Effective Strategies for Avoiding and/or Resolving

IRS Audits
Nothing causes a clients pulse to race more than the thought of an IRS audit. When discussing ways to
avoid an IRS audit with a client and what to do if audited it can be tricky and equally pulse pounding.
Michael Gregorysi book How to Work with the IRS, Second Edition, presents nearly 30 examples of
what practitioners can do when working with the IRS. The IRS is a complex organization with 13
different divisions that have been operating independently since the year 2000. Independence has led
to the development of silos, each with its own culture and approach to classifying returns, selecting
cases for audit, applying audit techniques and approaching issue resolution. There are also cultural
differences geographically and, of course, there are personal differences with each IRS representative
with whom you may be working. Each of these complications needs to be considered on a case-by-case
basis.
If your case is being audited, it is important to develop a good working relationship with the IRS person
assigned to your case. Whether your interaction with the IRS is by phone or in person, keep in mind the
last person the IRS person interacted with may not have been nearly as professional as you are going to
be now. It is also important to know who is the decision maker on the case, when it may be necessary
for you to recommend a specialist be requested for a particular issue or even when to elevate an issue
to IRS management. All of these and other variables point out the complexities that can impact how to
avoid and what to do if audited by the IRS.
The audit may be a correspondence audit from a service center based on filters applied to a tax return,
an office audit where the taxpayer is called into an IRS office and requested to bring in books and
records, or a field audit when an IRS agent or Estate and Gift (E&G) tax attorney audits at the taxpayers
place of business or their representatives office. The first step to minimize difficulties is to understand
each of the important players. In examination the divisions you are likely to encounter are: Small
Business Self Employed (SBSE) (assets less than $10 M and all E&G tax cases), Large Business and
International (LB&I) (assets greater than $10 M), Wage and Investment (Individuals with no business),
and Tax Exempt and Governmental Entities. Of these, SBSE and LB&I are the entities most CPAs and tax
attorneys interact with at the IRS as they relate to businesses.
Although classification and audit techniques are different for the reasons identified above, by following
the national and local classification process, as well as the local process of an estate or gift tax audit at
the IRS, generalities can be applied to other areas as well. For an estate or gift tax return, the IRS uses
filters to evaluate the return as well as other related returns and other nonreturn information. This is
made available to the classifiers with experience in this area at a national level. To help make this a
blind classification, the classifiers may not identify returns for the state in which they are based. It is
recommended that, if an appraisal was prepared, the appraisal be attached to the return. The
appraisers that assist with the classification process look to see if the appraisal was completed by a
certified appraiser and that it seems to follow the standards of the certifying organization. This is a plus
for your client, if this is the case. For this reason it is suggested that the appraisal be included with the
filed return. Once both the appraiser and the E&G tax national classifiers are done, these returns are set
aside with a score. The higher the score the more likely the return is to be audited in the field.

Locally, returns are requested based on the demand pull of the E&G tax manager servicing your area.
The best returns from the national classification process for your geographic area are sent to the local
E&G tax manager to maintain a full inventory of returns for the E&G tax attorneys in the group. If more
returns are needed than are classified for your area, returns may be supplied for your geographic area,
as well as anywhere in the nation. Once they arrive, they are classified again by local classifiers that
identify the returns based on local knowledge into one of three groups. The groups are: yes we will
audit these; we will audit these if we have time, and we will not audit these. Finally, an E&G tax
attorney will be assigned cases as needed to meet inventory requirements.
Just as classification is different in each area of the IRS, issue resolution is different in each division.
Some divisions having formal processes related to mediation (SBSE) and others have informal processes
(LB&I). Some divisions emphasize issue resolution and train their employees in this area, while others
have not made this the same priority. Developing a relationship with the IRS person assigned to your
case is critical for issue resolution.
In Mikes video presentation, these topics with practical examples are presented from the examination,
Appeals and litigation levels. Whether you are a beginner in the field or the most seasoned expert, you
will find the content of the video interesting and insightful when considering how to avoid an audit or
what to do at various stages of interaction with the IRS, whether during an audit, at Appeals or in
litigation. Access to this video, which also offers 2.0 hours of CPE credit, is available through the KS
Society of CPAs.
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Michael Gregory worked for the IRS for 28 years as a specialist through executive level. In 2011 he founded
Michael Gregory Consulting, LLC. His web page is www.mikegreg.com . He can be reached at 651-633-5311 and
at mg@mikegreg.com. His books and videos are available at his web site. All rights reserved Michael Gregory
Consulting 2015