Audits

[jainen]

contradictory

Your 2nd and 3rd paragraphs are contradictory. The analogy to criminal justice does not work because the taxpayer has the burden of proof in an audit. You are not innocent until proven guilty. You HAVE to resolve the auditor's questions--it is not a relationship of equals. If you don't have the hard goods, which is often the case with taxpayers, the best thing for the client may well be a nice, friendly, cooperative schmooze.

[geekgirldany]

Thank you...

for the advice. I will be getting my EA next year. I know having my EA would make things alot easier when an audit might pop up. I was so overwhelmed by this tax season I decided not to go for it this year.

I felt rather insulted to be called "a number cruncher". I told him "well you can call it that. I prepare their tax returns yes". He then said "I just mean you don't do any of the bookkeeping". The auditor has started looking back at previous years. Really further back than he should. He is auditing 2003 but requested and was given tax return for 2000. The CPA is of the mind to let him hunt and give him what he wants. That he will eventually give up.

[Armando Beaujolais]

"If you don't have the hard goods, which is often the case with taxpayers, the best thing for the client may well be a nice, friendly, cooperative schmooze."

I agree with you 100%. I don't go into audits trying to start fights with the agent. many times the taxpayer's records are not solid, and you rely on the agent's sense of fair play to keep the client from getting nailed to the wall. That's not a time to start waving the code book around, I agree.

What I disagree with is the approach of acting like you're at the agent's mercy. You're not at the agent's mercy unless you decide you are.

Would you push for an office-in-home deduction when you knew the taxapyer did not qualify? Of course not. Why then do you allow an auditor to go on a fishing expedition, asking for tax years that have nothing to do with the year in question? You both know it's against the rules, yet it's O.K. for the auditor to break the rules at will while you walk on eggshells. The auditor can get the returns, but it's difficult, it takes time, and there must be a justified reason for submitting the request. The auditor doesn't need a justified reason, doesn't need to waste the time, and doesn't need to worry about the administrative headaches if all he or she has to do is ask and the representative coughs up whatever the auditor feels like looking at. Why is it O.K. to do the auditor's work for them? After all, the client's paying you.

How does the auditor get away with it? The auditor knows that most representatives will say "how high" when the auditor says "jump."

This entire issue is wrapped up in the question of how far we've come in becoming government agents. Too far, unfortunately.

[Lance Emerson]

In the Middle

We're in the middle folks. We have to fall all over ourselves to make sure our clients adhere to the letter of insanely complex laws. Then we have an audit, and it's "no rules, just right" for the auditor. That's not our fault, we're just the ones who have to deal with it. It doesn't help that the auditor has the awesome power of going into it with a guilty til proven innocent head start.

Take Article I of IRS Publication 1, Your Rights as a Taxpayer for example. "IRS employees will explain and protect your rights as a taxpayer througout your contact with us."

That's the first statement in the first publication of the IRS line of publications, and I'd get bounced from this board if I said what it really is. Let's just say rubber boots and a pitchfork would be appropriate tools with which to deal with that statement.

I'm also amused by the statement that the IRS will tell you why they're asking for information, explain their authority for doing so, and explain what will happen if you don't provide it. One audit, yes, the agent asked for prior year returns. I asked why, and the agent looked like they'd never been asked that question before. I referred to the "we'll tell you why and tell you what will happen if you don't provide it" proviso, and the agent once again acted like that question had never come up. The answer was something akin to "Because I feel like looking at it, just out of curiosity." The agent was mad that I'd dared to suggest that the rules be followed.

We're at a disadvantage. We have to follow the rules, and they don't. I will say, however, as a profession, I believe we've brought a certain amount of that disadvantage on ourselves because we've been so reluctant to stand up to IRS personnel.

[BOB W]

Audits

Without naming names, I want to thank you go-geters for all the hassels you give the IRS agent. You are the reason why my "soft-sell" approach works so well. I get away with issues the IRS agent decided to not address. We have a workable reasonable audit in which I end up thanking the auditor for his/her help.

Don't get me wrong, during the audit we bumped heads on the issues. But that was just to let him/her know that I am no fool and can't be pushed around. When we're done the auditor is the first to offer a handshake.. Yes, they are real people when they know there is going to be no BS.

During any audit it is imperitive to establish credibility of your client and yourself. If your client base is poorly chosen, you will always be behind the eight ball and will be forced to choose an aggressive approach in order to give the auditor a reason to close the audit ASAP. I have never use that approach so I don't know if it works or not.

[Armando Beaujolais]

You HAVE to resolve the auditor's questions--it is not a relationship of equals.

At least we've clearly identified the very core of our disagreement on this issue.

I don't go into an audit worrying about whether I resolve the auditor's questions. That's his or her problem. I go into an audit worrying about representing my client and securing the best possible outcome under the law. So many people seem to have this approach that the auditor is judge, jury, and executioner, besides being king of the world. The entire strategy is to make nice with the auditor.

I so envy you practitioners who are blessed with working with agents who are kind, fair, equitable, courteous, and have such high regard for the rights of your clients and shake your hand and smile and slap you on the back in respect. Ain't like that in my neighborhood. And I'll bet it ain't like that in most neighborhoods.

I'd rather be the representative who makes the agent groan when they see my name than the one who says "oh, goodie, it's so-and-so." My job is to represent my client, not to make the auditor think I'm a nice guy. Sure, sometimes I use the peaches and cream strategy, but only because it's in the best interest of my client, not because I'm beholden to the whims of the revenue agent.

Not a relationship of equals? eek

[BOB W]

Agents

Well, I thank you again for all your help.....If I could shake your hand I would............

[Armando Beaujolais]

I know I'm being cranky and I don't mean to. It's just in my nature. I'll bet we'd probably take similar approaches in similar circumstances. I have my chosen approach, but it's good to consider all approaches so you'll have that edge when it comes to flying by the seat of your pants, which is what happens in an audit.

[jainen]

Strategy

>>consider all approaches>>
I'm glad up said that. The point is to serve the client best, not take a particular stand for an abstract myth like fairness. If there is something important the client is missing or can't risk revealing, then of course you have to hang tough. But usually I will try to conceal it under layers of obsequious fawning. And that only works with the auditors. The guys in Appeals won't buy it. In any case, I don't countenance "flying by the seat of your pants." Even the simplest letter audit requires a strategy based on the documents and client's goals.

[Armando Beaujolais]

But usually I will try to conceal it under layers of obsequious fawning.

Now THAT's a sentence worth writing. I must admit, you sent me to my dictionary. Even in an argument about taxes, well crafted, dare I say near-poetic, phrase appears.

Where else could that happen?

[jainen]

Where else?

Ummm, thanks, I guess. Where else? Let's see, I also post to a cooking forum or two.

[JON]

Tax Book

Rumor-are they putting together a 2004-"2005" tax season book?????

We have had a cake walk the last 10 years from auditing. Remember when they were reassigning agents to the computer staff, budgetary cuts and hiring freezes...

The following are from the 2004 IRS Data Book, which is for the calendar year 2003.


1040s filied 130,134,227
1040 examined 1,007,874 (that includes 487,467 examined for earned income
credit).... .0077%

The largest single examined group is positive income greater then $100,000-1.39% and less than $25,000 at 1.26% is second. Shows how much time IRS has to spend on the earned income credit.

Regular corporations: