How Do IRS Tax Appeals Work? A Westford Tax Attorney Explains
Getting a letter from the IRS saying you owe more taxes can be frustrating, especially when you believe the IRS got something wrong. But here's something many taxpayers don't realize: just because the IRS says you owe additional taxes doesn't necessarily mean the IRS gets the final word.
Depending on your situation, you may have the right to challenge the IRS's findings through the IRS Independent Office of Appeals. The process isn't always straightforward, though. Different notices come with different rights, procedures, and deadlines. Understanding where you are in the process is often just as important as understanding why you disagree with the IRS.
What Happens If You Disagree With an IRS Audit?
Let's say the IRS audits your tax return and proposes additional taxes or penalties. You review the findings and disagree.
Now what?
In many cases, the IRS provides an opportunity to challenge its proposed adjustments before the matter goes any further. This may involve requesting a review by the IRS Independent Office of Appeals, which operates separately from the IRS employees who conducted the examination.
But here's the important part: disagreeing with the IRS and properly challenging the IRS are two different things. You may believe the IRS misunderstood your records, overlooked important facts, or applied the tax law incorrectly. However, successfully presenting that disagreement requires more than simply telling the IRS it made a mistake.
You need to understand what the IRS is proposing, why it reached that conclusion, and what options are available to challenge it, and, of course, you need to pay attention to the deadline.
What Does the IRS Independent Office of Appeals Actually Do?
Think of the IRS Independent Office of Appeals as an opportunity to have your tax dispute reviewed by someone who wasn't part of the original examination team. The goal is to resolve tax controversies fairly and, when possible, without litigation.
What would happen if the dispute went to court?
Maybe the IRS has a strong position on one issue but a weaker position on another. Maybe the taxpayer has compelling facts, but the applicable tax law isn't entirely clear. Appeals can consider those uncertainties when evaluating whether a settlement is appropriate. This is one reason a case that wasn't resolved during an IRS audit may still have an opportunity for resolution through Appeals. However, Appeals isn't simply a second audit, and not every disagreement automatically qualifies for review. The circumstances of your case matter.
What If You Receive a Notice of Deficiency?
You may have heard tax professionals refer to something called a "90-day letter." Its official name is a Notice of Deficiency. This is one of those IRS letters you really don't want sitting unopened on your kitchen counter.
Generally speaking, a Notice of Deficiency means the IRS has formally proposed additional tax and that you may have an opportunity to challenge the proposed deficiency in the United States Tax Court. One important feature of Tax Court is that taxpayers generally can dispute a proposed deficiency without first paying the disputed tax. But there is a catch: strict filing deadlines apply.
Missing the applicable deadline can significantly affect your rights and options. That's why, whenever someone contacts me about an IRS notice, one of my first questions is not how much they owe, it's: "What letter did you receive, and when?"
Because sometimes the most pressing issue isn't the amount of tax in dispute. It's making sure an important legal right doesn't expire while you're trying to figure out what the letter means.
Can You Appeal IRS Collection Actions?
Yes. IRS appeals aren't limited to audits. Sometimes the tax has already been assessed, and the IRS has moved into the collection process. Perhaps you've received a notice involving a federal tax lien, a proposed levy, or another collection action. Depending on the circumstances, you may have rights to challenge certain IRS collection actions or request consideration of collection alternatives.
Two procedures you may encounter are Collection Due Process (CDP) hearings and the Collection Appeals Program (CAP).
Although both involve IRS Appeals, they serve different purposes and provide different procedural rights. For example, certain collection appeals may provide an opportunity for judicial review, while others generally do not. The deadlines and available protections can also differ significantly.
The important takeaway is that not all IRS appeals are the same.
The appropriate approach depends on what the IRS is doing, which notice you received, and what you're trying to accomplish.
Should You Handle an IRS Appeal Yourself?
Taxpayers generally have the right to represent themselves in IRS administrative proceedings. But whether that's the right approach is a different question.
A tax appeal isn't always about proving that the IRS made a mathematical mistake. Sometimes the disagreement involves how the tax law applies to a particular transaction. Other times, the issue is whether the IRS properly considered certain facts or evidence. There may also be procedural questions, such as whether the taxpayer has already had an opportunity to dispute the liability or whether certain appeal rights are still available. And even when the taxpayer has a reasonable argument, how that argument is presented can matter.
An experienced tax controversy attorney can help evaluate the IRS's position, identify potential legal and factual issues, and determine which options may be appropriate. Not every dispute needs to go to court. But not every dispute can be resolved with a phone call to the IRS, either.
Start With the Letter
When someone brings me an IRS notice, I usually start with three basic questions:
What is the IRS saying happened?
Do you agree with it?
When is the deadline?
Those three questions help me understand where the taxpayer is in the process and what options may still be available. Sometimes the IRS is correct. Sometimes it isn't. And sometimes the answer is more complicated than either side initially realizes. The important thing is not to assume the IRS is automatically right just because the letter looks official. But don't ignore it, either.
At Lau Legal Services, I help individuals and businesses navigate IRS and state tax disputes, including audits, administrative appeals, collection matters, and penalty disputes. If you've received an IRS notice and aren't sure what it means or whether you can challenge it, consider speaking with a tax controversy attorney before taking your next step.
The IRS speaks in notices, forms, codes, and deadlines. My job is to help you understand what they're saying and what you can do about it.
Timothy Lau is a tax attorney and founder of Lau Legal Services PLLC in Westford, Massachusetts. His practice focuses on representing individuals and businesses in federal and state tax controversies.
This article is for general informational purposes only and does not constitute legal advice. Appeal rights, procedures, and deadlines depend on the specific circumstances of each case. IRS and state tax procedures and deadlines may vary depending on the circumstances and the notice received. Reading this article does not create an attorney-client relationship with Lau Legal Services PLLC. If you receive a tax notice, review the notice carefully and confirm the applicable deadline for your specific matter.
