Part I: Representation- Questions from the IRS
© Ben A. Tallman EA
If you think about the characteristics and skills that separate Circular 230 Practitioners from the rest of the tax industry; representation is near the top of the list. Even if you are not credentialed, you still have the right to represent your client in the initial examination or audit of a tax return you prepared. If you have not become a Circular 230 Practitioner, let’s see if we can get you started on the pathway to “fulfillment”.
As a Circular 230 Practitioner, you have the Treasury Department’s authority to represent taxpayers before all levels of the IRS. You can have your client sign Form 2848 “Power of Attorney” which authorizes you to represent them on any tax year and tax form you feel qualified to discuss. The only restriction on representation is if you get to Tax Court. To practice in this arena, you must pass a 4-hour exam showing you are proficient in understanding the law, as well as tax. Becoming a US Tax Court Practitioner (USTCP) is a life-time ambition for many in our industry.
So where do we start? Let’s begin with IRS questioning your client’s tax return. Whether it is a simple CP2000 letter or a request to audit the records and receipts; your client is looking to you for your help and expertise. Once you’ve reviewed the IRS letter and the client’s substantiation, you’ll need to make a decision based on the following issues:
- Are we justified to take these deductions?
- Can we defend our position?
- Is the auditor making unreasonable demands?
- Should we speak to the manager?
- When should we request an appeal?
- When should the client file a petition to Tax Court?
You’ll notice that we mentioned the “client” filing a Tax Court petition. Unless you are an attorney or a USTCP, you are prohibited from completing a petition for the court. Yes, this applies even when you are operating under the taxpayer’s Power of Attorney. You can help walk them through the petition, but you should never charge for your assistance on the petition. Why? Because you’ll be practicing law without a license! As we said, you can provide “free” advice to the taxpayer(s) as ‘they prepare’ their Tax Court Petition.
So how do you know when to do things? Good question. Everything has a ‘trigger’ with the IRS and it is based on the type of letter they send your client. So let’s work our way down the chain of letters and taxpayer responses:
- Proposed Assessment – The auditor is proposing the following changes based on a review of the clients records and substantiation. It is okay that you don’t agree with the auditor. In many cases, asking to speak to the manager allows you to go up the chain-of-command to someone with more experience and a greater understanding of the issues. Trying to resolve these proposed assessments with the original auditor may be a waste of your time and add additional charges to your client’s bill. Believe me; it gets better as you go “up-line” to the more experienced staff members.
- Notice of Determination – This happens around 30 days after the Proposed Assessment if you chose not to respond. Don’t let this worry you. IRS is required to follow a protocol when it comes to letters. If you have not spoken with or communicated with the Audit Manager, this would be a good time to do so. You need to follow the chain of command when dealing with the IRS. Try several communication mediums, like FAX, certified mail, voicemail, and even e-mail if you can find a valid email address. Even if the manager does not respond, have credible evidence that you tried to reach them. If things are getting stagnant, consider filing a request for an appeal on Form 12203. You could also wait until the next letter arrives. Just be sure to follow the chain-of-command.
- Statutory Notice of Deficiency – This is also called the 90-day letter because your client has 90-days to exercise their right to petition the Tax Court. If they are out of the country at the time the letter was issued and their passport confirms this fact, then they have 150 days, instead of 90. They’ll need to include proof when utilizing the 150-day period. These statutory time periods cannot be altered or extended by anyone at the IRS. This petition is between the taxpayer and the Tax Court, not the taxpayer and the IRS. So even if they have something in the works with the Audit Manager or the Appeals Section; if it’s not finalized before the 90 days expire, recommend they file their petition including their $60 filing fee (unless requesting a waiver due to financial hardship).
- Taxpayer’s Response with a Petition to Tax Court – The taxpayer can go to the U.S. Tax Court website and pull up the petition package. This provides them with forms, instructions and a checklist. They may ask for your help in identifying the issues of disagreement, the taxpayer’s evidence, and the substantiation to prevail before the court. If the IRS added a penalty to the deficiency notice, be sure to show that penalty as an area of contention. Remember the petition is the taxpayer’s plea for relief against the accusations of the IRS. Anything that is left out of the petition is deemed conceded to the IRS in the final ruling. Most taxpayers chose to file “Pro se” (without counsel or an attorney) because 90% of these petitions get resolved before going to Tax Court. Taxpayers should also choose to file as a “small case” (under $50,000) because of the relaxed rules and procedures that apply. The petition also grants your taxpayer a 12 to 18 month period before the case is docketed. So you and your taxpayer now have plenty of time to exercise your appeal rights with the IRS. Even though the petition has been filed; your POA to negotiate with the IRS is back “in-force”. This means you can represent your client again. Paragraph 5 will appear in the next segment on Representation.
This is the conclusion on first of three segments dealing with representation. The others will follow in upcoming blog posts.