IRS conducts field audits where the books and records of a business are maintained. This, of course, is either at your home, office, warehouse, factory, or store. But I don’t like any of these locations.
After representing taxpayers in IRS disputes for four decades, I prefer your audit conducted at my office – as your representative. Let me tell you why:
– I do not want a Revenue Agent snooping around your place of business.
– I do not want the agent interviewing your employees.
– I do not want your customers or clients noticing an IRS agent in the premises.
It is not good for business. It is not good for employee morale.
Here are tips to help you manage IRS Field Audits:
Establish an internal team before the IRS meeting. Assign a “contact person” to assemble and regulate the flow of information with the IRS. The contact person should review all information before it is turned over to the IRS and be present during tours and interviews of employees. This setup will increase the likelihood that the information provided to the IRS is organized, complete, and focused.
So how do we move the audit to our office? IRS regulations state that if conducting the audit at the place of business would essentially require the business to close or would unduly disrupt business operations, the agent can change the place of the exam to an IRS office, but this only my second choice.
My first choice is our own office. This shifts the audit venue from your office to mine. We do not have to worry about the agent overhearing employees talking or observing business operations. I can control the flow of information, the timing of interviews, and the general course of the audit at my office.
The agent will resist the change so we just have to be persistent. One way is to request for a site where the main books and records are located. The main books are sales journals, cash receipts journals, cash disbursements journals, general ledger, and trial balance that are all located in my office. Backup records such as receipts and invoices are at your place of business and can be produced as requested. It may not work but if you are persistent enough, the agent and his/her manager may permit the change of venue.
The agent will then request a “tour” (on-site inspection). That is fine. The Internal Revenue Manual (IRM) requires agents to do so. Here are a few tips:
-We, as your representative, should accompany the agent.
-Your presence will be requested, but make it brief.
– The tour should be brief and general, no looking in every room or closet, no thumbing through files.
– Your files are at my office, remember?
Lastly, make sure that requested invoices, receipts, bank statements and other documents are at my office; otherwise, the rationale for the change of venue is blown. This would be embarrassing. In the meantime, conduct your business as usual and let me take care of your audit at my office. Under my supervision. Under my control. Good day.
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Victor Santos Sy, CPA, MBA, provides professional services in accounting and tax controversy including IRS audit defense and offers in compromise. He also advises clients on choices of entity including corporations for small businesses and LLCs for rentals. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation at 704 Mira Monte Place, Pasadena, CA 91101. The firm celebrates its 35th anniversary this year. You may email tax questions to Vic at [email protected]. You are welcome to visit our website for more than 300 tax tips at www.victorsycpa.com.