Duvall & Associates, Inc.
BUSINESS ADVISOR NEWSLETTER
 

Be respectful of IRS when faced with and audit

- by Alan Duvall 

Published in Dayton Daily News August 20, 2006 

KNOCK.  KNOCK.

Who’s there.

IRS.

IRS who?

I R S-essentially your worst nightmare. 

Dreaded tax audits.  Most in fact are conducted by mail – those heart-thumping envelopes marked Internal Revenue Service (IRS) usually involving “matching” issues where information independently reported to the government (such as Forms 1099 and W-2) do not correspond to data reported on tax returns.  These mailings are accompanied by detailed instructions regarding taxpayer rights and options and can generally be remedied with a simple letter explaining the source of the discrepancy.
 

But do not expect immediate resolution to your responsive letter – wheels of government bureaucracy do not spin at warp speed.  Patience is an indispensable attribute in dealing with the IRS and back-and-forth postal service discussions typically take months to resolve even the simplest of issues. 

Taxpayers frustrated with the written process may request face-to-face conferences with live bodies.  And many tax audits actually begin at the stage where a real IRS person audits your return. 

Some general guidelines for dealing with tax agents.  First and foremost – be respectful.  There are few beasts more frightful than a bureaucrat with power.  Be honest and forthright.  Normal return miss-steps are not jail-time crimes.  Lying to a federal agent is criminal and to be avoided – just ask Martha Stewart.    

Volunteer little.  Follow the lead of the investigator.  Answers should be direct and carefully documented.  Concise documentation is the key to successfully settling tax issues. 

Issues unresolved at the field agent level may be administratively appealed to the agent’s immediate supervisor.  Taxpayers unsatisfied at this intermediate level have additional opportunity to air disputes at another, more formal, administrative appellate level.  The final step is an appeal to the court system. 

This tortuous path takes much time dragging into play a concept of Statute of Limitations.  Statutorily the IRS must audit a return within the three years of actual return filing or due date, whichever is later.  If the audit lags close to this calendar barrier the IRS will demand taxpayer signing of a time audit extension.  Might as well sign it because failure to do so will force the agent to write up any issues in dispute thus ramming the audit to the next expensive appellate level.  

So if you hear that KNOCK! - Might as well ease back and relax.  You’re likely to be traversing into a lengthy Twilight Tax Zone. 

Alan Duvall is a certified public accountant in Dayton.  Contact him at Alan@Duvallcpa.com.