In an article on Kiplinger.com, Joy Taylor reports that the Internal Revenue service audits more than 1 percent of all the individual returns filed each year. As an accounting professional, any of your clients are affected by these IRS audits, they will look to you for support and guidance. How much guidance you need to provide will depend on each client's financial circumstances and the type of audit the IRS plans to perform. Field audits are more comprehensive than correspondence audits, so someone going through a field audit will likely need more help. Use these tax tips for helping your clients survive IRS audits.
When new clients sign up for your tax accounting services, ask them to notify you if they receive any notices related to IRS audits. The IRS typically sends a CP2000 notice to recommend proposed adjustments to tax returns selected for correspondence audits. In an article for the Journal of Accountancy, certified public accountant Joe B. Marchbein recommends that accountants advise their clients to pay the deficiency and sign the agreement included in the CP2000 notice, provided that the notice is correct. If the CP2000 notice is incorrect, Marchbein recommends that you ask the IRS to transfer the case to a local office.
The amount of support you need to provide to clients going through IRS audits typically increases for clients going through an audit of their business tax returns. In the past, accountants limited the number of documents they sent to the IRS in an attempt to limit the scope of a business audit. Unfortunately, IRS agents are now requesting the backup files from bookkeeping and accounting programs such as Sage Accounting and QuickBooks. David Leeper says successful business owners are some of the most-audited taxpayers, so be prepared to assist your business clients with audit issues.
Because IRS agents are using this information to evaluate the reliability of your clients' business accounting records, you should advise your clients to keep their records in order. CPA Jim Buttonow recommends asking the IRS agent to accept other forms of documentation so that you do not have to turn over complete electronic files for prior years. A potential alternative is submitting printouts of accounting documents with detailed explanations of what actions were taken by you or the client. If the agent insists on receiving the electronic file, tell your clients that providing anything less than the full file will make it look like they are trying to hide something.
IRS audits cause anxiety for both individual filers and business owners, but you can ease your clients' concerns by explaining the process in detail. Be prepared to provide documentation for any line item in question on a personal or business return, as this is the best way for a client to survive an audit. If any of your clients do their own bookkeeping, offer to provide tax tips and assistance with end-of-quarter or end-of-year accounting activities. This will make it easier for your clients to survive IRS audits and reduce their likelihood of being audited again in the future.
(Photo courtesy of Stuart Miles / freedigitalphotos.net)
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