HOW TO SURVIVE
A TAX AUDIT

Every business hates getting a letter from the I.R.S. announcing a tax audit. This article explains a few critical things to remember during the audit to survive with the least financial pain and least mental anguish.

1. Never Speak Directly With The Revenue Agent. A business has nothing to gain and everything to lose by talking directly to a revenue agent. Let your hired representative do the talking. Never forget that revenue agents are trained to elicit harmful admissions.

Resist the urge to "come clean" with the I.R.S. Taxpayers often wrongly think that by consenting to interviews and answering revenue agent questions, the revenue agent will not be as aggressive. This is usually a fatal mistake and often results in a larger tax bill. The more you talk, the more evidence is typically provided to the I.R.S. to seek an additional tax assessment

A lot can be learned from that large fish on the wall of your friend's office. Ask yourself what every fish on the wall has in common, the answer is an open mouth.

2. Never Hesitate To Challenge An Out Of Control Revenue Agent's Wrongful Conduct.
Sadly, many revenue agents attempt to use fear/threats as a tactic to get an in person interview
with a business owner or high level officer. For example, revenue agents often threaten an administrative summons to compel the business owner to give oral testimony. This is absolutely improper and illegal if the business's representative has sufficiently cooperated with the revenue agent's document requests and has answered all reasonable questions.

In such an instance, immediately get the revenue agent's supervisor (and possibly his branch chief as well) on the telephone and ask that
this type of conduct immediately

end.

In addition, remind the revenue agent that the only way to enforce an administrative summons is for the I.R.S. to convince an assistant U.S. attorney to petition for a summons enforcement hearing in U.S. District Court - a rare event.

Every time the revenue agent becomes abusive, his or her conduct must be challenged. While many fear retaliation, the alternative is always worse.

3. Never Forget The Revenue Agent Has No Power. A revenue agent has no power to assess additional tax without your consent or your representative's consent. Remind the revenue agent that all he or she can do is to offer their opinion on what the tax should be. If you disagree - then the revenue agent is off the case and you can often settle the case with a more reasonable appeals officer or petition the U.S. Tax Court. Either way almost always results in a favorable settlement.

YOU AND YOUR BUSINESS HAVE RIGHTS

* to have your representative do
all the talking with the I.R.S.
* to sound record I.R.S. meetings
* to video tape I.R.S. meetings

TIP: ADMINISTRATIVE APPEALS CAN BE
DANGEROUS WHERE YOU HAVE EXPOSURE.

Say your business has just completed an I.R.S. audit and the I.R.S. claims additional tax due but you disagree. Should you seek an I.R.S. administrative appeal? The I.R.S. appeals officer can bring up "new" issues never addressed at the audit. If the audit year has "skeletons in the closet" it may be wiser to bypass the administrative appeal and petition the U.S. Tax Court where new issues are rarely raised and where many cases settle without the expense of trial.