The IRS Problem Solver by Daniel J. Pilla

Author:Daniel J. Pilla
Language: eng
Format: epub
Publisher: HarperCollins
Published: 2016-08-12T00:00:00+00:00

8. Stop the Steamroller

The goal of the IRS is to complete audits in the first interview. The faster it closes cases, the more audits it performs—simple as that. Unfortunately, a fast examination is not always accurate, particularly if you are not prepared. If you need time to obtain requested information or hire counsel, do not be shy about your right to suspend the interview. Keep two overarching principles in mind as you cope with audits: (1) the IRS cannot force you to attend a given conference, and (2) even if the agent disallows your deductions, you have the absolute right to appeal the decision.

I was once involved in an audit with a woman who was asked to provide evidence of the purchase price of stocks she had sold. The IRS wished to determine whether she had reported all profit from the sale. As proof, we offered the woman’s ledger, which she used to record the purchase and sale price as well as the dates of all her holdings.

Unfortunately, the agent was not impressed. He wanted to see copies of the broker’s confirmation slips for each transaction. The confirmation slips would contain the date, purchase or sale price, the number of shares involved, and the total amount of the trade. We explained that the confirmation slips were not saved. The woman’s only record was the contemporaneous ledger she created to memorialize these very facts. The agent responded that if no confirmation slips existed, he would disallow the claimed basis, asserting that she realized 100 percent profit in the sale of each stock. “That assumes she obtained the stocks free of charge,” I argued. “You know that didn’t happen.”

“That may be true,” he replied, “but you have the burden to prove your basis and I don’t accept this ledger.” At that, I indicated that we wanted the examination suspended until such time as confirmation slips could be produced. “You said you didn’t have them. What would be the use of suspending the audit?” he countered. “I intend to make the adjustment.”

I responded, “The purpose of this audit is to determine the correctness of the tax return. Clearly, we cannot determine its correctness by merely drawing the assumption that she obtained expensive stocks free of charge. Obviously that is ridiculous and that did not happen. In the interest of fairness, you must provide an opportunity to present adequate proof on this point.”

Because the IRS could not force us to continue, we opted to suspend the audit unilaterally. We then gathered the needed information from the library and through her brokerage house. Before long, we returned to face the agent. This time the audit was concluded, but on our terms. He accepted our proof, and there was no change as to the stock transactions. If we had not stopped the steamroller when the agent threatened to disallow the claimed basis, my client would have faced a bill for tens of thousands of dollars in additional taxes she did not owe.

9. Prevent Audit Abuse

My trade

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