When going through an audit, the IRS can dig through all your finances, all your assets and income to make sure you’re not hiding income or not paying enough in taxes. One thing auditors can do to a business that is going through a tax audit is they can contact third parties associated with the business. This means contacting the company’s bank, suppliers, creditors, and even their customers. But thanks to the Ninth Circuit, there might be more restrictions on the IRS when it comes to the IRS contacting third parties.
Congress had originally placed protections for taxpayers from the IRS contacting third parties by requiring that the IRS cannot contact the third party in regards to an audit without first providing reasonable notice in advance to the taxpayer that contacts with a third party are going to be made. The hope was that the rule would give the taxpayer the opportunity to provide the IRS the needed information and avoid the need for contacting the third party. Currently, the IRS has been providing taxpayers with a statement at the beginning of the audit that includes a passing comment that the IRS may contact third parties.
Recently, a taxpayer and their attorney were successful in fighting a third-party contact. The case was appealed to the Ninth Circuit where they sided with taxpayers. The court said that the current process of notifying taxpayers of third-party contact by giving them Publication 1 did not meet the standard of reasonable advance notice. The Ninth Circuit said in their opinion that the IRS must provide pre-contact notice that is “. .reasonably calculated, under all relevant circumstances, to apprise interested parties of the possibility that the IRS may contact third parties, and that affords interested parties a meaningful opportunity to resolve issues and volunteer information before those third-party contacts are made.”
This is good news for taxpayers as it adds a layer of protection for you and your contacts in the event of a tax audit. While this ruling does not stop the IRS from contacting third parties, it does give you time to give the auditor the needed information, so the contact can be avoided. The hope of the opinion is that it gives an opportunity for the taxpayer and the IRS to work cooperatively and resolve issues without needing to contact the third parties.
Are you going through an audit and have no idea what to do? The good news is we do. Our team of tax lawyers deal with IRS audits every day and know what the IRS is looking for and how to keep you protected. Give us a call today at 844-841-9857 or click below to schedule a free consultation.
