IRS Audit Appeals
Understanding Your Options When You Disagree with an IRS Audit
Not every IRS audit ends with the taxpayer agreeing to the examiner's conclusions. If you disagree with proposed adjustments resulting from an examination, you may have the opportunity to seek administrative review through the IRS Independent Office of Appeals. The appeals process allows taxpayers and the IRS to attempt to resolve disputes without immediately resorting to litigation.
Appeals is a function within the IRS that is separate from the Examination Division. Appeals Officers review the facts, applicable law, and the strengths and weaknesses of each party's position in an effort to resolve disputes fairly and impartially. Many tax controversies are successfully resolved during the administrative appeals process.
Understanding when appeal rights arise, how the process works, and what to expect during an Appeals conference can help taxpayers make informed decisions following an IRS examination.
Key Takeaways
- Many IRS examination determinations may be appealed administratively before litigation.
- The IRS Independent Office of Appeals is separate from the Examination Division.
- Appeals considers both the applicable law and the strengths and weaknesses of each position.
- Appeals conferences often resolve disputes without going to court.
- Appeal rights generally depend on the type of IRS determination and applicable deadlines.
What Is the IRS Independent Office of Appeals?
The IRS Independent Office of Appeals provides taxpayers with an opportunity to resolve tax disputes without litigation whenever possible. Appeals functions independently from the IRS Examination Division and seeks to resolve disagreements fairly while considering both the facts of the case and the applicable law.
Unlike the Revenue Agent or Tax Compliance Officer who conducted the examination, the Appeals Officer was not involved in the original audit. Appeals reviews the examination file, considers additional legal arguments and documentation where appropriate, and evaluates the potential outcome if the dispute were ultimately presented to a court.
Many disputes involving factual issues, legal interpretation, valuation questions, substantiation, and other examination adjustments are resolved during the administrative appeals process without requiring formal litigation.
When Do Appeal Rights Arise?
Appeal rights depend on the type of IRS action involved. Many examination cases provide taxpayers with an opportunity to request review by Appeals before additional tax is formally assessed.
30-Day Letter
Many examination cases include a 30-day letter explaining proposed adjustments and providing an opportunity to request administrative review.
Revenue Agent Report
The examination report explains the IRS's proposed changes and the basis for those adjustments.
Examination Findings
Taxpayers generally have an opportunity to review proposed adjustments before deciding whether to agree or pursue available appeal rights.
Other IRS Determinations
Various other IRS determinations may also include administrative appeal rights depending upon the applicable procedures.
How the IRS Appeals Process Typically Works
Although every case is unique, most IRS examination appeals follow a similar sequence. Understanding each stage helps taxpayers know what to expect after disagreeing with proposed audit adjustments.
Examination Concludes
After reviewing the facts, the examiner explains any proposed adjustments and provides the taxpayer an opportunity to discuss the findings before the examination is closed.
Appeal Rights Become Available
If administrative appeal rights are available, the IRS generally provides instructions explaining how to request review and any applicable deadlines.
Written Protest or Appeal Request
Depending on the type and amount of the dispute, the taxpayer may submit a written protest or other request explaining why the proposed adjustments should be reconsidered.
Appeals Review
An Appeals Officer reviews the examination file, applicable law, documentation, and arguments presented by both the taxpayer and the Examination Division.
Appeals Conference
The taxpayer or representative may discuss the disputed issues with the Appeals Officer, answer questions, and explain why the examination findings should be modified.
Resolution
Many disputes are resolved administratively. If agreement cannot be reached, additional options may be available depending on the type of case and applicable procedures.
Typical IRS Audit Appeal Timeline
Although every examination is different, many appeals generally progress through the following stages.
What Does Appeals Consider?
Unlike the Examination Division, Appeals focuses on resolving tax disputes by objectively evaluating the strengths and weaknesses of each position. Appeals Officers consider the applicable law, available evidence, and the potential outcome if the dispute were ultimately litigated. This evaluation is commonly referred to as considering the "hazards of litigation."
Applicable Tax Law
Appeals reviews statutes, regulations, court decisions, and other legal authorities relevant to the disputed issues.
Facts and Documentation
The supporting records, testimony, and other evidence available to both parties are carefully evaluated.
Hazards of Litigation
Appeals considers the relative strengths and weaknesses of each side's position if the dispute were ultimately presented to a court.
What Is a Written Protest?
For many examination appeals, the taxpayer must submit a written protest explaining why they disagree with the proposed adjustments. A well-prepared protest generally identifies the issues in dispute, summarizes the relevant facts, cites applicable legal authority when appropriate, and explains why the examination findings should be modified.
The specific requirements for requesting Appeals review depend on the type of case, the amount in dispute, and the applicable IRS procedures. Taxpayers should carefully review the instructions provided with their appeal rights before submitting a protest.
Examination vs. Appeals
| Examination Division | IRS Independent Office of Appeals |
|---|---|
| Determines whether the return should be adjusted. | Reviews disputed examination findings. |
| Conducts the audit. | Reviews the completed examination. |
| Develops the facts. | Evaluates the facts and applicable law. |
| Proposes adjustments. | Attempts to resolve disputes without litigation. |
Common Mistakes During the IRS Appeals Process
Many appeal opportunities are lost not because the taxpayer lacks a valid position, but because deadlines are missed, documentation is incomplete, or the issues are not clearly presented. Careful preparation before requesting Appeals review often improves the efficiency of the process and helps focus the discussion on the matters actually in dispute.
Missing Appeal Deadlines
Appeal rights frequently depend on timely action. Missing a deadline may limit or eliminate certain administrative remedies.
Submitting an Incomplete Protest
A protest should clearly identify the disputed issues, explain the taxpayer's position, and provide supporting facts where appropriate.
Focusing on Emotion Instead of Facts
Appeals Officers evaluate facts, documentation, and applicable law. Clear evidence generally carries greater weight than frustration with the examination process.
Ignoring Supporting Documentation
Organized records and relevant documentation often strengthen legal and factual arguments presented during Appeals.
Assuming Appeals Will Re-Audit the Case
Appeals reviews disputed issues and evaluates the strengths of each position. It is not simply a second examination conducted by another auditor.
Failing to Prepare for the Conference
Understanding the disputed issues before the conference often leads to a more productive discussion with the Appeals Officer.
Can You Present Additional Information During Appeals?
Whether additional information may be considered during Appeals depends on the circumstances of the case and the applicable IRS procedures. In some situations, Appeals may consider additional factual information or return certain issues to Examination for further development. Because the rules vary, taxpayers should carefully review the procedures applicable to their particular case.
The Appeals process is generally most effective when the issues are clearly identified, supported by relevant documentation, and presented in an organized manner.
What Happens If Appeals Does Not Resolve the Case?
Although many disputes are resolved administratively, some cases remain unresolved after the Appeals process. Depending on the type of case and the procedural posture, taxpayers may have additional judicial remedies available. Those remedies vary and are governed by specific statutory and procedural requirements.
United States Tax Court
Many taxpayers may petition the United States Tax Court after receiving a statutory notice of deficiency, subject to applicable filing deadlines.
Refund Litigation
In certain circumstances, refund claims may ultimately be litigated in a United States District Court or the United States Court of Federal Claims after satisfying applicable jurisdictional requirements.
Professional Advice
The appropriate path depends on the facts, procedural posture, and legal issues involved. Professional advice may help evaluate the available options.
IRS Audit Appeal Decision Tree
The exact appeal path depends on the notice received, the type of issue involved, and applicable deadlines, but many audit disputes follow this general decision path.
The IRS proposes changes after examination.
Determine whether administrative Appeals review is available.
Submit the required appeal request by the applicable deadline.
Discuss facts, law, documentation, and settlement possibilities.
If resolved, the case may close administratively.
If unresolved, judicial or other procedural options may apply.
Practical Considerations
One of the most common misconceptions about Appeals is that it simply gives taxpayers another opportunity to argue with the examiner. In reality, Appeals focuses on resolving legitimate disputes by objectively evaluating the facts, the applicable law, and the strengths and weaknesses of each position.
Successful appeals are generally built on well-organized records, clearly identified issues, thoughtful legal analysis, and realistic expectations. Preparing for Appeals often begins long before the conference itself.
Many of the strongest Appeals cases are also the strongest examination files because the factual record has been carefully developed throughout the audit process.
Frequently Asked Questions
Can every IRS audit be appealed?
No. Appeal rights depend on the type of determination involved and the applicable IRS procedures.
What is a 30-day letter?
A 30-day letter generally explains proposed examination adjustments and provides instructions for requesting administrative review when appeal rights are available.
Who conducts the Appeals conference?
Appeals conferences are generally conducted by an Appeals Officer who was not involved in the original examination.
Can I represent myself?
Yes. Taxpayers may represent themselves or authorize a CPA, attorney, or enrolled agent to represent them before the IRS.
Will Appeals automatically reduce the proposed tax?
No. Appeals independently evaluates the facts and law. The outcome depends on the merits of the issues presented.
How long does the Appeals process take?
The time required varies considerably depending on the complexity of the case, the issues involved, and Appeals' workload.
Can I submit additional documentation?
Whether additional information may be considered depends on the circumstances and applicable IRS procedures.
Does Appeals work for the IRS?
Yes. The IRS Independent Office of Appeals is part of the IRS but operates separately from the Examination Division and is tasked with resolving tax controversies fairly and impartially without litigation whenever possible.
Considering an IRS Audit Appeal?
If you disagree with proposed IRS audit adjustments, understanding your appeal rights and the administrative review process is an important step toward evaluating your available options. Careful preparation, organized documentation, and a clear understanding of the issues can help you navigate the Appeals process more effectively.
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