What Should You Do if You Get an IRS Summons? Tax Expert Rob Wood Explains
According to Time, less than 1% of taxpayers get audited each year. Of course, that’s no comfort if you are in the target group. If you are audited, the IRS will be asking for information, usually in an informal way. How should you respond? Tax lawyer Rob Wood explains how the process works and what a smart taxpayer will do when the IRS comes knocking on the door. He also wrote about the subject in a recent Forbes article, “Receive An IRS Summons? Here's What To Do.”
Wood says that the audit process typically begins with a request from the IRS for documents. The usual form used is an Information Document Request (IDR) filed on Form 4564. It is somewhat like a memo. “It’s not a very threatening document.”
Often, Wood points out, a taxpayer cannot respond to every request. Sometimes, the inability to respond is short term, but sometimes, the IRS asks for something that the taxpayer will never be able to provide. If you are in that position, Wood suggests that you should do the best you can to respond to the request. Your response may be enough to make the IRS stop asking, even if what you provide is a partial list.
Sometimes, though, the IRS issues a summons, and sometimes a summons will be issued to a third party. What do you do if the IRS asks you in a summons to provide information or documents pertinent to someone else? For example, you may be an employer who is asked to provide information about an employee. Perhaps you are a banker asked to provide information about an account that an audit target has in your bank.
Wood says that people often want to cooperate with the IRS, but what they do may depend on their situation. Sometimes, when a third party is asked to provide information about a customer, the third party will want to fight the summons in court, and be seen to do so. The object in part is to avoid later being accused of handing over to the IRS some information that should never have been disclosed. Wood cites the cases where Swiss banks fought the IRS over its requests for information about American customers. Those cases have been resolved in court, and now banks can hand over information without any qualms.
Wood suggests that anyone who receives and IRS summons will want to get some expert tax advice, especially if the summons recipient does not want to comply. One option is simply to ignore the summons, forcing the IRS to act if it really desires the information. Another approach is to go to court to quash the summons on some ground such as that the IRS seeks information protected by attorney-client privilege. Of course, fighting the IRS in court will cost money, so anyone inclined to do so should get good advice before taking that step.
Robert W. Wood is the Managing Partner of Wood LLP, San Francisco. Often listed among the best tax lawyers in America, Wood has broad experience in corporate, partnership and individual tax matters. Concerning the tax treatment of litigation settlements and judgments, he is perhaps the preeminent tax lawyer in the United States. He is also an authority on merger and acquisition tax matters, tax opinions, offshore account and entity disclosures, and many types of tax controversies. The Legal Broadcast Network is a featured network of Sequence Media Group.