Tax Appeals

One of the best options available to a taxpayer who disagrees with tax audit or tax collection problems with the IRS is to appeal your tax case to a local IRS Appeals Office. Pursuant to the IRS restructuring act, Tax Appeals Office is designed to provide independent and impartial review of IRS tax disputes for individual and business taxpayers.

The IRS Appeals mission is to resolve tax problems, without tax litigation, on a basis which is fair to both the IRS and the taxpayer in a manner that is efficient and enhances public confidence in our tax system.

Whether or not to pursue an administrative appeal to the Appeals Office will depend on an analysis of several factors including the time and cost involved in pursuing the appeal, the likelihood of a settlement at the Appeals Office level, the prospect for new issues being raised by the Appeals Office as well as the litigation risks involved in the case.

In order to have your case reviewed by IRS Tax Appeals, taxpayers must timely submit a request for an appeal on the case. Your tax lawyer must be prepared to discuss and argue all disputed tax issues with the IRS appeals officer. In most cases, if a mutual agreement is not reached at your appeals conference, you can elevate your case to the Tax Court and have a tax court judge review your case.

A timely written protest is required in most cases which sets forth information to support your position. It is generally recommended that you retain a tax attorney to represent you through the IRS Appeals process because of the protection of confidentiality and legal complexities that can arise in these cases.

One of the most compelling reasons to appeal your tax dispute to the Appeals Office is that in recent years IRS Appeals has settled over 85% of the cases that have been assigned to them.

Key Benefits to filing an IRS Appeals Conference.

• Taxpayers have an opportunity to negotiate a tax settlement based upon the risks of litigation especially if the facts of the case are not clear on either side.
• No real time constraints to negotiate over a period of months to settle a tax issue because of flexible discovery rules and trial date.
• Payment of any tax debt is on hold, but interest continues to accrue.
• Taxpayers may be able to obtain additional information and evaluate the IRS' legal position.
• Exhaust Administrative Remedies. Failure to exhaust the taxpayer's administrative remedies at the Appeals Office may have adverse effects.
• Under Section 6673(a)(1) US Tax Court can impose a penalty of up to $25,000 on a taxpayer if the court determines that the tax court petition was filed or maintained primarily to cause a delay, frivolous or if the taxpayer filed a tax court complaint without first having used IRS Appeals or other administrative remedies.
• Award of Attorney's Fees and Costs. §7430. Section 7430(b) requires that Taxpayers exhaust appeals process remedies before they can be awarded attorney’s fees as a prevailing party in a tax case against the IRS.
• Shift the burden of proof. In order to shift the burden of proof to the IRS in any tax court case, under 26 U.S. Code § 7491, the taxpayer must exhaust
• administrative remedies including participation in IRS Tax Appeals conferences.

IRS Appeals has the authority to hear most tax disputes and problems with the IRS. The following are some common tax matters where IRS Appeals have tax settlement jurisdiction.

• Collection matters involving tax liens, tax levies, bank levies and wage levies
• Federal income, profits, estate, gift, generation-skipping transfer and miscellaneous excise tax;
• Payroll tax, employment tax and certain excise tax liabilities;
• Additions to tax under §6651 et seq., and assessable tax penalties §6671 et seq.
• Post-assessment tax cases where an assessment of taxes or penalties set forth in Chapter 68 which are subject to a reasonable cause determination.
• Notice of Deficiency procedures or pre-assessment appeal.
• Rejection of Claims for refund including Joint Committee Cases.
• Proposed rejections of Offers in Compromise in tax collection cases.
• Claims for abatement of interest,
• Jeopardy tax levies,
• Penalty appeals and Penalty Abatement;
• Administrative cost claims under Section 7430;

The function of the 30-day letter is to provide the taxpayer with the notice that additional tax liabilities and penalties will be charged as a result of the IRS tax audit. This notice is commonly referred to as the "30-day letter" because generally it instructs the taxpayer to file a legal protest and request a conference with the IRS Appeals Office within 30 days of the notice date. Failure to file a written protest will result in a notice of deficiency. 30 Day Letter is always accompanied by an IRS Form 870.

Unless the taxpayer agrees with the additional taxes being charged, they should never sign the Form 870 which accompanied the 30-day letter.

A written protest is required for most IRS tax audit adjustments, all employee retirement plans issues, tax exempt organization, partnership, and S corporation tax cases.

No specific form of written protest is required. However, protest which contains no information other than referencing limited information provided during the tax audit has been deemed insufficient.

A protest typically should include the following:

1. Name and identification of taxpayer.
2. Name and identification of the tax attorney representing the case
3. A statement that the protest is being timely filed.
4. Attach the 30-day letter and tax audit report listing the years and amounts of deficiencies and penalties as well as date and symbols on the letter.
5. Description of the tax issues, tax and penalties being protested.
6. Statement of the taxpayer's position on each issue protested and also provide references to any materials the taxpayer would like to bring to Appeals' attention in support of its position. 26 C.F.R. §601.106(b)(4)(ii).
7. Statement requesting conference with the IRS Tax Appeals Office (including the location).
8. The taxpayer must sign a declaration that the facts alleged are true under penalties of perjury or the taxpayer's representative must declare that he prepared the protest and whether he knows the facts to be true and correct.

Cases Involving Tax Fraud or Tax Evasion.

In every case where there is evidence of tax fraud or intent to evade tax, the IRS will recommend a civil tax fraud penalty under §6663. Unless there has been a recommendation to the Justice Department to prosecute the taxpayer for a criminal tax violation, the Appeals Office has authority to eliminate a fraud penalty in any case not currently under the jurisdiction of the United States Tax Court. IRS Appeals may also have exclusive authority to eliminate a tax fraud penalty during the period of exclusive jurisdiction over docketed Tax Court cases.

If the tax case has been recommended for criminal tax prosecution, the IRS Appeals officer may concede or eliminate the tax fraud penalty with the consent of IRS Tax Division Counsel. This rarely occurs in real practice.

IRS Appeals Office also has the authority to partially concede the tax fraud penalty to an amount less than 75% but more than 0% in any tax return related penalties case under its sole jurisdiction. IRM §8.11.1.11.

More than 85% of IRS appeals cases are settled. IRS Tax Appeals have broad settlement authority and flexibility in approach to accomplish the Appeals Office mission. A tax settlement may either resolve one issue on the basis of the probable result in tax court litigation or involve multiple tax issues based upon opposing positions where there is substantial uncertainty of the outcome in litigation.

Tax attorney for a business owner or taxpayer should craft a settlement proposal listing out a guidance for each tax problem and the range of bases for settlement. Tax lawyer should provide proposals to resolve a tax issue dependent upon negotiating a settlement of all issues in the case.

It is important to remember that the IRS Tax Appeals Office is technically best trained at the administrative level and operates under the pressure of “hazards of litigation” while maintaining exclusive tax settlement authority. As a general rule, no settlement offer will be considered unless doubt about the IRS’ chances of prevailing in tax court is timely raised.