- Written by E. Martin Davidoff
You can view the first half of this article by visiting http://www.cpataxmag.net/davidoff-stories/42-e-martin-davidoff-columns/869-steps-to-effective-irs-audit-resolution.
When taxpayers receive the dreaded notice that their business is going to be examined by the Internal Revenue Service (“IRS”), the first thing they do is seek your advice. This is the second part in a series of articles on Effective IRS Audit Resolution. See Steps to Effective IRS Audit Resolution to read the first part, which covers “Carefully Read the Communication” and “Speak Directly with the Revenue Agent/Tax Compliance Officer.”
3. Do a Thorough Pre-Audit
Prior to the IRS conducting the examination, I perform a pre-audit that is more thorough than the actual examination. I scrutinize every check, receipt, and all of the books and records, trying to learn where all the “bodies” lie, and to understand the client’s books, records, and business inside out. Knowing the weaknesses of the case allows me to prepare more effectively for the examination and, in some cases, I decide to offer up those weaknesses to the auditor up front as a gesture of good faith.
It is important, especially with corporations, to understand all balance sheet accounts. For example, the impact of tax basis on S corporations may provide adjustments for the examiner. How many of us have observed the dreaded “loan to shareholders” account on the asset side of the balance sheet? Ask questions of your client and their bookkeeper to ensure you have a comprehensive understanding of your client’s financial history.
With nearly all closely-held businesses, the IRS will be looking at deposits into bank accounts and reconciling such deposits to reported gross income. Be sure you do a thorough analysis of bank and brokerage account deposits. Also, the IRS may look into the personal living expenses of the owners of the business to determine whether their lifestyle is consistent with the income being reported from the business. If not, what is the source of funding the shortfall? In many instances the shortfall is unreported income!
To support deductions, you will need proof of payment and receipts reflecting the purpose of the expenditures. For certain expenditures, such as meals & entertainment, travel and local transportation, a diary may be critical.
Recognize when you are in over your head. Some cases require an attorney-client privilege. As soon as you recognize that, refer your client to counsel and stop asking questions of the client. Remember, CPAs and enrolled agents do not have privilege in representing clients before the IRS.
4. The Client Should be a No-Show
Have a frank conversation with your client regarding why he/she should be a “no-show” at the examination. Clients will often talk too much and inadvertently provide more information than necessary. They are often angry about their situation (of being audited) and show that anger during the examination. And, by poorly choosing their words or becoming defensive, they may lead the auditor into believing that something is improper, even if that is not the case. Most clients will be relieved that their presence is not required.
Your role will be to act as a buffer between the auditor and the client, enabling the client to give thorough, well-considered answers to all questions. Also, if the questions become too invasive, you can always state that you are not authorized to answer the question presented and consider responding after you seek further guidance and/or clarification from your client. Keep in mind that the IRS does not have the right to interview your client directly. You are their representative. [See Internal Revenue Code §7521(c) and Internal Revenue Manual §188.8.131.52.1.]
5. 7 Rules for Conducting the Examination
1. Prior to the examination, find out all you can about the auditor. Inquire of your colleagues and check out social media sites.
2. Have the examination in your office, not the client’s. This enables you to more carefully control the flow of the examination. Avoid letting the auditor sit alone all day looking over the records on his or her own. It is important that your staff and you spend time with the auditor, getting to know him or her and knowing what he/she is doing. Develop a rapport with the auditor.
3. Completely review and understand all documents provided to the auditor.
4. Never lie or make a misstatement to the auditor.
5. Never volunteer information, unless it is part of a strategy to do so.
6. Do not accept unreasonable timelines to get information back to the auditor.
7. Meet all commitments made to the auditor, or at least call in advance if you cannot do so.
6. Negotiate a Resolution
Attempt to arrive at a negotiated resolution of the examination with the auditor. By doing so, you save your client the cost of an appeal or, possibly, the expansion of the examination to additional multiple years. Weak issues can often be negotiated more easily if you are able to establish mutual trust and respect with the auditor. Fully document your strong areas and cover them early in the examination process. Thus, as you get to other areas, you may be able to reach a resolution more easily. Keep in mind that the auditor is doing his/her job and usually has not prejudged your client. The auditor is getting all their information on the examination from you, both in terms of the facts and your approach in communicating with the auditor. Treat them as the professionals they are and they will likely treat you the same in return.
7. Appeal Rights
Your client has both formal and informal appeal rights. The informal rights are to speak to the auditor’s manager or the Territory Manager (who is the manager’s manager). Often, difficulties in reaching a resolution can be resolved through such conversations. The auditor may lack the experience and/or the power to resolve the case on his/her own.
In the event you do not reach a resolution, you may file a formal appeal upon the receipt of the auditor’s report (often referred to as the “30-Day Letter” as it provides you 30 days to file the formal appeal). Such appeals are heard by the IRS Office of Appeals, the mission of which is to “resolve tax controversies, without litigation, on a basis which is fair and impartial to both the Government and the taxpayer in a manner that will enhance voluntary compliance and public confidence in the integrity and efficiency of the Service.”
You should discuss with your client the costs and benefits of pursuing an appeal. If you have little or no experience going to the Office of Appeals, you may wish to offer to represent your client in the appeals process at a nominal charge to gain experience. Often, when faced with the 30-Day Letter, practitioners are so focused on providing additional information to the auditor in order to achieve a more favorable result that they allow Appeal deadlines to pass. Be sure not to do so. You can request, in advance, additional time to make your appeal. If you do not secure the additional time in writing, you need to file the appeal if you wish to protect your client’s right to be heard by the IRS Office of Appeals.
- Written by E. Martin Davidoff
When taxpayers receive the dreaded notice that their business is going to be examined by the Internal Revenue Service (“IRS”), the first thing they do is seek your advice. If you prepared the return, you already know there is nothing to worry about because the tax return is perfect in every way! So, of course, for the purposes of this column, we are talking about the new client who walks in with the tax return prepared by that “other CPA,” – not you!
1. Carefully Read the Communication
Carefully determine the type of examination taking place and what, precisely, is being examined. The IRS notice may pertain to a field examination, an office audit or a correspondence examination. In addition to these three primary types of examination methods which have the potential to adjust taxpayers’ liabilities, there are under-reporter notices (CP-2000), specialized audits of tax credits (i.e. earned income credit) and substitute for return (SFR) procedures. This article addresses only field and office examinations. Field examinations are conducted by Revenue Agents while office audits are conducted by Tax Compliance Officers.
2. Speak Directly with the Revenue Agent/Tax Compliance Officer
Call and introduce yourself to the Revenue Agent (RA) or Tax Compliance Officer (TCO) conducting the examination (the “Auditor”). IRS employees are people too. This should be a cooperative and friendly discussion. How you approach and deal with them will impact upon the success or failure of your representation.
Be sure to call before the response date on the examination notice. If the notice provides a date for a meeting, be sure to call well in advance of that meeting as it is likely (and permissible) that you will need to reschedule. As you negotiate a date and time convenient for you, allow sufficient time to conduct a thorough pre-audit.
Try to narrow the issues. For example, work with the Auditor to choose the expense categories to audit from the larger amounts on the tax return. Often, a relatively small number of categories will represent 70 – 85% of the total expenses of a business. I prepare a spreadsheet for my own use to determine that I am hitting this target range. To get the auditor’s “buy-in” I usually make it clear during the conversation that I understand that if we cannot substantially document the selected categories, that the Auditor may expand the scope of the examination. Generally, if I can show that there is a competent set of books and records, and can fully document the larger expense categories, there will be no need to look at the smaller categories. In some cases, I take the approach of having the Auditor choose the expense categories, recognizing that they are in control of the examination. Recognize that it is in both the taxpayer’s and the IRS’s interests to have an efficient examination.
Generally, you will encounter more productive discussions with RAs than TCOs. RAs are higher on the IRS pay and talent scales, more highly trained and have more flexibility in their workload allocation. TCOs are given a greater workload and are conducting the examinations in their offices, usually at their desks. Often, I have found TCOs to be autocratic and inflexible. In such cases, learn how to say, "Please give me the name and telephone number of your manager,” and, "Who is the Territory Manager?" and then be prepared to make the appropriate calls. Such calls work, even if the IRS employee states, “my manager will tell you the same as I did,” as they often do.
Recently, the IRS has been requesting electronic records of Taxpayers. The submission of such records could be damaging to our clients. The withholding of such records has not yet been tested in court. Up through the writing of this article, I have not turned over such records, with the following rationales:
- The records contain confidential information (i.e. doctor patients, attorney clients);
- The accounting file (often QuickBooks for small businesses) is not a true set of books and records and could be misleading; or/and
- We can document expenditures adequately through print-outs of selected reports.
But, before long, the IRS may insist on such records and test their power to do so through the courts. In the meantime, I recommend against turning over taxpayer electronic records unless and until the IRS issues a subpoena to do so.
- Written by E. Martin Davidoff
The most underutilized arm of the Internal Revenue Service with respect to Taxpayer collection issues is the IRS Office of Appeals (“Appeals”). This office can be used to appeal threatened levies and liens, denials of installment agreements, and denied offers to compromise one’s tax. Understanding the processes and tools available is critical to a practitioner’s success in this specialty.
Generally, Appeals functions are divided into two categories: i) assessment issues and ii) collection issues. Appeals’ officers have become specialized and most officers deal with either assessment issues or collection issues, but not both. Appeals of examination findings, trust fund assessments, and denials of claims for refund all fall within the area of assessment issues. Appeals’ officers working on collection issues are often referred to as Settlement Officers.
Other than appeals of Offers in Compromise (“OICs”), there are two primary procedures to appeal a Tax Collection matter:
- Collection Due Process (“CDP”) Appeals (form 12153)
- The Collection Appeals Program (“CAP”; form 9423)
CAP is the only methodology that can be used to head off the filing of a Notice of Federal Tax Lien (“NFTL”). The CDP Appeal can only be filed in response to the filing of the NFTL or when a Levy is threatened by the IRS. That threat of levy often comes in the form of the Letter 1058 which states prominently, “NOTICE OF INTENT TO LEVY AND NOTICE OF YOUR RIGHT TO A HEARING.” Providing advance notice of levy is required by Internal Revenue Code (“IRC”) §6330. Such notices are always sent via Certified Mail. OICs are appealed through a process clearly delineated on OIC rejection letters and will not be discussed in this article.
The biggest mistake made by taxpayers and practitioners alike is not responding to the IRC §6330 notice within the 30 days required to fully protect the taxpayer’s rights. In such hearings, Appeals is empowered to consider ALL collection alternatives. Responding to the §6330 notice is relatively simple. One need only complete the form 12153. The most recent revision (March of 2011) provides comprehensive guidance. Considerations when dealing with a §6330 notice and submitting form 12153 are set forth below, some of which will be more fully discussed in the next edition of this column.
1. Determine whether or not to respond within 30 days. The IRS has developed a process to consider untimely-filed requests for CDP hearings. Such hearings are administrative, not statutory. Therefore:
a.) The statute of limitations for the IRS to collect the tax continues to run; and
b.) The Taxpayer does not have the right to pursue the matter in the U.S. Tax Court.
IRS policies are that such administrative hearings should be equivalent to the CDP hearing and, as do CDP hearings, should consider all collection alternatives. Accordingly, such administrative hearings have been named “Equivalent Hearings,” which can be requested at item #7 of form 12153 up to 1 year after the taxpayer is provided the §6330 Notice.
So, if a client is not willing to take the matter to Tax Court, would there be any reason to file within 30 days and suspend the running of the statute of limitations? One could argue (correctly, I believe), that the possibility of a U.S. Tax Court appeal from the CDP hearing puts added pressure on Appeals to resolve the matter.
Often, the 30-day period is gone before the practitioner gets involved. So, it is important for a practitioner to obtain IRS account transcripts to see when the §6330 notice was issued so that the time to file an Equivalent Hearing does not pass by without consideration of action.
When one is deep into the 10-year IRS limitations period to collect the tax, filing for a CDP hearing may be considered risky as the statute may expire without the hearing request. This has become rare, as the IRS has become more consistent about issuing notices of intent to levy early in the collection process.
Be careful about missing deadlines. Sometimes practitioners will call the Revenue Officer and/or their manager upon the receipt of a Letter 1058 or other notice of intent to levy. While negotiating or playing telephone tag, the deadline to appeal could go by and weaken your negotiating position significantly.
2. Consider requesting a face-to-face/inperson conference at a local Appeals office. Generally, our office requests a face-to-face hearing on all form 12153 filings (also referred to as “CDP requests”). Why not? Our experience is that we secure better results when meeting in person. Our office is located in central New Jersey. Accordingly, we find any of three offices (Newark, New York City, or Philadelphia) relatively convenient. I believe our flexibility regarding location makes it easier for the IRS to grant our requests.
More information on face-to-face conferences for CDP hearing requests, and the IRS reluctance to grant requests for such hearings, will be found in the next edition of this column.
3. Seek Penalty Abatements. Whenever there is money due to the IRS, the abatement of penalties should be a consideration. Even if you cannot elaborate on the detail of reasonable cause within the form 12153 attachment, you should request abatement and provide an overview of the reasonable causes and state clearly that you are willing to provide additional substantiation.
4. Clearly State the Desired Results. You want to make clear what you want the Appeals Officer to do. Accordingly, your attachment should state the desired results. That attachment should also indicate why you were not able to resolve the problem (i.e. The Revenue Officer sent the threat to levy without ever calling the taxpayer or his/her representative), provide all pertinent facts, and identify the potential issues for consideration.
5. Consider requesting that the hearing be recorded. To preserve a record for the
Tax Court, you may wish to consider requesting that the hearing be recorded. You have the right to do so. By making this request, you will be assured that the Appeals manager will be in attendance. I have not used this tool personally, but I do know it is being used regularly by practitioners, particularly in larger, more complex cases.
6. Other technicalities. Include statements in your attachment that make it clear that:
- You reserve the right to amend the request;
- You reserve the right to supplement the CDP request
- There shall be no ex-parte communications (communication to influence a decision-making official off the record) between Appeals and other IRS employees working on the case, without your express written permission
- Don’t forget to include your power of attorney for the client, form 2848
7. Who attends? As with nearly all of my representation before the IRS, I will attend alone or with a member of my staff. In the rare instances that my client attends an IRS conference/hearing, I make the decision. I have had situations wherein my clients insisted on attending. In such instances, consideration should be given to whether or not to retain the client. My purpose in bringing staff is to either provide training, have someone along with me who is more knowledgeable of the factual nuances and intricacies of the case, and/or someone whose personality will assist in the resolution of the matter.
CAP Appeals enable a taxpayer/practitioner to Appeal a specific action or proposed action of the IRS. Some considerations with respect to CAP Appeals:
1. Only the specific action or proposed action is evaluated by the Settlement Officer. The Settlement Officer will not consider all collection alternatives. However, some Settlement Officers will tell you that they are only doing an “administrative review” to determine whether the IRS followed the requisite procedures in deciding to take or threaten the action being appealed. Under the Internal Revenue Manual (“IRM”), this is simply not true in my opinion.
The Settlement Officer is to put himself/herself in the position of the IRS employee and determine whether the action is the appropriate action to be taken considering all facts and circumstances.
2. CAP is an expedited procedure in which the Settlement Officer is required to have the hearing within five days of his/her receipt. However, one never knows when the officer will actually “receive” the case. The five-day rule brings on unfair and extraordinary results, often under the pretense of doing the Taxpayer a ‘favor’ by expediting the case. For example, you could receive a call from a Settlement Officer, have what you believe is a preliminary conversation to the hearing, and then be told that the Settlement Officer is finding in favor of the IRS action. Effectively, you may not have realized that you had the hearing during that conversation!
Accordingly, you need to clarify from the beginning in all conversations whether you are having the hearing or just trying to set up a mutually convenient time for one. Also, if you are planning to be away from the office for an extended period, you may want to contact Appeals to make sure that the hearing is not scheduled while you are unavailable. The IRS will consider your unavailability for more than five days, effectively, a forfeiture of your hearing rights.
3. Normally, face-to-face hearings will be permitted in local IRS offices. However, it is very rare that a Service Center CAP will be transferred for a face-to-face hearing.
4. The CAP Program is used to appeal rejections of installment agreements (IRC §7122(e)) and proposed terminations of installment agreements (IRC 6159(e)). The details of IRS procedures and practices relating to Appeals change frequently. For that reason, you should regularly refer to Section 8 of the IRM, which covers the Appeals function of the IRS and can be found online at: http://www.irs.gov/irm/part8/index.html. See also IRS Publications 594 and 1660.
- Written by E. Martin Davidoff
On New Year’s Day, Congress completed its compromise to avoid the fiscal cliff. Here are the highlights of the legislation, the American Taxpayer Relief Act of 2012 (H.R. 8), which will impact your taxes:
1. The top stated tax rate will be increased from 35% to 39.6% for individual taxpayers with taxable incomes above $450,000 for joint filers and $400,000 for single filers. The thresholds for the top rate shall be indexed for inflation. We use the word “stated” as Congress has included in this legislation phase-outs of exemptions and itemized deductions (item 5 below) which, in effect, increase the marginal rate of taxation. In addition, previous legislation related to Obama-Care added additional taxes (see below).
2. The AMT patch has been “fixed” for the 2012 tax year, thus avoiding a delay in the processing of 2012 tax returns. It has also been fixed permanently so that patches will not be needed going forward. The “fix” has been made permanent by enacting legislation which indexes the AMT exemptions.
3. Capital Gains rates for long-term capital transactions and the rates on qualified dividend income will increase from 15% to at 20% effective 1/1/2013 for those with incomes above $450,000 (joint) or $400,000 (single). In reality, with additional changes already going into effect for Net Investment Income, the top federal tax rate on long-term capital gains will be 23.8% on the “rich” and continue at 15% for middle-class America.
4. The Estate Tax Exemption, which had been scheduled to fall from $5 million to $1 million will remain at $5 million for 2013 and will be adjusted for inflation going forward. However, the estate tax rate will increase from a maximum of 35% in 2012 to a maximum of 40% in subsequent years.
5. To raise additional revenue, Congress re-enacted provisions that phase-out one’s exemptions and certain itemized deductions. The phase outs, which will impact taxpayers with income over $300,000 (joint) and $250,000 (single) is, effectively, a rate increase of approximately 1% on taxable income. The thresholds shall be adjusted for inflation.
6. Among many other provisions, the following most significant provisions to our clients are now extended through 12/31/2013:
- The R&D tax credit;
- The 15-year accelerated recovery period for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements;
- $500,000 per year deduction for certain fixed assets under section 179 of the Internal Revenue Code; and
- The shorter 5-year period (as opposed to 10 years) for the application of the S Corporation Built-In gains tax pursuant to Internal Revenue Code §1374(d)(7).
7. The 50% bonus depreciation benefit of IRC §168(k) is extended one year through the end of 2013.
8. The 2% payroll tax cut on Social Security taxes the past 2 years (2011 and 2012) has NOT been renewed. Thus, the employee share of Social Security taxes will increase from 4.2% to 6.2% (making the total employee share of Social Security and Medicare taxes increasing from 5.65% to 7.65%).
It should be noted that the provisions above are those that have the greatest impact upon our clients. The bill passed by the Senate (and ultimately by the House, H.R. 8) was 157 pages. There are many other provisions, such as the extension of energy-related tax incentives, which have been incorporated into the legislation. Not related to tax legislation, H.R. 8 includes several other important provisions:
A. Unemployment benefits for the long-term unemployed have been extended for another year through the end of 2013.
B. The anticipated cut in Medicare Reimbursements to physician payments, along with other health provisions, has been delayed through the end of 2013.
C. A one-year extension of certain agricultural programs.
D. Elimination of Congress’ cost of living adjustment for 2013, thereby freezing executive compensation.
It is important for you to know that due to previous legislation, the following tax changes are taking place for 2013:
1. There will be a new 0.9% Health Insurance Tax on Earned Income in excess of $250,000 for Joint Filers, $200,000 for Single Filers. This is withheld from the employee’s pay and NOT matched by employers.
2. There will be a 3.8% Medicare Contribution Tax on net investment income, including non-business capital gains, to the extent net investment income places one’s total income over $250,000 for Joint Filers and $200,000 for Single Filers. Note that this tax also will impact trusts and estates. Essentially, the target of the tax is to place an additional tax on unearned income. Such unearned income will include non-business capital gains, rents, royalties and annuities in addition to typical sources of investment income from gains in publicly-traded stocks, interest income, and dividend income. The definition of Net Investment Income under the IRS proposed regulations is complex, taking over 100 pages thus far. Passive activities will fall within the definition of Net Investment Income. Taxable gains from the sale of one’s personal residence (that is the gains in excess of the normal exclusions) is also considered part of the Net Investment Income computation.
3. The threshold for deduction medical expenses for those under the age of 65 will be increased from 7.5% of Adjusted Gross Income (“AGI”) to 10% of AGI. The threshold for those who have reached the age of 65 or have a spouse that has reached the age of 65 will remain at 7.5%. So, if you are age 60 and your spouse is 65 by the end 2013, the threshold for the two of you filing jointly will remain at 7.5% and not increase to 10%. The threshold for medical expenses in determining the Alternative Minimum Tax (“AMT”) will remain at 10% for all taxpayers as it did prior to 2013.
4. The amount one may set aside for medical expenses in flexible spending accounts is now capped at $2,500 per year commencing in 2013. The $2,500 cap will be adjusted for inflation each year subsequent to 2013.
- Written by E. Martin Davidoff
In practicing before the IRS regarding collection matters, penalty abatements and examinations, I have found certain rules of engagement helpful. This is the sixth and final in the series of articles in this magazine on such rules of engagement.
14. Be Realistic With Your Client.
Promise only what you know you can deliver, which will frequently result in your delivering more than anticipated.
Throughout our communications with our client, we promise only what we know we can accomplish. Our goal is to establish trust with our clients and referral sources, while establishing reasonable expectations in the minds of our clients. Since much of our success depends upon our advocacy skills in working with a variety of individual decision-makers at the IRS, we are often able to deliver more than our clients anticipate.
15. Confirm all Oral Agreements with the IRS field employees in writing and request that they sign off.
In collection matters, the IRS often wants information more quickly than you can provide it with reasonable accuracy. Accordingly, you often enter into a negotiation with the Revenue Officer (RO) and establish mutually-agreeable deadlines. For example, when will back tax returns be filed? When will the form 433-A be completed? How will interim payments, estimated taxes, and payroll tax deposits be handled? ROs are instructed to secure form 433-A information (client financial information) immediately. The assets/liabilities sections of the form 433-A are often straight-forward and can be completed in a relatively short timeframe. However, the budget section may take more time and finesse to present a complete and accurate picture of the taxpayer’s finances and monthly budget. Accordingly, you may agree on varying timelines for portions of the form 433-A in order to satisfy the RO’s need for securing at least some information quickly. In exchange for meeting the agreed-to timelines, you should negotiate with the RO to hold off in taking any collection actions and/or issuing notices that will accelerate the collection process.
To avoid any possible misunderstandings, you should set forth the understandings with the RO in writing. You could do a memorandum to your client’s file. However, if you are dealing with a RO in the field, why not turn that memorandum into a letter and ask the RO to sign off on its contents? The worst that could happen is that the RO will not sign the letter. If the RO receives the letter and fails to object to its contents, I believe that such inaction would be considered a tacit agreement to the letter’s terms. If I am dealing with a RO whom I trust, I often send the confirming letter and ask the RO to call me if any of the contents are inaccurate. If I do not trust the RO or have no long-term relationship with the RO, I will often insist that the RO sign off on the letter or issue their own letter of confirmation back to me. On occasion, I will go to the manager to secure a written confirmation from the RO.
In drafting the letter, I take great care to write the agreement precisely as discussed. I would not want to be accused of attempting to renegotiate the agreement by using wording more favorable to my client than our discussion had provided. Sometimes, in drafting the letter, I will think of something that had not been discussed that should be included in our agreement. In such circumstances, I make it very clear that we had not discussed that aspect and invite the RO to call me if he/she does not agree with my proposed resolution of the issue.
When dealing with IRS collections through the centralized telephone sites, securing written confirmation of oral agreements is nearly impossible. In such cases, I write detailed internal memoranda. If nothing else, each memorandum should clearly communicate to your client what has transpired. In lieu of a memorandum, I will often send a letter to my client summarizing the case’s status. Both the memorandum and the client letter serve the purpose of documenting what has transpired and communicating the status of the matter to your client.
16. When you win, say “thank you” and “good-bye.”
- The Appeals Officer agrees to waive your client’s penalty;
- The Criminal Investigation Division decides not to prosecute your client;
- The IRS telephone assister agrees to accept a favorable installment agreement; or
- The IRS finally agrees to that Offer in Compromise.
All of the above are favorable outcomes for your client. Some practitioners might ask “what swayed you to see it our way?” or “how did you come up with that number?” When the IRS says “you win,” you should simply say “thank you” and “good-bye.” (Then, of course, do the memorandum to your file.) For example, I recently received a verbal approval of a highly favorable installment agreement. I then gave the IRS manager in this case, the only information he needed, “I would like the payments to come due on the 28th of each month, starting next month.” That is all he needed to input the installment agreement and, at that point, I quickly ended the call.
17. Pull transcripts and summarize them.
To fully understand a client’s options, it is helpful to prepare a federal tax summary. A sample of such a summary can be found below. To prepare such a summary, you must secure Account Transcripts from the IRS. For practitioners, this can be done through E-Services or by calling the tax practitioner hotline (1-866-860-4259). Preparing a federal tax summary using a spreadsheet program allows you to summarize dozens of pages from IRS Account Transcripts on one page so you can readily see the amounts of tax, interest, late filing penalties, late payment penalties, estimated tax penalties and offsetting payments and credits for multiple years.
18. Be fully prepared for all meetings…anticipate the unexpected.
I recently represented a client at a tax examination. In preparing for my meeting with the auditor, I came in prepared with multiple sets of files. We carefully segregated the information so that we could answer anticipated questions narrowly to prevent raising additional issues inadvertently. The bottom line is that we anticipated virtually all of the auditor’s potential questions. Our thorough preparation enabled us to achieve a more favorable and faster result for our client and minimize her stress. Such preparation is helpful in the collection area too. Comprehensive form 433 packages enable us to secure better results. Anticipating weaknesses in our client’s arguments for penalty abatement hearings enables us to more effectively address those weaknesses with the Appeals Officer.
19. Know the tools available to you and your clients’ rights.
Some examples include:
- Your client has a right to appeal the rejection of his/her request for an installment agreement;
- You have the right to discuss your case with a manager, territory manager, or anyone else up the chain of command;
- You have the right to go to the Office of Appeals for Collection Due Process hearings, CAP Appeals, penalty abatement appeals, and to appeal examination findings;
- To assist you, you have programs available such as the Office of Taxpayer Advocate and Fast Track Mediation;
- You may designate payments as Trust Funds or Deposits in the Nature of a Cash Bond;
- You have the right to see, generally, what is in IRS files through the Freedom of Information Act. You also may see IRS records of third-party contacts.
Learn all you can about your clients’ rights and what tools are available within the IRS so you can utilize them most effectively to benefit your clients.