For most people, the very sound of the words “Internal Revenue Service (IRS) audit” can instill fear and panic, even among the most vigilant of taxpayers, which is why many people choose to consult a professional each year. Unfortunately, no matter how much care is taken in the process, there is still a chance the IRS will choose to audit your tax returns.
The good news is that there is rarely a reason to panic. Most IRS audits are routine, and auditors often work to make it a smooth process. Having said that, it is still a good idea to partner with a professional to help you through the audit process.
Here’s a look at everything you need to know about IRS representation.
What Is IRS Representation?
When you need to communicate information to the IRS or answer questions, you can assign an IRS representative to talk to them on your behalf. This representative needs to be an individual authorized to practice before the IRS. This can include:
- A certified public accountant (CPA)
- Tax attorney
- Someone enrolled with the IRS as a representative
Your IRS representative can talk to the IRS on your behalf and answer any questions that they might have. This person can also appear in person for an audit with the IRS. In some cases, the representative might need to enter into an agreement with the IRS on your behalf, and they are authorized to do this.
When you hire IRS representation, you’ll need to sign Form 2848, Power of Attorney and Declaration of Representative. This gives your representative the right to talk to the IRS and sign any agreements on your behalf to make repayments to the IRS.
You need to work with IRS representation that you trust to keep your best interest in mind. This requires finding a representative with the skills and experience to take care of your situation.
Your Right to Representation
The IRS allows all taxpayers the right to representation as outlined in the Taxpayer Bill of Rights. Representation can be provided in multiple forms. Here’s a look at the three primary types of representatives that you can use:
CPAs, Enrolled IRS representative agents, and attorneys are the three most common types of representatives. All three have rights to represent their clients with the IRS on matters which include representation in audits, appeals, and collection or payment issues.
CPAs must be licensed by either their state boards of accountancy, the District of Columbia, or a U.S. territory. These professionals also complete continuing education requirements to keep their licenses active which are set by the state boards and generally include a requirement to complete 80 hours of continuing education every two years.
Enrolled agents must pass a three-part Special Enrollment Examination and submit to an occasional suitability check. Every three years, these agents need to complete 72 hours of continuing education.
Attorneys need to be a member of the bar in their state. They also need to complete ongoing continuing education and maintain professional character standards.
When you execute your right to representation and hire a representative you should ensure they have the qualifications that you need for the best possible outcome.
Reasons You Might Need IRS Representation
Everyone needs to consider the option of IRS representation seriously, even if you think your tax return is relatively “easy”.
Here are a few reasons to consider an IRS representative:
- Your taxes are complicated: If your taxes are filled with itemized deductions, and you’ve taken a few very specific deductions, or maybe you receive income from a variety of sources, you likely need a professional who understands the finer points of the tax code to represent you in your interactions with the IRS.
- You don’t have time: An audit can take months or even years. During this time, you might need to talk with an IRS agent many times and devote a lot of time to sending and receiving documents.
- There’s a large discrepancy: In some cases, the IRS might allege that you owe them tens of thousands of dollars. This is a lot of money, and you need someone who knows all the ins and outs of tax law to stand up for you.
These are just a few reasons that you might choose to use an IRS representative. It’s never a bad choice.
Benefits of IRS Representation
IRS representation needs to be evaluated for your specific situation, and you want to ensure the benefit of representation outweighs the cost. Here are a few of the benefits of IRS representation:
- A qualified representative will understand the IRS audit process and speak the language of the agent conducting the audit,
- They will help to protect your home and other assets,
- Work to pause liens and levies during the audit process,
- Understand tax laws to ensure all qualified deductions are allowed, and
- Advocate for you during the settlement stages to ensure you pay as little as possible.
Your IRS representative works for you and keeps your best interest in mind while dealing directly with the IRS on your behalf. An IRS representative understands the federal tax code and the internal workings of the IRS, and they can help make the audit process go as smoothly as possible.
Reasons for an IRS Audit
Two of the most dreaded words in the English language may be “IRS audit”. So, why does the IRS choose to audit some people and businesses and not others? The IRS audits specific peoples and businesses for a variety of reasons, including:
- Math mistakes: If you take substantial itemized deductions, it’s not uncommon for there to be mathematical errors.
All the numbers are rounded numbers in even amounts: When looking at a tax return, you expect to see a variety of numbers on the end. However, if all the numbers end with zero or five, it seems suspicious.
- Unreported income: It might be that you worked a job for a couple of days and simply forgot about it when tax time rolls around. The IRS gets all the information from employers and can identify people who didn’t report income.
- Random chance: The IRS randomly chooses people and businesses to audit, and it might be that your luck was up.
When the IRS is conducting an audit, it is important to understand why you were selected so that you can work to avoid the situation in the future. A qualified representative will not only help with representation, but they will also be there to help you prepare future tax returns as well.
When you’re ready for IRS representation, McNurlin, Hitchcock & Associates has a team of CPAs ready to represent you. Our team has the knowledge of the tax code that you need on your side. Contact us today to learn more.