I haven’t written extensively about strategies to deal with IRS audits because it would be counter-productive to reveal many of them to the enemy. However, in regard to protecting your rights related to what IRS auditors are allowed to do, I can share some guidance. Many (actually most) auditors do try to force themselves onto taxpayers well beyond what is legally allowable. Some of these illegal encroachments are based on the auditors’ ignorance of the laws and having been improperly trained; while others are very intentional attempts to take advantage of taxpayer ignorance of their rights.
One of the most common misconceptions people have is that IRS auditors are as expert on tax law as anyone. Nothing could be further from the truth. I can’t recall a single IRS audit I have handled (out of hundreds) where I didn’t have to spend time educating the auditor and his/her manager on the proper application of tax law. Sometimes, I feel like IRS should be paying me for training their employees.
IRS auditors operate from a fairy tale world, asking for everything and the moon; much more than is legally required to document the tax return items. They give people the impression that if even one item on their fairy tale wish list is missing, they are screwed.
They also try to rush things so as to catch the taxpayers unprepared to defend themselves. Although they try to schedule a meeting in the immediate future, the meeting can be delayed for several months to allow the taxpayer plenty of time to assemble all of the proper documentation.
Auditors also imply that they have to meet with the taxpayers themselves at their home or business location. While this may sound self serving, that is a very dangerous way to handle an audit. Taxpayers representing themselves frequently say things, quite innocently, that hurt their cases beyond repair. I have seen this happen all too often. Auditors snooping around the taxpayer’s location can also open a can of worms that is best left sealed.
Having someone else interface with the IRS on your behalf is a very powerful method of protection. Once you submit a signed power of attorney (Form 2848) to the IRS, designating a CPA, attorney or Enrolled Agent to represent you in this matter, IRS personnel are not allowed to contact you directly. They must go through the rep first. This also applies to where the actual audit work will be conducted. The auditor would like to be at the taxpayer’s location so s/he can snoop around for other things to dig into than the initial audit issues. These kinds of fishing expeditions can stretch what should be a quick examination into a never ending mess.
There are times when it’s a good idea to have the auditor work at the taxpayer’s location. I have set a few audits up that way, when I wanted the auditor to see first-hand what the business location looked like. However, in most cases, I considered it to be preferable to keep the auditor away from the client. We had the auditor come up to our place and look at the client’s records here.
In recent years, I have noticed auditors getting even pushier. Even when the taxpayer has designated someone else to represent him/her, the auditor claims that s/he must be allowed to meet the taxpayer face to face and tour the taxpayer’s business location. The claim that they have a right to demand such direct access to the taxpayer, even when the actual audit work is at the rep’s location.
They have no such right when a 2848 has designated that they must work with a duly authorized representative. I have had auditors try that pushy approach on me and I have informed them that they must play by the rules and that meeting with the client or touring their business facilities is too disruptive to their operations. They have had to go along with this restriction. However, I can’t stop them from driving by the taxpayers’ locations and checking them out from the street. Some auditors have done that; but they have never confronted the client or barged in to the business premises without my permission.
Audits are intended to verify the accuracy of the numbers on a tax return. They have nothing to do with what color carpet or wallpaper someone has in his office. In fact, if you were to completely ignore an IRS audit notification, the result would be a complete disallowance of the deductions under review. Nowhere is there a need to visit the taxpayer or his/her business location. Such requests by auditors are nothing more than attempts to snoop around. I’m not saying that such requests should never be allowed; but that choice is yours and your representative’s. If you don’t want the auditor sticking his/her nose into your physical space, you have a right to insist that they stay away.
Tax Guru - Ker$tetter Letter 