Audit Representation

What if you have a situation that you have determined needs a more proactive approach from a tax professional? As always, the first step is to get a good detailed engagement letter in place. If there is ever a time to make sure you have a good “disengagement clause” in place, this is it.

IRS Circular 230 Subpart B covers the Duties and restrictions Relating to practice before the Internal revenue Service. There have been some changes recently that we will discuss in the next section, however, the basics remain. You must be competent, exercise due diligence, and promptly follow lawful requests for information when practicing before the IRS. This is more true in actual representation then in any other type of practice before the IRS.

Clients are statutorily afforded the right to have representation under §7521, however, that does not obligate you as a tax professional to take every case that comes in your door. Don’t let your emotions get in the way of good business practices. It’s your choice.

Do any of you have cut and dried lines that will terminate a relationship with a client? The biggest one of mine is the client telling me a deliberate lie. Done, here’s your documents back, don’t let the door hit you, POA withdrawal is on the fax machine. That would be hard to do in the middle of a big case if my engagement letters did not include a clause specifically addressing reasons the relationship can be terminated on either side with no liability to either party.

Once the engagement letter is completed you need to decide if the situation calls for a full Form 2848, Power of Attorney (POA) and Declaration of Representative, or will the Form 8821 or Form 4506 work? If you decide to go with a POA what information do you need from the taxing authority? Do you want/need copies of all client correspondence sent to you as well? Do you need to file a separate POA form for the state involved?

Here is where the IRS E Services system can come in handy. Once you get the POA on file, assuming you are registered with E Services, you can access almost all the information you need directly from the IRS records or via phone with the auditor. Since the demise of the instant POA entry in E Services the wait time is sometimes an issue for the POA to be updated in the IRS system.

How about filing a Freedom of Information Act (FOIA) request for case files, auditors notes, and other details that are not necessarily available on E Services? I have actually had a case settled with no change within three days of faxing a FOIA request because the supervisor saw things in the auditors notes that won my case outright for me. The supervisor asked me to withdraw my FOIA request after faxing me the “no change” letter. Of course, that wasn’t happening because I wanted to see what the deciding factor was for the supervisor and it was a humdinger!

As mentioned earlier, a great option that has become available recently is the online transcript service for taxpayers. With your client on hand you might very well be able to access their transcripts while the are still in your office. That may at least give you a starting point as opposed to waiting for the POA to be updated.

If you are standing between your client and a taxing authority, then you are representing them and should have the appropriate signed documents in place before putting yourself in the line of fire. It may seem silly to get a personalized letter of engagement and signed POA just to call the IRS and speak to someone about a CP2000 or something “simple”, but we have all seen “simple” things turn into a hornets nest at the speed of light.

Next:  Part 4, Loving and Cir. 230