Original Date: Sun, Sunday, March 31, 1996 13:30:23 -0500 Read in the Wall Street Journel, quoting Money Magazine.
Weekend, March 30-31, 1996
CPAs advise taxpayers: clam up if you're audited
New advice designed to prevent IRS from unfairly probing taxpayers' lifestyle
The nation's largest association of certified public accountants is about to warn taxpayers to keep quiet if Internal Revenue Service auditors unfairly ask about their lifestyles, Money magazine has learned.
Next week the American Institute of Certified Public Accountants (AICPA) will take the unprecedented step of encouraging its 328,000 members to consider advising clients to refuse to answer intrusive "financial status" questions posed during garden-variety IRS audits, according to an exclusive report in the personal-finance monthly's May issue. Such questions, ranging from what kind of cars taxpayers drive to where their children go to school, are supposed to be posed only if the IRS has reason to suspect tax fraud, Money notes. But the AICPA says auditors are asking those questions routinely now.
The normally conservative, 109-year-old trade group will send its members this advisory: If agents ask your clients lifestyle questions during an audit, you should consider advising them not to answer without a formal IRS summons. In other words, says Jeffrey Raymon, chair of the AICPA's Financial Status Audit Working Group: "Our advice is to resist the process."
The IRS focus on how you live intensified in early 1995, Money reports, when the agency stepped up what were then called "economic reality audit techniques," to probe for the estimated $62 billion in income that taxpayers fail to report annually. IRS spokesmen claim that auditors are instructed to ask lifestyle questions only if they have reason to suspect hidden income. But AICPA officials say their members report that agents are often asking such questions from the outset of ordinary audits--before any such suspicion has arisen. Agents have even sent "personal living expenses" forms to taxpayers along with letters informing them of their upcoming audits, the magazine notes. And recently-introduced IRS training on how to conduct financial-status audits includes a game in which agents win by agreeing to statements like: "Taxpayers seem to live better than I do."
In response to AICPA complaints, on March 25 the IRS issued a memo to its regional chief compliance officers, reminding them to ask lifestyle questions only if there is suspicion of hidden income.
In the meantime, Money magazine offers taxpayers this advice: If you're one of the 1.8 million individuals who will be tapped for an audit this year, make sure you have records of all your income, including such nontaxable sources as gifts, insurance proceeds or an inheritance. Remember, though, that you have the right to be represented by a CPA, an enrolled agent or a tax attorney. And given the IRS's current aggressiveness during audits, it's best to have one with you at the session--if you go to the inquisition at all. But if you're issued a summons, you'll be required to answer questions regarding your lifestyle.
The truth is! You do not have to submit to an audit by anyone. The corporation (person) could never get away with that! Very substantial difference between these two persons.
"An individual taxpayer may *refuse* (if you can refuse, is it mandatory? NO!) to exhibit his/her books and records for examinations on the ground that compelling him/her to do so might violate his/her right against self-incrimination under the Fifth Amendment and constitute an illegal search and seizure under the Fourth Amendment. [Boyd v. U.S.; U.S. v. Vadner]However, in the absence of such claims, it is not error for a court to charge the jury that it may consider the refusal to produce books and records, in determining willfulness. [Louis C. Smith v. U.S.; Beard v. U.S.; Olson v. U.S.; Myres v. U.S]. (Emphasis added).
Remember, however, if you don't claim your rights, you don't have any.