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Discussion:IRS Audits

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Discussion Forum Index --> Tax Questions --> IRS Audits

Illini (talk|edits) said:

11 January 2007
Are you allowed any leeway in gathering documents with the first agent?

For example, if we forget a document or have trouble finding one, can we later produce it at appeals?

How much leeway does appeals give you for producing documents? For instance, let's say we get appeals to agree on everything but one item, are we allowed to go back and find the document to meet again with appeals, or is the appellate "decision" on the first try final?

I'm just trying to get a feel for how prepared we need to be for each meeting.

PJLCPA (talk|edits) said:

11 January 2007
My advice would be to slow down.......(You haven't met with the first agent, and you're already worried about appeals?) It's been my experiance that you first get a list of items they want to look at, then when they come in, if you are missing any of them, or they expand the audit and need more records, they will give you a list, with a due date. If you need more time than they have on their letter, just ask them. IRS has generally been very understanding, and they will work with you, if you work with them. I don't know how strict they are in appeals, as I've never been there.

Death&Taxes (talk|edits) said:

11 January 2007
IRS audits are not One and Done. As PJ notes, at the end of meeting 1, the agent will produce an Information Document Request aka IDR and either schedule a second meeting or give you an envelope to mail back the information. Depending on the scope of the audit, and what type entity is being audited, you may find the first meeting turns out to be a familiarization session on the part of the agent to get to know what your client does, how books are kept and the like. At the end he or she may then produce a list of things to have ready on the second visit. So as PJ says, calm down.

Illini (talk|edits) said:

5 February 2007
thanks...the audit went very smoothly (not at first, but it ended on a professional and fair basis)

Hmoy (talk|edits) said:

13 August 2007
Does it sound like the IRS revenue agent for a field audit is fishing when he requested a copy of the principle officers/shareholder's Form 1040 when the audit subject is the corporation? If so, would declining such request cause any potential repercussions? Thanks!

PVVCPA (talk|edits) said:

August 13, 2007
This is a common request when the IRS audits a closely held entity. What's the point of denying? They already have access to this information.

Hmoy (talk|edits) said:

13 August 2007
I know they have access to it and that's why I don't understand why they even ask; they could just pull it up. Also, I am trying not to have this corporate audit expanded into a 1040 audit also. Although it is a common request, I want to know the nature and the logics behind the request instead of just simply the reason for them to try to fish around, esp. when it is a c-corp.

TxSrv (talk|edits) said:

13 August 2007
Unless efiled, IRS cannot "pull up" the entire 1040, but only a skeletal version of it. The alternative is to wait about a month for delivery by a Fed Records Center. Most practitioners view this as not something worth potentially creating a degree of negative relationship in the audit.

The purpose is not just to look for related returns to audit, but to add factual details to the relationship between a shareholder and related entities. The door can swing both ways, because the more the agent knows of the entire situation, the less prone to explore issues which ultimately aren't there or to dig deeper into the corp than warranted.

Death&Taxes (talk|edits) said:

13 August 2007
The auditors I've worked with normally explain that it will take time if they make the request, and leave the impression that they expect this to be supplied as a common courtesy.

NYEA (talk|edits) said:

13 August 2007
If you are a C230 practitioner, I suggest you read §10.20 Information to be furnished. Note the use of the word "must".

Hmoy (talk|edits) said:

13 August 2007
Thank you all!

Kevinh5 (talk|edits) said:

13 August 2007
NYEA, there is a slight problem with your reasoning: if the practitioner doesn't represent the individual, only the corporation, then the practioner definately needs the permission of the individual to give the 1040 info to the IRS (or a summons). It isn't the individual that is being audited in Hmoy's question.

Hmoy (talk|edits) said:

13 August 2007
Kevinh5,

So I should have Form 4868, POA, signed by the owner of the corporation before I can provide the 1040 to the IRS.

Hmoy (talk|edits) said:

13 August 2007
Sorry, I mean Form 2848, not 4868.

Kevinh5 (talk|edits) said:

13 August 2007
well, at least their permission, but a POA would be helpful if the IRS asks any questions. Otherwise you are just representing the corporation and can't comment on the shareholders.

NYEA (talk|edits) said:

14 August 2007
Kevin & Hmoy

I said GIVE it to the IRS auditor. I would NOT get the POA from the taxpayer for the 1040. Since you don't have a POA for the 1040 return, you can NOT DISCUSS it with the auditor. You can only discuss the 1120S (or 1120).

If the auditor really wants the return, he/she can get it. Give it to them - I think TxSrv's words are worth heeding. A good auditor wants to make sure there's no double-dipping. Assuming the taxpayer is not playing games, there will probably be a cursory look at the 1040.

TxSrv (talk|edits) said:

14 August 2007
When an IRS examiner inspects a retained copy of any return, including multi years of the return under exam, the examiner cannot ask any question about it. That would constitute an examination under section 7602, meaning the IRS must then issue a report -- a no-change letter if discussion unproductive. IRS does not like to have to do that, were a t/p to demand it.

Also, performance standards for examiners require "getting out" of an exam at the earliest opportunity, as long as minimum examination quality standards have been met, if a no or low-dollar change case becomes evident. This is why it's usually not good to throw out stumbling blocks of small import early in the exam process.

Kevinh5 (talk|edits) said:

14 August 2007
So do you "give" a return to the IRS when the client hasn't authorized you to do so?

Death&Taxes (talk|edits) said:

14 August 2007
Whether or not you prepared the 1040, the client should authorize the disclosure of providing the agent with a copy. Client intransigence will make your job more difficult. A tax audit is no time for the good cop, bad cop routine.

These points must be settled when meeting with the client to prepare for the audit. I would be very leery of representing someone who does not want to cooperate, for whatever reason. This issue is very much like the request for prior and current year returns. Nothing is gained by holding out, but goodwill is lost.

Hmoy (talk|edits) said:

14 August 2007
Kevinh5,

You are right. I did some quick research and the agent did confirm to me yesterday that I need to have POA or explicit consent from the client before I can release their 1040. Thanks.

Kevinh5 (talk|edits) said:

14 August 2007
Even though you have the POA fo the shareholder, you don't have to answer any questions because the shareholder isn't being audited, and you weren't notified that he had to answer any questions in time to get the answers from him.

NYEA (talk|edits) said:

14 August 2007
"So do you "give" a return to the IRS when the client hasn't authorized you to do so?"

Of course not. But, I would assume that a taxpayer representative communicates with his/her client during the representation engagement. As a matter of fact, C230 in §10.33 (Best Practices) clearly anticipates that the practitioner communicates with the taxpayer. I agree with D&T's comments.

Kevinh5 (talk|edits) said:

14 August 2007
I completely agree with D&T too, I just don't agree that you can hand out people's tax returns to the IRS without the client's permission or a valid summons.

And we all know what happens when you assume.

TxSrv (talk|edits) said:

14 August 2007
"...and the agent did confirm to me yesterday that I need to have POA or explicit consent from the client before I can release their 1040."

I presume the agent was not referring to IRS' authority to obtain the document. Practitioner responsibility to a client is a separate matter, but under 7602, the IRS can obtain any document from anybody in possession of it. T/p permission not needed, although if an administrative summons is issued, either the t/p or the person summoned can ask a District Court to quash it. Almost always futile.

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