IRS Targets
Here are some important excerpts from the IRS training program manual, titled: “Attorneys.”
About: Client Trust Accounts
“Inspect the endorsements on checks written to or on behalf of the attorney from trust accounts.”
Special attention should be given to all checks that are deposited into accounts other than the general operating account or are cashed or through the use of an ATM card.
About: Referral Fees
“Questions should be asked about any cases referred to another attorney.”
These fees represent recognizable income.
About: Advanced Client Costs
“It has been determined by the courts that advances to and costs paid on behalf of the client are to be treated as LOANS.”
A bad debt deduction may be taken in the year that any client advance are determined to be NOT collectable.
About: Attorney Client Privilege
“In accord, is United States vs Hodgson, where the court held that the attorney client privilege DOES NOT PREVENT the IRS from requiring a lawyer to produce records of all changes and fees received from a client under the investigation by the IRS.”
About: Summons
“The attorney-client privilege DOES NOT cover a law firms client-trust fund bank account, and a summons to the bank will be enforced.” United States vs Union First National Bank of Washington.
About: Interviews by IRS
“The initial interview is, perhaps, the most important step of the audit process. Direct testimony of the taxpayer is needed for two reasons. First, the tax payer’s responsibility for financial transactions needs to be established, and secondly, a representative will not generally have adequate knowledge of the attorney’s practice.”
About: Asset Searches
Check for: “Vehicle registration data to reveal the original purchase date of all vehicles.”
Check to: “Identify all taxable property in the county owned by the attorney.”
Check for: “A client may also quit claim a partial or entire interest in a property in exchange for legal fees.”
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