Tax Practice and Procedure: Working With (and Against) the IRS

  1. IRS Organization
    1. As of 1998 IRS was divided into operating divisions
    2. Service Centers Become Campuses
    3. Taxpayer Advocate
      1. Taxpayer Assistance Orders-TAO
        1. Form 911
  2. Types of Audits
    1. Power of Attorney Tips
      1. Fax a copy of the POA to the IRS CAF Unit
      2. Add additional years on both sides to the POA
      3. Make sure that the signatures are no older than 60 days
      4. Make representations rather than ask questions if you don't have a POA
    2. Correspondence Examinations
      1. Interest
      2. Taxes
      3. Medical Expenses
    3. Office Examinations-Generally Form 1040
      1. May include Schedule C, Sch. E. Casualty and Theft Losses
      2. Conducted by an office auditor
    4. Field Examinations. Reserved for most complex types of audits
      1. Conducted by a revenue agent
      2. lOR v. Summons
        1. All bank and financial accounts
      3. Generally conducted at taxpayer's place of business
        1. Try to move it to your office if at all possible
        2. If an examination is scheduled by the Service at the taxpayer's place of business and the taxpayer represents to the Service in writing that conducting the examination at the place of business would essentially require the business to close or would unduly disrupt business operations, the Service, upon verification. will change the place of examination to a Service office the area where the taxpayer's books. records, and source documents are maintained. Treas. Reg. § 301.7605-1 (d).
      4. Revenue Agent will wish to intelView the taxpayer.
        1. Beginning v. End
        2. Can not be required in the absence of a summons. IRC Section 7521 (c)
        3. Taxpayer may record the interview. IRC § 7521(a)(1)
    5. Eggshell Audits and Reverse Eggshell Audits.
      1. What is an eggshell audit.
        1. An eggshell audit is a civil tax audit in which the taxpayer has filed a false tax return. If the falsity comes to light then there is possibility that the IRS can refer the case for criminal investigation, and ultimately criminal prosecution. Because of the sensitivity of the issues and the potenti~1 for disastrous results, anyone involved in the audit must walk on eggshells. Hence the term "eggshell audit."
        2. What is a "reverse eggshell audit." This is a tax audit in which IRS agent is collecting information for what purports to be a civil tax audit with the intent of providing that information to the IRS' criminal investigation division for criminal tax prosecution. It is the taxpayer who is unaware of the parallel or simultaneous criminal investigation.
      2. What are the stakes.
        1. Civil Tax Fraud Penalty. IRC Section 6663.
          1. The civil tax fraud penalty is 75% of the underpayment which is due to tax fraud. The IRS has the burden of proving civil tax fraud by clear and convincing evidence.
            1. If the IRS proves that ANY portion of the underpayment is due to tax fraud then the entire amount of the underpayment is treated as being due to tax fraud, unless the taxpayer can prove by the preponderance of the evidence that some portion is not due to tax fraud.
        2. Criminal Tax Fraud or Tax Evasion. IRC Section 7201.
          1. The penalty for tax evasion is a maximum fine of $100,000, and five years in jail.
        3. False Return Charges IRC Section 7206(1).
          1. The penalty for filing a false income tax return is a maximum fine of $100,000, and three years in jail.
          2. A taxpayer can be convicted of filing a false tax return even though there is no tax owed.
        4. Potential consequences of a felony tax conviction in addition to jail and monetary fines.
          1. Loss of voting rights.
          2. Loss of right to possess firearms.
          3. Loss of professional licenses.
          4. Loss of federal government contracts.
          5. (Deportation of alien.

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