March 31, 2020 at 12:36 am #42537
I just got on to a 2017 income tax audit. Most issues are relatively straightforward (exemptions, child tax credit, education credit and schedule C substantiation). The auditor has requested a phone interview with the client to go over internal controls/barter/cryptocurrency (per the auditor). I told her I would talk with my clients but I would be against that.
Actually I said, as an attorney I am against an in-person interview but would be happy to get answers to her questions. She said, as a revenue agent she was against doing it that way. So any suggestions on how to frame a no without being a jerk (assuming that it is never a good idea to let clients be interviewed). Or should I ask for the questions in writing first so I can prepare the clients on how to answer the questions (and have them there with me so I can tell them to answer or don’t answer a question if it goes somewhere dangerous)?
Again, thoughts and alternatives very much appreciated.
Jim WadeMarch 31, 2020 at 12:42 am #42538Eric GreenKeymaster
Jim, I would send a fax that the client is entitled to representation, you are her power of attorney and you will be able to either answer the questions or obtain the answers. If, however, there is a question that arises that you are unable to get an answer to then at that point you would consider allowing the taxpayer to be interviewed.March 31, 2020 at 11:20 pm #42546
Thank you. This is a big help. I also found in the IRM where it talks about allowing the representative to speak on the topic of internal controls so long as they understand the system (so I will make sure to throw in some citations as well).
Jim WadeApril 7, 2020 at 1:39 am #42595
So I have done the ground work to prepare for my first audit (I grilled the owner about how their business operates and their books and records). Self-prepared tax return, if that helps put this into perspective.
Some items claimed on the return are estimates (though they appear to be estimates of actual amounts paid). In that year, father was ill and lived with couple; couple did not keep great records to begin with and turmoil of the year exacerbated the problem. Then tax time comes and so they put together a return as best they could.
I am sure I am not the only one with audit clients like this. How do you respond to IRS questions about books and records without saying, yeah my clients just winged it. I am thinking of saying that the clients prepared the return using both information in their accounting software as well as estimates for some expenses on which they lost or misplaced those particular records. These estimates were based on prior amounts paid for such expenses.
The difficult area is auto expense as I know they don’t have a mileage log and so we are going to have to see if it is possible to get other contemporaneous records to support something.
Thank you in advance!
Jim WadeApril 7, 2020 at 9:35 am #42596Eric GreenKeymaster
Jim I would try and reconstruct the missing documentation – bank records, credit card slips, calling vendors, etc. For mileage, do they have a calendar of where they needed to be? Mileage logs can be recreated from that and any auto records that document mileage, like oil changes or tires.
As far as an explanation, I think that the clients were going through a tough time with dad so their record keeping wasn’t great but this is what they have or have been able to pull together should be sufficient, and its honest.April 10, 2020 at 12:41 am #42599
Thanks for the advice. The first “interview” went off without a hitch. Now we have to see how the rest of this is going to be done as the agent said they cannot accept any mail for the time being and I think somewhat voluminous documentation will have to be produced. Otherwise I am going to be spending a lot of time at the fax.
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