IRS Audit - Should Client Talk to IRS?

[Hamacher]

I have a client that is being audited. The client signed a POA authorizing me to represent him. The IRS agent said that she needed to talk to my client regarding how he runs his business. Can they require that he speak to her? I can't see anything good coming out of having a client talk to an IRS agent.

Any thoughts?

[DaveO]

They have no right to but they may get very hostile if they don't get to. Unless your client has a very strange business you should be able to address the questions or offer to discuss the questions with your client and report back to the auditor.

I have had a client meet with an auditor once simply because he had a very unusual business that I had a hard time understanding let alone explaining. I told him to imagine he was a ventriloquist’s dummy and to speak only on my queue. Once we got past that part of the audit he left to “use the restroom” and waited in the lobby till I came out.

[Bees Knees]

Contrary to popular belief, IRS can and WILL require your client to attend via an administrative summons. My opinion is, why get off on the wrong foot with an IRS auditor by trying to but heads?

A better way is to meet with your client ahead of time and coach your client what to say and what not to say. Your client has the right to always have you there as his/her representative. You are there to make sure the auditor does not try to pull anything. I have always had my clients attend their audits and have had good results. I know how to argue with an auditor and I can be very persuasive when it comes to defending the tax treatment of items on the return. My clients know when to keep their mouth shut and let me do the talking. It has been my experience that letting the client attend helps close the audit faster.

[Lion]

Hrb

For what it's worth, when at HRB (11 years) they told us to never take the client to an audit.

I did once, on a second meeting, since the IRS agent had made up her mind that this was a doctor with a loss on a Sch C involving horses so must be a hobby. He was a horseman who funded his riding school by consulting part-time as a psychiatrist to a public school and was forbidden by his school contract to have private patients (he was also a lawyer and had been a college literature professor but not in the years under audit). I had to have the IRS agent meet this pony-tailed rider who mucked out his stables to understand which he treated as his primary business.

But, overall, you have more risk by having your client at the audit. You have to decide if in your particular case you will have more risk by refusing.

[joanmcq]

As representative, you need to be able to answer any questions the auditor may have regarding the business as well as your client's personal issues. They have set questions they go through. If you don't know the answers, they will request to speak to the client. On the flipside, there are some auditors that will try to circumvent the POA. THIS IS NOT ALLOWED BY LAW. So, make sure you can answer stuff like, how does the client keep his books and records? Where does he bank? How many accounts? What cars does he have? etc., etc., etc.

You have to be able to step into the client's shoes as a rep. If you can do this, they can't require to speak to the client.

[Bees Knees]

You have to be able to step into the client's shoes as a rep. If you can do this, they can't require to speak to the client.

It's your opinion against their opinion as to how well you can answer their questions. They can always say you did not give them answers to their satisfaction, and then issue a summons, which basically does require the client to appear.

Again, why start off with a conflict? See if they will speak with you alone. If the auditor insists on speaking to the client, don't make such a big deal over it. Coach your client ahead of time and then be there to step in if the auditor tries to pull anything.

[DaveinTexas]

A little off subject but,

When an auditor asks, "What bank does the taxpayer use?" Number 1, are we obligated to give that information since it has nothing to do with preparing the return? and Number 2, doesn't the IRS already have access to this information?

TIA.

[Bees Knees]

When an auditor asks, "What bank does the taxpayer use?" Number 1, are we obligated to give that information since it has nothing to do with preparing the return? and Number 2, doesn't the IRS already have access to this information?

I will be the IRS auditor, and you can be the personal rep for your client.

Me: "What bank does your client use?"

You: "None of your business. What does that have to do with his tax return, and shouldn't you already know that?"

Me: "So your client is trying to hide assets? Maybe hide some income not reported on the return? Here is a subpoena for your client to meet with me next Tuesday. I have some further questions I would like to ask him."

[erchess]

When it comes to deductions and credits the burden of proof is on the taxpayer and so I understand that we have answer any relevant questions or deductions and credits start falling.

But when the auditor seems to be fishing for unreported income I ask if they have evidence to counter the fact that my client and possibly I or another paid preparer signed that the return is complete and accurate to the best of belief. I just don't see why we have to help the auditor find income.

[JohnH]

They don't generally need our help in finding income - they're pretty good at finding it all on their own. When they're asking leading questions, they usually already know it's there. They are just trying to figure out the actual amount and if they can nail the preparer as well as the client.

[erchess]

That would explain why I've only had the issue raised at one audit and that wasn't even one I handled personally. Turned out to be a case of identity theft and I understand it was not hard to prove once the IRS was persuaded to reveal why they thought there was unreported income.

[Snaggletooth]

Inviting Disaster

I've never had a situation where the taxpayer is better advised to answer questions.

Because the auditors ask leading questions, designed to provoke a certain answer as opposed to something ridiculous. They know what they're after, and WE know what they're after, but the taxpayer just simply answers questions.

The question might be, "Mr. Smith, your wife spent most of the summer taking her team to volleyball games and clinics, didn't she?" If the answer is "No" there is a problem claiming her mileage as a coach. If the answer is "Yes" then there's a problem deducting her salary paid to her by her husband's corporation. This is the kind of leading question that rings up the cash register for the auditor.

And, admittedly, the above example appears to present a natural discrepancy. But the representative needs to pick up on this and give an answer, and NOT the taxpayer.

I had a situation where an Tennessee optometrist was classified as an employee, with $360,000 in revenue and $220,000 in clinic expenses. How did I let this happen? Simple. The auditor had a 3:00 P.M. appointment with us, and instead she showed up at the office at 1:30 instead of 3:00, and by the time I got there, it was a done deal and she was packing up to leave. I had to go to her supervisor.

Let your clients go to the audit, and converse with the auditor. But remember the auditor is not there to talk about the weather and your client's favorite football team. Jump in, and jump in quick.

[joanmcq]

TCOs and RAs have a set group of questions they ask. If you know the answers, then you can be assumed to know enough about the taxpayer's return & biz. If you don't then your validity as POA is put into question.

Why the question about the bank accounts? No, they do not have that info already. Do they keep biz & personal separate? Is there unreported income? An RA is looking for unreported income, and if they think you are not providing all of the bank info, they will supoena it. And it doesn't look too good when the supoena turns up 3 accounts your client didn't tell YOU about. You lose your credibility completely.

I'm with Bees. Don't start out with an adversarial attitude. You want to appear knowledgable and reasonable, and if you ARE knowledgable, then the agent CANNOT insist on speaking with the client or even try to.

[MAMalody]

When I was and auditor for the IRS, I looked for cooperation from those under audit. The more pleasant the experience, the better the outcome for all concerned. I would not recommend turning it into an openly adversarial audit. It usually serves no real purpose, tends to put both sides on the defensive, muddies the waters, prohibits good communications, and ultimately is hard for you to win and the auditor to lose...at least without the appeal process which may make you look like a winner to your client...until he gets the bill.

I would simply recommend being well prepared and answering all questions that come down the pike. If the auditor seems to feel you are not able to answer the questions to the extent necessary, volunteer to get the answers and get back to him. If the auditor refuses that overture, then you probably have problems that only come up in your nightmares. In my experience, auditors only want the information and they don't really care where it comes from as long as it is a creditable source. If you come across as knowledgeable, then you are in. If there is a fraud agenda in the background, you could be in for a world of hurt by making it adversarial and being put on the QP list (you know, the list that doesn't exist).

I do agree that if your client is at the audit, he needs to be coached. I can't tell you the number of times that the client opened up a can of worms that did not need to be opened. Techniques like stepping on their foot to stop their talking work real well.

[taxea]

I will be the IRS auditor, and you can be the personal rep for your client.

Me: "What bank does your client use?"

You: "None of your business. What does that have to do with his tax return, and shouldn't you already know that?"

Me: "So your client is trying to hide assets? Maybe hide some income not reported on the return? Here is a subpoena for your client to meet with me next Tuesday. I have some further questions I would like to ask him."

my answer to any IRS question that I think is irrelivant to the issues at hand would be:
why is this information necessary to this investigation. If the answer is "fishing" to determine whether the client is hiding something" my answer is...I can assure you that based on the info that i have from the client, the client is not engaging in any conscious attempt to defraud.

I would ask the agent what specific questions he/she has, and how they pertain to the issues at hand, then I would tell them that I will ask the client and get a response to them.