If you have prepared your corporate tax
return truthfully, notice of an IRS audit
should not make you nervous. After all, IRS employees are only doing the job we
pay them to do. In any event, it pays to be
cooperative.
“Be prepared if the IRS shows up for an
audit,” says A. Lavar Taylor, Of Counsel to
Shulman Hodges & Bastian LLP. “Then,
treat the agent or agents with respect.”
Smart Business talked to Taylor about
IRS audits and the various types of IRS
agents who may show up at your front
door.
Where is the IRS currently concentrating its
audit efforts?
The IRS wants to maximize its efforts, so
agents are investigating more corporate
and high-income taxpayers, foundations
and 501(c)(3) charitable organizations —
a base that generates more dollars and has
a bigger impact compliancewise.
There was a big change 10 years ago
when a new law required the IRS to reorganize and follow new procedures, so
audits pretty much stopped for a couple
of years. Now, agents are used to the new
procedures, which are seemingly kinder
and more transparent. So the pendulum
has now swung back in the other direction and more audits are being done.
How should I deal with the IRS in an audit?
Generally speaking, the IRS is becoming
more difficult to deal with, mostly
because a huge percentage of its experienced employees are retiring.
Still, you should always treat IRS agents
as human beings. I have been involved in
a number of cases where people put the
IRS agents in a dark room and turn up the
heat, and it does not work well at all. The
agents like to be respected, even when
they are taking actions that you may think
are unnecessary.
Technically speaking, they are not supposed to ask for information that they
already have or information that is difficult for you to access or information that
is of marginal relevance. However, if you
do not cooperate, they could decide to open up another year for audit or open up personal returns of corporate officers.
Agents have lots of power. If they went
to court, they could theoretically obtain
more access, so if you choose to take a
hard line, do so only after carefully considering the consequences.
When should I get an attorney involved in an
audit or a dispute with the IRS?
Being proactive will help avoid a lot of
problems down the road. The prudent
practice is to have somebody vet your tax
return. An analysis needs to be undertaken well in advance to see if there are any
problems.
If you are consulting a good attorney,
you should talk about whether there is
even a need for an attorney. Involving an
attorney sometimes can be counterproductive. Sometimes, though, there are difficult issues and having an attorney
involved is not a big deal.
An attorney experienced in tax disputes
can spot issues, advise you on how any
court actions may turn out and advise you
of steps you can take during the course of
the audit to minimize chances of losing
disputes.
What IRS agents might pay me a visit?
Revenue agents conduct audits, revenue
officers collect money, and special agents
develop criminal cases.
A revenue agent is not supposed to show
up unannounced. Except in extremely
unusual circumstances, you will first get a
letter from the IRS. In that situation, you
cooperate if you have a high comfort level
in your original tax return. I would never
recommend a company handling an audit
without using an accountant.
A collection officer almost always
shows up unannounced. However, typically, first there will be billing notices. You
will know there is a problem, so it will not
be a complete surprise. Clearly, call an
accountant or attorney with experience in
handling those types of matters.
What should I do if an IRS special agent
wants to talk to me?
No matter what he says or how he presents himself, the job of a special agent is
to develop criminal cases. You do not
want to talk to him.
The government is ramping up its criminal cases — especially white-collar tax
cases to hold up as examples. So when a
special agent shows up, keep the fact that
he is a criminal investigator foremost in
your mind. Just smile and say, ‘Have a
nice day. My attorney will be in touch
with you.’
What if I am unhappy with the results of an
audit?
Administrative and judicial appeals can
be made through an accountant or an
attorney. In my line of work, they are common. But from a business standpoint,
most corporate executives like to get the
audit resolved at the lowest level possible.
If that cannot be done, ultimately, you can
go to tax court or district court to challenge the liability.
A. LAVAR TAYLOR is Of Counsel to Shulman Hodges & Bastian LLP. Reach him at (949) 340-3400 or [email protected].
