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What To Give IRS In An Audit

Provide receipts and other supporting information if the IRS asks, but what if you have memos and letters from tax advisers about whether you qualify for a deduction, audit risk or potential tax litigation? You don’t want to hand them a roadmap of arguments to make against you. “Work-product” protection means a taxpayer need not turn over documents created in anticipation of litigation. This protection has wide application, not just to tax litigation.

What should you do if the IRS asks for all your documents about a particular deduction, income item, or tax year? As part of vetting a particular tax position, you and your tax advisers may discuss what tax arguments the IRS could make. You might talk about audit risk and tax authorities pro and con. Traditionally, documents to be used in tax litigation and relating to the strength or weakness of a tax position are covered by work-product privilege so the IRS generally cannot get them. If the IRS issues an Information Document Request or subpoena, you may be able to legitimately refuse.

Work-product protection is different from attorney-client privilege. Attorney-client privilege protects communications between clients and their lawyers, whether or not those communications deal with anticipated litigation. Discussions with tax lawyers are privileged, but discussions with accountants are not, unless the accountants are subcontractors of the tax lawyers. Having lawyers hire accountants can bootstrap attorney-client privilege to accountant communications, which makes sense where tax litigation is imminent or might involve an IRS criminal matter.