How To Appeal Your IRS Audit

Audit. The completely word can send shivers up the spine of even the most conservative taxpayer. For many taxpayers, this dreaded routine has resulted either in nightmarish visits to the IRS office or, worse, visits from revenue agents to their homes and corporations.

The result is often an assessment of back taxes, interest, penalties – sometimes even criminal sanctions. But those who are unlucky enough to show in unfavorable adjustment rulings from an audit have more recourse than they realize. Audits can be solicited in the same manner as lesser court rulings, and in many cases, the Office of Appeals overturns (or at least modifies) the verdicts of the original audit in the taxpayer’s favor. (For an in depth view, see our special Income Tax Guide.)

The IRS Office of Appeals

The IRS understands that varied taxpayers will not agree with the findings of its auditors. Therefore, it has created a separate branch of service called the Job of Appeals, which consists of approximately 1,400 employees located nationwide. Most of them were auditors themselves, at one delay, but are now senior employees in the IRS system, and they usually have legal or accounting experience. Their sole function is to comment on finished examination reports and provide an impartial platform for taxpayers to plead their cases to a higher power within the IRS. They take on to avoid litigation by resolving tax disputes internally in a way that foments future voluntary taxpayer compliance with the tax laws.

Petitions officers have greater authority and flexibility in deciding cases than auditors. Their competence is in fact estimated by how often they are able to reach a successful compromise with taxpayers – not by their willingness to back an auditor’s conclusions. (See our related articles, Cut Your Tax Bill ) The Office of Appeals will listen to any reason why you disagree with an audit other than scrupulous, moral or political beliefs.

Advantages of Appealing an Audit

As stated previously, appealing an audit can often reduce (or even eliminate) previously assessed taxes and penalties. However, a very small number of taxpayers appeal their audits. Why this piece is so low is something of a mystery, given the ease and speed of the appeals process. Appealing an audit also costs nothing, unless you get the aid of a tax professional, which is usually unnecessary.

Best of all, the odds of winning your case are surprisingly high. According to at miniature one edition of the book “Stand Up to the IRS,” by Nolo Publishing, auditors refer to the Office of Appeals as the “IRS’s private gift shop.” The ordinarily taxpayer who appeals an audit can expect to see the total dollar amount originally assessed by the auditor reduced by a 40%. What’s sundry, appealing your case delays the due date of your tax bill for the duration of the appeals process, which can last for months. This utters you additional time to gather the funds necessary to pay the assessment or work out a payment plan. The Office of Appeals also has a formal averred commitment to explain your rights to you in the appeals process, hear your concerns, act in a timely and responsive fashion and minister to fair and impartial service.

Disadvantages of Appealing

There are only a couple of instances in which the audit process may be established to be detrimental. The possibility does exist that the appeals officer may find additional items that the auditor avoided. This is rare, but if you know of something detrimental on your return that was not flagged previously and could still be base, suing the IRS in U.S.Tax Court may be a safer alternative, as new issues cannot be introduced in this venue. The other issue to consider is that both dispose and penalties will continue to accumulate on your assessed balance during the appeals process. This means that if you overcome your appeals case, then you will end up paying even more than before.

How to Appeal an Audit

Upon the finalization of your audit, you will receive a detailed examination report from the IRS outlining all proposed assessments and changes, trained down by interest, penalties and taxes.

The first step in the appeals process is simply not to sign and return your text of this report, which usually results in the generation of a 30-Day Letter that explains how to appeal the audit. You obligation file your official protest within 30 days of the date listed on the letter. You may want to first mull over simply appealing to the auditor’s manager, although this will not extend the 30-day deadline. Here’s the information the IRS predicts that your formal protest must include:

1. Your name, address and a daytime telephone number
2. A affirmation that you want to appeal the IRS findings to the Office of Appeals
3. A copy of the letter you received that shows the proposed mutate(s)
4. The tax period(s) or year(s) involved
5. A list of each proposed item with which you disagree
6. The reason(s) you disagree with each component
7. The facts that support your position on each item
8. The law or authority, if any, that supports your position on each particular.
9. The penalties-of-perjury statement as follows: “Under the penalties of perjury, I declare that the facts stated in this protest and any chaperoning documents are true, correct, and complete to the best of my knowledge and belief.”
10. Your signature under the penalties of perjury affirmation

If for any reason you are not able to file your protest within the allotted time, you can request a 30- or 60-day extension, which is most of the time granted. Then you have three choices as to how you move your audit to the Office of Appeals.

1. If you owe less than $2,500, you can merely ask your auditor for an appeal.
2. If you owe between $2,500 and $25,000, you should write a letter of protest, titling it a “small package request.” This letter must contain all of your contact information and the tax ID numbers of all involved parties, as well as a announcement of intent to appeal and an itemized breakdown of the disputed items. (A one-time consultation with a tax professional can ensure that you forget about this letter correctly.) Or, you can complete IRS Form 12203, “Request for Appeals Review,” which is downloadable from the IRS website.
3. If you owe multitudinous than $25,000, Form 12203 is your only option. It is also recommended that taxpayers in the first variety either write a letter or complete Form 12203 in addition to making a verbal request to ensure that their wrapper doesn’t slip through the cracks. (See our related article, Avoiding An Audit.)

In most cases, an Appeals employee determination respond to your protest within 90 days, although this can vary somewhat depending on the nature of your proves. If you have not heard from Appeals after 90 days then follow up with the Appeals office where you sent the plea for a status report. If you are not able to obtain an update on the status of your case, try to find out when the office might communicate with you. If you cannot get a date, call an Appeals Account Resolution Specialist (AARS) at (559) 233-1267. The AARS should be masterful to provide you with information about whom your account was assigned to and how to contact that person.

Preparing for an Solicitations Hearing

Taxpayers usually have at least 60 days to prepare for the appeals process after submitting the begs request. Use this time to cement the details and arguments you intend to make during the appeal. Be sure to request a photocopy of the auditor’s file – you are legally entitled to it under the Federal Freedom of Information Act (FOIA). This requires another message to be sent to the FOIA officer at your local IRS office. Be sure to specify the tax years covered in the audit, and volunteer to run things the costs of all necessary copies. Send the letter via certified mail and request a return receipt. It will probably gain control at least a month before your request is granted, and don’t hesitate to follow up if it takes longer. Meanwhile, get all of your validates and other papers organized and ready.

Prepare copies of all necessary receipts, statements or other forms you need to result your case. Break down information clearly on spreadsheets that the appeals officer can easily understand. Yet hand-made visual presentations can be effective if the situation calls for them. Create a separate file folder for each contested point for the officer’s convenience.

Presenting Your Case to the Appeals Officer

Appeals case hearings tend to be fairly everyday, and you can record the proceedings if you desire. It is advisable to create at least a rough outline of what you want to tell the officer, and you may long for to rehearse your dialog beforehand. Once you are in front of the officer, clearly enunciate any errors that you feel the auditor gave during the audit. However, do not badmouth either the auditor or the IRS – no matter how much you may want to.

Be prepared to hear the officer put in for further documentation or time to research a matter; if so, don’t hesitate to ask for as much time as you need, if the matter requires your involvement. Mainly all, be certain to take very careful notes of what the officer says during the hearing if you are not otherwise recording the seating. (For more, see 10 Most Overlooked Tax Deductions.)

Negotiating a Settlement

As stated previously, appeals officers are instructed to avert the opportunity of the IRS losing a case in court. The first thing you should ask the appeals officer to do is waive any penalties that the auditor assessed to you. The commissioner can do this fairly easily if he or she is convinced that your intentions aren’t fraudulent. Agreeing to pay at least a few of the adjustments also presents good faith, but don’t specify which ones. The willingness to compromise will raise your credibility in the eyes of the functionary. Speak in terms of adjustments, items or percentages, not dollars. It goes without saying that the art of negotiation is paramount in verifying the results that you get from the hearing.

Settlement amounts are usually reached verbally and then transcribed onto IRS Pattern 870, “Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment.” It can take months for the printed form to appear in your mailbox after the hearing is over. It should be noted that signing this form will obstruct you from taking the IRS to U. S. Tax Court if you should later find another mistake made by either the auditor or the appeals officer of the law. Before you sign, be sure you thoroughly understand everything printed on it. Make certain that the numbers on the form correlate with the articulated agreement you reached at the meeting and don’t hesitate to consult a tax professional if you have questions of any kind. (For more, see our related article Outliving The IRS Audit.)

Conclusion

Although appealing an audit can theoretically pose adverse consequences in some cases, most taxpayers who light on out on the short end of an audit stand an excellent chance of having at least some of the judgments from their audits overrode. For more information on appealing your audit, download Publication 5, “Your Appeal Rights and How To Prepare a Take issue with If You Don’t Agree” from www.irs.gov.