Form 843 Audits 2024-2025

Three reasons why CPAs must avoid IRS audit representation: Cash is wonderful, cash is king, and every one of your clients values the commodity that is cash. We know that for some, cash may be difficult to account for. Having significant cash inflow can create lots of dilemmas for a business. Among the concerns is whether that business correctly, accurately, and completely reports all of its cash revenues and tax returns. Now, every accountant and attorney knows that some business owners may be tempted to unfairly report their cash receipts, and so begins the IRS audit of businesses with significant amounts of cash. This type of audit is extremely specialized, and most attorneys wisely avoid handling these engagements. They find this area of representation to be too technical with all the accounting principles involved. The auditor's inquiry begins with a survey of the business tax return, changes in the balance sheet, cash t-account analysis, and other traditional accounting tools and methods. However, wise CPAs and tax accountants also try to avoid these audits because of the great exposure to professional malpractice. First, an experienced tax accountant, especially a CPA, is familiar with the professional risks involved in this representation. Representing mishandled cash to governmental authorities can result in legal consequences upon the client. Unreported cash revenues result in additional tax, and there is also a routine assessment of the IRC 6662 penalty, which equals an additional 20% of the tax. However, there is much more at risk here. There is also the possibility of fraud committed by the business client. Tax fraud occurs when false information is intentionally provided on a tax return in order to pay less tax. For any person determined to be fraudulent, the 20% penalty is replaced with the IRC 66-63 fraud penalty, which equals 75% of...