On-Demand: Dealing with the IRS | Audit Division

The audit is very, very important. Because it's really the key to starting everything, and getting money into the US Treasury. Because without the audit, without the assessment that's made in those audits as a result of the audits, there is no collections. They've got to have the base charge, whatever needs to be done, and then they collect the money at that point. Once that assessment is done, then the IRS has 10 years to start that money. That's all we've got.

My name is Dan Gibson, and I'm a partner here in our New Jersey based office for EisnerAmper. I work primarily in the private business services group here in New Jersey, and my specialty really is working in the tax area. Also with me today, I have Adele who is going to be assisting me taking your questions, and going through those and just assist me going through the program.

One thing you'll notice, as I go through my slides here, you'll see stuff that's maybe repeated or reemphasized. And when I've done these, people will come back to me and say, "Well, how come you've repeated this and you repeated that?" I repeat stuff for one big reason, I think it's important. Again, you're going to see some areas in there that you'll think, why he still said that twice or three times already? Well, there's a reason for that, because I think it's very, very important.

Let's get started with the program. First I was like, to start out with this diagram kind of gives you an overview of the flowchart as to how things work in the tax resolution area. On the left hand side is the audit, which we're going to cover today. Hopefully at the end of our presentation here today, you'll be able to go through this and say, "Uh, yes. Yes, I remember him talking about this, because now this makes sense." And be able to walk through this flowchart, at least the left hand side of it.

The right hand side is collections, the remainder of the programs that we do in this series over the next five or six months will be... Will pertain to items in the collection area. It's collections is not an area that could be covered in a one or two-hour program. But it really does consist of, it's a plethora of things that have to be delved into and gone through. So, that's why I've kind of reserved that for the upcoming months. Those are things that you just want to keep in mind.

Next thing I just wanted to go through was, if you're dealing in this area, just some resources, things that I know that I tap into that they're very good resources for us. One is probably the best resource put out by PPC, the Thomson Reuters people. It's dealing with the IRS. It's a two volume set, very inexpensive for the amount of information they put out. The American Bar Association also has a great two volumes book called Effectively Representing Your Client Before the IRS. Again, very... I think written by the American Bar Association via a very thick book for reading wise, but it is, and it's a very user-friendly book. And if you have access to it, I encourage you to use it.

There is also a publication called the Journal of Practice and Procedures that CCH puts out. It's an article that's written, mostly written by practitioners out in the field. It's again, a very good resource to go to.

On the website, there's three websites that I would encourage. And if you're working in this area, for practitioners out there that are looking to maybe up their game in the resolution area, that the National Association of Enrolled Agents has a program called the National Tax practice Institute. It's a three-level program. Level one, you can take online. You can take it on site at, either their Las Vegas conference or the Orlando conference, which you can do it online. Level two and level three, you have to take actually one of those two conferences. Level two is a very, very, extremely hands on program. I think it's, anybody again, if anybody's getting into this type of work, I think it's a really good benefit. Then level three, it's just a higher level type of program with some good stuff that's out there.

The American Society of tax problem solvers really run by a gentleman by the name, Larry Lawler. A really good guy, does some really good presentations out there. They have a program, a certification called the Certified Tax Resolution Specialist that you can be tested on through that organization, which is very good. And they have a tremendous amount of educational programs.

Tax, the Tax Rep Network is run by an attorney out of Connecticut, his name is Eric Green. Again, a very good site to go on, tremendous amount of education, marketing. He does a free podcast out there called the Tax Rep Network, which really is, again, it's free. You can get in, and go on your phone and get that very easily.

We've come to our first polling question.

The first question, how much tax resolution work do you do? A, a lot. B, a moderate amount. C, very little, and D, none. So we'll give you about a minute or two to answer that.

In addition to, I've mentioned a couple names already, Charles Rettig, Larry Lawler, Eric Green as being people that are really great out there in the industry. We have some other people in the marketing realm with this type of work. Two guys that I would recommend you look into on the website if you're interested in this area is Michael Ross Brookes, Jason Bowman, tremendous marketing guys.

Then there's some other people that they also do a great job educationally wise] great. LG Brookes is a practitioner out of Dallas, Steve Chritzner is a practitioner out of Florida. Dan Pilla, practitioner out of Minnesota, and Howard Levy, a practitioner out of Cincinnati, Ohio. Really good people to connect with online. I think they have a lot of articles out there in the tax resolution space.
Moderator: Please, remember that in order to receive your CPE certificate, you must remain logged on for at least 100 minutes, and respond to six out of the eight polling questions. I'm now going to close the poll and share the results.
Dan Gibson: Okay, now we close. We got a mix of people that had done a lot, and probably somewhere in the middle is where most of us are falling. So that's good. All right, so I'll go through to another diagram. I am a big guy on flow charts to kind of depict what's going on here. Again, I'm going to give you a 30,000 foot view on the audit.

For those of you that haven't been through it, or maybe haven't been to it a lot. You normally get a contact letter from the IRS that say, "Oh boy, here we go," type of thing that comes in the mail, and we got to deal with it. And you do have to deal with it, and that's normally starts the whole process. The auditor normally will get some information, maybe it'll have a standard information document request that will come in after an initial meeting with the practitioner and the taxpayer.

From there, an audit takes place. It depends on the scope of the audit, how long they spend there. And we'll go through some of the timing on that stuff a little bit later. At the end of that audit, you get a notice of proposed adjustments. And that's just it. I mean, a audit examiner is proposing adjustments at that point. So you should never take an order that's proposed adjustments as being the final set rule of adjustments. You can always question, and you can always push back on them. And you'll go through those, and some you'll agree to, and some you'll disagree. And the ones that you disagree to if you don't... If you either disagree with the entire amount adjustments or partial amount of them, you'll get a 30-day elaborate letter, which will give you the opportunity then to go to appeals and appeal those issues that have come up.

If it's close to the statute of limitations, expiring, and we'll go through what that is in a bit. They may go directly to a 90-day letter, which is a 90-day letter as a... That's basically your ticket to Tax Court. And if you get that, instead of the 30-day letter, and you go right to Tax Court, I mean, petition Tax Court and Tax Court will normally kick that right back to appeals. And you'll get you're shot at appeals.

90% of the cases are settled at appeals, you'll notice they're quite a few. Not all, but quite a few of the cases that go through the tax courts, the attorneys for the IRS are pretty confident they're going to win those. So if you get through, you normally can settle most of your cases in appeals. Then at the end of the day when all said and done, if there's payments to be made, that's when the collection division. Not the person that does the audit, but the collection division at that point gets involved. Then you got to figure out a way, either a full pay or do some installment agreement or something of that nature. And that's what we're going to explore in the upcoming months, how do you handle those collection issues, which sometimes could be a surprise coming out of nowhere? And how do you deal with those?

So you've gotten the contact letter, and you're looking to meet with the order. Some of the things you want to do, you want to have in your little checklist of things you want to do before that contact is you want to be able to interview the taxpayer. You want to be able to obtain transcripts for definitely the year that's under audit, probably the year before, and if there's a year afterwards, just take. Because you want to kind of get into, and you want to see what the IRS is seeing on their side, that they get... Well, have all the return has been filed. Or the numbers that the IRS is showing on their tax return transcripts matching with the returns that you think that have been filed.

You want to review the returns that are an issue. You figure out what years that the... IRS normally will look at one year, and you want to know what that year is, and go through that year. If you've prepared the return, you're probably already ahead of the game if you've been brought in as the person that's really just representing the taxpayer at that point. You're going to have to go through the return, and see what issues are there for that particular client. And in that industry, there's probably, the IRS is, again, has been trying to hit this stuff at a pretty focused level, and looking at the stuff that really matters. So you want to look at those issues that are unique to that particular client and industry that they're in, make sure you have a good handle on that.

You want to prepare all the documents, or you want to prepare a document, your contact with the tax authorities. You want to have a sheet where you have the date, time, where you're going to gather the agent's name, his, or her ID number, issues you've discussed in the initial contact. Whether it be the phone call or the actual, that the face-to-face meeting and outcomes of that meeting. And very, very important, in any dealings with the IRS when there hasn't been closure to an issue, you always want to know, what's the follow-ups? What are the timings? What are the deadlines? What are we trying to meet here? You want to build credibility with that auditor, and by making sure that you're meeting all of the deadlines and the timing. It goes a long way.

Continuing on this thing to prepare before the contact, one of the things you have to do is you've got to be authorized to represent the client. There may be cases where, again, if it's your client that you've done the tax return, more than likely it's just preparing a 2848, which is the power of attorney. A very important document that allows you to represent a client, and be able to speak for them in front of the IRS for your client. If you're brought in as a practitioner that is merely representing the client before the IRS and you really haven't been involved with the taxpayer yet, we often advise people to get what's called a 8821 authorization form first.

It's a level of represent... Really, it really isn't representation. It's really just an authorization for you to go out and gather the information for the purposes of you reviewing what's out there in determining, whether you want to take this work on into your inventory. And if it's something that you want to be able to take on it into your inventory and work on that case, then the 8821 allows you to gather that information without actually being a representative. Because once you file the 2048, it's basically tag you're it. I mean, you're the guy, you're the girl who's now representing the taxpayer before all the offices of the IRS. So you maybe want to, if you're trying to vet a potential taxpayer first before you actually take on that role, 8821 serves a good purpose.

If you're in that situation, you probably, you should get both forms signed at the same time, submit the 8821. If all things are good, and you've gotten all the information, and the client looks to be credible, and you want to take them on in your case load, then you could submit the 2848, which again makes you the representative. You want to get all the returns that are out there. You want to review... You want to ask the taxpayer for any notices they've gotten regarding any issues, any things that they have you in their files to be able to go through that. Very, very important. And anything that you're dealing with the IRS, you want to make sure your taxpayer is current. That means that all of the tax filings that they should have made, that they've made them.

Any payments that should be made, whether they be withholding, whether they be estimated payments, you want to make sure that those are up to date. If you're in a collection case, you may not be able to have prior years, maybe behind on those. But in the current year, the IRS will normally not work with you unless they can see that you have all your tax returns filed, and all the current period taxes are up to date. Then that includes income tax. And if the client has a business payroll taxes, so you got to make sure that all that stuff is done.

The burden of proof, again, remember, these examinations are in a civil level. They're not criminal, so the taxpayer has a burden of proof during most of the examination unless the case turns criminal. And we'll talk about that a little bit later. But if tax turns criminal, it's a whole different thing. And quite honestly, if it turns criminal, you shouldn't be leading at that point if you're not an attorney. A criminal tax attorney should be involved in that, that place. And you should be asking yourself the question and the question to the taxpayer, has all of the income been reported? Number two, are all the deductions and credits that are being reported legitimate?

Very important to be able to get a straight answer from the taxpayer on that. And if the taxpayer is squirming around on that, that may be a case where you may want to get an attorney involved at that point if you are not a practicing attorney doing work in this area.

You should also be doing a statute of limitation analysis. You want to be able to get transcripts from the IRS, which will allow you to do that analysis. For assessments, the IRS has three years from the original due date, or from the filing of the return, the latter of the two. So if you're filing before April 15th of a particular year, your start date for assessments is April 15th. If you're an extension, or you're filing late, it's on the filing date of the return. If the IRS has concluded that you have omitted gross income on your return of 25% or greater, that statute of limitation is extended to six years.

If you have a non filer, or you have a fraudulent return, then there's no statue at all. Just keep in mind, fraud obviously, it's a criminal act. It's an act where you've purposely conducted an Act to deceive the IRS. In those particular instances, the burden of proof is on the IRS. Again, if you're in that sort of a situation, if you have any inkling that, that's happening, you as a non-attorney should not be involved in that at all. It's criminal. A tax attorney should be getting involved. If you have non filers, you can normally go back, and get them current by filing six years worth of returns plus the current, will normally get them back into compliance.

You'd be surprised, I'm working with a client right now where they haven't filed returns since 1999. And that's exactly what we're doing right now. We're putting together six years worth of back return, so it comes up quite a lot and in our practice. And to get clients to get back into compliance, we need to at least get six years worth of the prior returns. If the audit involves payroll taxes, the statute on that always starts the April 15th after the filings. So if you have quarterly filings in 2018, the statute for those returns don't start until April 15 of 2019.

When it comes to transcripts, there is a software out there called the tax help software. Now in this software if you get the E-services that the IRS has for practitioners, this kind of overlays that. And when you go through, and you obtain the IRS transcripts through the E-services the IRS has set up, this tax help software kind of overlays the program that you have with the IRS, and it has some coding and some... I can't profess to know how they do it, but they have some sort of an algorithm that goes in and collects data, does tremendous amount of reporting. Has a lot of value to the analysis that you're doing, and it gives you what you want to be able to determine at the end of the day, what's my CSED and what's my ASED? And the CSED is the collection statute ending date, and the ASED is the assessment statute ending date.

Today we're going to be dealing with the assessment. So it's that date on which the IRS if you go beyond that date, the IRS can't touch you anymore when it comes to auditing.

If you're doing a phone call with the IRS with my suggestion would be, if you do a lot of this work, try to get yourself set up with a headset, maybe a speakerphone, have easy access to move around because you're normally going from different files and what have you. Make sure you have a readily available facts if you can.

If you have the software that puts the facts right on your computer, that's the greatest thing, because there's a lot of cases where... You may not be prepared for, the IRS may want certain things, and you have to fax over to them quickly. Because in a lot of cases, especially if you're dealing with the automated collection services, folks, you may be in instances where you got a really good person that you're dealing with, and you're thinking, get your business done with them. Then all of a sudden, if you get cut off from them for whatever reason, then you call back, you're going to get another person. So, you want to make sure that you want to run that phone call as efficiently as possible.

Get comfortable, you may be there for a while, have other productive work. If you happen to be waiting around, either waiting to get to the IRS or the agent may be doing stuff in the background and maybe putting you on hold, so make sure you have work to keep you productive.

There's another service that I just wanted to be able to point out here that's called NQ. NQ is a service that allows you to do faster access to the IRS by phone. It's almost like... What do we call it on Disney World when they go there?
Moderator: Fast Pass.
Dan Gibson: Okay, so they're waiting in line for you, so you can call in on a special number. And rather than waiting 45 minutes to get to the IRS, you normally, and my experience has been so for using this service, I can get to the IRS in like three minutes. Really good. It's, you can get 250 minutes with the IRS for $49 a month. I think it's very inexpensive, and it really, really is efficient. When you talk to the IRS knowing your situation, every situation is going to be different. But you always want to know, you always want to have options.

You always want to have plan A, plan B and Plan C. Depending on whether you're calling about an audit, or if there's a liability issue, or there's a collection issue, you want to be able to, if it's a liability area, do you have reasonable cause for penalties? Do you have first time abatement applicability? Do you have a misapplication of law? And you want to be able to discuss. If you're doing collections, you talk about a partial pay and installment agreement, and installment agreement, offer and compromise. Currently not collectible. Again, these collection terms that I'm using here, we're going to go over those in the upcoming months when we talk about collections.

We've reached polling question number two.
Moderator: On average, how has your experience with the IRS been when you have spoken to them over the phone? A, just wonderful, B, okay, C, awful, D, never spoke to the IRS on the phone.
Dan Gibson: Thank you.

Just as you're answering those questions, the question at hand here, let me just go through. I've been talking about the collection webinars that we're going to be doing in the future months. On August 6th, I have a program called IRS Collection Division, which is going to be just really an overview of the collection process. It's a one-hour program on August 6th. October 24, I want on the IRS payment alternatives, where we'll be talking about installment, and agreements, and partial pay and that sort of stuff.

The November 21st, the IRS offer and compromise program. A lot of folks, that's like the star player out there in the collection area. I just want to go through that, again, another one hour program. Then we're going to talk about the on, December 10th, the IRS collection and due process hearing, which I often think should be known as the crown jewel of the collection area. If you can get yourself to that hearing, and sometimes the taxpayers make it difficult because of what they're doing to get there. But if you can get to a hearing, when it comes to collection issues, and you're dealing with just one person as opposed to different people every time you call, then you can get a face to face.

Again, at best, even if you're doing the phone calls with the agent, I found that to be, people are much more at that level willing to settle cases with you as opposed to this collect, collect, collect.

There's a program I'm doing, it's a two-credit program on liens and levies. If you go to Lauren.com, you could register there. Once you get into that website, go into accounting/tax, you'll see a button for that. You click on that, and then just go through it. They have a calendar set up. Again, that's is on September the 26th I'm doing that program.
Moderator: I am now going to close the poll, and share the results.
Dan Gibson: All right, so everybody's got them, it sounds like we're losing, like we're in the middle of the road and that's spectacular. Not tremendously horrible. But, okay, so that's good. Alright, so let's move on.

Now, I just want to go through the IRS's level of authority. Very, very important. I think it's very important for those that, maybe don't work in this area that much to know who you're dealing with. Because you want to know what levels people are at, and what people's competencies are. If you're dealing with the automated collection system or even the tax examiners in this area, the usual people with the deal, primarily... That the tax examiners did primarily with the correspondence audit. Maybe they're trainees, people that on and out in the field.

Good people, don't get me wrong. But they may not be as well versed in the type of things that you're dealing with. Maybe if you're dealing with someone in the collection division, don't start talking about tax law with them. They have no clue as to what the heck you're talking about. If you're talking with a tax examiner, and you're having a collection issue, again, these people are dealing in a silo, so they're not going to know what you're talking about. So know the competency level that these people are at, and know what area of specialty they're at.

If you do an office audit, you're going to have what's called a tax compliance officer or a tax or office auditor. Again, it's probably a step up from the people that are handling correspondence audits. But, again, they're usually that fairly low level. The revenue agents, which you deal with on the audits, that's when you're out in the field, those guys are usually pretty sharp. That they've been around for a while, they pretty much know their stuff.

Revenue officers are the ones that come knocking on the door for collections. When those guys are involved, it become a pretty serious matter. I mean, the IRS has a lot of things that they can do, again, which we're going to go over in our collections programs in the upcoming months. But there's a lot of things that the IRS can do behind the scenes without really getting face-to-face with the taxpayer. When it requires a revenue officer to get involved and being the guy, or the girl that's the person involved in any account, that's their responsibility. It's become a serious case, and you really have to take every thing that they're doing at that point very seriously.

Offer specialist; they have a group that does nothing but offers and compromise. They deal in that area. Same thing with innocent spouse. If you ever have to do an innocent spouse application for someone, it's one office that you deal with things out of Covington, Kentucky. And that's all you do, you just deal with them.

Taxpayer Advocate, we'll talk about them a little bit later in the program. They're your friend at the IRS. They will, if you have an issue, you're running into a brick wall somewhere, the taxpayer advocate office is a good place to go.

Appeals office. The appeals officers that work there, again, I normally had a good experience with all of them. They're not pushovers. But when you get to that level, you're dealing with people whose job is to resolve issues, as opposed to creating issues. So you're going coming out of the field with audit issues that you don't agree with, or you have a collection issue, which you're dealing with a revenue officer, or you're dealing with automated collections, and they're just not getting it as far as what you think your taxpayer can pay. Going to the appeals' office, I found it's been not something that I would shy away from. They're good people there. Again, their whole job is to resolve cases.

Managers, which you really don't normally bump into too much. Group managers and territorial managers, you don't bump into them a lot. Some do come out to the field if the agents are maybe on the more inexperienced side. But those are people that, obviously are pretty sharp. They wouldn't be where they are without being sharp, whether it be in the audit, or the collection field.

Then we look at the level of the authority on the representative side, and there's different levels. I mean, if you wanted to provide the IRS, and there's been cases where I've had to do this in the past when I wanted to provide the information to the IRS. The IRS will listen to you. They won't say anything back to you normally. But you normally could call if there's information you trying and provide them without them saying anything. You normally could tell them, "Listen, I don't need anything from that. I just need to tell you this." They normally will take that information.

If you're looking to just obtain information, get a 8821. And anybody can do this. You don't need to be an accountant, or an attorney, or an enrolled agent to do this. You could get, if you have administrative support staff that you want to get an 8821 to do some of the background stuff for you and train them to get the transcripts, so what have you. You can do that, but it has to be on 8821. Again, we talked about it before, that this gives you the authority to get information. It doesn't make you the representative at that point.

The 2848, the power of attorney, that does give you the ability to represent clients. And they often throw around this term called enrolled representatives, or CPAs enrolled Agents or attorneys, JDs. If you're an enrolled preparer, or you're a company employee, you're allowed to represent the taxpayer during the examination of the audit only. All right, so if you go to appeals from that, then you do need to have somebody that's enrolled, a CPA, EA or a JD.

On the collection side, the collection representative, if you're going to represent a client, you have to be enrolled. There's no ability to be able to represent a tax payer without you being enrolled if you're dealing with collection issues. You can usually send the 2048 to the 8821 to the agent that you're dealing with or to the person that you dealing with, you could fax it to them. I would suggest you make sure you always fax it to the unit. And the CAF unit here is on the next page. They've got a campus in Ogden, Utah, and a campus in Memphis. So it's good to fax things to them, to fax these things because you get the, obviously it goes there, and you get the receipt. And it's nice to have that receipt.

By the way to... This is kind of a side note, when you're trying to send stuff to the IRS and you get frustrated... Sometimes I've gotten frustrated where I've sent stuff to an IRS campus, or a service center, where all I have is a PO number. And no, the US post office, we do the certified mail with them, and they come back and they normally can't. For some odd reason, I've gotten frustrated where I can't deliver these things, they will or won't go there. I normally can do a Google, and find out what the actual addresses are. Or at the service centers or campuses, and have it done by Federal Express or UPS.I tend to have much more luck in making sure that it gets into that office. For whatever reason, the post office will drop the ball and that's sometimes.

You have the IRS practitioner hotline, a number here that I've given you. It's a great source to go to as a practitioner. It can only be practitioners. No non practitioners can go into this, but that is a good way to go until you can... If you stack your cases, you can actually do three at a time. They've either got to be individual, or they got to be business. You can't mix individual business. They got to be three individuals or three business cases.

While you're in there, you may want to ask the agent, again for the ASED, and the CSED. This is, just make sure you know what it is. In the cases that we're talking about now, if we're in a correspondence audit, where we're just doing everything by letter, at this point with an IRS office. When you go into the practitioner hotline, you select option six, and it will put you into the correspondence people, and they can help you out better.

We talked about authorizing to the representative for the taxpayer. You don't see this much happening, purposely in most cases. If you're staying on top of the work that you're doing, and you're communicating with the IRS, which is very important. The IRS really, I mean, they have the right at any time to bypass the representative. But what you have to do is not give them the grounds. They have to have the rights, but they also have the grounds to be able to bypass you as a representative. And if you're speaking with the IRS and you're giving them the information they want the time in which they want, there really should be no reason for them to bypass your POA.

Now, I will tell you that there are cases where agents will forget about themselves. And they'll just think that they can just call the clients up directly and start talking to them. They maybe they're just asking them for their address, or phone number, or whatever. But it's very important that you make it known to the agent, that they are not to talk to the taxpayers at all. Not that the agents are bad people. It's just that the taxpayer does not want to have to deal with them, and that's what you're there for. In the cases where you do allow an agent to talk to one of your taxpayers, make sure you're setting the guideline, and you're setting the bar line and you're saying, "You're going to ask only these questions, and that's it."

Most likely you're not going to be in that situation, because I would never... There may be a unique situation where you have that, but most cases, you'll never allow your taxpayer ever speak to a representative by themselves. If they do try to do this, bypassing of the power of attorney, take it seriously. It's an offense. It is something they know in the IRS. I mean, it's something that I'm sure they're tracking those of us that deal in this area. I'm sure there's little notes here and there for us to be... For them to keep track of, and this is a serious offense.

When you get to the point where you have an agent that's trying to override you or bypass your POA, take it very, very seriously. And make sure that you're discussing it with their manager, you're protesting this action. Make sure when you do this protest, you put it in writing, send it certified mail or UPS, FedEx, whatever it is. You want to make sure that you have documented your protest with the IRS at that point. So don't just slough this off, again, it's not something that they should be doing. Quite frankly, they don't do it a lot at all.

We've gotten to polling question number three. The question is, have you ever dealt with a Taxpayer Advocate's office? Yes or no.

Moderator: Please, remember that in order to receive your CPE certificate, you must remain logged on for at least 100 minutes, and respond to at least six out of the eight polling questions.
Dan Gibson: Just keep in mind with the Taxpayer Advocate, it's, again, it's a place where you can go for help when there is issues that you're running into a roadblock with the other groups within the IRS. Taxpayer Advocate, the one who heads up this group reports directly to the commissioner. So they're only answerable to the commissioner, and I've found them to be very helpful.

I will tell you that their case loads for all these and for most and these folks is very, very heavy. They get a case assigned to them. And I could tell by the phone, on the phone call, I could tell that they want to move on, and they want to get... They want to clear out their inventory, because they've got a heavy caseload. So, you have to be prepared when you're dealing with them to make sure that you push back. I mean, if they give you an answer, and that answer doesn't seem right, do not be afraid to push back. And that don't be afraid to speak to a supervisor if you think an advocate is not helping... An agent or the advocate is not helping you.

There's many cases where I haven't gotten responses back for long periods of time. I will tell you one of the things that I do not only with Taxpayer Advocate, but I'll do with other folks that I'm dealing with the IRS, where I had that the information to do so is that, I haven't heard from somebody for a while, and I've left a bunch of phone calls. I normally will fax them, and I will go through, and I'll explain to them what days that I've called, I haven't got an answer back. I'm just simply looking to do this, yada, yada, yada.

Sure enough, normally we get a phone call pretty quickly. Because unlike a phone call, the written document, that fax, that goes into the case file and doesn't look so good. Or maybe it goes to a supervisor or something, but I normally get a pretty good reaction once I've sent in something written to the agent regarding returning my phone calls. So, just keep that in mind.
Moderator: Okay, I will now close the poll and share the results.
Dan Gibson: Okay, all right. Yeah, for those of you again, that are doing this type of work that maybe you haven't checked out the Taxpayer Advocate also... Actually, in some cases, I've had agents would actually tell me, "Listen, I can't do anything else for you. Your best option is to go to Taxpayer Advocate's office. They actually have you and direct you to go into the office. But if you've done what you think you can do, and you've run out of options, and you think you're not being well served, don't hesitate to or to contact Taxpayer Advocate.

We're looking at the audit assessment, there's three methods of audit assessment. We have the self-assessment, which most of us know, because most of us file tax returns. When we file our own tax returns, we are assessed at the point in which we're filing. The thing that we're going to talk about mostly today is the deficiency, that is, what happens when we're under audit or examination? The Internal Revenue Code 7602 and 7601 kick in, and we know the efficiency.

The third and a much rare instance, I've seen it in some cases, but it's very rare as the jeopardy of determination assessment. This is what allows the IRS when they feel that the taxpayer is going to skip out on them, maybe go overseas, what have you. Or they're just not getting cooperation from a particular taxpayer, they can do what's called jeopardy and termination assessments. Which could be almost immediately, they can start doing the assessment without having going through the whole audit procedure.

The assessment, which we talked about at the beginning of the program, it's extremely important that the IRS get to that assessment point because they need it. They need that assessment to be recorded before the collection enforcement actions can be taken. So really the auditor, and some people think they have this great enforcement power. They don't. They go through, and they look at your books and records, they look at your tax returns. They come up with proposed adjustments, you go through them. They're really not. They really can't collect the money.

I mean, you can, I think at the end, give them a check. But they're really not in the collection business, and they probably couldn't care less at the end of the audit, whether you pay them or not, because there's another group at the IRS is going to collect that money for the IRS. But again, that before the collection period, the group starts. They've got to have that assessment from the audit done.

From the standpoint of collecting the... Or from selecting returns for audit, there's the IRS is very obviously very computers driven, which most of us are these days. That they put in criteria. They have various things that they use as far as metrics for coming up with things that stand out, that should be audited. They have classifiers, people that are so called classifiers that actually human beings that actually look at the returns, and they make decisions on whether or not it should go out to the field. And those returns then are pushed out to the field, to the various audit groups that are out there. And between those groups that are out there in the offices, you will have managers, and you'll have agents reviewing these returns. Depending on the caseload, then the inventory, they'll either be selected, or they won't be selected. And if they are, then obviously that starts the whole audit return, auditing of the return process that goes on.

I often say that the most efficient audit from a practitioner standpoint is the one that doesn't happen, and that means a couple of things. One is that if you have unusual things that are happening in that return, and this goes for the income and deduction area, they can go for the balance sheet that's being reported. When a corporate partnership return, you might want to seriously just think of filing what's called a form 8275, which a lot of people get scared when they hear that, because they think that you're putting up a red flag. But I found it to be a good way of really explaining a particular area. It's on a form, as opposed to a white paper in the returns.

So if you put on a form, there's a good chance that the IRS is going to look at it. And if you will go and explain, and I will tell you over the next couple years is, as we particularly in the area of the new leasing standards that are out there. If you're using the book, balance sheet for your schedule L on a corporation or a partnership return, I will tell you that will really... We've done in some early applications of that, and I will tell you that, that will really whack out a balance sheet. And if I were looking at it, I know I would question that if I didn't know any better. So the 8275 is a good place to explain that.

The 8275R is where you have those issues where you don't agree with certain regulations that are out there. You're really taking a position that is probably not in conjunction with what the IRS feels. You can present your case. It helps prevent you getting hit with penalties when you do that sort of stuff. And if you're going to be aggressive, again, it's something you should consider. And all preparers and all reviewers, by the way should be looking at returns analytically.

I know as someone who spent half of his career doing audits of financial statements, the whole thing of doing analytical reviews is something that I'm comfortable with. And for folks out there that have done the same and even those that haven't, you want to do the simple things like just looking at last year's versus this year, and see what's falling out. You see somebody with a low amount of income, yet their mortgage interest is pretty high to maxing out a mortgage. You just, you should be asking yourself the question, what's going on here? Is there a good explanation for why you have this big mortgage, and you hardly make anything? There may be a good story, there may not be, and you want to be able to know that. The way you know that is looking at the returns in what I call the analytical fashion.

Again, some of the reasons for the audit, you have some of the matching that takes place on a CP2000. A lot of times it'll stop there, and they'll be matching of income or expenses. And you'll be able to put a stop to things, pretty much at that point and be able to explain, what's going on as far as concerns that go on out there?

The states, whether they be the income area, maybe the Department of Labor area, will often have an inter-jurisdictional exchanges amongst one another. It's kind of hard to tell which ones have these relationships, but you want to assume that they all do. So if you got a state audit and things went south, and you have a big assessment there, you really have to make the determination as to whether how much that affected your federal return at that point.

Over the years has been studies, National Research Program, NRP and the TCMP of these programs where the IRS goes out, and they look at... They're either doing what they call the audit from hell, which is to look at almost every penny that goes through that audit and getting back up for it. Or they do an audit where, which is probably more of what they do these days. It's where they pick a particular area within the return, maybe it's the payroll area. And they beat that area to death just to gather metrics and information.

I had one a few years ago on audit on a payroll area, and someone, the auditor went through it but they actually found errors. But they gave us a no change on that. I think it was really, their only purpose was to find out what the error rates were in this particular client, in this particular industry. Yeah, the infamous dip scores, discriminant information function scores, which is the secret sauce the IRS keeps Higher the score, the more likely it is to be audited. How they come up with the score, nobody knows, not even most people in the IRS. But that's a metric that they use.

Audit by infection, you have related companies. They find out that you have another company that they're not auditing. Maybe there's some shenanigans going on between those two, that you may have another audit that comes up. They do search public records, websites, new sites to see potential candidates that are out there for audit. Non filer information, they see that you haven't filed returns for a number of years. They'll go after those non filers. There are whistle blowers, people out there making a living on doing nothing but trying to determine what kind of issues are happening on other people's returns.

In the criminal area if you're a non attorney, watch out for the C, and the F word. What I mean by that is, if you're getting any inclination that you have a criminal, or a fraud issue coming up in your audit, and you even suspect that it might be happened. You want to stop, and you want to be able to contact a tax attorney, particularly ones that have dealt with criminal area to deal with that. You don't want to do that as a non attorney. You want to be able to get to that as quickly as possible. Because as non attorneys, we do have some privileges when it comes to the civil side. But once it becomes criminal, we lose all of our privileges at that point.

There's some strategies to get around that. There's something called a Kovel letter, where an attorney can hire you as a non attorney to work with them on your taxpayers case. But if you're deeply involved in that return, if you've prepared that return, or you've gotten too much information from the taxpayer, the Kovel may not do you any good. So you will have to make a judgment as to how far you are into that case. So, you really want to have somebody... As the preparer, you want to be able to not be involved in the criminal side of this, because you can be witness number one for a criminal case that comes up.

This is just to give you an idea of the number of artists that are out there these days that are going on. 2017, there was a million returns that were audited. 200,000 were face-to-face, where the remainder were correspondence audits. Of 3.3 million cases through the automated and reporting area where we're closed out. So, you get a lot of these notes. Again, a lot of this has to come to matching, and what have you, between the 1099 and what you're reporting as interest of dividends, or as other income.

A lot of those notices are wrong, so don't assume that they're right just because they came from the IRS. Also consider the fact that in a lot of cases, the 1099s might have been issued in error. In other words, you may have had an interest amount that was paid to a taxpayer, but the issue or the 1099 issue or a 1099 miscellaneous, so that's not... If the IRS has this all automated, they're looking for a 1099 interest matching what's on the return. If they don't see it on the return, it's another area somewhere. It's going to just create one of these notices.

One of the ways that we've done this, and most of you probably do this, as well when you're preparing return. You see this has been the case, you want to be able to report it. However, the 1099 has reported it, but you want to be able to move that through what's called a nominee transfer. So you show the amount gross, you show it as a negative on that line item, and then you report the amount to the correct area on the return.

The length of the audit, a lot of us, you'd be surprised that they have kept track of this over the years. It's, I think the numbers are pretty close a give or take. If you're doing a field audit of the business, I normally say it takes and it's about 80 hours. So you multiply that by your effective billing rates, and you have a pretty good idea as to what an audit will cost you for most middle market businesses, including those that have schedule six. Expect these audits to take at least six months, probably a year. But at least six months. For individuals, it's probably a 40 hour engagement, at least three months or more.

If you do an office audit, where you actually go to the IRS's audit group where they do these office audits, normally they're individuals, and they normally do them. The agents want to do one in the morning and one in the afternoon. So, it's normally a four-hour visit to the IRS. And if there's some follow up, it's probably eight hours of follow up. It's usually two, maybe three month process. Correspondence is really depends on what they're looking foR in the return or information if you're looking at, and you normally can get that done in half a day at the most. And just this going back and forth with the IRS, it may take you a month or so to resolve that issue.

If you're meeting... When you're meeting with the agent, whether they be in the office or the field, you do inquire a couple of things. These are some of the things that I asked for at a minimum when I'm doing that as I'm trying to figure out why the return has been audited. And some agents have been very good about that. They'll tell you what popped up, what caused them to look at the return. And quite frankly, they should. I don't think these things are just coming into somebody's inventory to be audited, and they're going off there. They're actually, these guys are actually studying the return, the agents have met with their supervisors, they've gone through the returns, and they're pretty much focused in on what they need to get done.

You want to be able to try to establish that, so you get a scope of what they're doing to try to keep them within that scope. It's very important. You also want to ask for any managerial contact information up front. You want to be able to get that information at the initial meeting, where you have the opportunity to get the manager's name, fax number, phone number, that whole thing. The audit goes south, you want to be able to the contact that manager, and you want to be able to Quite frankly, you want to be able to let the agent know, "Hey, listen, if things do go south here, I am going to the manager by getting that information."

You want to know if there's been any third party contacts out there. That they've gone to the bank, that they've gone to customers, vendors, things of that nature. You want to get the agents, the agent will show you there the badge numbers. You should get that ID number, you should look at their badges. You should ask the agents whether they have any contact with the criminal investigation division, or the technical fraud advisors that they may have in their group just to make sure that they're supposed to be truthful with you when you ask those questions. So if you ask those questions directly, they're supposed to tell you yes or no.

There may be instances where you have an office audit, or you have a field office, or you may even have a correspondence office, and you may want to switch them to another venue. In other words, if you're doing a correspondence office audit, and you find that you just can't get what you need to get across to the correspondence people, you can use this within your right to ask for that to be converted to an office, or a field audit. So you can sit with someone face-to-face, and go through the issues with them if that makes it easier. Just, again, I haven't seen that done much in practice, but it is available for us if we need to.

That takes us to polling question number four. For purposes of this webinar, what type of assessment are we most interested in? A, self assessment return filing, B, deficiencies that's upon any auditor examination, or C, jeopardy termination assessments.
Moderator: Please, remember that in order to receive your CPE certificate, you must remain logged on for at least 100 minutes, and respond to at least six polling questions.
Dan Gibson: Again, I'm repeating myself here. But just keep in mind that these assessments are extremely important. The IRS really can't get anywhere without proper assessing the client or the taxpayer with an amount that due. Then that allows them then to start the collection process, which is obviously important for them, because that's what fills up the US Treasury coffers.

Again, this is to remind you that, and I'll have a slide at the end here. I do have a number of collection webinars coming up in the future with EisnerAmper and with education, so just keep those in mind as well. We've gone through those, and again, I have a slide at the end for that.
Moderator: Okay, we're closing the poll and sharing the results.
Dan Gibson: Okay, at least 64% of you are listening.
Moderator: Okay.
Dan Gibson: All right. Third Party contacts is these are again, these are folks that the agent is met with or is going to meet with, and you should be asking that question whether, or not they've met with them or if they met with them. That they should be filling out a form called a form 12175, which is a summary of their discussions. And you should be asking for that. In some cases, they may not be, they're willing to give it up. So you may have to do what's called a FOIA request, and I'm going to go through that in a later slide.

But a FOIA request freedom of information request, you hear about that in the political side these days. You can actually get government documents, but you have to go through a FOIA request with the disclosure office of the IRS. And they have an office there that, that's all these guys do. And if you're looking for documents with respect to a case that you're dealing with, you can get those documents from them. You just want to be able to determine, if you've got a third party contract or a pending one that's out there, you really want to kind of hone that. And you really don't want to add the agent out there. Because that could be a death knell to a business IRS, so it's poking around the customers and vendors, and stuff.

You really want to be able to get that as quickly as possible, because there may be things that you can do. Maybe the IRS previously has been trying to get stuff from the taxpayer and hasn't gotten. And maybe you can get it to them, so that you can kind of head them off to the past, so they're not bothering the customers and vendors of the taxpayer. We've talked about before establishing that scope. And it's very important from a standpoint of not only ours, but the IRS's efficiencies, of course. We want to be able to keep the IRS agent in their lane. Because it's a term that's used a lot, you want to keep them in the swim lane and not be veering left to right. And by asking the various questions, how was the audit? How's the audit going to be conducted? What's of interest to the client, or the IRS? What items you're looking for or signs with the information document, Chris? What's in there? What are they looking for?

Again, as I talked about before, everyone has a boss and a budget. So you know when someone's come out into the field to look at this, and they've talked to their boss. They know what's important in that audit, and you want to make sure that they stay within that area. If they veer outside out of their swim lane, then they start to get out of scope. Start talking to the agent about that. Maybe even say that you want to have a manager conference with them because of this. Again, let's keep that known. And if there's issues in their area scope and even if they're not, there's issues that they may find out. Consider the fact that you may want to bring those up front. Again, it goes a lot towards credibility when it comes to dealing with the IRS, which is very important.

I talked about the information document request. This is something that we get initially. You want to read it carefully. A lot of these documents are coming from a template, probably. We all do it. We have a previous case that we're working on where we have a list of things that we want, and we just kind of copy and paste that and kind of make it, so that it's specific to our particular case that we're dealing with now. Some things fall through the cracks when they have stuff from a previous case on there. We may have generic stuff on there. Don't assume that everything that is on that IDR is acceptable and relevant to the case. Don't be afraid to push back, don't be afraid to ask questions.

When you're getting the documents together, normally I do like to keep them well organized by whatever requests that they're asking. So if they're giving you 10 requests and only to identify them one through 10, the documents, so that the agent knows exactly where they're going. And don't ignore items on the IDR. If there are things that you don't think are relevant or acceptable to be asking, you should be confronting the agent on that. And just don't just blow them off. Make sure that you are you're addressing those.

If you've talked to the client about very various things that you think might be privileged, and the client has told you, and there are subjects that are privileged that are on the IDR, you need to identify those at that point. And I'll address that issue in a couple slides from now.

Resist the temptation... This is big... Resist the temptation to give the IRS more than what they've asked for. You're not beholden to the IRS to give them anything more than they've asked for. And most of us think that by giving them more information, it's a good thing. If we're giving them more than what they've asked for, it will help. In many cases, it will not, and maybe it probably will just hurt you. I would really, really advise you to resist that temptation.

Timing and placing place of the audit, it's got to be reasonable on the revenue code 70605. It's got to be a reasonable. In most of the businesses I know that I deal in, in the middle market that's just not the case, that the audit can be done at the taxpayer's facility. It's got, in most cases, we bring it back to our office as opposed to the client's location. I've had instances where I've had auditors try to bully me into doing the audit at the client location.

In some cases, you get agents that because of the way that they classify big and large, and medium-sized businesses, some business that's really middle market business only because of maybe some larger assets that they may have on their books puts them into a category, which would make them look like a large business. And you get assigned an auditor who's used to dealing with Exxon Mobil, and some of the big farmers that might be out there that think they can just set up shop right in the building where the headquarters is at, and hook into the computer system and do all these other stuff. And you just have to explain to them, you have to be... You have to say, you have to just tell them, "No, you can't do it. You're going to do it in our office, and that's it." The client does not have the space or facility to support you guys out in field. They will usually back down from that at some point. It may take a while, but usually they will back down.

Again, in preparing for the audit, you want to look at the internal revenue manual part four. It's a good area to look at, and it's really the playbook for the internal revenues code. As we talked about before, you want to be able to interview the taxpayer. Very important to be able to get, especially if you haven't prepared the returns that go through the process of interviewing the taxpayer. You want to be able to go through the copies of documents. All IRS correspondence, extremely important to get yourself up to speed if you haven't already.

For those practitioners that are out there, and even for the taxpayers, you've got to know what the engagement that you're being involved in is going to cover. So you want to be able to know in that engagement letter, now, what's the scope? What are the years covered? Is this going to cover appeals? Is this going to cover collections? You want to know what the fees are, if there's a retainer, powers of attorney. You want to have all that information spelled out for you.

For the most part, especially in this audit area, you really have to know your stuff in this area. You got to know the examination process, and you should know that really should have a good idea of the tax issues that are involved here during the audit process.

On the next page, just an outline of the Internal Revenue manual section four. Again, it's the playbook that the IRS keeps. They have one in section five, I believe. It's on the collection area that they keep as well. It is a good idea to be able to just to flip through that, have an idea as to what the IRS is going to do.

The IRS has got a number of technical guides that are out there, that for particular industries that they deal with. Just keep in mind in these guides, whether they be the IRS or the audit technique guides, these are really these are guidances. These are like employee manuals for the IRS. This is not necessarily a law per se. It is guidance. It's, the IRS should be doing these. They should be following this because this is their guidance, but we don't necessarily have to follow them. Because that's only their guidance, not ours. So if they're doing something that we think is not in sync with the law or regulations, we should be able to speak up and tell them as such.

Some of the sensitive areas that you want to look at right away in any return, the travel, and entertainment meals, entertainment. Not the entertainment unless you're going back and years prior to 2018. But because we're not deducting them anymore, but those are areas that are fraught with the documentation that isn't as great as it should be. And quite frankly, the culprits in that are normally the owners of the business are not documenting the travel, or their meals as well as they should. Auto is another area that is fraught with adjustments. And if people aren't keeping the logs properly and what have you.

Deferred income; you have income that you have cash advances that come in. And if you're not treating them properly based on when they're recognized, you could or could not have an understatement income, accruing wages, commissions and salaries, whether you can accrue them on that based on when these items are paid out. Very critical to make sure they have those.

Reconciling bank deposits to gross revenue is important, and particularly, maybe not so much in the IRS side. But I will tell you on state audits, particularly when they're looking at the sales taxes. That's an important step that has to be done, and look that they'll almost... I know in New Jersey anyway, they look at that almost every time.

You want to make sure you have a good handle on the related companies, and the issues surrounding inter company accounts. Both particularly the management, the accounts. I will tell you on an ongoing basis, you should be really challenging your taxpayers on management fees that they're being charged. Not that there's anything wrong with them, But there's got to be some sort of a methodology for these management fees between inter company account and between the inter companies. Some people just coming up with just, it's almost like a tax planning tool, it's an afterthought, it's a tax year has been done. It's got, you've really have to kind of sharpen that up and make it a calculation that can be done really, during the years to what work has been done by one related company to another.

Again, as I talked about before, make sure that the files that you give the auditor, you may think that you can just throw a bunch of crap in a box and just let the auditor just go through. You really don't want to do that. You want to be able to put the documents in order. I normally what I do is, I normally follow whatever the IDR is as far as, so they can look at the IDR and go right to the documents that relate to that IDR.

Now, we get to poll question number five.

For 2017, approximately, how many audits did the IRS conduct? I will tell you that as I talked about at the beginning of the program, I do think you're going to probably see more audits that are coming down the pike. Whether they be more correspondence in nature, or face to face yet to be seen. Maybe they leverage off of the E-services that some practitioners have these days.

There was a time and place you could use the E-services, actually to address notices, that they've shut that down quite a while ago. But I could see the new Commissioner, again, Charles Rettig, who I have a lot of respect for. Because he was a practitioner out there, and he's trying to. Then obviously, he's representing the IRS now, not taxpayers. But he knows what it's like in the trenches. I think the spirit of his reign here as Commissioner will hopefully be one where he'll make the IRS a little more efficient, or maybe a little more taxpayer friendly as far as not so much on the enforcement side, but just getting things, just basically getting things done and getting things done in an efficient manner. Whether it be focusing on one or two issues on an audit, reviewing audits on an analytical basis, as opposed to doing shotgun approach.
Moderator: Just a reminder, this is question number five. But you have to answer six out of the eight polling questions, and remain logged on for at least 100 minutes. So I'll just give you a couple more seconds there, so go ahead and answer the question. Okay, and now I will be closing the poll and sharing the results.
Dan Gibson: Very good. All right. Okay, and they conduct the things that I've said before, IRS is going to want to visit the business. They're going to want to do the audit at the business, and they're going to want to at least do a visit there. I would do the visit. I normally with businesses that I deal with it, I probably say everyone that I've ever done, I've never had the owner, even on the location, if I can possibly help them. I normally would have someone there could be the controller, or the CFO with me doing the initial discussion, and they visited the business.

You normally set up a tour of the business, and then after that, the IRS. Again, most all my cases come back, and they're done in the office. And you want to, as I said, have one lead person from the client, usually the CFO or controller that you're dealing with on these cases. All the key issues that are coming up, make sure that they're well documented, and you've got the documents in a good orderly fashion. Make sure that it's in accordance with the IDRs that are out there.

Provide only what's requested. Never volunteer more than you have to, again possibly help yourself. You don't have to be the advocate for the Internal Revenue Service. That's not what you're there for. You're either there to represent the client in the most vigorous manner possible. They will too from the government standpoint, so you want to stick in there and represent your client very vigorously.

Also, watch for those deadlines. If you've set a deadline, make sure you meet the deadline. If you need more time, make sure you give the agent enough advance notice to give you more time. Most cases they won't have a problem with it.

Make sure you keep track of what the auditor is asking for as far as copies, and keep a folder or a log whenever you want to. But make sure you know what the auditor is taking as far as copies. If you have documents that the client has told you that are privileged, you can set up a privilege folder, but you do have to mark it properly. Mark it as a folder where you have documents to protect under IRC 7525. And you should really be, prior to the automating, you should really be asking your taxpayer if there was any privileged information, documents that are not that they do not want you discussing with the client.

Again, advocate aggressively. Credibility integrity is a great asset. You want to make sure you're doing the right thing. Anything, and I mean, anything you send to the IRS, make sure that somehow you're certifying the delivery of that. Don't cheap out on it. Don't send something in the mail, a regular mail. Send a certified mail, fax it. UPS it, FedEx it, whatever you need to. As I talked about before, once you send them something, a document and they have it, it becomes part of the record at that point. So if you're trying to get someone's attention on a particular matter, if you're faxing something to somebody, it will become part of the record. And they normally work, and they normally act pretty quickly on it.

The order is objective. Doing the audit is going to be looking at total positive income. You may look at a return where the income is a couple of thousand dollars, but they're not really looking at the bottom line. They're looking at the top line with respect to a return, so you may have return that has a couple thousand dollars of taxable income. But on there is a schedule C for a million dollars, $2 million of gross revenue. So they're looking at that total positive income first, and then they're looking at the deductions and credits, and they allow before.

In the schedules that have the most exposure, you would, and it's not a surprise. Schedule A where you have itemized deductions, people become very aggressive in those areas, as well as Schedule C and schedule A. Schedule C is probably the most audited statement or schedule that there is. Once they see a schedule C, and it's, this is decent-sized business, it's a good chance it's going to be audited. So, you want to be able to do that and keep it in. You may want to keep them in mind to as schedule C. If it's a fairly large Schedule C, not to someone side business, you really want to in mind and maybe you want to do an S selection. Maybe you want to bring in somehow create it so we have a partnership there, so we can file a different return outside of the individual's return one.

It gets it off the individual's return, and it also, it may lessen the amount of audits that the exposure that you may have. Again, the IRS looks at their returns analytically. You should too, look for those red flags, look for the ratios that may be out of whack. Use the 8275 to mitigate issues that may come up or crop up on the return.

It brings us the polling question number six. The IRS can dictate to taxpayers where the audit will be conducted.
Moderator: Please, remember that in order to receive your CPE certificate, you must remain logged on for at least 100 minutes and respond to at least six polling questions.
Dan Gibson: Again, in respect to this polling question, yeah, the IRS should not be bullying you around as far as where you can do your location of the audit. You should be able to dictate to them where as long it's an area that's obviously, it's a location that's in their area of jurisdiction. They should be able to handle that. It doesn't necessarily have to be at the client's location, and they'll do it. Any questions there?
Adele: We do, we have a few questions. Maybe we can take a few of them. One of the initial questions was, do you bring the client to an initial meeting with the IRS?
Dan Gibson: Yeah. I think I may have answered that in the previous slide, but that's fine. When you say client, I assume you mean owners. I never ever, ever, ever bring an owner to a meeting. I never bring it on an individual return, I never bring the individual to it to the audit. They're too emotional. I mean, they just don't get involved. This is their bailee, and I don't need somebody who is otherwise very stoic, solid individual going off on an agent because of some questions the agent is asking. So, I would really veer away from doing it.

But I will tell you that I may not do it at the end, I may not do it the beginning. I may do it at the end, though. It's like the Hail Mary at the end, because I've done everything that I could at that point, and there may be some sticking points in there. And if I trust the client will, I mean... And I've tried to keep them in, again, in their swim lane for that particular meeting. If there's something that I'm not getting across, because I don't know the business as well as the owners do, I find that when I bring the owners in at the end to speak to the agent in those cases where I might get, I may be stuck on a particular issue. I found that to be very beneficial.
Adele: One other question was, why is the statute only six years? Isn't the statute open forever if no returns were filed?
Dan Gibson: It is, yeah. Again, it's a good question. It's six years if you have significant unreported income. It goes on forever if you have fraud, or if you haven't filed your returns. So that's just a clarification. I think that I did talk about that in the previous slide. Let's, we probably should get moving on here.
Adele: I'll be closing the poll, and sharing the results.
Dan Gibson: Just reminding everyone, if I don't get you any questions that you may have sent, then I will follow up once the wants to program is over.

Yeah, we talked about the privilege log here. This is like some of the things that you may want to keep and make sure you keep in the privilege log. Just keep in mind, again, as non attorneys, we do have certain privileges on the civil side. But once it becomes criminal, the privilege log is open. It's not, it doesn't... It's not protected anymore. So you really, really want to keep your, what they call your spider senses out there, and you feel like something is wrong. You really want to be protective of every taxpayer. And it might be worth having a tax attorney, at least talk with the taxpayer one-on-one to see whether, or not there's an issue or not.

Again between the taxpayer and the agent, there should never be contact between the actual taxpayers. And if there is, you have that knowledge of that, and you really... You mean, you're the professional, and you're the tax professional. You're the one that should be guiding the client and knowing when the right time it is, and when the right time isn't to get them involved.

Remember the agents, they're trained investigators. Some of these guys are the nicest guys in the world. I had one state auditor years ago. I mean, we were like bug buddies. We were doing everything but exchanging Christmas cards at the end of the year. We were very, very close. We had same common interest, good buddies, but he was good. He was a good investigator. I would never allow him to talk to my taxpayer. And agents will push for that. I mean, and they would love the opportunity to speak to your taxpayer. Don't give it to them, especially if you're not there.

Make sure that any correspondence, make sure the agents know that many correspondence goes out that you're going to be CC. And most, they usually is, but it's worth mentioning. Again, make sure the client is not assuming that everything they're getting, you're getting because they may not be. I mean, they may not be getting what they're getting, and you don't want to, again, you don't want to blow some deadline, or some filing that you have to do. If there's a bypass letter that's being issued, make sure... we talked about this earlier... Make sure you address it, and appeal it as quickly as possible. And as a representative, and if you're looking for open-ended questions, you want to get that agent. You want to find out exactly what they're asking for. They give you a broad question, like, is there something wrong here? Is there something wrong with this areas?

If the IRS looks to interview a taxpayer or an employee, again, make sure you're resisting if they are limit to the scope. We talked about this, if the IRS wants to, they can issue a summon, which is almost like an... It is, it's basically a subpoena. It will compel the taxpayer to show up for a meeting. Keep in mind to compel a taxpayer to show up if they want to interview them, but it does not compel them to speak.

Representatives during these meetings can normally be there and present, but the representatives are not allowed to speak unless spoken to or asked by the agent there. And if they're looking for a certain information via summons, there is a case out there, the power case that you can use to quash the summons. The summons has to be issued for legitimate purposes, the information has to be relevant to the audit. If the information is not already... If the IRS already has the information, if the summon has been quashed, if they haven't gone through the proper administrative steps of asking for and going through it with the power of attorney that's involved there, that the summons can be quashed.

The next area is the extending of the statute of limitations. There's several options that will come out. Usually this will come up and most cases at the beginning of the audit. Most of the audits don't take place a couple of months after the filing. They come up two years from the filing. And the agents have got to have enough lead time in order to be able to do the audit, process the audit, get the audit, process. If they blow that, they can basically kiss it goodbye. They're going to be more than likely fired. That's the like the worst thing that an agent can do, is blow one of these statues of limitations. So you do have options, I mean, you can refuse to do a statute of limitations. It's not always and not usually the preferable option, but you can do it.

Normally, what I would do in a lot of cases is option two and three is if I'm going to extend the audit, normally I'll say, "Listen, you guys had three years to look at this return. In that three years, now you're running up against the statute of limitations. I need something in exchange for giving you an extension. I want you to limit your audit to these areas, and I don't want the 12 and 18 months that you may want. I want six months. And if the six months isn't good enough, well, then six, three, or four months from now, we'll sign another extension."

But I want to again, I'm trying to keep this audit moving. And I don't want to give them the chance to have this sitting on somebody's shelf somewhere. As a practitioner, you should never sign these extensions. You should always have the client sign these extensions, because you never know years from now you're not with the firm anymore, the client has engaged somebody else, and somebody is now questioning why the statute of limitations is still open. So just keep that in mind, clients should always be signing documents of this nature, especially when it comes to extending statute of limitations.

If you have the... And I've had a few opportunities to meet with the Criminal Investigation Division. When you're meeting with these people, you should always know what your status and what your client status is. You're normally in three buckets. You're either a target, you're a subject, or you're a person of interest. If you're a person of interest, it's normally the somebody you're... They're just looking for information from you. If you're a practitioner and are asking you questions about your taxpayer, you might want to ask for what they call a friendly summon. So at least they have that kind of get out of court free piece of paper, and you could have in your file to answer questions from the CID people. If you are a target or a subject, I would highly recommend that once they tell you that you stop the interview, and then you engage counsel at that point.

The audit when it's closed, we talked about this in the beginning of the program. If you disagree, you can then speak to the agent. Probably a good idea to have a managerial conference at that point to go over, just to make sure that this is the position that the division group is going to be taking at that point. If you have tactical issues, you could ask for an advice memo to be written up by the National Office. The agent will produce a Notice of Proposed adjustments. You either agree or won't agree. It's good time then at that point maybe to talk about reduction of penalties.

It can be much more convenient where you're face-to-face with someone, or you're speaking with someone over the phone at the agent level to, maybe get them to reduce or update some of the penalties that they have. There's various things that you could be having about such facts, percentage concessions to ascertain horse trading. Don't expect a lot of it at the audit division level. You can get more of that at the appeals level but usually, it's pretty black and white at the audit division.

It's, normally you want to write up a closing memo, which will memorialize issues that are out there, and the position that the IRS is taking versus yours. We have those disagreements as we talked about. Before you get the 30-day letter, which is your letter to then go to the appeals' division, which, again, I would not shy away from that. If you have the opportunity and you go strong enough about your case, definitely you want to go to appeals. Those people they are to resolve your issues.

You want to document the audit progress along the way, issues that are raised, documents that are reviewed, resolution of certain issues. And this document, those at that point just to see where you're at. Because when you go into appeals, if you go to Tax Court, it's good to have all these things in line, which could be months, maybe years later after the fact and you wouldn't even have all the stuff in your files. Again, as we talked before in the appeals' area, you're going to get this 30-day letter. And if you actually and if you have at the time that they're going to do the 30-day letter and there's less than six months left on the statute, many times you're just going to go right to the statute notes, which is below here, the 90-day letter.

But if you get the 30-day letter and you need extension of time, it's, the 30-day letter an IRS internal policy thing that they have. It's not by statute, so you can get an extension. But on that, you can ask for an extension on that, and they will give it to you.

When you're at appeals at that point, which is a good thing. I think, you should not be looking at the appeals as a super auditor to be able to go back and look at all of your issues again. Or if you bring new stuff to the table at the appeals level, technically, the appeals is supposed to push that back down to the field again and have them review. The appeals is almost like a... It's almost like a... I don't want to scare you, because it's not a judicial type of a hearing where we have a judge and that whole thing. But they're supposed to be looking at this thing from a high level and helping you resolve the issue. They're supposed to be taking what's called considering the hazards of litigation, and hazards of litigation allows them to go through and do that horse trading, how solid is the case? Can we give up some stuff? Can we do a reduction of the tax, the assessment to get this case cleared out?

After that's all done you'll get a 90-day letter, if you haven't resolved the issue. Or you may go right to the 90. You may be surprised, sometimes you get the 90-day letter. They'll skip right over the 30-day letter. So what you're going to need to do, and it's a very easy thing to do, is you need to petition the Tax Court at that point. So you have 90 days, not acceptable. The 90 days is statutory, it's got to be done. You have to have it done in there, so you do what's called a pro se petition to the Tax Court.

What's going to happen, it's going to be a documented case, but it's going to go back to appeals. And that's the point of what you're going to have the opportunity to talk to appeals to that point. Even if you're beyond the appeals, you have the IRS chief Counsel's Office to talk to. Again, the IRS at those levels are trying to resolve the case, and they want to take as least amount of cases to the courts as they can. And if the deadline, that 90-day deadline is missed, you're basically done at that point. You're going to have a deficiency that's assessed, and then the case is going to move on to collections.

The appeals petition, as we talked about before which makes the appeals more judicious in nature than it is being a super auditor. If you can do a face-to-face meeting, it's a great thing to be able to sit down with somebody. In many cases, as we go more in on these days, it does become more and more difficult to get. So you don't expect it, but it doesn't mean you can't ask for it.

Go in there with your facts, your applicable laws. You want to control that meeting, you want to be able to propose solutions, you want to be able to come to a conclusion that in those cases. To prepare for the meeting and the appeals, you want the auditor's work papers. And I will tell you that many times the auditors will not give up their work papers, and you will have to go and do a FOIA request, the Freedom of Information Act request. And I've given you the link here as to how to go about going into that and getting that. It's a fairly easy process to get that. Just make sure when you're asking for it, that disclosure offices know that you've asked for the auditors to give it to you. And make sure any requests that you have, you're CCing the auditor and their agent and their manager as well.

At the Tax Court, you've got your 90-day letter. One good thing about Tax Court is you're not required to pay the tax before that. There's no jury there. It's normally less formal. Taxpayers who actually want to represent themselves can do it. The judges are usually pretty helpful in those cases to file the petition, you pay a $60 fee. And in many cases, you have the opportunity to once it's docketed, to deal with appeals in chief Counsel's Office. The fact that the cases docketed, it makes, it gives you a little bit of leverage when you're dealing with these folks at the appeals of Chief at Counsel's Office.

Audit reconsideration; if your case hasn't been decided by the courts, or you haven't signed any sort of contract with the IRS at that point to come up with new facts afterwards, you are able to do what's called an audit reconsideration with these new material facts.

We got the polling question number seven, have you ever helped a client in a pro se case before the US Tax Court? Yes or no.
Adele: Again, please remember that in order to receive your CPE certificate, you must remain logged on for at least 100 minutes, and respond to six out of the eight polling questions.
Dan Gibson: Again, just to repeat, the petition for the US tax is really not that difficult at all. It's one, if you do it as a non attorney practitioner, make sure you don't sign it. Make sure your taxpayers got to sign it. You get a lot of trouble by signing the tax for a petition.

Then, even if you're not doing CPE, I would ask that, let me... If you give remarks in the evaluations that you give, give me some feedback on some areas in a tax space that you may want to talk about. Whether you may want to talk about the eggshell audits, or it's the term criminal, innocent spouse applications, payroll tax, trust fund recovery penalties, things like that. If there's something else, just let me know.
Adele: Okay, I'll give you five more seconds to answer. I am now going to close the poll and share the results.
Dan Gibson: Okay, no action for people to press it. I'm going to skip over that at this point, because time is running short. And we'll go right to polling question number eight, which is, what other tax webinar topics would you be most interested in? A, tax liens and levies, eggshell audits, additional training in dealing with the IRS, all of the above, none of the above? We've gone over 100 minutes, so... Okay, any more questions?
Adele: Yeah, we have a few more questions. In case of a 1040 where the income is low, but the mortgage interest is high but there's a good explanation, should the explanation be reported on form 8275?
Dan Gibson: That's going to be a judgment call. I mean, I would probably tend towards... Obviously, if there's a good explanation for it, I'd like to be transparent on my returns. As someone who you work for me, I mean, I do that on the 1040s that I work on, or do that on the IRS corporations or partnership returns. I try to be as open and transparent as I can. Again, I'm not giving anything away. I'm just want to make sure that, as I said before, the most efficient audit is the one that doesn't happen.

So if I can provide enough explanations out there for the IRS in case something looks unusual like that, I don't want to destroy anything out there that would show up as a something that looks in correct. Again, the 8275, it's a form as opposed to a white paper. So, it's one that the IRS is more likely to read than the white paper.
Adele: Another question is, if the taxpayer refuses to extend the returns, can that put their appeals rights in jeopardy?
Dan Gibson: They refuse to... You know what? I don't know that answer directly. I would think that it would not endanger the appeal, so top my head. But I'm not positive on that.
Adele: Do we have time to take another question? Well, let me just close out the poll, and then we'll have a few more seconds for questions at the end. I'm going to share the results now.
Dan Gibson: Okay.
Adele: All right.
Dan Gibson: All good. Okay, so this is the last slide. I just want to thank everyone that's hung in there for the last, almost two weeks hours. And I just want to get as a little self promotion here is that, in the last slide here is just future webinars that we're going to be doing for the upcoming month or upcoming months. I'm going to be doing the EisnerAmper IRS web series on August 6th, October 24th, November 21st, and then December 10. You can register at EisnerAmper.com, click on events, and that'll get you right into the spot where you can register for these.

By all means, if you have other folks out there that you know of that you think might be interested in whether they need a CPE, or whether they practice, whether they want to a little more knowledgeable in this area, by all means, please feel free to forward this to them. Go in to this website here, click on this, and this will give you and get you right in there. You can register for that course as well.

There is a fee for these education services. I will tell you that up front. But again, if you think it's worth it, then by all means, please sign up for that. Any more questions?
Adele: There's one more. Has the recent taxpayer first act of 2019 changed the peace process? And if so, how?
Dan Gibson: I think it's... In reading through it, I think it's... I don't know if that it's really changed. I think it's really emphasized that more than anything else is, I read. When I read through it, I didn't see a tremendous amount of changes, as opposed to just really re-emphasizing what it should be all about. Again, I go back to the current Commissioner now, Charles Rettig as a practitioner for them for several, several years in this area as a tax attorney. Not dealing in the ivory tower. This guy was dealing on the front lines, and he knows what it's like as a practitioner out there.

You want to be able to go through efficiently through the whole appeals process. You want to deal with the field agents, they're the guys, basically the guys on the ground, the grindstone, doing the work. They're putting the cases together, and you really want the appeals guys not to get involved in doing that. You don't want them to get again, emotionally involved in the case. You want them to be separate from that, so they play their role, and what their role is. Their role is to resolve the case at that point.

So, you're dealing with people. If it's the audit division, it's people that are auditing, or you're dealing with people in collections that are looking to collect the money. Those people at those levels, they got one thing in mind. They're looking for something that's going wrong, and they can charge additional tax. For the collection guys, they're looking at what has to be paid, they want to get paid, they want to get paid now, and they want to get paid the full amount.

You deal with those guys. But then, at the end of the day, I like to deal with those guys that in their job description is resolved. So I could sit down with somebody, and we can resolve issues with the settlement officer, or the appeals officer, and or their managers found that area, they're pretty reasonable. As long as you've got to present your case, you've got to defend your case. But once you've done all that, I found the most cases the appeals' area to be one that again, I'm not afraid to go to. I like going to that area, because it's guys that are trying to get to a good conclusion for, both the interests of the government as well as the interest of the taxpayer. You got a question?
Adele: Yeah, I just got a question. What is an eggshell audit?P
Dan Gibson: Oh, a good question, a good question. Eggshell audit, it's a regular audit that you've gone in. Again, remember, we talked about the spidey senses, and maybe you've talked to the client, and the client tells you about maybe some cash account that should be on the books that's not for some other set of books that they have. So now you know that there's an issue out there. That you've gotten the contact letter, you're pretty sure that the agent isn't aware of a potential criminal issue here. So you want to walk very, very lightly. That's what the egg shell comes from, you want to walk very lightly.

But obviously as non attorneys that are practicing in this area, when you do an eggshell audit, you must, you must have a tax attorney involved with that point. And probably the, again, the best practices in this area is to get yourself they call a Kovel. It's an old case where you will work for... You will actually be engaged by the tax attorney, continue on what you're doing and work with that.

A lot will depend on how much involvement you've had in the case, because there may be, if you were there preparer, maybe such is, it's a great idea to have you be the face of the audit. Maybe you hire somebody else, whether it be a CPA enrolled agent or another attorney. They don't know the stuff that's happening out there, so you can kind of use that. But that's what the egg shell it's all about.
Adele: Will appeals take up a case with too little time left on the statute?
Dan Gibson: Will appeals take up a case? I'm thinking that at that point, they probably would request that you have an extension at that point, because you're going to want to give those. You're going to want to give plenty of time here to get the case resolved if you're at that point. You're really not going to have an issue. I mean, obviously you're not going to want to do it. You're not going to want to extend it for a year. You may want to give it a couple more months, three to six months to allow them to go through the appeals process. But again, you don't want to push the appeals people. Those are people that could be your friends at that level.
Adele: All right.
Dan Gibson: All right.

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