IRS Tax Preparer Audit Representation

An IRS tax preparer audit examines the preparer’s compliance obligations, which can differ from the issues in an individual client’s audit. Philip Falco, Attorney & CPA, has represented tax preparers selected for examination under the IRS paid preparer due diligence program. Representation can address both the supporting records and the response to the examiner.

If you received a letter or examination request, gather the complete notice and its attachments before responding. Identify the tax years, returns, requested records, and response date so the scope of the examination can be reviewed.

What Does an IRS Tax Preparer Audit Examine?

A due diligence examination may focus on how you determined eligibility for specified tax credits or head-of-household filing status, what questions you asked, and which records you kept. The IRS describes these obligations in its tax preparer due diligence rules.

The particular request may involve client interviews, dependents, income and expenses, or inconsistencies in information supplied by clients. Review the actual examination letter rather than assuming that every preparer audit has the same scope.

Form 8867 and Due Diligence

Form 8867, Paid Preparer’s Due Diligence Checklist, concerns specified credits and head-of-household filing status. Completing a checklist is part of the process; the underlying questions, computations, and documentation also matter.

The IRS knowledge and recordkeeping guidance explains the need for reasonable follow-up when information appears incorrect, inconsistent, or incomplete. A useful response connects the preparer’s work to the records available for each return under review.

Records to Assemble Before Responding

• The IRS letter, attachments, prior correspondence, and any proposed examination findings.
• The returns identified in the request and associated Forms 8867 and credit worksheets.
• Client interview notes, follow-up questions and answers, and records of how, when, and from whom information was obtained.
• Copies of client documents relied upon in preparing the returns.
• Relevant preparation procedures, staff training materials, and review records.

Preserve existing records and identify gaps accurately. Do not reconstruct a file in a way that makes a later explanation appear to be a contemporaneous note.

Responding to the Examiner

Start by matching each request to the relevant return, client file, and supporting explanation. Separate records that exist from items requiring clarification. Review the scope and response date before producing documents or agreeing to an interview.

An attorney and CPA can help evaluate the request, organize the accounting evidence, explain disputed issues, and communicate with the IRS under the agreed representation scope. An examination does not by itself establish that a preparer violated a requirement.

Proposed Penalties and Representation Scope

Due diligence failures can result in preparer penalties under Internal Revenue Code section 6695(g). The issues, applicable tax years, and facts determine the potential exposure and response. If the examination raises concerns about intentional conduct, discuss those concerns with counsel before responding.

A consultation can help identify the immediate issues and records needed. Ongoing examination work, document preparation, correspondence, and representation require a separate engagement.

Discuss Your Tax Preparer Audit

Schedule a $500 Tax Attorney Consultation. The fee includes up to one hour of total attorney time for document review, analysis, preparation, and the telephone consultation combined. Bring the IRS notice and any approaching response dates.