Possible conflict of interest - Audit supervisor - taxpayer

[Jack from Ohio]

We have a client who is under audit for 2010. The audit is for her Schedule C. She has large Office in Home deduction. (40%)

The auditor is being extremely intense about every single detail of every line of the Sch. C, far more intense than audits we have assisted with in the past.

Taxpayer lives in a small town where the auditor's supervisor also lives.

Taxpayer thnks the supervisor has a personal vendetta against her.

Can we ask, or demand, a different auditor and supervisor?

Anyone faced this before?

[joanmcq]

40% is very high. Could this be one of the reasons they are looking so closely? Did your client give a reason why the supervisor could have a 'vendetta'?

[Jack from Ohio]

40% is very high. Could this be one of the reasons they are looking so closely? Did your client give a reason why the supervisor could have a 'vendetta'?

Apparently jealous of her business success. The lady is single with no children, so the 40% is probably close to correct.

[joanmcq]

I'm single with no children, and I have 15% of my home for my office. Two full rooms. 40% is really, really high, and a big red flag.

[jainen]

>>Can we ask, or demand, a different auditor and supervisor?<<

You can ask--I don't recommend trying to demand something from IRS. Your chances are lousy unless you have some pretty solid evidence. Pub 556 explains the audit procedures they are supposed to follow, and your rights to appeal or call the Taxpayer Advocate.

But "being extremely intense about every single detail of every line" is a common audit technique. It doesn't necessarily mean they are picking on you. These guys are federal bureaucrats; they have plenty of office politics without bringing in their own private lives. I'd guess it more likely that your client is actually in trouble on Schedule C, so I recommend you focus on that. Whatever the result, you can take it to Appeals which has a different supervisor.

[ed_accountant]

Let us know how this one ends.

It is probably too late for this suggestion:

Turn down the audit representation and advise the client to hire another tax firm for audit representation away from her home town but near another IRS office. Then the new tax firm would request that the audit be transfered to the closer IRS office. This would delay the audit and get new auditors involved.

I have been done this myself and not only was the audit delayed but it was also cancelled since the IRS was too busy..

Ps 40% is very high. I would not prepare that return!

Thanks

[rfassett]

I agree with the others - not much you can do at this point other than wait for appeals. Again, you can ask, but don't expect a welcoming party. Yes 40% sounds high, but it is a matter of facts and circumstances. It might be right on the money for your client and she should be able to supply evidence. In closing I WILL say this, I can not remember any audit where the client at some point did not utter those "they are out to get me" words. Sometimes I take the time to explain that away, sometimes I let them go on believing it because it is fun to watch them squirm.

[michaelmars]

Let us know how this one ends.

It is probably too late for this suggestion:

Turn down the audit representation and advise the client to hire another tax firm for audit representation away from her home town but near another IRS office. Then the new tax firm would request that the audit be transfered to the closer IRS office. This would delay the audit and get new auditors involved.

I have been done this myself and not only was the audit delayed but it was also cancelled since the IRS was too busy..

Ps 40% is very high. I would not prepare that return!

Thanks

I too used this method very often but lately i have had the agents decline the switch and they make the trip to my office. One came over 2 hours away and came 3 times to perform the audit.

[jainen]

>>not much you can do at this point<<

I don't agree with this. There is plenty to do when you get out of personality mode. (I don't mean that personality mode won't be perfect for your next audit!) If the auditor's purpose is to upset you so you can't think straight, she's good at her job. But you can make it backfire, because her bottom line is closing the case as soon as possible.

So, you know, extra detail takes extra time to respond. And when you do get back in, either the client was right all along or it's just a minor detail that you can argue Cohan rule or even concede with little damage. Every line? Nonsense. Most lines are blank, right? That's because (maybe you can say) the taxpayer didn't load up on deductions for everything under the sun. Only claimed the ordinary and necessary stuff, and overall conducted business in a prudent and thrifty way.

I don't have a problem with 40%. I've seen higher--artist studios for example. It's usually easy to prove with photos, but also usually easy to concede without much tax effect. Pick your battles carefully.

Dig in on one or two larger issues of tax theory rather than documentation, so the auditor knows you are prepared to appeal. But also bring the client in with a checkbook and offer to close immediately, agreed and paid.