Don’t forget about your Right to Retain Representation was published by JD Supra on 10/23/18.
Taxpayers have a Taxpayers Bill of Rights: ten fundamental rights available to them when dealing with the IRS. They are:
- The Right to Be Informed
- The Right to Quality Service
- The Right to Pay No More than the Correct Amount of Tax
- The Right to Challenge the IRS’s Position and Be Heard
- The Right to Appeal an IRS Decision in an Independent Forum
- The Right to Finality
- The Right to Privacy
- The Right to Confidentiality
- The Right to Retain Representation *
- The Right to a Fair and Just Tax System
*The Right to Retain Representation
Taxpayers have the right to retain an authorized Representative of their choice to represent them in their dealings with the IRS. An authorized Representative can be an attorney, a CPA or an enrolled agent. Taxpayers do not have to attend an interview with the IRS with the Representative unless the IRS formally summons the Taxpayer to appear. Many times, IRS will suspend a Taxpayer’s attendance if the Taxpayer has a Representative and the taxpayer has submitted a written Power of Attorney (Form 2848) to the IRS authorizing a Permitted representation.
What does it mean to Practice before the IRS?
There are rules that govern the practice of a Taxpayer’s Representative before the IRS. They are published in the Code of Federal Regulations (31 C.F.R. Subtitle A, Part 10). The US Department of the Treasury releases the rules as Circular 230. Practice before the IRS under Circular 230 includes:
- Communicating with the IRS on behalf of a taxpayer regarding the Taxpayer’s rights, privileges, or liabilities under laws and regulations administered by the IRS.
- Representing a Taxpayer at conferences, hearings, or meetings with the IRS.
- Preparing, filing or submitting documents, or advising on the preparation, filing or submission of documents, including tax returns, with the IRS on behalf of a Taxpayer.
- Providing a client with written tax advice on one or more Federal tax matters.
Making sure that Taxpayers choose the right Representative
The American Institute of Certified Public Accountants (AICPA) states that Taxpayers ought to seek favorable outcomes when being represented in front of the IRS by properly analyzing risks and careful planning and strategizing with their Representative. The AICPA presents eight commonly “violated and/or misinterpreted IRS examination procedures” that are based on the Internal Revenue Manual. They are:
- Initial examination contact letter from the IRS has a short response time: this can be problematic because failure to respond within the 10-day timeframe may result in a 30-day letter and an audit report being issued (tax assessment).
- Proper written notification of additional tax period(s) under examination is not given. Consequently, the Taxpayer could be subject to additional tax liability as the IRS could fail to provide proper written notification and request documentation for new period(s).
- Items are included in examination report when notification and request for verification was not made. Meaning, the Taxpayer could potentially be unable to corroborate an item.
- Difficulty in rescheduling an audit appointment. The Internal Revenue Manual provides allowances for the rescheduling of an initial appointment under specific circumstances.
- Accuracy-related penalties. At times, accuracy related penalties are automatically assessed. Correspondence examinations will automatically assess the accuracy-related penalty without evaluation of a cause.
- IRS could request to interview the Taxpayer if the Representative is unable to provide requested information. As a result, IRS could issue a summons to enforce a Taxpayer’s participation.
- IRS requests to tour the business and or conduct the audit at the Taxpayer’s place of business but requests an audit location that is inconvenient and/or costly to the Taxpayer and the Representative. Examinations should take place where the original books, records, and source documents are maintained.
- Collectability determination. Will the IRS consider a Taxpayer’s ability to pay when determining the scope of an audit?
Don’t be a victim of your own making
Taxpayers ought to consider providing a signed and dated Power of Attorney to a Permitted Representative requiring simultaneous notification receipt for the Representative. Taxpayers also need to make sure that they are choosing the right Representative; one that will not expose them to “additional scrutiny or liability” due to lack of experience. The Representative ought to have experience with:
- providing the information requested by IRS (not more and not less)
- analyzing examination reports and if necessary, requesting the withdrawal of the report and requesting an Information Document Request
- determining whether the Taxpayer acted with reasonable cause and in good faith
- answering IRS questions during an Interview based on client knowledge
- establishing a working relationship with the IRS
Consult your specialized tax Representative.