In most cases, it is best to settle any audit issues at the lowest level of the IRS. In the case of a business audit, settling issues with a Revenue Agent is the best way to attain a favorable settlement. Once an agent takes a position in a case, it becomes increasingly harder to overturn the agent’s decision the higher the case moves within the IRS.
Review & Appeal
During the review of the case file by the Group Manager and Examination Quality Measurement Staff, a concrete ground for the agent’s position may be determined from the case file. It is also important to understand that the appeals process is not without many risks, an appeal can often reveal other adjustments that were not found by the agent. This would simply case the file to be returned to the revenue agent for further examination.
Revenue Agent Restrictions
Revenue Agents are limited in settlement authority by the job description that has been given to them. The agent is required to follow regulations, rulings and Tax Court decisions on point. This allows the taxpayer to use these regulations, rulings and Tax Court decisions in their favor to obtain a favorable settlement with the Revenue Agent.
Tips for Dealing with Revenue Agent
Some tips when dealing with a Revenue Agent include:
1. Start with the issues that are of smaller significance in dollar terms or that are more likely to be settled with the Revenue Agent. This will establish a pattern with the Revenue Agent of agreement that will carry over to more difficult issues.
2. Always stick to one issue until it is resolved with the Revenue Agent completely. Do not try and move around from issue to issue without any favorable settlement.
3. Admit to issues that the taxpayer will likely lose in exchange for the agent’s admission to issues that taxpayer will likely win if the case goes to appeal.
4. Propose a percentage settlement where it is clear that the taxpayer is entitles to a deduction but is unable to calculate the exact amount of the deduction.
5. For issues that cannot be resolved, apply research to the facts and explain to the Revenue Agent the likelihood of success if the case moves to appeal.
If a taxpayer or practitioner follows this list closely and applies the procedures with a Revenue Agent, they will likely have a much better outcome if they had done it in a non systematic manner.