If you can’t stomach the tax bill you receive after
an IRS audit, you may want to appeal to the IRS for a second
look.
So many taxpayers are able to downsize the amount of taxes,
interest and penalties owed by appealing that IRS agents
grudgingly refer to the internal appeals process as the
“gift shop.”
A potential downside to appealing is that an appeals officer
can uncover issues missed by the initial auditor,
exposing you to a bigger tax bill than when you started.
Although this rarely happens, if you’re worried about
it, you might want to skip the internal IRS appeals process
and go straight to federal Tax Court.
IRS appeals agents are entirely independent of the opinions
and conclusions of audit agents, and have a lot of discretion
in looking over audits.
Writing A Protest Letter
To appeal an audit within the IRS, you must file what’s
called a “protest letter” within
30 days of the date of the letter and examination
report assessing the taxes due. The protest letter should
include:
-
Identifying
information such as your name, address and phone number
-
A statement
that you wish to appeal the IRS findings
-
A copy
of the letter detailing the findings you’re appealing
-
The tax
years involved
-
What specific
conclusions you disagree with and why
-
The facts
supporting your position
-
If the amount the IRS says you owe is $25,000 or less for
any particular tax year, you can make what’s called
a “small case request” instead
of filing a formal protest. This request, although processed
more informally, still must be in writing and made with
30 days of the date of the letter determining you owe taxes.
If you decide to hire a lawyer to represent you in the
appeal process, your lawyer must be qualified to practice
before the IRS and you must sign what’s called a “power
of attorney” authorizing your lawyer to access
confidential information at the IRS.
What to Expect in Appeal Negotiations
Appeal negotiations may occur in person or by mail, and
are informal.
An appeals officer is authorized to settle a dispute based
on what the IRS calls the “hazards of litigation.”
This means you’ll be more likely to get your tax bill
lowered if you can convince the agent there’s a significant
chance the IRS may lose if the matter goes to Tax Court.
The IRS considers:
-
The specific
facts of your case
-
The likelihood
of both you and the IRS being able to prove the facts
at a trial
-
The strength
of your legal arguments
-
The practical
realities of litigating the particular issue in court
The agent looks at negotiating the specific issues
involved, rather than entertaining a reduction of the overall
tax bill.
If you reach an agreement, the appeal agent will prepare
an agreement called a “stipulation”
and you can then discuss how you’ll pay whatever amounts
are left owing.
If you can’t reach an agreement with the appeals
officer, you can appeal the audit results to the federal
Tax Court.
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