First audit

[oceanlovin'ea]

One of my clients got an examination notice in the mail last Friday. The instructions say to call the agent before this Friday to get details and set up time and place of first meeting.

This is my very FIRST audit. I know that EA's can do representation. This is just not the part of the job that I ever looked forward to. I don't mind telephone conversations with IRS but a face to face audit is not my idea of fun.

Any one have suggestions for me? I will gladly take any and all suggestions.

This taxpayer has a schedule C. He delivers appliances for Sears. He is Spanish and has a little trouble understanding English if the person doesn't speak slow enough for him. I don't think he should be there. He might misunderstand the question and answer incorrectly.

I am a nervous wreck. I am confident in my job performance, but I do not have the most confidence in talking to people like this. I want to go hide.

Linda F

[myerstaxes]

Do Not Take The Client

Absolutely do not take the client, When I was a Revenue Agent, I loved to have the client, I was good at getting stuff out of them without them knowing what I was after...

My advice is to be very very very organized, gather all of the documentation, organize it line by line, run adding machine tapes for each...Learn as much as you can about the client and his business, when he started, how long he has been in this type of business, where he banks, what his banking habits are, his, wife, and childrens ages, how long they have lived at their address...Whether they have a mortgage on the house, how much (yes it is invasive, but there is a reason for it trust me)...If you do not tell it, they can and will dig for it...Remember a Schedule C can be issue driven (only a couple items audited) or full blown (all or most items on it examined, especially if the records are shaky)...If the truck is his, be prepared to reconstruct mileage (if no log) and demonstrate the business use on the return (if actual was used and I suppose it was)...That is all the brain can come up with now, but feel free to ask away

[ED SMITH]

I would call the auditor and ask if the audit or at least parts of it could be handled by mail, as this would be convenient for the auditor as well as for you and save him time. Ask him if he could send you alist of the items he would like to see.

If there are still some issues after submitting documentation, then a meeting could be set up at that time. If you do have to meet, do NOT take the client, as myers says.

Also, remember, an audit is not the final step. There is an appeal process and there is also audit reconsideration, if you think the auditor's report is wrong.

[Black Bart]

Linda

I pulled forward Dennis' (DTS) "A list of audit questions" thread from last month which might help you some.

[myerstaxes]

Not if this is a Revenue Agent

[QUOTE=ED SMITH;60818]I would call the auditor and ask if the audit or at least parts of it could be handled by mail, as this would be convenient for the auditor as well as for you and save him time. Ask him if he could send you alist of the items he would like to see.

A Revenue Agent does not do correspondence audits (they are field agents)...When you do call the auditor, make sure that you set an appointment date that is realistic...You must have a Power of Attorney to schedule that appointment, otherwise they want to talk to your client...Also, the auditor will send you a IDR (information document request) for the things they want you to bring, and the initial items under examination...Along with a confirmation letter...
I do not know about others, but I prefer to be present during at least the initial audit, I want to see the auditor, get a feel for their style, and be able to explain the taxpayers business/situation and the records that I am submitting...Just a matter of style I guess...But having been on the other side of the table, I know what I thought with just records in front of me...Lots of assumptions about the clients business are made, and they could be erroneous assumptions...Especially if they are not cut and dry issues...

[ChEAr$]

a few more

suggestions.

Try to schedule the meeting at your office. Many times these guys want any excuse to get out
of their office and "away from the flagpole".
Also I reiterate, never have the client present. That's what you have a POA for.
Chances are that he doesn't have business premises, and operates out of home, right?
So absolutely no need for IRS type to visit this "place of business".
If home office involved, have pictures taken of the "office" (which of course will NOT show
a television set or couch.)

Find out what items will be covered, assuming the auditor doesn't want to go over every cotton
picking item on the schedule c of course. (If he does, watch out.)

At first meeting you will exchange bona fides. Ask to see ID card of auditor and note down badge
number for your records. Likewise offer your own EA card for him or her to see.

I would hope you might get an auditor like I got one time. Her father used to work for my
father! In addition to this, her father was later police chief and gave me my first traffic
ticket; a 5$ fine for running a stop sign.
Small world,isn't it?

Good LUCK!

[ChEAr$]

One more thing

If when identifying himself, you see the badge is that of CID (criminal investigation divison)
STOP the interview immediately and confer with client who should then get himself to a
lawyer posthaste.

[oceanlovin'ea]

Thanks

Thanks for all the tips. Keep them coming. I'll need all the help I can get.

I thought it was best not to have the client present. Client has good excuse not to be present. He drives one of his delivery trucks. He has to work.

Hadn't thought about trying to have it at my office. I know that I would feel more comfortable here than in their office.

Myers, I'll get very detailed information about his business. Thanks for those tips.

Linda F

[BOB W]

In my office or at the IRS office???? Each has its pros and cons.

I guess it all depends on your anticipated results of the audit. I personally like to go to the IRS office. It allows me to say, "I'll check with my client" or "I'll see if I can get that" or I may have that at my office". Many times questions are asked that the auditor may forget later or really isn't important to him and any delay he may brush it aside. LESS ANSWERS MEANS LESS QUESTIONS.

I once went to an audit with a handtruck full of boxed (3-4). The auditor walked in and her jaw dropped. "Well lets see what we can find and get this case closed quickly", she said. She disallow some over $25 client gifts and closed the audit.

[BHoffman]

Area of Specialization

I refer clients who receive field audit notices (had 2) to someone who specializes in representing clients before the IRS, an ex-IRS auditor himself. This is all he does. He's much better at it than I will ever be. Audits are infrequent enough that it's hard to get really good at them.

[oceanlovin'ea]

Ea

But I became an enrolled agent and I have told my clients that being an enrolled agent means that I can represent them before the IRS. So I guess I have to do this rather than send him to someone else.

Linda F

[BHoffman]

You'll be fine

I'm allowed to represent clients, but this guy does a much better job. It's no shame to refer your clients to specialists, although I used to think it was. I do it all the time now. There's a CFP in town who handles all my clients who want financial planning. I refer 1041s and 706s to him as well. Those things are not my specialty. He refers 1120s and 1065s to me. It's nice to have that network.

In any event, I am sure your client will be well represented

Please keep us informed on how it goes.

[Jiggers]

First Audit

1. Get a good retainer up front. Plan at least a couple of hours just getting ready for the audit.

2. You will have to FAX the POA to the auditor. I would also recommend that you enter the POA using e-services. He won't talk to you until he has it. This includes calling him on Friday to set up the appointment.

3. Request a copy of the letter detailing the area of the audit.

4. I always take that letter and arrange all information in the order that it is requested. For instance, if he is auditing Schedule C. I would have the necessary information to justify or prove each item on that schedule. Invoices, checks, etc.

5. Under no circumstances should the client go with you. And do it at your office.

[Gretel]

Linda, I am like you, never had an audit and are scared already, not even gotten an audit letter yet. I once got the advise to find another accountant who I trust and who is familiar with audits and let him/her do the audit with me as apprentice. I really liked that idea and contacted an accountant about that right away, who is very willing to work with me once it comes my way. Maybe too late in your case.

All the best and keep us posted.

[oceanlovin'ea]

Getting help

Well, after a sleepless night and thinking about what is really best for my client, I am going to call a fellow EA and see if she will do the audit and let me go with her and observe.
He could have a complex audit because a couple of issues and I wouldn't want him to end up paying a lot of money because of my inexperience.

I'll keep you all posted as to the outcome of the audit. I really appreciate all your ideas and suggestions.

Linda F