Think IRS Due Diligence Is Just Paperwork? Here’s What Tax Pros Should Really Know

johnloulopez11051
3 days ago
2 min read

Written by Dr. Gwennetta Wright

Most tax pros believe that a Due Diligence exam is all about Form 8867—whether it’s filled out, signed, and attached correctly. But that’s just the start. When the IRS comes calling, they’re looking at the bigger picture: how you run your business, how you work with clients, and how seriously you take compliance.

Let’s break down what the IRS is really checking when they show up.

1. It’s About Your Entire Practice—Not Just a Return

The IRS isn’t only interested in your paperwork. They want to know how your systems operate behind the scenes.

Ask yourself:

Do your systems match what’s in your client files?
Are your notes, forms, and processes consistent?
Do your actions reflect that you truly understand the law?

Your files should tell a clear story—from how you asked questions to how you verified answers.

2. They Watch How You Interact with Clients

This part surprises a lot of tax pros. The IRS pays attention to how you communicate during client interviews.

They’ll evaluate whether you:

Ask surface-level questions or dig for real answers.
Coach clients to “say the right thing” instead of verifying their information.
Document inconsistencies properly instead of ignoring them.

The IRS wants to see professionalism, not shortcuts.

3. They Look at How You Charge

Yes, your fees matter. The IRS may ask about your pricing model, especially if your fees seem tied to refund amounts.

They’re checking for signs of:

Predatory or inconsistent pricing.
Refund-based fee structures.
Practices that could be seen as manipulating outcomes.

Keep your pricing transparent and standardized—it builds trust and keeps you in the clear.

4. Your Education and Training Matter

Compliance isn’t a one-time achievement—it’s a continuous process. The IRS will often ask about your professional background, recent training, and continuing education.

They want to know:

Are you staying up to date on tax law changes?
Have you completed recent CE or compliance training?
Are you leading your team by example when it comes to learning?

The more knowledgeable you are, the stronger your defense when questioned about a return.

5. This Is Your Chance to Prove You’re Running It Right

A Due Diligence exam isn’t something to fear—it’s your opportunity to prove your business operates with excellence. The IRS wants to see that your systems, training, and processes work together to produce compliant, accurate returns.

Think of it as a business checkup, not just a return review. It’s your moment to show that you’ve built a professional, reliable tax practice.

Due diligence is about more than forms. It’s about consistency, systems, and standards. The IRS is looking at your entire operation, not just one document.

So the question is—are you ready?

When your processes are clear, your notes are strong, and your business is run with integrity, you have nothing to worry about.