Here is how a "creative" accountant deals with a IRS audit. First he considers the odds. A taxpayer's chances of being audited are about 2 in 100 if he has a typical tax form listing only earnings and standard deductions, according to this accountant. The odds double if you earn more than $50,000. If you take Schedule C deductions on business ventures, the odds of being audited are 50-50.
"i always go to an audit in a three-piece suit," says the accountant, who asked to remain anonymous. "I go in a three-piece suit to intimidate the IRS agent. If it is your taxes that are being audited, don't go -- send the accountant. We take one guy who knows the client's taxes back and forth and one guy who doesn't know anything about it. It's a Mutt-and-Jeff routine. The accountant who doesn't know anything answers all the questions. The accountant who knows the facts only corrects the facts. The idea is not to give out any information not directly requested."
While his clients did well, the accountant remembers watching and IRS agent-who is graded on how much money he can save the IRS--squeeze dollars from a woman who owned a little corner grocery. She had a shopping bag full of receipts and she couldn't answer questions without getting herself in trouble.
"He sees me in the suit and he knows he is going to have to fight to get a nickel from me," the accountant says. "He knows he can overwhelm the old lady."
As with most accountants, one case stands out in his career -- a case in which he saved his client $25,000 on one tax return. The client was a bank director. To become a bank director, the man had to borrow money to buy bank stocks. Most accountants would have treated the loan as a Schedule A (itemized) deduction. The creative accountant listed the loan as a Schedule C (trade or business) deduction. The difference meant $25,000.