This next post in the “anatomy of an audit” multi-post series outlines why a person or a business should strongly consider appealing an unfavorable tax audit decision and how they can go about seeking such an appeal.
Why Appeal an Adverse Audit Decision
Most taxpayers do not challenge an unfavorable audit decision. The reasons vary but often this is because they are either intimidated by the IRS or they believe a challenge would be too expensive or time consuming. While the IRS can feel like an unassailable machine, a taxpayer can actually advance an appeal at little or no expense. And hiring an experienced tax lawyer can be the smartest decision because tax lawyers regularly broker settlements on appeal that may be a fraction of what the auditor originally demanded. Some victorious taxpayers are eligible to recover attorney’s fees and costs as well.
Different Avenues of Appeal
The audit process begins with a notice from the IRS. Upon closing an un agreed audit file, the IRS sends the taxpayer a thirty day letter and an Examination Report detailing any proposed adjustments in taxes, penalties and interests. If the taxpayer wants to challenge the Examination Report, he or she must elect to protest the proposed adjustments through either a Direct Appeal or by filing a Tax Court petition.
In a Direct Appeal, the taxpayer asks for review of their case by an IRS Appeals Officer. This is accomplished by sending a protest letter within thirty days to the Appeals Officer detailing the specific findings in the Examination Report that are in dispute and by providing a brief explanation of why the taxpayer believes the report is wrong. The case will then proceed to an informal hearing before the IRS Appeals Officer. If the taxpayer does not like the decision of the IRS Appeals Officer, he or she can then petition the Tax Court for relief.
Tax Court Petition
Alternatively, a taxpayer can appeal directly to Tax Court by filing a United States Tax Court Petition within 90 days of the issuance of a Notice of Deficiency and the payment of a sixty dollar filing fee. The case is then set on the Tax Court’s calendar and the Court redirects the case to the IRS Appeals Officer for the prospect of settlement prior to trial. If a deal is not struck with the IRS Appeals Officer, an IRS attorney is assigned to represent the IRS in the Tax Court trial.
The Better Appeal Route
It is usually more advantageous to directly petitioning the Tax Court for review. First, trials in Tax Court are usually decided by one of nineteen presidentially appointed judges with substantial tax law expertise who do not work for the IRS with a few alternate Judges. Therefore, there is little concern that a biased or poorly-reasoned decision will result in Tax Court.
The settlement offers proposed by Appeals Officers assigned in Tax Court cases are statistically far superior to those offered by those same Appeals Officers in Direct Appeal cases. This is likely because litigation in front of the experienced and neutral Tax Court judge is less predictable for the government. Furthermore, the Appeals Officers know the taxpayer is serious about presenting their case to a judge and settlement is often a smarter economic choice for the government.
The burden of proof shifts to the IRS for any new issues raised by the IRS. For instance, if the taxpayer in Tax Court introduces credible evidence with respect to any factual issue relevant to ascertaining the liability of the taxpayer, the IRS then has the burden of proof on that new issue. Additionally, with regard to the Tax Court review of the appropriateness of penalties, the government always has the burden of proof. In Direct Appeal cases, the taxpayer always has the burden of proof. Usually once a Tax Court decision becomes final, all other issues for the tax years that were the subject of the litigation are also final.
You can read the IRS’s “Publication 5” materials outlining the appeal processes discussed above by selecting the following link: http://www.irs.gov/pub/irs-pdf/p5.pdf
Audit Appeal Representation
Hiring an experienced tax lawyer with knowledge of both the tax law and the appeal processes is a tremendous value to an audited taxpayer appealing an adverse decision. This experience is precisely why you should consider hiring the Law Offices of Stephen Moskowitz, LLP to represent you in your audit appeal. Our law firm has the experience representing clients appealing their adverse audit decisions and we understand the procedures and pitfalls of the appeal processes. More importantly, our attorneys work regularly with the Appeals Officers and Tax Court Judges assigned to the audits so they know what it takes to get the desired results. Call us today for your free, attorney-client privileged consultation regarding your audit appeal.
**Note – We will post additional information about Federal District Court and Claims Court venues in tax disputes. Stay tuned …