A Basic Understanding of the Process of Appealing an IRS Audit

Appealing an IRS audit determination gives the taxpayer a second chance to demonstrate his or her position, although this time, to an Appeals Officer (Officer). The IRS’s goal in appeals is to reach a disposition of the case which reflects the probable result of litigation. The Officer will work with both the evidence provided to the Revenue Agent (Agent) and any additional information the taxpayer provides. Unlike the Agent, the Officer’s authority to consider evidence is broad. The Officer will consider the hazards of litigation, the credibility of the parties involved, the burden of proof, the probative value of the evidence, and relevant legal authorities.

To appeal an audit determination, the practitioner must send a written appeal within 30 days of the Agent’s 30-day letter. This written appeal should include:

  1. A request for a conference with an Appeals Officer;
  2. The name, address, and Tax Identification Number of the taxpayer;
  3. Date and symbols contained in the 30-day letter;
  4. A schedule of the disputed adjustments;
  5. The factual background for the appeal;
  6. The legal basis for the appeal; and,
  7. Signatures, under penalty of perjury, of the taxpayer and/or the practitioner.

The practitioner should prepare the written appeal as if preparing for trial. It is important to submit an appeal that is thought-out, documented, and supported with legal authority. Cite legal positions from case law; statutes and regulations; revenue rulings or procedures; private letter rulings; or technical advice memoranda. Also, be sure to include copies of any documents which support the taxpayer’s position.

The Officer will generally schedule a hearing within a few months after he or she receives the written appeal request. The practitioner’s chief advantage is knowing the case in much greater detail than the Officer. If the taxpayer’s credibility is important to the issue, and assuming the taxpayer is credible, then the taxpayer should attend the hearing. The taxpayer can provide the answers to odd questions which will help bring the case to life and make it believable. The practitioner should also formulate a settlement proposal in advance of the hearing.

During the hearing, the practitioner should emphasize the taxpayer’s strongest points and explain how the Agent misinterpreted the facts or law. Admit the weak points of the case, but explain why these points are not relevant or how other factors outweigh them. Address all of the Officer’s concerns. Show the Officer that it will be risky for the IRS to proceed to trial. One of the greatest hazards for the IRS is the precedential effect of the taxpayer’s success. Most importantly, ask the Officer why he or she disagrees with the taxpayer’s position. Ask for the legal authority on which the IRS is relying. It is very effective to give the Officer as much ammunition as possible to decide in the taxpayer’s favor.

If the Officer decides against the taxpayer, then the Officer will issue a Statutory Notice of Deficiency. The taxpayer must then weigh the benefits and costs of filing a petition in Tax Court.