Presentation isn’t Cosmetics, it’s Strategy (and it Changes Outcomes)
In an IRS exam, facts win, but how those facts are organized, narrated, and delivered determines whether an issue is closed at Exam, settled at Appeals, or pushed toward litigation (and penalties). The IRS trains agents to open with an interview, issue written document requests, and test your books using direct and indirect methods; your goal is to control that process, keep the matter civil, and build a record that would make sense to Appeals or a judge if needed. You have the right to representation and to have your representative speak for you; use it.
Two legal levers make presentation decisive: (i) burden of proof can shift to the IRS on factual issues if the taxpayer presents credible evidence, substantiates items, and cooperates; if your file is chaotic, that threshold is rarely met. (ii) penalties often hinge on reasonable cause and good-faith presentation—how well you documented reliance on competent advice, the complexity you faced, and your diligence. Well-prepared narratives and exhibits are what let Appeals weigh “hazards of litigation” and compromise.
Privilege matters. If any issue could implicate willfulness (unfiled years, false documents, cash irregularities), place communications under attorney–client and work-product protection from day one and extend privilege to consulting accountants via a Kovel arrangement—so you keep accounting horsepower without sacrificing confidentiality. Do not use your original preparer as your front-line defender where eggshell risk exists; their communications generally aren’t privileged.
Build a Defensible Record: Organize Like a Litigator, Not a Bookkeeper
Agents are trained to request a standard packet (returns, bank statements, sales journals, invoices, resale certificates/POS reports, etc.) and then reconcile your records to the return using established methods. If you hand over a data dump, you invite more issues. Instead, deliver a curated, cross-referenced file that ties every number on the return to your books with clear schedules.
What to Assemble Pp Front (and How):
- A GL-to-return mapping (line-by-line cross-walk), with lead sheets and tick marks to source docs.
- Bank-to-books reconciliations and schedules that explain non-income deposits (transfers, loans). Agents use indirect methods (bank deposits, net worth, mark-up) when books are weak—don’t give them a reason.
- Strict-substantiation modules for §274(d) items (mileage, travel, meals, listed property): contemporaneous logs, receipts, who/what/where/why. Where strict rules don’t apply but you clearly incurred an expense, preserve Cohan-type evidence to allow a reasonable estimate.
- Issue memos that state the facts, law, and your application (with exhibits). If you later receive a Notice of Proposed Adjustment (LB&I Form 5701) or a Form 4549 report, you already have your response package framed.
Document requests (IDRs): For larger cases, the IRS uses a formal IDR process (deadlines, follow-ups, possible summons). Answer precisely what’s asked, on time, and in writing. If an IDR is vague or burdensome, confer and narrow it; memorialize scope and timing.
Manage the Exam Timeline: Interviews, Deadlines, Forum Choices, and Interest
Interviews
The IRM expects an opening interview; decide in advance who will speak and what will be covered. Answer the question asked, without speculation or volunteering, and request that complex questions be put in writing. Your representative can and should attend.
Closing an Agreed Case
If you agree with the proposed changes, you’ll typically see Form 4549 (Income Tax Examination Changes). Signing the agreement (and, where used, a waiver) allows immediate assessment and usually forecloses a Tax Court forum for those issues. Be sure your penalty defenses are resolved before you sign.
Disagreeing—Appeals and Tax Court
If you receive a 30-day letter, you can submit a protest to the Independent Office of Appeals; if the IRS issues a 90-day Notice of Deficiency, file a timely Tax Court petition to preserve a prepayment forum. Appeals exist by statute to independently resolve disputes.
Interest & Cash-Flow Management
To stop underpayment interest on a disputed amount without conceding liability, consider a properly designated §6603 deposit (revocable; interest-stopping) rather than a payment. Use the IRS’s deposit procedures when remitting.
Statute Extensions
If the Service requests a consent to extend the assessment period (Form 872), negotiate the scope and period; time-boxed or issue-boxed consents are often appropriate. (General rule: assessment is three years from filing unless extended/exceptions apply.)
Penalties Ride on Presentation: Reasonable Cause, Approvals, and Consistency
The default accuracy-related penalty is 20% (§6662). It can be abated for reasonable cause and good faith (§6664(c))—but only if your file proves what you relied on, why the issue was complex, and how you exercised diligence. Present signed engagement letters, advisor credentials, memos, and the documents you provided to that advisor to show competent reliance and full disclosure.
Before the IRS can assess most penalties, it must obtain written supervisory approval and ensure it is timely. Ask for that documentation if a penalty is proposed. Sloppy files make penalties easy; clean files create credible, reasonable-cause narratives and give Appeals room to settle.
Consistency is a defense. Mismatches across your return, financial statements, and records are penalty fuel; a tightly reconciled set of exhibits not only speeds the audit but also reduces the government’s appetite to assert penalties and helps you meet the credible evidence threshold for shifting burdens on factual disputes.
Keep it Civil: Eggshell Awareness, Privilege, and Controlled Communications
Most exams stay civil. They turn criminal when willfulness, false documents, or obstruction appear. If any “badges of fraud” might be in play, route all work through counsel, keep communications privileged (including Kovel for accountants), and control interviews—often by pushing questions into written IDRs and supplying records through counsel. This protects you while still cooperating, which is vital to favorable Appeals treatment and to avoiding escalations.
Contact the Tax Law Offices of David W. Klasing if Your High-Risk Tax Audit Needs Disciplined Presentation and Protection
At the Tax Law Offices of David W. Klasing, our dual-licensed Criminal Tax Defense Attorneys & CPAs turn “presentation” into strategy. From day one, we wrap your matter in attorney–client and work-product protections and extend privilege to consulting accountants via Kovel, so you keep accounting horsepower without sacrificing confidentiality. We control the record: mapping the return to your books with a clean GL-to-return cross-walk, reconciling bank deposits to gross receipts, tying POS/Z-tapes to filed returns, and assembling strict-substantiation modules for §274(d) items (mileage, travel, meals). IDRs are answered precisely and on time; interviews are narrowed, conducted through counsel, and limited to what the law requires. The result is a file that an examiner, Appeals, or a judge can follow, which is built to resolve issues on the merits and keep the matter strictly civil.
We also protect economics and options. Where disagreement is likely, we posture issues for Appeals with hazards-of-litigation framing, press for statutory supervisory approval of penalties (§6751(b)), and develop reasonable-cause defenses (§6664) with documented reliance and diligence. To manage interest without conceding liability, we employ §6603 deposits and negotiate targeted Form 872 extensions (by issue/period) instead of open-ended consents. If an agreed closure is best, we make sure penalties are right-sized before you sign Form 4549/870; if not, we preserve your prepayment forum with a timely Tax Court petition.
If the facts suggest high-risk eggshell or reverse-eggshell audits (unfiled years, false documents, cash irregularities, nominees), we recalibrate immediately—routing communications through counsel, avoiding unnecessary admissions, and, where appropriate, building parallel remediation plans that do not compromise privilege. Put experienced, privileged counsel between you and the government. Call the Tax Law Offices of David W. Klasing today at 800-681-1295 or contact us online HERE for a reduced-rate consultation.
