Read the full transcript: Can you actually refuse an IRS examiner's interview request? Sometimes, yes.
[00:00] “Aha — I’m not going to allow that status, because of the way that taxpayer responded to that question.”
[00:05] I had an IRS examiner who was being very forceful about wanting to interview a taxpayer with respect to her position that she was a real estate professional.
[00:21] Real estate professional status allows normal individual taxpayers to take very large losses against ordinary income on their tax return. But it’s a very technical status that requires a lot of elements to be met.
[00:37] We had provided a lot of information to the examiner as the taxpayer’s representative — all the information that had been requested, all the documents that had been requested. We provided all of that.
[00:47] The examiner was being very forceful, trying to compel our client to sit for an interview. We pushed back on that interview request, to the point where it was eventually dropped.
[00:58] Why did we push back on it? An interview with very technical requirements gives a lot of opportunity for a taxpayer to not understand what is being asked, or to provide inadvertent, erroneous information — which would have given the examiner an avenue to say, “Aha, I’m not going to allow that status because of the way that taxpayer responded to that question.”
[01:19] By pushing back on the request for an interview repeatedly, it ultimately wound up that the IRS was able to accept the return as filed, without adjustment on that issue. That was critical. It saved the taxpayer over $100,000 in that case by keeping the status, which was valid — while protecting our taxpayer’s rights by saying: you don’t have to sit for an interview. We’re able to do that as a representative.
The $100,000 case
A valid tax position can be lost on how a taxpayer answers one question about it, not on the facts underneath it.
That is what was at stake here. A client had claimed real estate professional status, a technical designation that lets an individual taxpayer take large losses against ordinary income when a strict list of requirements is met. The status was valid. Under audit, it was worth more than $100,000 to her.
The firm had already given the examiner everything requested: every document, every piece of information, filed and provided as the taxpayer’s representative. The paper record was complete. Even so, the examiner pressed hard to get the client into a chair for an interview.
We pushed back on that request and kept pushing back until it was dropped. The IRS accepted the return as filed, with no adjustment on the issue, and the client kept the six figures the audit could have cost her.
Why the interview is the real risk in a technical audit
When an examiner keeps pressing for an interview after the documentation is already complete, the interview is not about filling a gap in the record.
Real estate professional status turns on a set of technical elements, and an interview built around those elements gives a taxpayer room to misunderstand a question or answer imprecisely. One loose answer can hand the examiner the opening to disallow the position, not because the claim was wrong, but because of how it was described in the room. A valid position, lost in the phrasing of an unprepared answer.
You do not have to sit for every IRS interview
Many taxpayers assume that when the IRS wants an interview, they are obligated to give one. In a field audit, the examiner will even call to set a time for it.
A represented taxpayer has rights the IRS does not advertise. In many cases, the representative can sit for an IRS interview on behalf of a taxpayer. In others, the representative can decline all interview requests on the client’s behalf while determining if the IRS will seek to escalate the issue or close an exam. These options are rights, not a maneuver.
Our firm’s approach is to limit a client’s direct contact with the IRS to the extent the facts allow: hand over valid and responsive document requests that the law requires, contest what falls outside it, and keep a valid position from being talked away in an interview room.
Facing an audit on a technical position?
If an audit letter has arrived or an examiner is already pressing for an interview about a deduction, a loss, or a status you claimed, the time to bring in a tax attorney is before that conversation, not after it. Reach out to the Law Offices of Michael Raff today. Let’s discuss your situation, outline your options, and build a solid defense from day one.
