07 October 2015
The IRS assigns a strange relationship between tax preparers and their clients. When preparing your taxes I am allowed to believe what you tell me about nearly anything related to your return. I am not required to make you prove what you tell me about your taxes is the truth. You can tell me you purchased a giraffe as a qualified higher education expense for college, and I don't need you to prove to me that it was a legitimate expense. I can put the giraffe on your tax return and file it. My only requirement is to inform you that if the IRS reviews your return and disallows the expense for the giraffe you will have to pay taxes plus penalties and interest.
Unfortunately, this IRS-allowed relationship between us could be a horrible disservice to you as a taxpayer and me as a tax professional. If I put a giraffe down as an education expense knowing the IRS is going to penalize you for it you would not be getting your money's worth out of me. You deserve the best advice possible, and to give the best advice I need to ask questions. If you tried to expense a giraffe, I would ask questions. I would ask a lot of questions.
Here's why - because even though you don't have to prove anything to me, if you are audited you have to prove everything to the IRS. The burden of proof is on you. If you can't substantiate your claim for a tax write-off it will be disallowed, your tax bill will be changed, and you will owe taxes, interest, and (probably) penalties on the amount they determine you have underpaid.
IRS: You deducted $2,000 for painting your rental home; where is the invoice?
IRS: You claimed 5,000 miles as a business expense; show me your vehicle logs.
IRS: You claimed a home office deduction; show me your office.
IRS: You deducted those clothes as a work expense; show me where your employer has required you to have those clothes (and that you can't use them for anything else).
If you can't prove your expenses to the satisfaction of the IRS the deductions will come off your tax return, and you will pay. I don't want you to be in that position. Not on my watch.
If you are my client and I am asking you questions it isn't because I don't believe you. It's because I know what the IRS expects and I want to make sure you are able to substantiate your deductions. I am not challenging you. I am not the IRS. I don't work for the IRS. I work for you. As your advisor I want to be certain the position we are taking on your tax return is defensible if it gets challenged by the IRS. I find that out by asking you questions about your tax claims. As long as there is a reasonable basis for your claims I am happy to put them on your tax return.
My Reputation as a Tax Preparer Matters
There's one more part to this story. I can represent my clients to the IRS in the event of an audit. You can authorize me to deal with the IRS on your behalf, and you never have to talk to them at all. Many clients prefer to let a knowledgeable, experienced professional represent them during an audit. It makes perfect sense.
The local IRS office is relatively small. Professional tax preparers in this region deal with the same IRS agents over and over. We get to know each other. Now let's suppose you are being audited and you want me to represent you. How would you want the IRS agent sitting across the table to perceive me? Would you prefer they knew me as a tax professional that dotted his i's and crossed his t's, or would you prefer my reputation among the auditors was that I'm a guy who lets his clients claim outlandish things on their tax returns without ever asking any questions? Clearly you'd want me to have a sterling reputation with the IRS while I was representing you.
To have that sterling reputation it is important for me to be thorough on every single tax return I prepare. The IRS agents know if they are dealing with a true professional or some frivolous hack. If I am not thorough they know it, and I do a disservice to you and to all of my other clients who want the best representation they can get when the IRS comes knocking. IRS auditors are looking for tax cheaters and frauds. They don't want to waste their time looking at tax returns that are probably correct. If they know I am a guy who usually gets it right they don't look at too many of my returns. Conversely, if they know I am a guy who likes to "take chances" on the returns I prepare they are going to look at many more of the returns I file. I don't want that. You don't want that.
The IRS allows me to provide poor service to my clients by preparing tax returns with unsubstantiated claims. I won't do it, though. My reputation with the IRS is too valuable for me to put at risk. I will work hard to get you every single tax break we can get, but when I am representing clients to the IRS I want to be in a position to win. It matters.