Printer Friendly

Taxation and representation.

Taxation and Representation

In 1776 the colonies rallied around the cry, "No taxation without representation!" The colonies went to war and in victory received representation and, eventually, taxation.

These two words, "taxation" and "representation," define the source of much of the income of NSPA members. Our clients rely on us to prepare accurate and money-saving tax returns, tax advice in various situations, and to provide representation in various circumstances - especially in examination of their tax returns.

We are a small CPA firm located in a suburb of Philadelphia, Pennsylvania. As with many members of NSPA, we perform a variety of services for clients in various fields. Some of our clients are in the broadcast industry. The nature of this industry is such that our clients have a tendency to relocate frequently all across the country. In order to service our clients properly, we travel to their locations. This allows us to meet face-to-face with our clients and, by spreading the costs out per client, our fees remain affordable.

Until recently, when a client received an examination notice from the IRS, he or she was able to request a transfer to the Philadelphia region and we handled the audit. All of a sudden, our clients have become victims of Regulation 301.7605. The Philadelphia district has decided not to accept the transfer of audits for several of our clients citing the aforementioned regulation. Quoting the background information provided with the temporary regulation, "In keeping with both the spirit of the legislation and the policy of the service, it is the goal of these regulations that the service officer or employee setting the time and place for examination will in all cases balance the convenience of the taxpayer with the requirements of sound and efficient tax administration." In addition, the regulation states that the location of the taxpayer's representation will generally not be considered in determining the place for an examination.

It seems to us that all parties concerned derive a benefit by having the qualified preparer handle the examination in a location within a reasonable distance of the practitioner. Let us consider the benefits of the three interested parties.

The foremost concern should be for the taxpayer. In most instances, the taxpayer develops a relationship with the person preparing the return. While sitting together the taxpayer is responding to questions from the practitioner as well as resolving the uncertainties he might have due to the complexity of the tax laws.

Beyond that, the taxpayer will periodically call his accountant during the year to discuss various tax matters. The conclusion, therefore, is that the taxpayer will be best represented by the person preparing the return. A taxpayer who relocates frequently should not be required to change tax prepares every time. Is it in the taxpayer's best interest to have the audit take place where he currently (although probably temporarily) resides? The cost of airfare alone makes it prohibitive for a taxpayer to engage the person best equipped to handle the audit.

The Internal Revenue Service must be taken into consideration next. The most efficient route to the completion of an audit has to include dealing with the person most familiar with the return. While the taxpayer is the one getting the documentation in order, it is the preparer who makes sense of the information. The preparer is the one who explains the law to the taxpayer and helps the taxpayer in the decision making process.

The IRS wants the audit to take place where a taxpayer's records and source documents are maintained. Most of these documents are maintained by the taxpayer because the preparer does not have the physical space to store everything. However, certain key pieces of information are located in the client files maintained by the preparer. By working with the preparer, the IRS should be able to complete the examination more expeditiously and in many instances avoid having disagreeing cases that must go to appeals.

Should the taxpayer choose to seek local representation to avoid the cost of transporting the out of town preparer, the IRS will be working with someone that is not completely aware of these facts and circumstances that effect the return. This will most definitely create a waste of time in performing the audit. The IRS is already understaffed. It makes sense, therefore, for an IRS agent to prefer working with the person who prepared the return.

The final consideration goes to the tax return preparers. Without our clients we are out of business. While we all enjoy getting new clients, it is our current clients who represent our bread and butter. A small firm like ours cannot afford to lose its client base. We cannot afford to eat the travel costs and related down-time that would be created if we had to travel all over the country in a random order to handle tax audits. Just as the Philadelphia region declines the transfer of cases, the Houston office (or any other for that matter) can decide to be inflexible in setting appointments so that all of the cases in that district can be handled at the same time. By firmly implementing temporary regulation 301.7605, the IRS is implying that only national firms can have clients throughout the country. By restricting our ability to represent our clients in a cost effective manner, the IRS is limiting our ability to earn a living. At some point, every member of NSPA who prepares tax returns will have the opportunity to represent a taxpayer who is not situated within the IRS region of the preparer. It is therefore imperative that we fight this temporary regulation before it becomes law.

Our clients should have a right to taxation with choice of representation. We must, both as a group and individually, petition our congressmen and senators to change this impractical and unfair regulation. Please keep in mind that not every district is enforcing the regulation at this time. Knowing that it can be enforced without advance notice should give all of us the impetus to take this preventive step immediately.

Arthur N. Dickler, Jules Braver and Andrew Katusow are principals in the firm of Dickler, Braver & Associates in Ardmore, Pennsylvania.
COPYRIGHT 1991 National Society of Public Accountants
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:Debits and Credits; tax auditing
Author:Dickler, Arthur N.; Braver, Jules; Matusow, Andrew
Publication:The National Public Accountant
Article Type:Column
Date:Oct 1, 1991
Previous Article:IRS strategic business plan.
Next Article:Planning for automobile cost recovery.

Related Articles
Comments on the New York State bank audit fee December 27, 1990.
EDI and the tax department.
Regulatory Review.
Protecting taxpayer rights under the National Research Program.

Terms of use | Copyright © 2016 Farlex, Inc. | Feedback | For webmasters