FIELD audits are conducted where the books and records of a business are maintained. This, of course, is your principal place of business.
After representing taxpayers in IRS disputes for more than 34 years, I would rather have your audit done at my office, as your representative. Let me tell you why: I do not want a Revenue Agent snooping around your office, store, shop, or warehouse. I do not want the agent interviewing your employees. I do not want your customers or clients noticing an IRS agent in the premises. It is not good for business. It is not good for employee morale.
Establish an internal team be- fore the IRS meeting. Assign a “contact person” to assemble and regulate the flow of information with the IRS. The contact person should review all information be- fore it is turned over to the IRS and be present during tours and interviews of employees. This setup will increase the likelihood that the information provided to the IRS is organized, complete, and focused.
So how do we move the audit from your place of business? IRS regulations state that if conducting the audit at the place of business would essentially require the business to close or would unduly disrupt business operations, the agent can change the place of the exam to an IRS office. This, of course, would be the second choice.
The first choice is your representative’s office (my office for my clients). This shifts the auditor’s venue from your office to mine. We do not have to worry about the agent overhearing employees talking or observing business operations. I can control the flow of information, the timing of interviews, and the general course of the audit at my office.
The agent will resist the change so we just have to be persistent. One way is to request for a site where the main books and records are located. The main books are sales journals, cash receipts journals, cash disbursements journals, general ledger, and trial balance that are all located in my office. The backup records such as receipts and invoices are at your place of business and can be produced as requested. It may not work but if you are persistent enough, the agent and his/her manager may permit the change of venue.
The agent will then request an on-site inspection. That is fine. They are required to do that. The agent has to document such visit in his/her work papers. Here are a few tips. The practitioner should accompany the agent. Your presence is not required and should even be discouraged. The tour should be brief and general, no looking in every room or closet, no thumbing through files (your files are at my office, remember?).
Make sure that initially re- quested invoices, receipts, bank statements and other documents are at my office; otherwise, the rationale for the change of venue is blown. This would be embarrassing. In the meantime, con- duct your business as usual and let me take care of your audit at my office. Under my supervision. Under my control. Good day.
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Victor Santos Sy, CPA, MBA, provides professional services in accounting and tax controversy including IRS audit defense and offers in compromise. He also advises clients on choices of entity including corporations for small businesses and LLCs for rentals. Vic worked with SyCip, Gorres, Velayo (SGV - Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation at 704 Mira Monte Place, Pasadena, CA 91101. The firm celebrates its 34th anniversary in 2011. You may email tax questions to Vic at This e-mail address is being protected from spambots. You need JavaScript enabled to view it . You are welcome to visit our website for about 300 tax tips at www.victorsycpa.com.
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