If the IRS makes a determination and the taxpayer disagrees with it, in most cases the taxpayer can appeal that adverse IRS determination to the IRS Appeals Office.
Types of Determinations that the Taxpayer Can Appeal to the Appeals Office
When a taxpayer goes through an IRS audit and the taxpayer does not agree with the proposed adjustments that the IRS revenue agent proposes at the conclusion of the audit, the taxpayer can appeal to the IRS Appeals Office. If the IRS is proposing that the taxpayer owes a proposed deficiency and there is no agreement between the IRS and the taxpayer, the IRS will issue a 30-day letter to the taxpayer.
The 30-day letter consists of a form letter (Letter 915), a copy of the revenue agent’s report, and a copy of IRS Publication 5, which explains the appeals procedure.
Once the IRS issues a 30-day letter to the taxpayer, the taxpayer has 30-days within which to file a protest.
A protest is simply a letter to the IRS area director although it resembles a legal brief. It generally begins with a statement of the facts followed by an analysis of legal authorities to support the taxpayer’s arguments. The minimum requirements for a written protest, which are outlined in IRS Publication 5, are:
- A statement that you want to appeal the findings of the examiner to the Appeals office.
- Your name and address.
- The date and symbols from the letter transmitting the proposed adjustments and findings you are protesting.
- The tax periods or years involved.
- An itemized schedule of the adjustments with which you do not agree.
- A statement of facts supporting your position in any contested factual issue.
- A statement outlining the law or other authority on which you rely.
- If the taxpayer prepared the protest, a statement by the taxpayer that “Under the penalties of perjury, I declare that I have examined the statement of facts presented in this protest and in any accompanying schedules and statements and, to the best of my knowledge and belief, they are true, correct, and complete.”
- If the practitioner submits the protest, a statement by the practitioner that the practitioner prepared the protest and a statement concerning the personal knowledge of the practitioner with respect to the facts using the following language: “I declare that this protest was prepared by me and although I do not know of my knowledge if the facts contained herein are true, on the basis of the information furnished me, I believe them to be true and correct,” or “I declare that this protest was prepared by me. I do not know of my own knowledge if the facts contained herein are true, correct, and complete.”
- It is also helpful to include a reference in the protest letter that the practitioner has a power of attorney (Form 2848) from the taxpayer and to include a copy of that power of attorney with the protest letter that is sent to the IRS.
In addition to matters dealing with proposed tax deficiencies, the IRS appeals office typically hear IRS determinations relating to tax collection issues affecting taxpayers. In general, appeals by taxpayers to the IRS appeals office relating to collection issues do not permit the taxpayer to question the merits of the underlying tax liability. Instead, when an IRS determination relating to a collection issue is appealed to the IRS appeals office, the Appeals officer has to decide if the proposed method of collection is reasonable, whether all other avenues to collect the tax liability have been considered, and whether the IRS has complied with all required procedural steps to entitle it to take the collection action in question.
The types of IRS collection actions that can be appealed to the IRS appeals office include:
- an IRS tax lien.
- an IRS tax levy.
- an IRS seizure action.
- a rejection of a request for the discharge of a tax lien.
- an issue dealing with subordination of liens.
- an issue dealing with certificates of non attachment.
- third-party claims to property,
- alter ego and nominee liens.
- a rejection of a request for withdrawal of a tax lien
- a rejection of a request for an offer in compromise.
- a rejection of a claim for refund.
- after assessment of taxes that are not subject to the deficiency procedure, such as employment taxes and most excise taxes.
There are situations in which an appeals conference with the IRS appeals office is not available, including:
- if there is a pending criminal prosecution against the taxpayer, unless the IRS criminal investigation division allows the appeal.
- if court proceedings on a criminal prosecution are not completed, unless the U.S. Department of Justice allows for the appeal.
- if the taxpayer’s issues are essentially frivolous (i.e., the taxpayer is a “tax protester” who refuses to comply with tax laws on moral, religious, political, constitutional, or other similar grounds).
- if the applicable statute of limitations for the tax years in question will expire within the next 120 days unless the taxpayer is willing to sign an extension to grant the IRS more time.
What is the Primary Focus for an Appeal to the IRS Appeals Office?
In short, the main focus of any appeal to the IRS appeals office is to demonstrate to the appeals office that the IRS faces “hazards of litigation” if the matter in question is not settled and resolved at the administrative level within the IRS–that is, the taxpayer and the taxpayer’s representative should focus on making a strong appeal to the IRS that if the case were to go to court, that the IRS faces a significant possibility of losing the case.
The types of showing that a taxpayer and the taxpayer’s representative would like to show on an appeal to the IRS appeals office to raise the possibility of hazards of litigation for the IRS include:
- the facts are unfavorable to the IRS.
- the law is unfavorable to the IRS.
- the law applicable to the taxpayer’s situation is not settled and the taxpayer’s facts are strong–essentially, demonstrating to the IRS that this would not be a good test case for the government on an unsettled tax issue.
- the case put forward by the government is sufficiently weak that the IRS stands a risk of having a court award attorney fees to the taxpayer if litigation is pursued.
- the offer made by the taxpayer to settle the matter is better than what the IRS is likely to get in court if the case goes to litigation.
- the witnesses for the taxpayer, including the taxpayer, are very credible.
- the IRS could not meet its burden of proof in court.
What Happens if the Taxpayer is Unable to Settle with the IRS at Appeals?
If the taxpayer is unable to resolve the tax case with the IRS at the appeals office, then the IRS will proceed to issue a statutory notice of deficiency (i.e, a 90-day letter) in deficiency matters or will proceed with the proposed action in non-deficiency matters.
It is at this point that the taxpayer will decide if the taxpayer wishes to pursue the case through litigation.
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