I get a lot of calls from my academy members regarding IRS audits.  A common question is: “should I bring my clients to the audit?”  For 16 years, except for on the rarest of occasions, my answer has always been “no.”  If your client is asked a direct question by the IRS Revenue Agent during the exam your client is compelled to answer absent exercising their 5^th amendment rights (which is probably worse).

Even idle chatter is considered fair game by an IRS auditor.

A recent case in point was featured in The March 14, 2014 Kiplinger Tax Letter, “Talking too much during an audit leads to tax woes.” A husband and wife were chatting with a revenue agent who had begun an examination of their return, when the husband inadvertently alerted the auditor to a home sale that occurred in the year prior to the one under exam.

The couple claimed the gain from that sale was tax free on account of the home sale exclusion, but the agent ended up expanding the audit to include the previous year.  He found out that the couple rented out the home to their son and his family and didn’t actually live in the in the house.  A district court agreed with the agent and they didn’t qualify to exclude ANY portion of their gain (Cohen, D.C., N.Y.).  Thus, the husband’s loose lips cost the couple over $150,000 in tax, penalties and interest.

Don’t let your client's loose lips sink the IRS audit ship.

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