Can an IRS auditor request copies of legal bills?
Monday, December 7th, 2009 at
5:01 pm
Drinks-A-Lot-of-Buck asked:
Our business is being audited by the IRS. The auditor asked for copies of our legal bill and our attorney provided a letter validating the amounts reported and stated that the content of the invoices (as they detailed specific work) was privileged. Now the auditor has come back and demanded the invoices. We are concerned that the copies the auditor make could be released via the F.O.I.A. Do we really have to let them see the invoice and allow them to make copies?
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Our business is being audited by the IRS. The auditor asked for copies of our legal bill and our attorney provided a letter validating the amounts reported and stated that the content of the invoices (as they detailed specific work) was privileged. Now the auditor has come back and demanded the invoices. We are concerned that the copies the auditor make could be released via the F.O.I.A. Do we really have to let them see the invoice and allow them to make copies?
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Ther IRS auditor can request whatever they want. If you choose not to produce it, they can ((and will))disallow the deduction.
Having sat through several audits, I suggest that if they ask for something, produce exactly what they want.
If you want the audit to go easy, you will do what they want. if you want it to be an ordeal, that’s your choice.
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If the legal bills are subject of the audit, yes, you must provide them if you wish the auditor to consider their validity in the audit. If you do not, you run the risk of the auditor disallowing the business deduction. Not all legal bills are valid deductible business expenses and without disclosure of the subject matter the auditor will be forced to presume that they are not deductible and will disallow the deduction.
You don’t have to worry about disclosure of the documents under FOIA. Tax returns, including audit results, are confidential between the IRS and the taxpayer and are not subject to disclosure under FOIA. The records are YOUR records, not government records, and are NOT subject to FOIA disclosure at all. That’s not to say that a 3rd party with a valid interest could not acquire them under subpoena but they would be getting the records from YOU not from the IRS and it would not be a FOIA request.
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The two answers are absolutely correct. I can understand your concern about this issue, because confidentiality is a major concern for those in the legal field. Perhaps you can talk to your auditor and ask if it’d be possible to provide him with the invoices, but redact (cover up with a thick black marker) sensitive information such as client names, account numbers and social security numbers. They may be willing to accept this, but it’d be wise to ask them first.