Tax Lawyer's Blog

If you disagree with an IRS action or determination, you generally have the right to have it reviewed by an IRS appeals officer.

The IRS is quite good at granting taxpayers their appeals rights.

The classic appeals case is when a taxpayer does not agree with an IRS auditor’s proposed adjustments to his tax return.

This post addresses the procedure for appealing the results of an IRS audit.

The Notice of Deficiency

If you are audited and cannot come to an agreement with the examining agent, the IRS will issue what is known as a Notice of Deficiency (sometimes also called the 90 Day Letter).

The Notice of Deficiency contains a calculation of the additional tax, interest and penalties the IRS believes you owe and describes in detail the adjustments it has made to your tax return to arrive at the additional assessment.

You have an unqualified right to appeal the IRS’s deficiency assessment.

Appealing the Notice of Deficiency

Generally, there are two ways to get the case shifted to the IRS Appeals Division:

1. Direct Appeal- File a protest letter directly with the Appeals Office stating in detail the reasons for your disagreement with the IRS’s findings; and

2. Tax Court Petition – File a United States Tax Court petition containing a description of the items with which you disagree. Tax Court petitions are docketed on the Court’s calendar and then redirected to the IRS Appeals Division for review as if the case had been directly appealed.

A taxpayer has 30 days within which to file a formal Direct Appeal and 90 days within which to petition the United States Tax Court.

Both the Direct Appeal and the Tax Court Petition method of appeal will result in the case being assigned to an IRS Appeals officer.

The Direct Appeal

Direct Appeals are formal documents that must be completed in accordance with specific IRS instructions withing 30 days of the date of the Notice of Deficiency.

Typically, we do not recommend filing a Direct Appeal for three reasons:

1. Tight Deadline – The time frame for filing a Direct Appeal is much shorter than it is for filing a Tax Court petition;

2. Extensive Disclosure-The information required to be included in a Direct Appeal is much more broad than the bare bones requirements of a Tax Court pleading. There is always the possibility that an unagreed audit case will have to be resolved in a Tax Court trial so it is unwise to reveal all of your arguments up front; and

3. Direct Appeals are not Put on the Trial Docket - Tax Court cases are docketed with the United States Tax Court (i.e. put on the Judges calendar) which puts downward pressure on IRS Appeals officers and district counsel to resolve the case.

The Tax Court Petition

Of the reasons stated above, the last one is the most compelling.

Tax Court judges and IRS counsel are overwhelmed with cases and are encouraged by the Commissioner to settle cases without going to trial.

The fact that you have already sued the IRS (the filing of a Tax Court petition is the equivalent of suing someone in a civil court), means that you have already hired a lawyer and are willing and able to present your case to a Judge.

As a matter of course, then, when we disagree with the assessments contained in a Notice of Deficiency, we file a Tax Court Petition to get the case docketed and on the fast track for resolution with an IRS appeals officer.

Advice

Never assume that an audit is final merely because an IRS auditor has made a deficiency determination. 

We have found that IRS appeals officers are much more knowledgeable about complex tax issues than rank and file auditors and, as stated above, are encouraged to settle cases rather than have them go to trial.

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