Tax pros representing clients in an Internal Revenue Service (IRS) audit need to be able to address the crucial questions those clients will be sure to have. In IRS audit situations, being able to answer “Why?” and “What happens now?” will not only put your client at ease but also enhance your professional image.
IRS audits are complicated and sometimes unpredictable, according to former IRS manager James Pickett and tax attorney George Abney. Understanding the basic audit process as well as how recent developments may impact your client’s experience means you can confidentially advise clients caught in the IRS’s crosshairs. Pickett and Abney cover these elements in their Eli Financial webinar, “IRS Tax Controversy: How to Handle an IRS Audit Like a Pro.”
Warn Clients of Audit Triggers: Bad Math, Deduction Overkill
Essentially, an IRS audit is the government’s way of double-checking returns for errors. Yet few clients will be comforted by such a simple explanation. Most will want to know why in the world they are the target of an IRS tax “controversy.”
Here are the main reasons, according to Nerd Wallet, a taxpayer might inadvertently invite the agency’s attention:
- Math mistakes (note: “oops” isn’t a good defense)
- Failure to report some income
- Claiming too many charitable deductions
- Reporting too many losses on a Schedule C
- Deducting too many work expenses
- Claiming home office deductions, which are rife with fraud
- Using “nice, neat, clean round numbers”
Clients are also likely ask, “How can I stay out of trouble?” Intuit’s top five ways to avoid a tax audit are:
- Check and double-check your numbers
- Be honest
- Aim for simplicity in returns and claims
- Claim realistic deductions only
- E-file (note: paper returns are more error prone)
Prep Clients for 2 Audit Types: Mail, Face-to-Face
An IRS audit can happen in person or via mail—with the mail audit being, by all accounts, much less stressful and easier to handle.
In a mail audit, clients can expect to provide documents and, possibly, oral testimony to explain omissions. The key point to drive home is that it’s important to meet all IRS deadlines, says H&R Block.
Smart: “We cannot emphasize enough the need to respond to all requests for information from the IRS,” the company notes. “Appeals must also be filed according to the deadline established by the IRS. If you miss these important deadlines, the IRS can charge you taxes. Or worse, you could possibly lose your right to appeal.”
Much more intimidating is the face-to-face audit, where you and your client will have the pleasure of visiting an IRS office or hosting an agent in your office.
Key steps of the in-person audit include:
- Notification and preparation
- Initial interview
- Issue development—where the IRS focuses on a few items and asks a lot of questions about your return, finances, and more
- Finalizing the audit and, perhaps, filing an appeal
While tax pros are adept at navigating the audit process, being able to communicate the affair to clients may not be so easy, say Pickett and Abney. Remember: What’s just a day at work for you is a frightening and extremely stressful experience for them. Don’t get caught not knowing what to say and how to say it to flustered clients.
