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COL. COLUMNS I Tax Practice & Procedure

the taxpayer may have thought she was request the six years of FBARs and copies taxpayer separately. In preparing the tax-
done with the process; therefore, it is of foreign tax returns, if any were filed. payer for such an interview, the taxpayer
important to inform the taxpayer at the Because these documents will have been should be made aware of these facts so that
outset of the possibility of an audit being used in the preparation of the amended tax she is not caught off guard on the day of
initiated years later. returns, they should be maintained and read- the interview.
Upon receipt of a notice of examination, ily accessible in the event of an audit. It is important during this preparation to
it is a good idea for the taxpayer, the tax- Other documents the IRS is likely to give the taxpayer an idea of the questions
payer’s counsel, and the taxpayer’s accoun- request include documents related to any he may face, including the routine ques-
tant to review the amended returns and the other foreign assets divulged on the amend- tions that the IRS asks no matter the indi-
streamlined certification in order to refa- ed tax returns. For example, if the taxpay- vidual circumstances. It is also important
miliarize themselves with the information er’s amended returns disclosed an interest to anticipate how the taxpayer may react
that the IRS has in its possession. in a foreign entity, the IRS may request to a stressful situation. An important aspect
The streamlined filing procedures state documentation or information regarding the of the interview is making sure the IRS has
that any streamlined submission “may be taxpayer’s interest in that entity, including a good impression of the taxpayer and finds
selected for audit under the existing audit when the taxpayer acquired his interest, him to be credible. The more comfortable
processes applicable to any U.S. tax what business that entity conducts, the iden- the taxpayer is, the more likely he will be
return.” Other than that language, the IRS tity of any other owners, and whether the able to convey his credibility.
has not issued any guidance regarding what taxpayer derived any income from that enti- The taxpayer’s interview will begin with
may trigger an audit of a streamlined sub- ty. If, instead, the taxpayer’s amended a thorough rundown of the taxpayer’s back-
mission. As more streamlined submissions returns disclosed rental income from a ground and education. The taxpayer is also
are chosen for audit, practitioners may be property located abroad, the IRS may likely to face general questions regarding
able to determine factors that are likely to request documentation of that income, as what is done to prepare tax returns on a
trigger an audit, but at this stage, it is well as evidence to support any expenses yearly basis. If the taxpayer used a tax
unclear whether audits will be initiated on associated with the property. return preparer, the IRS will want to know
anything other than a random basis. The IRS may also ask the taxpayer to about any documents the taxpayer provided
produce documentation with respect to to, and conversations the taxpayer had with,
Requests for Documents non–bank account assets that were included the return preparer. In addition, the revenue
Unlike the OVDP, the streamlined pro- in the taxpayer’s computation of the mis- agent will likely ask the taxpayer whether
cedures require the taxpayer to submit only cellaneous penalty. This is another impor- the returns are reviewed before signing.
amended tax returns and the streamlined tant consideration. The taxpayer should be It is important to remember that the pur-
certification. Therefore, when an audit is able to back up any estimated values of pose of the IRS’s audit is to confirm the
initiated, the taxpayer should expect assets included in the penalty computation. taxpayer’s assertion of nonwillfulness.
requests for documents, perhaps even at Therefore, when preparing a taxpayer for
the same time they receive the notice of Audit Interviews an audit interview, special attention should
examination. Initially, such document Taxpayer interview. At some point dur- be paid to the facts and circumstances sur-
requests will be made through the use of ing the audit, the IRS will request to inter- rounding the basis for nonwillfulness. The
a Form 4564 Information Document view the taxpayer. The audit interview is taxpayer should be comfortable responding
Request (IDR); however, summonses are the most sensitive and potentially the most to questions such as why she has offshore
possible during the course of the audit, advantageous aspect of the audit. The pur- assets, why she did not tell the tax return
especially if the taxpayer fails to respond pose of the taxpayer interview is to confirm preparer about offshore accounts and assets,
to the IDR. For this reason, it is in every- the taxpayer’s submission for correctness, and why she did not believe that foreign-
one’s best interest to establish a good rela- as well as to satisfy the examiner that the sourced income should be reported on her
tionship with the revenue agent and to taxpayer’s conduct was, in fact, nonwillful. U.S. tax return. The responses to these
request additional time to respond to an The interview will be conducted by the questions will have to be addressed based
IDR if necessary. agent conducting the audit, but will also on individual circumstances.
Almost undoubtedly, the IRS will request include a representative from the IRS Chief The taxpayer should also be made aware
bank statements for all offshore accounts, Counsel’s office and potentially a manager. that he could face questions that may trig-
as well as documentation relating to the There will also be a court reporter taking ger the attorney-client privilege. Counsel
accounts, including account opening state- down the taxpayer’s testimony. If the should be present during the interview, but
ments, correspondence with the bank, and streamlined submission was made jointly it is beneficial for the taxpayer to be aware
signature cards. The IRS will also likely by spouses, the IRS will interview each of what questions counsel may object to.

70 JUNE 2018 / THE CPA JOURNAL