Offshore Case File and Document Management for IRS Tax Controversy

IRS notices arrive in an instant yet we have seconds to act. In many instances, critical information relating to your client’s IRS matters are left on client portals and scattered throughout multiple email threads. While you are digging through a mass of online documents in search of bank statements, you are not building a tax strategy for your client.

But that work can be assembled by a remote case file and document management team. While a senior CPA or EA makes professional judgments in tax controversy matters, he or she can have assistance with assembling, organizing, and tracking the documents involved in the process, all conducted in a systematic manner by a support person.

What “Case File and Document Management” Actually Covers

In a tax controversy engagement, offshore support typically performs the preparatory tasks that would otherwise take the time of senior tax professionals such as the CPA or EA at the front of the matter.

These tasks include:

• Organizing a case file for the notices, audits and collections with which the firm is involved with the IRS.

• Logging notices and tracking response deadlines

• Collecting and indexing client documents

• Pulling and organizing IRS transcripts and prior-year returns

• Building reconciliations and supporting schedules for your review

• Preparing draft document request lists and exhibit packages

• Maintain a log of all activity completed for each matter so team members can quickly pick up where another team member left off.

Important to reiterate, an offshore case file and document management service only supports professional tax practitioners. All communication with the IRS, tax controversy strategy and representation are provided by licensed and credentialed tax professionals who work in conjunction with the support team.

The Master Checklist: Setting Up a Tax Controversy Case File

To be used at the beginning of the engagement for all new tax controversy matters.

Use this at intake for every new matter.

1. Intake and Triage

• Record the notice type and number (CP2000, CP504, Letter 525, etc.).

• Record the notice date and response deadline

• Confirm the tax periods and tax types involved

• Verify a signed engagement letter is on file

• Is Form 2848 (Power of Attorney) signed and filed, or pending?

• Are client’s in this matter aware of the offshore representation and have they provided consent for the sharing of their tax return information internationally.

• Review Note and assign to the responsible reviewer and set due dates internally.

2. Folder Structure

• Create a standard folder tree for every case

• All client correspondence and IRS notices in separate folders from client documents, workpapers and submitted documentation.

• Apply a consistent naming convention (Client_Year_DocType_Date)

• Add a rule for version control to only place the final reviewed document in “Submitted” status.

3. Document Collection

• Create a specific document request list for client to send to tax preparer vs. generic request list.

• Track requested documents.

• Follow up on outstanding items on a set schedule.

• Flag for reviewer’s attention any document(s) still missing or for which information is inconsistent.

4. IRS Records

• Pull account, wage and income, and return transcripts

• Compare transcript information to information in filed return and client's records.

• Note any mismatches, such as unreported income or missing credits.

• Save all transcripts to the case file with the pull date.

5. Workpapers and Reconciliation

• Prepare reconciliations tying client records to the return or the notice.

• Cross-reference every figure to its source document

• Document assumptions and open questions for the reviewer

• Incomplete Draft Schedules and Exhibits for CPA or EA Review

6. Response Package

• Reviewer approves the response letter and exhibits

• Index and page-number the package

• The method and date of submission (e.g. faxed, mailed with tracking #, etc. and date).

• Save an exact copy of everything submitted

• Diary follow-up dates for expected IRS replies

7. Closing the Matter

• Document the close of the matter and record the applicable balance, refund or adjustment.

• Complete a closing checklist and archive the file

• Apply your firm’s retention schedule

Deadline Tracking Checklist

These habits will help turn manageable notices into serious problems when deadlines are missed:

• Enter all IRS notified deadlines in the shared calendar on the day of the notice.

• Set reminders at 30, 14, 7, and 3 days before the deadline

• Track statute dates for issues such as assessments and collections where appropriate.

• Note whether an extension request would be appropriate and who can approve such a request.

• Review the open-case deadline report with the responsible CPA on a weekly basis.

Security and Compliance Checklist

Before you start sending work off to people abroad to work on your files, review the following items to ensure your sensitive information is protected.

• Client consent for disclosure required under IRC Section 7216 and the regulations thereunder for any disclosure outside of the United States; documentation of all such consent obtained.

• You have developed a written Information Security Plan for the Firm which addresses vendors and compliance with the FTC Safeguards Rule and IRS Publication 4557, Tax Information Security Guidelines For Tax Professionals.

• Offshore staff sign confidentiality agreements

• Access restricted to necessary material for individual to perform services on behalf of firm.

• Multi-factor authentication is on for all systems

• File sharing should occur through your secure portal or a controlled workspace (not email).

• Downloads and local storage are restricted where possible

• Access logs are reviewed periodically

• Departing staff lose access the same day

Where Offshore Support Adds the Most Value

Volume Spikes

The periods around notice season, after a client has had a post-filing audit and is dealing with collection actions by the IRS can create unexpected surges in work volume.

Senior Time Recovery

Hours of a senior’s time to rename files and search for bank statements to name a few examples are valuable and better spent on strategy.

Consistency

All cases are prepared following the same standard procedures, with all necessary information organized in a consistent manner, making review much easier.

Extended Turnaround

Work can be done while the office is closed and work completed the next morning.

How to Roll This Out Without Disruption

1. Start with one case type, such as CP2000 response preparation.

2. Chart your current process, and turn it into a simple checklist for future reference.

3. Test the methodology by first implementing it for the preparation of work that relates to 3-5 open or closed matters and obtain sign-off from all reviewers for the quality of the work that was prepared.

4. Measure the Turnaround Time, Re-Work Rate and Hours saved by Reviewers.

5. Expand to the other types of notices in practice that the offshoring service supports once quality is achieved on the first case type.

Frequently Asked Questions

Can an offshore team represent clients before the IRS?

No, off-shore staff cannot practice before the IRS. Your off-shore staff will be there to support your in-house credentialed team (attorneys, CPAs, Enrolled Agents) only.

Is it permissible to send tax return information offshore?

This is also possible but with considerable restrictions. As per the U.S. laws and Section 7216 of the Internal Revenue Code, use and disclosure of tax return information by tax preparers is regulated. If tax return information is to be disclosed to tax preparers outside of the U.S. in connection with preparation of tax returns of U.S. persons, additional consent is required. Please confirm the applicable consent(s) with your lawyer or your company’s compliance department.

What does the CPA still need to do?

You are responsible for review of all workpapers and correspondence, strategy and development of tax controversy issues, all communication with the IRS, and all signings required on behalf of clients.

What types of matters are a good fit?

This model is particularly well-suited for matters such as:

1. Preparing responses to IRS notices

2. Gathering and organizing documentation in connection with an audit

3. Analyzing transcripts

4. Supporting the preparation of files related to penalty abatements

5. Organizing and documenting matters related to collection cases

How do we keep client data secure?

Role-based access to client documents via secure portals, Multi-factor authentication (MFA) to confirm identity, written confidentiality agreements with vendors and a comprehensive written security plan.

How fast can a firm get started?

Intellgus can support a CPA firm to pilot a specific matter type within a few weeks of agreement.

How do we know quality is holding up?

Monitor rework rate, missed-deadline count and reviewer hours spent per case. As volume increases, the model is working if metrics improve or remain constant.

Final Thought

Tax controversy work is organized best by firms who have organized their case files prior to notice. That organized case file and document management system can then support the licensed professional to best advantage on the work they can do, in support of increased volumes of controversy work.

At Intellgus, our offshore accounting teams support U.S. CPA firms in structure preparation of controversy matters to enable the CPA firm to handle a greater volume of such work in review-ready form.