This one’s for my tax professional colleagues… Ever wondered how to best represent your clients under IRS audit? I’ve had the opportunity to work with former IRS agents as well as pick up a few things as a tax adviser. Here are a few tips on what you should know about the interview with an IRS auditor.
Generally, this comes to you because your client received a field audit letter from the IRS, which they then forward on to you. As their trusted tax adviser, you prepare a power of attorney (POA) form and contact the auditor to set up the first appointment. The first point of negotiation will be the venue for that interview. Typically, the IRS agent will push to have the audit conducted at the client’s office or business location. In doing so, they will maintain that the interview should be conducted where the books and records are located. However, if you can bring all the necessary documents to your own meeting room, it should meet the location requirements. Sometimes due to the lack of space at the company, the auditor will acknowledge that your meeting room provides more flexibility and comfort as well.
In the morning, you do the typical meet & greet with the auditor and settle her/him in the meeting room. Likely, the auditor will spend about an hour or so to go over the interview questionnaire and try to get to know your client’s business and record keeping style. For the auditors, the interview may be one of the most important events during their exam process. Many auditors say that they identify areas of potential adjustment from that interview. The auditors are trained to ask short open-ended questions, so the taxpayer or POA will do most of “talking” without feeling like being investigated.
One of the common open-ended questions an auditor will ask is, “Tell me about your business.” Entrepreneurs are often excited to discuss their businesses. It is their passion and so they may go on and on about it. It can be easy to forget that they are talking to the auditor, who is carefully listening to catch any unusual fact patterns or potential tax issues. Yes, business owners love talking about their business, but may not know what tax consequences their story may reveal.
Another point of negotiation is whether the business owner is present at the interview. As long as you have sufficient knowledge about the taxpayer’s business and records, the IRS agent can’t require the operator’s presence. Keep in mind, you may need the operator to be present if you don’t have enough understanding of their transaction flow. It’s an important judgement call on whether the business owner should attend the interview.
To summarize these basic tips. First get a POA so you can represent your client with the IRS. Don’t assume you have to meet at the client’s work site if your office makes more sense. Use judgement on whether the client should attend the interview, or you can handle it on their behalf.