Notes to a Client Who Received an Audit Notice from the IRS

We’re talking to an increasing number of people who have received IRS audit notices.  Most have found us on the Internet after they’ve opened the mail from the IRS.

Here’s an example of what we told someone with a fairly complex return when he’d asked us to help.  We’re not panicked, but we know audits are serious business.  See what you think…

Dear xxxxx:

The notice that you received from the IRS is likely the most skimpy one I have ever seen.  It’s overly vague!  While it sounds like a good thing, it leaves far too much open than I like.  For this reason, if I had handled this case, I would have pushed back a bit so as to limit the scope of the audit so that the scope does not “creep” too far out of control.  Right now EVERYTHING is connected to the items on the IRS notice.   Who wants the IRS to look at everything?  Right?

Here is how I would proceed if we worked together:

  • We set an appointment to go over the return together
  • Please bring your 2009 return with you
  • Also, bring or send me the depreciation schedules to support the depreciation taken on the properties in your Schedule E’s.
  • I would prepare a Power of Attorney (POA) one for each you and your wife to sign.  The IRS just changed their procedures and even though you filed a joint return, they need a separate Power of Attorney forms signed by each of you.  I don’t get this logic but…… oh well!
  • After our meeting I would call the IRS auditor and provide him the POA and proceed to discuss your matters freely and specifically to narrow the scope of the audit as best I can.
  • At some point, I would have you complete an information questionnaire as the auditor will want background about what you do.  More on this as we work together.
  • I would provide you with an engagement letter and request a retainer of $4,000 and ask that this retainer be replenished once used.  During our phone call, I estimated that this matter would range from $5 – $10K and I still feel this way.  My some miracle it could be less than $5K  but at the same time, if the details are many, it could exceed $10K.  We would be in constant contact with one another so that there is no surprise as we work on the case.
  • I would call you after my discussion with the Revenue Agent and provide you with a specific list of details needed.
  • At the same time, I would introduce you to another team member in my office who would be in charge of organizing your material in a way that facilitates the work necessary to bring you matter to a close.
  • Once the material is captured, I will meet with the auditor and present the information.  If this can be done in one meeting we would be lucky.  It is likely to take two – maybe more but two could do it.

The secret to success is preparation, preparation, preparation.

You may elect o be present at the examination by the IRS agent, but I recommend against it.  While your information looks stellar, you could innocently say something that could set off fireworks. That would not be good.

Finally, there is a benefit in closing an audit with no changes.   If you are successful in achieving this, it is less likely that there will be future audits.

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