Highlights of CCH seminar: Top Tax Practice and Procedure Blunders

AccountingWEB staff writer Anne Rosivach attended the recent CCH audio seminar: Top Tax Practice and Procedure Blunders Which Can and Should Be Avoided. This is her report.

CCH'S Audio Seminar, Top Tax Practice and Procedure Blunders Which Can and Should Be Avoided, takes a look at some of the most common practice and procedure errors or omissions that can come back to haunt practitioners in an audit. The presenters, Harvey Coustan, CPA and Michael Goller, J.D., as tax practitioners and advisors have seen -- and have had to help fix -- many of these problems over the years, most of which could have been avoided. They discuss mistakes they have seen most often, the ramifications of these errors and recommend best practices on how to do things right the first time, especially important in an environment where clients will not tolerate mistakes, and with IRS audits expected to increase.

The accompanying materials include clear discussions with examples of cases, checklists, a bibliography, a sample IDR request and a sample FOIA form.

Program Topics

Among the practitioner "blunders" that Goller and Coustan discuss are:

  • Inadvertently waiving a privilege – The tax practitioner client privilege is a subset of the attorney/client privilege. In a situation where the lawyer is acting as a lawyer, the utterance of the client is privileged. Situations where the privilege is lost can include:

    1. Communications before a third party. For example, when the CPA is present or any other third party is present, the privilege is waived. The third party should be asked to leave the room. Privilege is waived for the CPA in the comparable situation.
    2. Providing a document that discloses communication of a client. Privilege is waived. Responses to IDR's numbers 8 and 12 can waive privilege. Practitioners should not answer either in such a way as to disclose client communication. The IDR trap is a very significant trap.

    Tax Shelters --The privilege does not apply to any written communication between a tax practitioner and any person, director, officer, employee, agent or representative of the person, or any other person holding a capital or profits interest in the person in connection with the promotion of the direct or indirect participation of the person in a tax shelter. §7525(b).

  • Failing to control the examination – the flow of information

    Best Practices –

    1. Turn over the requested documents with a cover letter that does the agent's job for them.
    2. Control documents. Client should NOT send documents
    3. Do not let the IRS go to the client or their employees or in the event of a visit, control the visit
    4. IRS has the right to summon the taxpayer. Go to the meeting, take notes and send a good memorandum summarizing what was said.
    5. Let only mid-level person give the agent a tour of the client's workplace.

    A checklist of items to do when being audited, subject to many exceptions, is provided by the presenters in the accompanying materials.

  • Be mindful of Preparer Penalties in the circumstance of an audit. The Office of Professional Responsibility has been beefed up, the presenters say. Be aware of ways that the IRS can make use of the April 2008 memorandum issued by the Large and Midsize Business Division. The memo refers to "pattern of errors" and says that the "interview with the taxpayer serves two purposes": first, to further the examination, and second, to identify violations by a tax return preparer. The memo may set up a conflict situation.
  • Failure to make a Freedom of Information Act Request – as a routine matter before filing petition. The practitioner needs to receive copy of the government's file before filing an appeal.
  • Failure to meet critical deadlines --

    1. Failure to file Protest Letter within a 30 day period – a hard deadline.

    2. Failure to issue a 90 day letter when the statute of limitations is about to expire or if the taxpayer has already gone to the IRS Appeals Office within the 90 days – a hard deadline.

    Best practice – these should be filed by certified mail. They do not have to be perfect. The practitioner can amend them.

  • Failure to file a Refund Claim on Time – you must file within three years of the filing of the return or two years from the date the tax was paid.

    Best practices -- Do refund claims on the right form. Remember that related returns are not necessarily extended. Bear in mind that a tentative NOL is not a refund claim. Not filing timely is a malpractice issue.

  • Failure to think strategically about a qualified offer as a way to recover costs and fees. The presenters discuss the impact of the timing of the offer.
  • Not laying the groundwork to switch the burden of proof. The burden of proof should shift at the end of the audit. Make sure during the audit that the burden of proof will switch to the IRS in a subsequent Tax Court proceeding.

    Best Practices – Observe correct process and procedures. Bear in mind that contemporary documents have a lot more credibility. Document advice when given. Send a note to the agent saying that you will cooperate fully etc. and comply with information requests promptly.

  • Failure to file a protective claim for refund. The protective refund claim should be used in a situation where an audit adjustment of one taxpayer could result in a refund claim another taxpayer or on another tax form. If a protective claim is not filed, the statute of limitations on the refund claim could run out prior to the termination of the audit.

    Protective refund claims that reflect aggressive positions should be filed just prior to the expiration of the statute of limitations on additional deficiencies. This will limit the adjustments made by IRS to the amount of the claimed refund.

  • Be careful about settling a case with a Form 870-AD – The Form 870-AD agreement contains pledges against reopening (e.g., paying the tax and filing a refund claim). Form 870 does not contain such a pledge. Under Section 6601(c), the running of interest is suspended 30 days after a Form 870 is received, whereas with a Form 870-AD, interest is not suspended until 30 days after the agreement actually becomes effective. When using a Form 870-AD, consider the possibility of an NOL.
  • Failure to obtain an interest free adjustment in an employment tax case. There is a rule saying that you do not have to pay interest if there is an audit appeal because the error on the Form 941 is not deemed to be "ascertained" until the conclusion of the appellate proceedings. So long as the taxpayer pays the tax by the due date of the 941 for the period in which the matter is resolved, the deficiency is interest-free. But you have to ask for the adjustment.
  • Failure to meet a deadline on a Collection Due Process Appeal. Filing a CDP Appeal within 30 days will normally stop collection activity while an appeal is pending. Conversely, if this deadline is missed, there is no legal basis to stop collection activity. Often taxpayers simply receive these notices and do not respond in a timely fashion.

A basic checklist

In closing, Coustan and Goller remind practitioners that they must document advice at the time it is given, and record who gave them the facts. They recommend that everyone keep templates by their phone for this purpose.

To Do List for Careful Practitioners

I. Document advice given orally and written.
II. Use checklists for process.
III. Always use arrangement or engagement letters.
IV. Get waivers of conflicts of interest.
V. Beware of IRC § 7216.

About the presenters

Michael G. Goller, J.D.
Michael Goller is a shareholder with the law firm, Reinhart Boerner Van Deuren s.c. in Milwaukee, Wisconsin where he focuses on tax controversy and tax litigation, as well as tax planning for clients ranging from large public corporations to midsized, privately-held businesses and their owners. Michael works on behalf of his clients in disputes with the IRS, Department of Justice and various other taxing authorities. Michael is a faculty member at the University of Wisconsin Milwaukee's School of Business where he teaches Tax Practice and Procedure in the Graduate Tax Program, and he has authored a number of significant articles and publications, including CCH's Federal Tax Practice and Procedure Course.

Harvey Coustan, CPA
Harvey Coustan is a consultant with the National Tax Office of RSM McGladrey, specializing in technical, procedural, and organizational matters. He is a retired partner from Ernst & Young, where he held several leadership positions, including partner in charge of the firm's National Tax Practice in Washington, D.C. He is a co-chair of the AICPA's Tax Shelter Issues Task Force, has chaired the AICPA and Illinois CPA Society Tax Executive Committees. He is a member of the National Conference of Lawyers and CPAs, and has served on the faculties of DePaul University, Northwestern University Kellogg Graduate School of Management, and as a Professorial Lecturer at Georgetown University.

About CCH Audio Seminars
You can train your staff with the power of CCH audio seminars. CCH audio seminar events are live and interactive with opportunities to ask the presenter(s) your questions. The audio is delivered directly to you over the telephone to provide clear, reliable sound quality. Some events also include a web component. Invite as many people as you wish to attend at your location. For large groups, use a speakerphone to deliver the audio and a projection system to deliver the Web component.

You can view the list of upcoming CCH Audio Seminars.

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