Remember the “Tax Gap”? When in Spring, ’07, the IRS told Congress that taxpayers were cheating on
taxes by $290 billion a year? Congress and the Bush administration got worked up about the tax cheats
among us. To address this horrible situation the IRS recommended – surprise! – increasing its own
budget. Today we are stuck with a wave of tax audits stemming from an increase in the IRS budget.
Here are five steps to remember when you get the IRS audit notice.
1. Don’t Panic. Don’t Pull an Ostrich – If you get an audit letter from the IRS, respond as soon as
possible. Ignoring the IRS is not a prescription for success. The IRS will not go away if you
pretend that they are not there! In fact, the auditor may just get hurt feelings - not a positive
development. One taxpayer ignored all those pesky IRS notices; it cost him about $10 thousand.
2. Be Professional. Hire a Professional – It’s OK to think that the IRS agent is a bloodsucker after
your money. But it’s NOT OK to tell that to the IRS agent. It will not help your cause even if you
feel better. The IRS agent has a number of tools to deal with cranky taxpayers including the tax
fraud statutes. You don’t want to go there! Treat each IRS agent as a professional, affording her
the courtesy of a prompt and civil reply to each request.
Use an experienced tax professional to represent your interests. If you are tempted to represent
yourself, just remember the adage that “He who represents himself in court has a fool for a
client.”
3. Control the Audit. Document Everything – Even when dealing with the IRS agent you have
rights. An agent may be unfamiliar with the IRS’s own rules of process and procedures. Just
because the agent asks for something does not mean you have to provide it. An experienced
professional can analyze each IRS request and suggest an appropriate response. Every
significant communication with the IRS agent should be in writing. If issues with the agent come
up later, your documentation will be a life-saver.
4. Don’t Expect the Audit to End Soon – The IRS is now trying to wrap up tax audits in 120 days
from start to finish. But don’t be fooled. We know of one IRS audit that’s been going for ten
months with no end in sight. An IRS agent works 5 or 6 hours a day; so it takes a while to open,
work and close an audit.
5. You Have a Right to Appeal – Don’t antagonize the IRS agent. But if an agent is wrong or over-
steps bounds, don’t hesitate to ask for a joint conference with the agent and supervisor. If you
have a strong case and you don’t get satisfaction from the supervisor, consider appealing the
decision. But, do so only with the help of an experienced tax professional.
We are seeing more IRS audits of restaurants than ever. Following a few simple steps will get you
through this unpleasant process with the least amount of damage.
Robert Wagner, CPA is president of NetFinancials, Inc. which provides a full range of tax and accounting outsourced
services for restaurant companies. Email: bob.wagner@netfinancials.com
Remember the “Tax Gap”? When in Spring, ’07, the IRS told Congress that taxpayers were cheating on taxes by $290 billion a year? Congress and the Bush administration got worked up about the tax cheats among us. To address this horrible situation the IRS recommended – surprise! – increasing its own budget. Today we are stuck with a wave of tax audits stemming from an increase in the IRS budget.
Here are five steps to remember when you get the IRS audit notice.
1. Don’t Panic. Don’t Pull an Ostrich – If you get an audit letter from the IRS, respond as soon as possible. Ignoring the IRS is not a prescription for success. The IRS will not go away if you pretend that they are not there! In fact, the auditor may just get hurt feelings - not a positive development. One taxpayer ignored all those pesky IRS notices; it cost him about $10 thousand.
2. Be Professional. Hire a Professional – It’s OK to think that the IRS agent is a bloodsucker after your money. But it’s NOT OK to tell that to the IRS agent. It will not help your cause even if you feel better. The IRS agent has a number of tools to deal with cranky taxpayers including the tax fraud statutes. You don’t want to go there! Treat each IRS agent as a professional, affording her the courtesy of a prompt and civil reply to each request.
Use an experienced tax professional to represent your interests. If you are tempted to represent yourself, just remember the adage that “He who represents himself in court has a fool for a client.”
3. Control the Audit. Document Everything – Even when dealing with the IRS agent you have rights. An agent may be unfamiliar with the IRS’s own rules of process and procedures. Just because the agent asks for something does not mean you have to provide it. An experienced professional can analyze each IRS request and suggest an appropriate response. Every significant communication with the IRS agent should be in writing. If issues with the agent come up later, your documentation will be a life-saver.
4. Don’t Expect the Audit to End Soon – The IRS is now trying to wrap up tax audits in 120 days from start to finish. But don’t be fooled. We know of one IRS audit that’s been going for ten months with no end in sight. An IRS agent works 5 or 6 hours a day; so it takes a while to open, work and close an audit.
5. You Have a Right to Appeal – Don’t antagonize the IRS agent. But if an agent is wrong or over-steps bounds, don’t hesitate to ask for a joint conference with the agent and supervisor. If you have a strong case and you don’t get satisfaction from the supervisor, consider appealing the decision. But, do so only with the help of an experienced tax professional.
We are seeing more IRS audits of restaurants than ever. Following a few simple steps will get you through this unpleasant process with the least amount of damage.
Robert Wagner, CPA is president of NetFinancials, Inc. which provides a full range of tax and accounting outsourced services for restaurant companies. Email: bob.wagner@netfinancials.com
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