A Brief Overview of the IRS Appeals Process

The IRS may appear to be an unmoving monolith whose sole desire is to crush anything in its path. In the arena of appeals, however, this reputation is perhaps misplaced. This is because at least at the early dispute level, the IRS allows for and almost encourages taxpayers to actually appeal their decisions.

Take, for example, an individual who has been subjected to an audit. The auditor for the IRS issues a letter to the taxpayer and disputes the claims or deductions made by the taxpayer. Moreover, the taxpayer is now looking at being assessed more taxes than originally disclosed because of this dispute. What is this taxpayer to do? Rather than run to Twitter to express outrage, the good news is that this taxpayer has options, and by options, I mean, legitimate ways to seek redress of the decision through the IRS.

The same is true if you believe you have overpaid your taxes and you file an amended return or a claim for refund with the IRS.

The IRS recognizes that individuals may disagree with its decisions. It also recognizes that having to litigate these disagreements is costly and time consuming. Thus, the IRS has established and maintains a robust appeals process to resolve a good majority of these disagreements before they get to court. How does it work? In about three steps:

1) Review your determination letter.

No matter its decision, the IRS will send a letter. Obviously, if the decision is favorable to the taxpayer, no further action is required. If the decision is not favorable, then the taxpayer has 30 days to appeal the decision. Before you take to the keyboard, however, read the letter very carefully. Consider the factors that went into the IRS’s decision. Did the IRS use facts that were incorrect in their decision? Did they misapply the law? Did they misunderstand the facts? In other words, figure out the basis upon which the IRS made its decision and whether or not that basis was faulty. This will form the core of your appeal since you can essentially say to the IRS that they made a mistake.

2) Request an Appeals Conference and Lodge a Formal Protest.

Once you’ve determined that you have a legitimate basis for questioning the IRS’s decision – and that means it is not based on moral, religious, or conscientious objections or other non-tax law related grounds – then, you need to request an appeals conference with the appeals officer and file a formal protest. It is in the formal protest that you lay out your facts, arguments, and supporting documents showing the IRS where it went wrong. This can be filed directly by you or by a representative, including legal counsel or a CPA.

3) Sit back and Wait.

Waiting is always the hardest part. Typically, appeals take approximately 90 days to be resolved. Should the appeals officer disagree with you, in the case of an assessment of additional tax, the IRS will issue a “statutory notice of deficiency”, also known as a “90 day letter.”  You will have 90 days from the date of that letter to appeal that decision to the United States Tax Court.  In the case of a denial of your refund claim, you have two years to appeal by filing in the United States Court of Federal Claims or the local U.S. District Court in your area.. This is probably as close to a “nuclear option” as there is, since most tax disputes can likely be resolved through the IRS appeals process, especially since the appeals officer will be an entirely different person than the auditor or examination agent who issued the original decision.  Likewise, most cases filed in Tax Court, the Court of Federal Claims, and District Court settle before actually going to trial.  In effect, in most cases, filing in court simply continues the administrative process, but there will be an attorney representing the Government deciding whether to settle the case and the terms upon which the case should be resolved.

The IRS is still a daunting agency with the power to wreak a lot of havoc in the lives of ordinary citizens. In addition, and not surprisingly, matters become more formalized as you proceed from IRS Examinations, to IRS Appeals, to court.  This is why it is imperative to have competent and knowledgeable counsel at your side when dealing with the IRS in most capacities. Consider contacting me for a consultation to consider how I can be that competent counsel at your side.

Written by E. Morgan Maxwell

E. Morgan Maxwell

Since beginning his own firm, Mr. Maxwell has continued a tax-law oriented practice encompassing a wide range of transactions, planning and dispute resolution. His dispute resolution experience includes involvement at all levels of the Internal Revenue Service (Examinations, Appeals, Collections, Office of Professional Responsibility, the U.S. Tax Court), the Pennsylvania Department of Revenue, the Tax Litigation Section of the Pennsylvania Attorney General’s Office, Pennsylvania Commonwealth Court, Common Pleas Court and local taxing jurisdictions in southeastern Pennsylvania.

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