Working with the IRS

How to Work With the IRS

Working with the IRS

Department of Treasury administers and enforces the internal revenue laws

-Though most revenue functions have been delegated to the Commissioner of the Internal Revenue

Commissioner appointed by the president and is the ceo of the IRS


IRS Oversight Board- functions as part of the Treasury

–          Review and approve IRS mission and planning

–          Review operational functions and training

–          Suggest candidates to the president for commissioner

–          Review the process for compensation

–          Review and approve the IRS budget

–          Ensure taxpayers treated well

IRS National Office

IRS processes around 135 million 1040’s every year

-Guiding Principles

–           understand and solve problems from the taxpayer’s PoV

–           Have IRS managers be accountable to taxpayers

–           Measure taxpayer satisfaction

–           Foster honest communication

–           Encourage integrity

– Strategic Plan Goals

–           Improve taxpayer service

–           improve enforcement of tax law

–           Modernize the IRS

 How to Work With the IRS

Commissioner advises who should be selected as Chief Counsel

–          Highest ranking legal advisorHow to Work With the IRS

–          Represents agency in Tax Court

National Tax Payer Advocate

–          Taxpayer intervention system


IRS Service Centers

-Andover, MA

–           Atlanta, GA

–           Fresno, CA

– Kansas City, MO

–           Memphis, TN

–           Philly, PA

–                       process returns


Computing Centers

–          Detroit, Martinsburg, Memphis

–          Manipulate data from processing centers

Processing Centers

–          Austin, Cincinnati, Kansas City, Ogden

Customer Service Sites

–          Contact between taxpayers and inquiries


Taxpayer Assistance Orders (TAO)

–          Issued by National Taxpayer Advocate

–          Suspends or delays actions that is deemed to be causing taxpayers a hardship

–          TAO requires filing of form 911

Local Taxpayer Advocates

–          Provides taxpayers with a rep with access to regional service centers

–          Ensures problems are referred on


Taxpayer Rights

–          Taxpayer Bill of Rights

–          Has right to know why the IRS is requesting info

–          How the info will be used

–          What might happen if they fail to comply with request

–          Must explain orally or in written form the aspects of procedures

–          Taxpayer may be represented by an attorney, CPA or other person who is permitted to represent before the IRS

–          Not required to accompany their rep before the IRS

–          Tape recording of interview allowed

–          Transcript of interview allowed

–          Spouses are protected

–          Must be informed of right to representation

–          Confidentiality protected


The Audit Process

Income tax system is based on self-assessment

Audits encourage honesty

–          Preliminary Review of Returns

  • After initial review, income tax returns are processed through the IRS ADP (Automatic Data Processing) program
    • Makes sure data matches from return and other documents
      • Referred as IDMP
      • Conducts Mathematical/Clerical Error Program
  • Mathematical/Clerical Error Program
    • Checks for math errors
    • Sends info on deficiency and requests payment
      • No interest if paid within 10 days of notice
  • Unallowable Items Program

–          Selection of Returns for Examination

  • DIF
    • After returns go through the ADP program they are rated by DIF
    • Higher the DIF the more likely it is to be audited
    • Employee confirms what DIF score says
  • National Research Program
    • Gives IRS stats needed to improve DIF
    • General audit to correct returns
      • Areas of concern
        • Basis of capital assets
        • Cash transactions
        • Income not subject to withholding procedures
        • S corps, Partnerships,
        • Self-employed
  • Other Selection Methods
    • Some are automatically reviewed by the IRS
      • Significant increase in interest or passive income
      • Decreases in mortgage payments
      • Large variance in income
      • Expenditures not justified by income
      • Frivolous returns from tax protestors
      • Tax shelters
      • Large corporations
      • Exempt organizations
      • Executive compensations
      • Offshore transactions
      • High-income
      • Nonfilers
      • Specialization in industries and taxes


Chances of Audit

–          Increases if:

  • Claims tax shelter losses
  • Operates cash based business
  • Previous returns were incorrect
  • Itemized deductions are excessive for income
  • Claims excessive  business deductions


Audit Examinations

–          Correspondence Examinations

  • Conducted by local office
  • Covers itemized deductions for interest,
  • Charity contributions
  • Medical expenses
  • 70% of all audits

–          Office Examinations

  • 10% of all audits
  • Usually confined to income tax returns that include no business income
  • Done in IRS office

–          Field Examinations

  • Complex issues
  • On taxpayer’s premise
  • More comprehensive than other exams
  • Limited to corporation or individual business returns
  • 20% of audits
  • Refusal to admit IRS personnel subject to $500 fine


Dealing with the Auditor

–          Develop do’s and don’ts with certain auditors

–          Be professional and courtesy

–          Review the strengths and weaknesses of your position

–          Cooperate

–          Establish timetables and responsibilities for dealing with audit

–          Give auditor adequate work accommodations

–          Don’t impede the process

–          Don’t allow auditor free access through building

–          Don’t allow auditor ability to browse through info

–          Don’t give up additional info

–          Don’t intimidate auditor

–          Have a primary contact

–          Verify credentials

–          Meet daily to review issues

–          Obtain copies of all paperwork

–          Track all time and effort spent on process

–          Clarify as needed


Conclusion of examination

–          Written Revenue Agent’s Report (RAR)

  • Lists balance due and explanations
  • Waiver to be signed in agreement
    • Case not closed until reviewed by district office
  • If disagreement still persists
    • IRS tries to resolve instantly
  • If cannot be resolved instantly
    • 30 day letter is sent
      • Preliminary notice of deficiency

30 Day Letter

–          Informs of all findings

–          Explains appeal rights

–          No response within 30 days leads to 90-day letter

–          Has 30 days to request a conference with appeals officer


File a Protest or Go to Court?

–          Factors in Favor of Appeals

  • Appeals officer can see hazard of litigation
  • More elements of the government’s position is revealed
  • Recovery of some legal costs

–          Factors in favor of going to court

  • New issues less likely to be brought up
  • Psychological message that you mean to win
  • Conclusion expedited


Appeals Process

–          Irs encourages appeals

–          Handled in Appeals Office


Appeals Conference

–          Informal

–          Testimony usually not under oath

–          Officer supposed to be impartial

–          Can settle case


90 Day Letter

–          Aka Statutory notice of deficiency


Judicial System


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