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Typically, an IRS examination of one’s tax return will result in the assessment of additional taxes, penalties, and interest. Most taxpayers disagree with their auditor’s findings and want an opportunity to challenge their new tax bill. Thankfully, the auditor’s report of examination changes which contains proposed adjustments to your tax return is not necessarily the final arbiter on how much you will have to pay.
The IRS created an Office of Appeals which is separate and independent from its other departments with a view to provide an impartial forum for resolution of tax controversies without resort to litigation. When an audit case is filed with IRS Appeals, the Appeals Officers must review the examination report including all underlying documentation, provide unbiased analysis as well as an open venue for taxpayers to dispute the results of their audits.
Appeals Officers have broader authority and flexibility in deciding cases as compared with auditors. They are required to consider taxpayers’ reasons for disagreeing with the auditor’s report and are discouraged from simply reiterating the auditor’s findings. They must conduct their own independent and impartial review. This article explores how you can dispute your audit via IRS Appeals.
The IRS Appeals Process
At the conclusion of an audit, the IRS will send a report of examination changes which contains the proposed adjustments to your tax return. The report details the basis for the auditor’s findings and, in most cases, the new amount of tax that you will owe. It is broken down in terms of taxes, interest, and penalties. If you disagree with the proposed adjustments to your tax return, you should not sign the examination report.
30-Day Letter: File a Protest
Failure to sign a report of examination changes will prompt the IRS to send you a notice (informally known as the “30-Day Letter”) which explains how you can file an appeal with the IRS and which sets forth the timeline. If there is not enough time before the statue of limitations expires, the IRS will skip the 30-Day Letter and go straight to the 90-Day Letter (see below).
If the proposed change to the total amount of tax and penalties for any tax period is greater than $25,000, you must file a formal protest with the IRS. The taxpayer will have 30 days from receiving the 30 Day Letter to submit an official protest. We note that you have the option of informally appealing to the auditor’s manager, however this will not extend the 30-day time period.
Your formal protest must include a statement that you want to appeal the changes proposed by the IRS along with the following specific information:
• Your name, address, and a daytime telephone number.
• A copy of the 30-Day Letter that you received that shows the proposed changes.
• The tax period(s) or year(s) involved.
• A list of each proposed item with which you disagree.
• The reasons you disagree with each item.
• The facts that support your position on each item.
• The law or legal authority that supports your position on each item, if applicable.
• A penalties of perjury statement as follows: “Under penalties of perjury, I declare to the best of my knowledge and belief, the information contained in this protest and accompanying documents is true, correct, and complete.”
• Your signature under the penalties of perjury statement.
Small case requests involve audits where additional tax amounts or penalties resulting from audit do not exceed $25,000. In this situation, you may forego the formal protest and instead file IRS Form 12203 Request for Appeals Review.
Notice of Deficiency aka the 90-Day Letter: Petition U.S. Tax Court
If you do not sign the report of examination changes, and if you do not respond to the 30-Day Letter, the IRS will then send you a Notice of Deficiency (informally known as the “90-Day Letter”). The 90-Day Letter constitutes a statutory, final notice and reiterates the specific changes the IRS is proposing to your tax return, much like the report of examination changes. However, at this point, in order to reach IRS Appeals, you must file a petition in U.S. Tax Court. You will have 90 days from the date of the Notice of Deficiency to file your petition. You will not have any other opportunities to challenge the audit results outside of the 90-day period, at which point the audit becomes final and the IRS will pursue collection of any additionally assessed taxes.
We note that if the Notice of Deficiency is addressed to a taxpayer located outside of the United States, the 90 days is extended to 150 days.
When you file a Tax Court petition, you get a second chance to dispute your audit results with IRS appeals. First, the IRS receives notice that you have filed your petition in tax court. Then, your case goes to the IRS Office of Appeals where you will have a chance to resolve the disputed items without having to go to Tax Court. Tax Court will set your case for trial pending resolution via administrative appeal. With proper representation, most taxpayers are able to favorable resolve the disputed items in appeals without having to litigate in Tax Court.
Do You Need a Tax Attorney?
Appealing an audit can have the effect of either reducing or eliminating previously assessed taxes and penalties. With skilled counsel, the chances of success on appeal are high. Appeals Officers must review the case anew, remain impartial, and consider taxpayer arguments as to the disputed items. Moreover, once your appeal is filed, the IRS is precluded from taking collection against you.
You will typically have 60 days to prepare for the appeals process. Your tax attorney can help you gather the necessary documents, go over the pertinent factual details, and prepare legal argument to best represent you on appeal.
At the appeals hearing, the appeals officer will review the tax return, the evidence and consider the facts anew. With competent counsel, most taxpayers can agree on limited adjustments to the tax return as well as waiver of penalties that were previously assessed by the auditor.
The tax attorneys at Segal, Cohen & Landis have extensive experience defending the tax returns of our clients at audit and challenging additional assessments on appeal. Retaining an experienced tax attorney to represent you at audit and on appeal, when necessary, will help you minimize the assessment of additional tax, interest and penalties. Moreover, the attorney-client privilege protects all client communication from disclosure. Few attorneys are competent to handle the complexities of taxation within the context of an audit or appeal.
If you are interested in having a complimentary consultation with one of our partner attorneys regarding your tax matter, please feel free to contact us at 866-505-1872. We would be happy to speak with you and will advise you how we can resolve your case and how much it would cost.