As the taxpayer’s qualified representative, an accountant wears many hats in order to serve his or her client’s interests during the initial IRS interview and subsequent audit.
The Internal Revenue Service often conducts initial interviews that are sometimes, affectionately, referred to as “the meet and greet conference” prior to an audit. This is where the IRS auditor poses a number of questions to the taxpayer, his or her employees, and the taxpayer representative regarding the business, accounting procedures, banking practices and more. Lasting anywhere from 30 minutes to 2 hours, the initial interview often sets the tone for the forthcoming audit.
Under Section 7521(c) of the IRC, the Internal Revenue Service agent is required to speak only with the taxpayer’s qualified representative during the initial meeting, not the taxpayer and his/her employees—if that is the taxpayer’s preference. This includes any interviews conducted during the audit. Qualified representatives are designated on a properly executed Form 2848, Power of Attorney and Declaration of Representative.
Prepare the Client
There may be instances, however, where it becomes necessary for the taxpayer to participate in the interview process. On those rare occasions, the taxpayer representative should remind the client to:
- Answer all questions honestly. Lying to a federal agent has serious consequences.
- Indicate if you don’t know the answer to a question.
- Be as brief as possible. Do not volunteer additional information beyond what was asked.
- Ask for a break if needed.
- Request a clarification if unsure about a question.
Remember, revenue agents are trained in interview techniques and taught to build a rapport with taxpayers by maintaining a friendly and professional demeanor. One interview technique is to leave long pauses in between questions so as to create a taxpayer temptation to fill that void with conversation. This is best avoided.
Question the Questioner
The client representative should ask his or her own questions to help set the tone for the upcoming audit. Here are several questions a representative should ask:
- Ask to see the agent’s identification, including business card and badge. Check the name and identification number. Clarify if the agent is a revenue agent or from the IRS criminal investigation division. If more than 1 agent is assigned and the client representative discovers that 1 or more are from the criminal investigation division, the representative should note their contact information, promptly end the meeting and contact a criminal tax attorney. If the auditor is a revenue agent, ask if he/she has had any contact with the criminal investigation division regarding the case or has spoken to a technical fraud advisor. If the answer is yes, again, exit the meeting promptly and contact criminal tax counsel.
- Ask the agent if any third parties have been or will be contacted. This may provide insight into IRS focus areas. Also, these contacts or future contacts may have a devastating effect on the taxpayer’s business. By knowing who has been contacted, the representative can alert the taxpayer who can then inform (and save a potential disruption with) a valued customer, vendor or lending source. The representative may also be able to offer other suitable options for any third parties the IRS wishes to contact.
- Ask for the contact information for the agent’s supervisor. This signals to the agent that if the audit appears compromised, the representative will quickly seek the proper recourse. It is also easier to obtain this information earlier in the process, rather than later when an audit may get contentious. Find out what involvement, if any, the agent’s supervisor has had on the case.
- Ask about the reason for the audit. The IRS process usually follows this pattern: Returns are typically pulled from a pool of returns based on a variety of criteria, and a surveyor identifies issues on the return. These returns then go to an audit group. The revenue agent and his/her supervisor have a planning meeting to discuss audit issues and timing. Any insight a client representative can get on the audit history will help him/her keep the agent focused within the scope of the planned audit.
Discuss the Audit Ground Rules
The client representative should also provide the IRS agent with some direction on how to conduct the audit.
- Because the representative has power of attorney, he/she should instruct the agent not to speak with anyone at the client location without approval from the taxpayer representative.
- The representative should instruct the agent not to make copies of documents. The representative will arrange for any copies to be provided. The practitioner should keep a separate file of copies being made as this can shed further light on the audit direction.
- The auditor should direct any requests for additional documents to the representative via an individual document request (IDR).
- The representative should request that the agent provide a progress report at the end of each day and identify any developing issues. When the agent is out of the field, he/she should provide a case update every 2 weeks. This can help facilitate the completion of the audit.
IRS audits are not meant to be personal. Revenue agents are only doing their jobs. But the taxpayer representative also has a job, which is to aggressively represent the client. This includes actively working with the agents to ensure that the audit is conducted properly and expeditiously.
About the Author
Daniel Gibson, CPA, MST, EA, is a tax partner at EisnerAmper. He works with individuals and small to medium-sized businesses—across a variety of industries—on accounting, tax and consulting services. Contact Daniel at email@example.com.