Well it’s your not so lucky day. You’ve received a letter from the IRS that your corporation has been selected for an examination. You call the designated IRS representative to discuss the letter and possibly to schedule a date for your “appointment.” You select a date sufficiently in the future to allow you to “gather” the books, records and other items that you will need to make available for the examining Revenue Officer.
A few days later you receive a letter from the Revenue Officer (the “RO”). The letter sets forth the location (often it is your office), date and time for the appointment. Invariably, the aforementioned letter includes the following sentence or words to this effect: “Please have the items listed on the attached Form 4564, Information Document Request, available at our first meeting.” You look at the attached form 4564 Information Document Request (I will call it the “IDR”). Here is what you see ….
“Please have the following records available at our appointment. These items are needed, but are not intended to be all inclusive; additional items may be required at a later time.
Corporation’s Books and Records
- Corporate Minute Book
- Stock Record Book
- Chart of Accounts including account name, number and type of account
- General Ledger with detail transactions and general ledger trial balance for the beginning and ending **** tax year
- Journals/Ledgers – Sales, Accounts Receivable, Cash Receipts, Purchases, Accounts Payable and Cash Disbursement
- Check Registers
- Bank Statements and Cancelled Checks for ***** [tax year]
- Profit and Loss Report
- Vendor Report including the names EINs and if Form 1099’s were sent
- Customer List
- Copy of Pension Plan
Corporation’s Tax Return Information
- Copy for inspection of **** (if filed) year 1120 tax returns
- 940, 941’s payroll tax returns for ****
- W-2’s, W-3, and 1099’s filed for ****
- W-4’s for the current calendar **** year
- Copy of year-end trial balance reconciling books to returns
- Adjusting journal entries and year-end
- Bank reconciliations at year-end
- Copy of financial statements/audit reports
- Detailed listings of accounts receivable and accounts payable at year-end
- Detailed depreciation schedule.
Officer’s/Shareholder’s Tax Return Information
- Copies of shareholder’s individual income tax return
Specific items to be verified:
- Gross Receipts – please provide the source documents used to arrive at the gross receipts reported on the return
- Other Deductions – please provide the source documents used to arrive at the amount reported on the return
ADDITIONAL INFORMATION MAY BE REQUESTED AT A LATER DATE”
You have one thought … Holy mackerel! Yes, it is very intimidating. Just do your best to gather the requested information. Yes, the IRS is entitled to review all this information. In my experience, the best corporate audits are the one’s where the client pays mostly for audit preparation so that the audit itself (I’m sorry, I mean the “appointment”) goes very smoothly and ends quickly. That said, there is no guarantee how an audit will go. The audit related to the above IDR was over in four hours. Furthermore, the audit did not spread into multiple tax years and other related taxpayers. This was a big concern of the corporate taxpayer than was the subject of the audit.
A word to the wise: I had a client that had been under audit for several tax years and multiple entities and related individuals. The audit was initially handled by another representative. As far as I could tell, the “relationship” between the prior representative and the Revenue Officer conducting the audit was very contentious and involved name-calling, bad language and yelling. Why on earth the prior representative would engage in such a course of conduct is beyond me. You gain nothing by such a course of conduct. I think the prior representative (who I understand was also the preparer of the subject tax returns) thought he could intimidate the Revenue Officer to “back off.” Unfortunately, this course of action only invited greater scrutiny, expanded the audit, brought in the Revenue Officer’s supervisor (who came along with the Revenue Officer to my office on one of the days of the three day visit), and made darn sure that “cooperation” was at an absolute minimum.
Don’t kid yourself. These are the people that brought down Al Capone. You don’t intimidate the IRS. It’s hard enough to deal with the “800 pound gorilla” when he is in a good mood.