Fifty thousand audits promised.

The IRS has indicated that it is planning to audit 50,000 tax returns. These are to he compliance audits (every aspect of the return is audited to determine the rate of compliance), although the IRS says that the compliance audits aren't to be as intrusive as in previous years.

Currently, in my practice, the IRS is only auditing returns of low-income workers who claim the earned income tax credit. I have only had one audit in the last four or five years, other than earned income credit audits that are usually conducted by mail. IRS didn't even have an auditor at the Harlingen Office for this examination. They had to send one over from McAllen.

The couple being audited by the local office of the IRS was two upper-middle class schoolteachers. Their income was very low because of some sideline business losses that may have aroused suspicion. The last audit I handled before that one on the middle income taxpayers was about four or five years ago when a professional couple was audited because they claimed some substantial losses from a business of promoting seminars.

One audit in four or five years is pretty good. I remember in 1983, 1984, and 1985, when the Reagan deficits were in the news, it seemed like every other person who walked in the door was being audited. It wasn't quite that bad, of course, but it seemed that bad.

If our clients are unlucky enough to be selected for audit, I have learned over the years, through some hard experience, that it is a good idea for the client to send someone in their place. They should stay home. Or go somewhere. They just shouldn't go to the audit. That is what we practitioners do.

The person who signed the return as the preparer can represent the taxpayer as can an Attorney at Law, a CPA, or an Enrolled Agent, irrespective of whether they prepared the return. However, a Power of Attorney is required in any case. That is the first thing I ask for when a client tells me that he or she is being audited.

Having someone between the taxpayer and the IRS is a good idea. The auditors always have lots of questions. The answer to one question leads to another. But when it comes to writing the questions down to give to the taxpayer's representative to take to the taxpayer, the list of questions is shortened considerably.

Although the auditors are not required to give a warning in a civil audit, pretty much everything the clients say can be held against them. In my experience, the auditors take furious notes during the interview. What the representative says generally can't be held against the taxpayer, as that would be hearsay. However, the clients, in an effort to curry favor with the auditor often get diarrhea of the mouth. They talk too much.

If the client wants to go to the audit and represent him or herself, I strongly advise against it. If the client wants to go with me to the audit, again I advise against it. If the client doesn't want to take my advice, then I suggest that perhaps he or she should look for another practitioner. In 33 years of practice, there have been a number of incidents that have convinced me to never, except in unusual circumstances, take the client to the audit, unless of course a summons has been issued.

One time a client called me and asked me to meet her and her husband in Harlingen, about 30 miles north of Brownsville. She said that they were being audited, and she would like for me to be there. I thought that it was a little strange at the time. Usually the client wants to meet with me in my office a couple of days before the audit to go over what the IRS is questioning on the return. We would then have time to get adequate back-up documentation, if such weren't available.

On this particular occasion, we met at a restaurant just before the meeting was scheduled. They bought me lunch, at least.

When we got to the IRS Office, the wife, a real estate agent, and the husband, an engineer, immediately took charge of the audit like I wasn't even there. The tax auditor started disallowing small deductions because they didn't have receipts. I objected because at the time there was a regulation that stipulated that receipts were not necessary for items of less than $25 if there were other methods of documentation, like a record kept by the taxpayers.

The tax auditor said everything must be documented with receipts. Of course, she was wrong. Tax auditors have a way of making their pronouncements sound very logical to the taxpayers. That is how they make their living. The clients told me in no uncertain terms that the auditor was correct and I should keep my mouth shut. They had wanted me along as a scapegoat so if the auditor found something wrong, they could blame me.

I remember one time I had a Hispanic client and a Hispanic auditor. Both spoke perfect English. At the time, more than 25 years ago, my Spanish wasn't very good. The auditor switched into Spanish while questioning the taxpayer so that I couldn't follow the conversation. I objected, but to no avail.

Either of these incidents would have been enough to convince me never again to bring a taxpayer to the audit. But I'm hardheaded. I took one more client to an audit. She was a Mary Kay sales person. I had told her to not say anything, just answer direct questions, period.

When preparing the return, she had asked me as we were finishing up, after the return was typed up (back then we typed the returns), if she could take a casualty loss deduction for a car that she had wrecked. It had been a total loss she said.

I asked her if she had insurance.

"Oh yes, I had insurance."

I asked, "Did they pay you for the loss?" "Yes, they gave me a check." she replied. "Well, you didn't have a loss, did you."

The auditor found some discrepancies in her bookkeeping resulting from trying to follow the complicated bookkeeping system used by the Mary Kay Company. Everything was done. The auditor had completed her report. Then she said to the auditor, "I wrecked my car last year. Don't I get some benefit from that?"

The auditor asked, "Did you have insurance?"

"Oh yes, I had insurance."

"Did the insurance pay you for the loss?"

"Oh yes, the insurance company paid me for the loss."

"Isn't that the car you were depreciating on your tax return?"

"Oh yes, that's the same car."

"Good," the auditor replied. After doing some calculations, she said, "You owe us another $300."

The audit was complete. The auditor had completed her audit report. We were getting up, ready to go. Why couldn't that lady keep her mouth shut? Well, that's the nature of taxpayers, unfortunately. That's why we should leave them at home.

Can we leave the taxpayer at home? Section 7521(c), "An officer or employee of the Internal Revenue Service may not require a taxpayer to accompany the representative in the absence of an administrative summons issued to the taxpayer under subchapter A of chapter 78. Such an officer or employee, with the consent of the immediate supervisor of such officer or employee, may notify the taxpayer directly that such officer or employee believes such representative responsible for unreasonable delay or hindrance of an Internal Revenue Service examination or investigation of the taxpayer."

So we should advise the taxpayers not to go to the audit. But we should also advise them that the auditor might contact them and tell them that we are hindering the conclusion of the audit. And we should always warn them that IRS could issue a summons--although it seldom does.

I've found that if we tell our clients what might happen before it happens, they have no problem with it when it comes about.

In an audit of an automotive repair shop a number of years ago, the auditor wanted to go to the clients' repair shop. I advised the clients to be in San Benito or somewhere at the appointed hour. The auditor questioned some of the employees. Then he became very angry when I told him the owners weren't going to be there.

The Harlingen group manager called me later that day. He said that I was the only taxpayer representative between here (Brownsville) and Laredo who wouldn't let my clients meet with the auditor. He said that if I didn't produce the clients, he was going to label me as being "uncooperative." If that group manager had known some of the things that I've been called over the years, he wouldn't have thought that "uncooperative" was so bad.

If the IRS wants to talk to the client badly enough, however, a summons can be issued to force the taxpayer to appear. The only times that I have seen a summons issued were in a couple of cases when I was representing various attorneys at law. IRS will issue a summons to a lawyer in a heartbeat. So be expecting it, if you're representing one.

The IRS didn't summon the owner of the repair shop. In more than 30 years of practice, I've never seen them summon an ordinary taxpayer, other than a lawyer.

What're the consequences of being labeled "uncooperative"? There have been none that I can determine. Maybe that's why I have had so few audits lately.

Bill Fulcher is an Enrolled Agent with a tax practice in Brownsville, Texas. He has been a member of NSA since 1971, and he has been contributing to the National Public Accountant for more than 25 years. He holds an undergraduate BBA degree in accounting and an MBA degree, both from Pan American University at Brownsville. He may be reached at 956-541-4874 or through his website, www.billfulcher.com.