THE IRS AUDIT WORKSHOP From Contact Letter to Closing Agreement Eric - PDF document

THE IRS AUDIT WORKSHOP From Contact Letter to Closing Agreement Eric L. Green, Esq. 1 CPE  There will be 16 attendance check words  Please write these down  You will need them at the end when you click on the link and go get the certificate The Ultimate IRS Collection Workshop 2 2 Schedule  Stick to our schedule  10 Minute breaks at the top of each hour  Go to the restroom and refill your coffee (or drink of choice) The Ultimate IRS Collection Workshop 3 3 A CCH Seminar IRS Audits

QUICK BREAK We will resume the program in a moment. 4 Agenda: Exam Basics Exam Notice • Ethical Concerns • First Steps for Preparing for the Exam • Correspondence exams and issues • Audit Workshop 5 5 Few Taxpayers are Cheered Upon Receipt of an Exam Notice Try to "humanize" the audit process • Try to establish a friendly, non-hostile environment when • working with IRS examiners Should help accelerate the exam to a reasonable conclusion • Audit Workshop 6 6 A CCH Seminar IRS Audits

Ethical Concerns Conflict? Innocent Spouse Circular 230 Issues Audit Workshop 7 7 Conflict of Interest? If it is a couple, is there the possibility of a conflict of interest? • Does only 1 spouse have a business that is being audited? • Are there reasons to be concerned about the exam? • Will one want to possibly seek innocent spouse treatment? • Audit Workshop 8 8 Circular 230 Sec. 10.29 Conflicting Interests A practitioner shall not represent a • client before the Internal Revenue Service if the representation involves a conflict of interest A conflict of interest exists if — • 1. The representation of one client will be directly adverse to another client; or 2. There is a significant risk that the representation of one or more clients will be materially limited by the practitioner’s responsibilities to another client, a former client or a third person, or by a personal interest of the practitioner Audit Workshop 9 9 A CCH Seminar IRS Audits

Circular 230 Sec. 10.23 Prompt Disposition of Pending Matters A practitioner may not unreasonably delay the prompt disposition of any matter before the Internal Revenue Service Audit Workshop 10 10 Circular 230 Sec. 10.20 Information to be Furnished A practitioner must, on a proper and lawful request by a duly • authorized officer or employee of the IRS, promptly submit records or information in any matter before the IRS unless the practitioner believes in good faith and on reasonable grounds that the records or information are privileged A practitioner may not interfere, or attempt to interfere, with any • proper and lawful effort by the IRS, … to obtain any record or information … Audit Workshop 11 11 Or Worse IRC § 7206 – False Statement or Document IRC § 7212 – Interfering with the IRS person doing IRS business Audit Workshop 12 12 A CCH Seminar IRS Audits

Preparation IDR Items v. Everything • • Preparation is key Meeting the client • Office audits • Audit Workshop 13 13 Preparing for the Audit Retained • POA • Discussion with the • taxpayer’s on intent (hobby loss concerns) Records • Audit Workshop 14 14 Preparing for the Audit Instructions to the taxpayer  Do not speak to the examiner  Do not Tweet, Facebook, or Myspace anything else about the exam!  Respond to all requests quickly Audit Workshop 15 15 A CCH Seminar IRS Audits

Preparing for the Audit Walk through • Look for things that • should not be there Explain what is there • Audit Workshop 16 16 Home Office Concerns Primary office? • Look at it – is it solely for office use or mixed • Measure it! • If denied make sure the Schedule A items get back to Schedule • A! Audit Workshop 17 17 What About the Quickbooks File? IRS will seek a back-up of the Quickbooks file • • IRC Section 6001 Regulation 1.6001-1(a) and -1(e) • Revenue Ruling 71-20 • Revenue Procedure 98-25 • Audit Workshop 18 18 A CCH Seminar IRS Audits

Quickbooks – Concerns? More years then the exam • covers Adjusting entries that give • rise to questionable practices Fishing expedition? • Audit Workshop 19 19 Quickbooks Exam will want a back-up of the Quickbooks file • They will look at adjusting entries • Condense and make a “Period Copy” for the IRS to limit the IRS • scope Audit Workshop 20 20 Taxpayer Interview • Examiner will want to interview the taxpayer Almost NEVER a good reason • to allow the taxpayer to be interviewed! IRC § 7521 • Right of Consultation • Audit Workshop 21 21 A CCH Seminar IRS Audits

Taxpayer Interview • POA Cover all potential • years, including the current Wage and Earning • Reports? Audit Workshop 22 22 Documentation We want to be prepared for the examiner to expand the scope • If possible, prepare for all items on the return (if an office or • field exam) Have the client begin gathering all of the back-up from the start • • Nothing shuts down an exam faster than being prepared Audit Workshop 23 23 Examiner Requests Respond quickly • Review what is being turned over • to the examiner Add explanation or obtain • additional information if necessary Audit Workshop 24 24 A CCH Seminar IRS Audits

Correspondence Exams More exams are being conducted by correspondence than ever • before In FY 2019, 73% of which were examined by correspondence • audit Automated Correspondence Exams have increased nearly 350% • since 2001! Audit Workshop 25 25 Correspondence Exams These exams use batch processing • Entire process functions with minimal to no involvement by a • live examiner until the taxpayer sends a written response • No specific examiner will be assigned to the case Audit Workshop 26 26 Correspondence Exams Approach The IRS approach is always the same • Initial letter alerts client to the exam • Requests documentation from the client • Will include publication notifying taxpayer of their rights • Audit Workshop 27 27 A CCH Seminar IRS Audits

Correspondence Exams Approach • The contact letter will establish a time frame for the exam The letter will identify the issues the IRS is looking at and what • it wants as supporting documentation Audit Workshop 28 28 Correspondence Exams Keys It is critical that a response be filed within the time frame set • down Additional time may be requested (but see issues noted later) • Respond point-by-point to the examination letter • Additional IDR may be sent, otherwise a determination letter is • sent No deal … APPEAL! • Audit Workshop 29 29 Correspondence Exams IRS believes that the returns examined via correspondence • exam are those that are simply a matter of documentation that can be handled through the mail IRS uses data points, including third party information, to • identify returns with a high potential for adjustment  Items do not match third party data, etc. Audit Workshop 30 30 A CCH Seminar IRS Audits

Correspondence Exams Exams can be both pre-refund or post refund • • If pre-refund, then the exam is aimed at protecting government revenue This is done often because there is concern about collectability • if done later – for instance information is verified as false through third party contacts, or entries on the return are contradictory Audit Workshop 31 31 Letter 525: Combo Letters The IRS does now make use • of letters that initiate the audit and propose adjustments These are referred to as • “combo” letters Audit Workshop 32 32 Letter 525: Combo Letters The letter is a 30-day letter with proposed adjustments • If taxpayer agrees he or she just signs • If the taxpayer disagrees they can submit a request for an • appeal to the office that sent the letter Audit Workshop 33 33 A CCH Seminar IRS Audits

Issues with Correspondence Audits There are significant issues with these exams • Due to the automated nature of them • Practitioners should be aware of the issues and be prepared to • deal with them Audit Workshop 34 34 Issues with Correspondence Audits No acknowledgment of the receipt of documents • Documents submitted are disregarded • No real person to speak to • Requests to transfer the case to a local office are declined or • ignored Audit Workshop 35 35 Issues with Correspondence Audits Requests to speak to a • manager are ignored Request for the appeal is • ignored Premature issuance of the • Notice of Deficiency Audit Workshop 36 36 A CCH Seminar IRS Audits