Chapter eight: IRS agents have real discretion over your case, and how you conduct yourself decides how they use it.
Picture two business owners in the same industry, with the same revenue, audited by the same IRS agent.
One walked away with a clean bill of health and no changes to the return. The other faced an aggressive reconstruction that added $30,000 to their tax bill.
The difference was not the facts of their cases. It was how they showed up.
Chapter eight of my book, The IRS Survival Guide, is one of my favorite chapters, and it is the one that sets my approach apart from a lot of tax professionals. Dealing with the IRS is a human process, and that matters far more than people expect.
Michelle arrived for her audit visibly agitated. She put her phone on the table to record the conversation and told the agent her lawyer had advised her not to answer unnecessary questions. She was confrontational, disorganized, and treated every question as an accusation. Her attitude turned a routine audit into a six-month ordeal.
David arrived with organized records and a collaborative manner. When the agent found a discrepancy in his meal expenses he said his bookkeeper had raised the same concern, and offered to walk the agent through his client meeting system and how he tracks meals.
David's audit closed in two meetings. Same agents, same quality of documentation, different attitude, very different result.
Why this works
This is the part most textbooks miss. IRS agents have significant discretion.
They decide which transactions to scrutinize, how much documentation to accept, whether to give you the benefit of the doubt on a borderline deduction, and whether to recommend penalties.
When you are hostile, defensive or difficult, you signal that you might be hiding something. You invite deeper scrutiny. You make the agent's job harder, and people who make other people's jobs harder rarely get favorable treatment.
When you are cooperative, organized, and treat the agent as a professional doing a job, you build credibility. Credibility is worth a great deal when you are dealing with the IRS.
Four principles I teach every client
1. Treat the agent as a professional, not an adversary. They are doing a job and so are you.
2. Be organized and prepared. Neat, complete records signal respect for the process and confidence in your position. If the agent asks for something you do not have to hand, get it to them quickly, and follow through on what you say you will do.
3. Answer the question asked and nothing more. Over-volunteering is one of the most common taxpayer mistakes. Even with nothing to hide, it clutters your answer and makes the agent's job harder.
4. Never lie and never guess. If you do not know, say so. "I will need to verify that and follow up" is always a better answer than a wrong one.
