Appealing an Audit

Taxpayers have the right to file an appeal with the IRS Appeals Office if they disagree with proposed adjustments made by a revenue agent. This blog post will focus on the administrative requirements for filing an appeal and issues to look out for.

The IRS Appeals Office

The purpose of the IRS Appeals Office is to help taxpayers “resolve their tax disputes without going to Tax Court.” IRS Appeals is tasked with providing an independent, fair and impartial review of each case. Appeals are generally handled by the appeals office located closest to the taxpayer, but a taxpayer may request that the office closest to their tax attorney handle their case instead.

Filing an Appeal

As noted in our last post, whenever there are unagreed issues from a tax audit that may result in a proposed tax deficiency, the taxpayer receives a “30-day letter” (a notice of the right to appeal the examiner’s proposed changes), along with a copy of Publication 5 which describes their right to appeal. The taxpayer must submit their appeal within that time frame. An appeal is made by filing a written protest letter with the IRS Appeals Office. That letter must contain:

  1.  The taxpayer’s contact information
  2. A statement that the taxpayer wishes to make an appeal
  3. A copy of the letter delineating the proposed changes
  4. The tax period(s) involved
  5. A list of each item with which the taxpayer disagrees, plus the reason for the disagreement
  6. Facts that support the taxpayer’s position on each of the items
  7. The law or authority that supports the taxpayer’s position on each of the items
  8. A statement under penalty of perjury (if submitted by the taxpayer) or a declaration (if submitted by the taxpayer’s attorney)

If the amount of additional taxes and assessed penalties is $25,000 or less, a Small Case Request may be filed. In that case, either a brief written protest or Form 12203 may be submitted.

Not that if the taxpayer fails to respond to the 30-day letter on time, a 90-day letter (“notice of deficiency”) will be issued, which gives the taxpayer 90 days to file a petition with the Tax Court (150 days if addressed to a taxpayer outside of the U.S.). Note that taxpayers may still appeal at this stage but must request that the IRS attorney assigned to their Tax Court petition transfer their case to IRS Appeals.

The Appeals Conference

After the filing of the protest letter, and IRS Appeals Officer will meet with the taxpayer’s counsel for an appeals conference. At an appeals conference, both parties advocate their respective positions (orally and in writing) and negotiate a settlement. This process generally takes a year or two, particularly if IRS technical guidance is sought.

Most disputes are settled at this stage, and are followed by a closing agreement. Disputes that are not settled through appeals may proceed to litigation in U.S. Tax Court (or Bankruptcy Court) or via refund litigation in the U.S. Court of Federal Claims or in a U.S. District Court.

The next two blogs in this series will cover tax litigation forums.