspicion with employees, customers, or neighbors. Tell the examiner that the walk thru must occur before or after business hours, if they insist on work hours, tell them Friday afternoon at 3 pm. And have ALL of the business records at your office and make sure the examiner understands that the actual discussion of the return will not occur at the business. Don't let them talk to the taxpayer, in fact make them "disappear" during the visit, have a secretary/receptionist escort you and the examiner around the building, someone who knows to keep their mouth shut!

Daniel

[jainen]

Right to refuse

Actually you have a right to refuse to be audited at all. Of course, IRS will then make any changes they feel are appropriate, but in some cases that might be preferable to letting them see what is really going on!