Q:

Mr. Kerstetter,

Great web site!  I am a CPA in South Carolina.  I have received an IRS Summons for me to appear with any records I may have regarding a former client.  The summons came from a local agent in the small business/self-employed division.  All source documents/records were returned to the client previously. 

It has always been my understanding that in tax prep engagements (non-attest work), my responsibility is to only keep a copy of the tax return for my files.
Do you agree?

Lastly, any words of advice on how to proceed based on your experiences would be greatly appreciated.  I am a little concerned about having a conversation with an agent regarding a former client that I am not representing in an exam.  The last thing I want to do is to say or do anything that would damage some position or strategy the taxpayer or their representative may have taken that I am not aware of.
 
Any thoughts/advice would be most welcome.

Thanks in advance,

 A:

 It sounds like a standard wide net fishing expedition by the IRS agent to round up documents that the taxpayer has refused to provide willingly.  Such a request in no way means that you have or ever had any legal requirement to retain any original source documents or copies of them.  Even if you only have copies of the 1040s that you prepared, IRS agents prefer to ask us preparers for them rather than wait the several months it would take to obtain them from inside the IRS system.  What they would also need to see would be copies of any worksheets that you used as part of the tax prep process that weren't attached to the return that was filed.  For example, some preparers do not attach detailed depreciation schedules to their 1040s (a big pet peeve of mine).

As we all know far too well, only attorneys have client confidentiality protection, and we mere CPAs have to do what IRS demands in this regard.  I have never thought that to be morally right; but unfortunately, the courts have always helped IRS enforce those kinds of summons in support of their perceived mission - more money for the government. 

In regard to how I would respond to the summons, I would make photo-copies of the 1040s for the years being requested, along with any backup worksheets or other documents, such as client organizers, that are in your files.  I would then mail them to the agent.  In regard to personally discussing anything with the auditor, I don't see how the summons covers that.  I would just send copies of the documents you have, along with a signed statement that these are all inclusive of what you have in your possession for that client; and refuse to have any conversations with the auditor, where he will try to get you to say something incriminating about your former client.

Of course, if the former client's case goes bad and he is indicted on criminal tax evasion charges, there is always a chance that you could be subpoenaed as a witness and have to testify at the trial.  It sounds like that kind of situation would be a long ways off; so hopefully you won't have to go through that.

Good luck.  I hope this helps.     

Please let me know if there are any strange twists to this that you wouldn't mind sharing with me and my readers.

Kerry Kerstetter

 Follow-Up:

 Kerry,

You are exactly right.  It is the standard fishing expedition.  I get a strong sense the taxpayer has been unwilling to cooperate.

I will compile more complete notes on this and forward to you.  It may be helpful to someone else later on.

Thank you very much for your help and info.  I look forward to staying in touch.

Best regards,

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 8/07/2005 12:53:00 PM Send this post: