The IRS Audit Appeal Process

 At the conclusion of the IRS field examination, the examiner will present to you any adjustments they have prepared. If you agree with their findings, the revenue agent involved will ask you to sign a Form 870, which allows for additional taxes to be assessed. If you object, you have a decision to make—try to settle the issues at IRS Appeals, or forego any further administrative steps and proceed to litigation.

Administrative Appeals  

IRS Appeals is a division wholly independent of the examination function. It exists to resolve disputes in a way that is fair to both the taxpayer and the government. Ninety percent of cases brought to Appeals are successfully resolved, with outcomes acceptable to both sides. In devising a settlement, Appeals is permitted to consider the “hazards of litigation” – the odds of either side prevailing in court. This allows Appeals far greater flexibility than the Examination Division has in coming to an acceptable agreement.

30-day letter

The traditional route to Appeals’ consideration is through a 30-day letter. At the end of the examination, any disputed issues will be written up in a Revenue Agent Report, and a 30-day letter issued. You’ll then have a month to draft a protest. The case will then be transferred to Appeals for consideration.

90-day letter

If you don’t respond to the 30-day letter within 30 days, the IRS will automatically issue a Statutory Notice of Deficiency, or a “90-day letter.” This puts you on notice that taxes will be assessed, as determined by the IRS, after 90 days. If you disagree with the proposed assessment, there are still two options:

• • • Pay the tax and sue for a refund
    • File a petition in United States Tax Court and seek a redetermination of the tax deficiency. (Petitioning the Tax Court increases the odds of the matter being sent back to Appeals for another shot at resolution before either side incurs the cost of litigation.)

While there is always a “worst-case scenario,” most taxpayers will be given an opportunity to resolve their case with Appeals on terms acceptable to both sides.

Alternative Dispute Resolution

Court battles can be both costly and time consuming, and these factors can sometimes outweigh the amount of taxes at issue to begin with. To avoid litigation, the IRS has instituted several alternative dispute resolution programs to resolve unagreed issues. You need to consider all options available—Appeals settlement, alternative dispute resolution, Tax Court litigation and District Court litigation—in developing your strategy moving forward.

Fast Track Settlement

As mentioned in the previous chapter, the FTS program tries to resolve cases at the examination level. An IRS appeals officer acts as a mediator between the IRS exam team and the taxpayer, and cases are usually resolved inside of four months.

Appeals mediation

If a case under Appeals’ consideration cannot be resolved, Appeals mediation can be invoked to broker an agreement. An unrelated appeals officer will be assigned to act as a mediator between you and the original appeals officer, and will try to reach a settlement acceptable to both parties. If no settlement is reached, you’ll have to decide whether or not to take it to court.

Step by Step

If you disagree with the results of an IRS audit, you have the right to appeal the decision. The IRS appeal process is a way for taxpayers to seek an independent review of their case by someone who has not been involved in the original audit. This review can result in a settlement, eliminating the need for further action or going to court.

1. The appeal process begins by requesting an appeal conference with an Appeals Officer. This request must be made within the timeframe outlined in the audit results letter, which is usually within 30 days. The request must be in writing and should include the reasons for the disagreement with the audit findings.
2. Once the request is received, the IRS will schedule an appeal conference with an Appeals Officer who has not been involved in the original audit. The Appeals Officer will review the taxpayer’s case and may request additional information or documentation.
3. During the appeal conference, the taxpayer and the Appeals Officer will discuss the case and try to reach a settlement agreement. If an agreement is reached, the Appeals Officer will issue a settlement letter outlining the terms of the agreement. If an agreement is not reached, the taxpayer may choose to continue the appeal process through litigation or mediation.
4. Once all of the information has been reviewed, an appeals officer will issue a final decision or settlement offer. If you agree with the settlement offer, you must sign a closing agreement in order to resolve the matter.
5. If you disagree with the appeals conference decision or settlement offer, you may be able to take your case up to the Tax Court.

Tax Tips: It is important to note that not all cases are eligible for appeal. For example, cases that involve criminal investigations, frivolous arguments, or certain penalties may not be eligible.