The IRS Can Help You With Client Retention

As IRS post-filing compliance initiatives and notices continue to increase, improve service and efficiency in your tax practice with IRS Form 8821.

December 8, 2011
Sponsored by Beyond415
by Jim Buttonow, CPA.CITP

With tax season quickly approaching, most tax practitioners are focused on providing tax preparation services for their clients. Clients expect you to get their tax returns right each year, and they don’t expect to have problems after filing. But compared to 10 years ago, that picture is changing, as all major areas of Internal Revenue Service (IRS) post-filing compliance are up.

  • Mail audits are up 143 percent.
  • Office and field audits are up 65 percent.
  • Underreporter inquiries are up 290 percent.
  • New unpaid balance accounts are up 85 percent.

With the IRS sending more than 201 million notices a year to 156 million individual and business taxpayers, the likelihood of IRS interaction after you file your client’s return is high. In fact, compared to 2001, it is up more than 570 percent.

The IRS notice represents a potentially tenuous practitioner-client interaction, and tax professionals face a complex problem:

  • Notices come all year long, not just during tax season.
  • Often, clients receive a notice but don’t tell you about it.
  • There are more than a thousand IRS notices, and your firm may not regularly address many of them.
  • No one wants to lose a good client, and now it is more likely that your good clients are getting notices.

Given the increase of compliance by notice, it’s time for practitioners to change the way they serve their clients. This represents an opportunity to strengthen client relationships and solidify yourself as your clients’ year-round trusted tax advisor.

Here’s how:

  • Educate your clients on current and future IRS compliance trends: more notices.
  • Remind your clients that there is a large budget deficit — and the IRS can only get 84 percent of what it is due — amounting to at least $345 billion a year.
  • Inform your clients that notices are the most likely way the IRS will interact with them.
  • Be prepared. Receive a copy of the notice and have the authority to call the IRS on your client’s behalf with IRS Form 8821.

IRS Form 8821, Tax Information Authorization, allows you to receive copies of your client’s IRS correspondence, including all IRS notices and letters, at the same time your client receives them.

With Form 8821:

  • Check box 5a for you or your firm to get copied on client notices.
  • All you need is a signature from your client, and it’s a free service from the IRS.
  • You can get authorization for any prior year or form, and for three future years.
  • You can reassure your clients that you have them covered all year long.

When you receive the notice at the same time your client does, you’ll have more time to resolve the issue and avoid premature assessments, erroneous IRS actions and the resulting second and third notices.

Avoiding the second and third notice is key. Receiving subsequent notices is largely due to IRS processing delays. The IRS processes post-filing mail on time in only 19 percent of accounts management cases. Receiving the notice well before the deadline helps you complete all of the details necessary to resolve the issue on the first response. It also alleviates client concerns about how you’re working with the IRS.

Receiving client notices with Form 8821 also allows you more time to scope the engagement, including billing. A recent independent study of accounting firms found that firms spend, on average, 67 days a year on post-filing activity — but they can bill for only 28 percent of this time. Scoping the work involved is important. If notices are delayed, you’re more likely to be rushed and not formalize the engagement. This can lead to hours of unexpected, unbillable time.

Form 8821 also represents less risk than Form 2848, Power of Attorney. Form 8821 does not permit you to advocate your client’s position to the IRS. However, it allows you most of the options you need for your firm to provide year-round service:

  • You or someone in your firm can contact the IRS any time after filing Form 8821.
  • The IRS will fax account transcripts to you immediately upon request.
  • You can screen engagements. If you need to represent your client with a Form 2848, you can set a formal engagement, with an engagement letter and defined expectations. This leads to happier clients.

Here’s how to introduce Form 8821 to your clients:

  • Educate your client on the current state of IRS post-filing activity first, especially the proliferation of IRS notices;
  • Get a signed Form 8821 from your client during the next tax season. Add it as an addendum to the engagement letter for tax preparation; or
  • Get a Form 8821 now. Draft a short engagement letter to your client explaining the scope of what you are doing: getting copied on his or her IRS notices so that you can be proactive about any IRS post-filing activity.

All major areas of IRS post-filing compliance activity are up and will continue to increase. Form 8821 is a client service opportunity for practitioners to be proactive when their clients receive a notice, leading to better client retention and efficiency when working with the IRS.

For more information, visit Beyond415.