YOU have just received an invitation to visit an office of the Internal Revenue Service to examine (meaning audit) your tax returns. Don’t panic. You have stashed funds for a rainy day, and this is it – a gathering storm. Take a minute to compose yourself, then read these tactics to shelter you from the storm.
You have just received an invitation to an office of the Internal Revenue Service. They want to examine your return. Don’t panic. All these years, you have stashed funds for a rainy day. This is a rainy day. A gathering storm. Compose yourself. Then go to battle. Don’t be over confident though. I am just boosting your morale. Read these tactics to shelter you from the storm:
1. Prepare. This is your best line of defense against the IRS. If they want to verify your contributions, bring canceled checks and statements from charitable organizations.
2. Schedule the audit to your advantage. Do not be bullied by their ten-day letter. Schedule your appointment just before a three-day weekend when they are eager to go out on vacation. Schedule it near the end of the month when auditors are under pressure to close their inventory of open caseloads. Postponing an October or November examination to the holidays is not bad idea either. These tactics worked for me in 50 years of tax practice.
3. Schedule your appointment early in the morning or late in the afternoon. An early morning appointment could get you an auditor who is still fresh and probably in a good frame of mind. In a late afternoon appointment, the auditor may want to leave the office before traffic builds up.
4. Don’t be afraid to go to Appeals. Your chances of winning there are better than the examination level.
5. Don’t bring unnecessary documents. This is not the time to come extra prepared. I have seen taxpayers bring documents for travel & entertainment when all that is being verified are interests and contributions. If the auditor decides to go on a fishing trip, you will be tempted to show excess bait that you just happen to bring along.
6. Auditors always request tax returns for the previous and succeeding years. That’s standard operating procedure. But that doesn’t mean that you should provide what you cannot find right away. Stall to give you time to evaluate those returns with your tax accountant.
7. If you do get the (mis)fortune of being confronted by an unreasonable auditor, do not be afraid to intimidate back. Request for a change of auditor even of it will probably be rejected. Most employees of the IRS are reasonable and professional. Treat them nicely. They are likely to reciprocate. But be wary of agents who are still trying to impress their superiors or are on a mission to pay back an oppressive and cruel world. Personally, I have had my best wins with veteran auditors. I have had my most terrible moments with young, minority auditors who carry police badges. (This is merely my own personal experience of dealing with the IRS for fifty years and may not reflect yours).
8. If an agent goes to your place of business in a field audit, do not feel sorry for placing the auditor in a small poorly ventilated room with stale air, if that happens to be the only available space. You cannot help it if the Revenue Agent feels so uncomfortable that he’ll beg to wrap things up and go home. (Folks, there is no law that requires you to welcome them in an embassy suite).
9. If the issues are simple and the stakes are low, you may represent yourself. But if the issues are unwieldy and problematic, have a professional who is well versed in tax controversy represent you against the IRS.
10. If auditor is replaced in midstream, it’s understandable to get upset especially if you have established rapport with the prior agent. Make lemonade out of lemon. Instead of complaining, use it to your advantage. Minimize major finds by prior auditor. Change tactics to skirt around problematic issues that were identified by the prior agent.
11. If you don’t want an agent to see a troublesome item, vaguely promise to send it but you may just forget to. This is ideal for seniors with early signs…
12. Learn when to observe, when to talk, when to shut up. Your best answers are yes, no, I don’t recall, or I’ll check on that. If you cannot stand silence, don’t talk to fill in the void. This is a dangerous reaction. You may blurt out something that opens a Pandora box.
Good luck.
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Victor Santos Sy graduated Cum Laude from UE with a BBA and from Indiana State University with an MBA. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation in Pasadena, California.
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He has 50 years of experience in defending taxpayers audited by the IRS, FTB, EDD, BOE and other governmental agencies. He is publishing a book on his expertise – “HOW TO AVOID OR SURVIVE IRS AUDITS.” Our readers may inquire about the book or email tax questions at [email protected].