Taxpayer Rights to Representations

Ms. Greta P. Hicks
June 27, 2013 — 1,535 views  
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Surprise! It’s the IRS

According to Internal Revenue Code 7521-c, a taxpayer has the right to be represented at interviews with the IRS by any person authorized to practice before the IRS (a CPA, attorney or enrolled agent who has a power of attorney on file). The IRS may not require a taxpayer to accompany his/her representative to the interview in the absence of an administrative summons.

Further, the taxpayer may request the interview be suspended pursuant to Section 7521-b2, which says: “If the taxpayer clearly states to an to an officer or employee of the IRS at any time during any interview that the taxpayer wishes to consult with [his/her authorized representative, the IRS employee is to] suspend such interview regardless of whether the taxpayer may have answered one or more questions.” The key phrase here is “clearly states.”

In the Field

In October 2003, the IRS issued a memorandum to the collection division employees addressing the actions to be taken by revenue officers when contacting taxpayers and elaborating on the circumstances when field contacts are expected by management. The memorandum did not direct revenue officers to enter the taxpayer’s home or to bypass the power of attorney. The group manager or territory manager should be contacted when a revenue officer violates the taxpayer’s rights.

Loosely paraphrased, the memo states that the initial contact with a taxpayer will be a field call, knocking on the taxpayer’s door at home, but not at his/her place of employment. If the initial contact with a taxpayer is not a field call, the reason why must be documented in the revenue officer’s case history. By making inappropriate initial contact, the revenue officer has not granted the taxpayer enough time to prepare. With that time, the taxpayer can work with his/her representative to determine the most appropriate responses.

The Power of Representation

If the taxpayer has a representative with a valid power of attorney, the revenue officer must call that representative to arrange a meeting at the taxpayer’s place of business or home. If the revenue officer is not notified of a power of attorney on file, he/she is allowed to proceed without the taxpayer’s representative.

If the initial contact is not in the field, a field visit must still take place. The memorandum did not direct revenue officers to enter the taxpayer’s home or to bypass the power of attorney or the taxpayer’s representative.

According to regulation 601.506, a taxpayer may only be contacted directly after his/her representative “has unreasonably delayed or hindered an examination, collection or investigation by failing to furnish, after repeated request, non-privileged information necessary to the examination, collection or investigation.”

It is intrusive for the IRS to make an initial contact at a business. If the IRS is considering an installment agreement, reporting the account as uncollectable or agreeing to an offer in compromise, it may be appropriate to schedule a tour of the business.

Help Client Avoid Surprise Visits

There are some obvious recommendations CPAs can offer their clients to help avoid visits from revenue officers, such as paying all taxes promptly, especially payroll taxes. Other tips include:

  • If there is any indication that taxes are delinquent, file a power of attorney with the IRS.
  • Remind clients, their spouses and employees to have limited or no conversations with persons who say there are with the IRS.
  • Tell clients not to allow representatives from the IRS to roam around their offices or homes and to clearly state that the revenue officer must contact their authorized representative.
  • Advise clients to respond promptly to IRS phone calls and direct the IRS employee to contact their authorized representative.
  • Be familiar with rules regarding communications with the IRS, such a Circular 230; Statement of Procedural Regulations, Title 26, 601.106; and the AICPA Statement on Standards for Tax Services.

Perhaps the most powerful way CPAs can help is to remind clients that they have the right to representation during interviews with the IRS, and they can stop those interviews anytime they want to consult that representation.

Ms. Greta P. Hicks

Greta P Hicks CPA

Greta P Hicks is a former IRS Examination manager and Ms Hicks currently serves on the Editorial Board of the Texas Society of CPAs and is Tax Editor of Today’s CPA. Greta is active on the TSCPA IRS Relations Committee and teaches seminars on IRS.