An Appealing Proposition – Appealing Your Audits
By Eva Rosenberg, MBA, EA
Tax professionals often find ourselves struggling with audits. With a hiring freeze, and with some of the IRS’ best people retiring, the IRS has a reduced workforce. Some of the exam staff we have to face are under-trained, inexperienced. Others are still terrific, experienced and professional. The managers are generally more experienced and can work through some of our disputes. However, when we need a manger conference, the managers are not as easy to reach as they used to be.
Worse news! The IRS is handling more of their exams via correspondence audits. That means, the audit document request is sent by mail. The client (or we) must respond by mail. The documents go into the system. Some examiner in a service center pulls the case. Each time we send a response, with additional documents or information, it is handled by someone different. Correspondence audits are frustrating, inefficient, and frankly, a crap-shoot. This system was meant to address only the simplest audits. Yet, rather complex situations are being handled by correspondence audit. Sure, you can try to request a face-to-face audit. Back to the initial problem – limited IRS staff and resources.
We find ourselves unable to communicate clearly with an examiner and need to escalate our clients’ audits. There are several ways to resolve audit conflicts.
Let’s explore some of the issues you face when you try to take your case to Appeals at the IRS.
Appeals has implemented something called the AJAC system. Like the cleansing powder, Ajax, this is designed to clean house at Appeals. AJAC stands for Appeals Judicial Approach and Culture. This AJAC system overrides the various local processes used by Appeals at different IRS campuses around the country. What does this mean to the tax practitioner? We can no longer shop for the best Appeals office for our client. Yes, that is what experienced practitioners used to do. Some campuses were more lenient and open to accepting information; while others were real sticklers and only accepted information that had already been presented to the examiner. Now, all offices will handle you case the same way.
What does this AJAC program mean to your case?
The IRS Appeals office no longer accepts undeveloped cases. The Appeals function is to address the legal issues, interpretations and disputes in a case. It is not their job to look through the invoices and receipts and determine the deductions and other minutiae that should be handled by exam. Appeals will no longer accept anything that wasn’t first submitted to the examiner. If you do submit new documents, Appeals sends it back to the examiner to have them process the documents first, before sending the documents and their assessments back to the Appeals unit. (Appeals will retain jurisdiction. They simply refuse to do the grunt work. ) That could add weeks to your case.
So, what’s a good tax pro to do? We no longer have a choice. We must deal with the examination division first. To fully develop our client’s case, we must submit all relevant receipts, bank statements accounting records, or whatever necessary to prove our client’s income is not understated and their deductions are not overstated.
The examiner might not agree with your interpretation of the documents. No matter. Submit them with solid explanations to support your client’s position anyway.
What if exam doesn’t want to accept your documents or records? That doesn’t matter either. Submit everything that you want the Appeals office to see. Send it with proof that the IRS received them – certified mail, proof of delivery. (Or any other approved delivery method that the IRS has approved https://www.irs.gov/uac/private-delivery-services-pds .)
Let exam reject your claims. We don’t care. Because once all the documents are in the hands of the examination division, we can now turn to Appeals to interpret the information.
We may have to provide some more explanations about the information we submitted – especially if exam never even looked at our documents. That IS our job when dealing with Appeals. You may need to do some research, to find court cases or Internal Revenue Code sections or Internal Revenue Manual code sections relevant to your client’s situation. These are the kinds of documents that Appeals will accept, without sending the case back to exam.
Since there are fewer Appeals posts of duty, most of our work with Appeals will be over the phone, or in some rare instances, you might be able to use a secure online conference system. Yes, Appeals is testing that this year, mostly with the larger cases. Don’t be concerned about the “how” of communications. Appeals now has a central database where anyone who logs into your client’s file can see all the information and notes on the case. That may end up being more cumbersome than in the past. Or it may simplify the Appeals follow-up process. Regardless, there will be a specific Appeals officer assigned to your client’s case, who will follow the case through to resolution.
The good news is, Appeals is processing cases more quickly – as long as we tax professionals cooperate. Once your case is assigned, you’re apt to get the case resolved within 120 days or less.
What is the biggest problem Appeals has with tax professionals? When our case finally gets into their hands, we ask for more time. Frankly, if you’re one of those tax pros who always need more time, you’re not doing your job correctly. When you file to request an Appeal, it will take months to get your appointment. Get your case organized immediately. When they call you, if you’re ready for them, you’re apt to have better results because they see you as an organized professional. By being organized and getting your arguments spelled out, along with the cases you have pulled, you WILL be better organized than the average tax professional.
We have several other options to help our clients, if you Appeal fails. But when you do a professional job preparing your case, you rarely have to go any further.