Assisting with tax audits.

• Author: Mendlowitz, Edward

Tax audits provide an opportunity for CPA firms to generate extra revenue. Some of the various types of audits and related activities are:

1. Office audits.

2. Field examinations.

3. Audits of pension plans and nonprofit organizations.

4. Preparation of appeals and protests.

5. Tax Court petitions. (CPAs can be admitted to practice before the U.S. Tax Court if they show a need to be admitted and pass a biannual test. Being admitted to practice will enable one to file Tax Court petitions, which offer at least two more avenues for negotiating and settling a case. The tests are given once every other year, usually in September, October or November, in Washington, DC. There are fewer than 200 nonattorneys so admitted. For information about the date and location of the next examination, visit www.USTaxCourt.gov, and click on "Forms" and "Admission Information for Non-Attorneys." The Tax Court can also be reached at (202) 606-8736 or 400 2nd Street, NW, Washington, DC 20217. Tax professionals can also purchase copies of previous examinations and the Tax Court's rules of procedure.)

6. Criminal tax cases, including liaison with counsel.

7. State tax audits and appeals, including sales, income and personal property taxes and penalties. 8. Correspondence audits.

Preparing for an Audit

A CPA firm's tax department usually handles audits, not the preparer or engagement partner. Generally, a person specializing in tax audits handles them. In assisting with a tax audit, a tax adviser must:

* Prepare adequately for the audit. The amount of preparation time is inversely proportional to the time spent with the agent.

* Be skilled in negotiating strategies.

* Know when to be quiet and just listen.

The tax adviser needs to be able to handle sensitive matters, including underreporting of income and other acts, both civil and criminal, and to know when to insist that something be reported, as well as how to walk away from the engagement. CPAs must always be cognizant that they risk their licenses, livelihoods and liberty when they engage in illegal actions or look away from a client so engaged. They must always be aware of their legal, ethical and moral responsibilities. CPAs should do nothing that they cannot clearly defend and explain should they be on a witness stand; they should assume that they might be in that position for everything they do.

There are two ways to be engaged by clients to represent them during an audit. The first method is when the client...