A list of audit questions

[DTS]

I have an audit coming up next month and would like to know if anyone on the board has a current list of questions the auditor will start off with? I've heard it's approx. 15-20 questions they will ask about the client (I think most of us would not know these questions) and I would like to be able to present the answers to the gal doing the audit, so as to save time for her and me.

If anyone has them, could you give me a contact number in my PM and I'll make arrangements with you to get them.

Thank you,

Dennis

[sea-tax]

Dennis,
I am not sure as to the questions, most are about " Did you report all your income?"

Learn this response, " to the best of my knowledge all income was reported"
This does not mean that all the income was reported just that you think it was.

If they ask a question that you are not sure of the answer, you can tell them, " I am not prepared to answer that as I was not aware that this was within the scope of the audit". or " I did not ask my client that question, if necessary I will and get back to you".

I will admit that I have been to very few audits, but the ones that I have attended have all gone the same. They ask me a lot of questions and I answer the ones I can and tell them the standard I was not aware......, they have always seemed to move on and everything has worked out.
Good Luck

[Lion]

IRS Letter

Do make sure you have all the documentation asked for in their letter requesting information and any answers/cites for the questions that seem to be implied by their list. Are they looking for unreported income, overstated deductions, business vs. hobby,...? Then follow the advice about "to my knowledge..." and "I will ask my client and get back...." Don't let them fish. If they don't get an opening/lead from your response, they'll often let it drop and move on to another topic. Be very gracious about giving them all they asked for in their letter, but don't open up new topics. "I didn't know that was in the scope of this..." Give us some more details; someone has probably had something similar. The IRS seems to have "projects," like self-employment or unreimbursed business expenses or S-corporation wages or...

[jimmcg]

May wish to peruse the Internal Revenue Manual, particularly Part 4 as it relates to examinations. Available at irs.gov

[Lion]

Industry

And the specific audit manual for your client's industry, if there is one. They tell the auditor what to look for/ask. For instance, the one I read about horses when I was preparing for an audit told the auditor to NOT ask for a business plan in his initial letter, but to request it during the first meeting or in the second letter; so he could see if it existed prior to the audit. Sneaky, huh?

[DTS]

Questions

Thank you all.

I am already prepared to say exactly those things that you've advised me of. I will be meeting with this client most of the day on Monday to start this process and just wanted to get a heads-up in this area, if possible. I want this process to go very smoothly, professionally and, hopefully, a great outcome for my client.

Note to Jim: I will check this manual out and glean as much as I can from it.

Thank you!

Dennis

[DaveO]

Here are a few you might get

Has you client been audited before? When, what was the outcome?

Do they have any foreign bank accounts?

Do they engage in barter?

Do they engage in online transactions, Do they have a paypal account?

Is all cash reported/deposited?

Have they received any gifts, inheritance, prizes, awards?

Do they have a cash hoard, how much?

Clearly these are fishing questions and you may be better off not knowing the answers except to the first couple. The paypal question is popping up more often. I did recently have a client with a foreign bank account, it really threw the auditor. He asked for a recent statment and sat there and stared at it for the longest time as if the words would magically morph into english.

Be calm and respectful. I like to ask personal questions of the auditor. How long have you been in the service? When did you move to audit? Have you been in the military, what branch? Do you have children/grandchildren?

They are human too and like all people like to talk about themselves. Never hurts to have a less adversarial situation.

[MAMalody]

As a prior auditor I can tell you that the part that has been covered deals with the technical side and is all well and good. The side that you brought up is just as important that of professional deportment. While we sometimes preceive the IRS auditor to be the enemy, treat him like a friend. Auditors have a lot of discretion and it can be used either way. They can give you the benefit of the doubt or open up new issues. Also, if they should delay a decision on an item until the end of the audit it usually means that they are judging your crediblity or holding bad news until the end (usually it is judging credibility).

I would not take your client. They have a tendency not to phrase things correctly and it usually works against you or causes confusion. They also tend to be nervous and say a lot of things that may better be left unsaid.

Do not take one item that is not clearly called for in the examination letter. There is pressure on the auditor to close the audit with the one visit and not to have any followup docs or visits. The closer you come to this the cleaner you will be. Remember auditors can read docs upside down. Only take what you need.

Nothing the auditor says is "small talk." Everything is said with a purpose. You want to be business-like but not brusque. Smile and sit back in your chair. Remember the auditor is reading your body language, not just listening to your comments. If the auditor talks to his "manager" outside your audit area and you can overhear, they know you can hear them.

If you have something that is underdocumented, and it comes up early in the audit, you may wish to stall in finding the docs, and have them go on the something else while you find "where you put those documents." This comes back to the credibility issue again. Let them see all the documented stuff first - and with a no change to this point you have a good chance that less documented items will be accepted.

I didn't mean to go on here. Sorry. If I can help in any way, shoot me an e-mail at ClergyTaxes@aol.com

Mike

[DTS]

Auditors

Mike and Dave,

Thank you so much for the good advice! You don't know how much I appreciate it.

I respect the people who work for the IRS and have always spoken to them with the greatest respect. Like you said, they are human too. It's amazing what they will do for you, that extra mile, when you do.

I did just got off the phone with my client and he was so happy to tell me that he was able to locate all receipts and then some. Last week, he was a little worried, so this is good news so far.

Thank you once again!

Dennis

[Black Bart]

I haven't been

to an audit in several years but at two of them the agent asked right away if we had made our 1099s. Sorry, I know that's not what you're looking for but I've never seen a specific "list" of opening questions, although it sounds reasonable there would be a set of basic inquiries for all taxpayers.

Type in "Audit Techniques Guide" in the IRS website searchbox and that'll bring up the auditor's recommended questions related to your guy's occupation (if it's covered). That may be what Jim was talking about -- I don't know what's in the chapter four he mentions.

Of the half-dozen or so agents I've run into, while a couple were awful (rude, domineering, wanted to throw out everything), the others were pretty nice, very smart people -- I felt comfortable enough with one that, when he asked why I took 95% farm auto use instead of the 75% "automatic" allowance, I replied "I thought I could get by with it" and he laughed about it.

Some tax preppers say "don't do their work for them; make it uncomfortable; etc." but I think Mike's right about decent treatment being repaid in kind. I'd play it by ear and be courteous (but firm), or tough if required. Also, as he says, credibility's important -- let them know you're honest. I once (unasked) presented an agent with some income documents he couldn't have known about and from then on my word was gold.

A couple of other items from my "Audits" file:

(1) Your response to a "fishing" question: "How does that relate to the matter being examined?" (I don't know what you then say if he/she comes back with a good answer).

(2) This from a big-shot "tax-advisory" type CPA: "Let the auditor know you're willing to go to appeals; it can help contain an audit and deter the auditor from fishing expeditions. Statistics show that the average appeal results in a 40% decrease in tax, penalty, and interest. Taxpayer results are even better when an auditor alleges unreported income because the burden of proof is then shifted to the IRS -- auditors may forget that fact, but IRS Appeals Officers are well aware of it."

Good luck and keep your chin up (I used to comfort myself by thinking "No matter what happens, this will be over by five o'clock this afternoon").

[ED SMITH]

Why do you assume that you have to appear at the audit? I would call ther auditor and see what items she would accept via mail. There might be enough to avoid a face-to-face audit entirely and many time auditors will acquiesce to it. If everything is well documented and easy to follow, it will save both of you a lot of time.

If you do have to meet with the auditor, don't bring the client. Clients can become emotional and unpredictable, saying the wrong things and can create a tense atmosphere.

[Black Bart]

Linda

Here's some comments re. audits from last month that might be helpful.