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How to appeal an IRS tax decision

Appeal typewritten and red pancil

To paraphrase the oft-covered pop song, you fought the Internal Revenue Service law, and the IRS won.

But that’s not necessarily the end of the process. You have the right to appeal the IRS’ decision. The agency itself says so in its Taxpayer Bill of Rights.

And the IRS has a separate appeals office created to deal with these taxpayer-auditor disputes. There are around 1,500 appeals office employees, most of whom were auditors themselves, and generally have legal or accounting experience.

I know. You saw that phrase “were auditors themselves,” and are having second thoughts about appealing your tax finding. The IRS swears that’s not an issue.

The unit’s official title is, after all, the Independent Office of Appeals. And it promises to “review the issues of your case with a fresh, objective perspective.” Appeals agents also have greater authority and flexibility in deciding cases than auditors.

The benefit of an administrative appeal is that your disputed issue might be resolved without the time and expense of a court trial.

So you’re ready to appeal? Here’s a quick overview of the process.

Is you issue eligible for appeal? Taxpayers have lots of reasons to appeal an IRS decisions. The most common are that you believe the IRS —

  • Made an incorrect decision based on a misinterpretation of the law;
  • Did not properly apply the law due to a misunderstanding of the facts;
  • Is taking inappropriate collection action against you, or your offer in compromise was denied and you disagree with that decision; and
  • Used incorrect facts in arriving at its decision.

Note that not being able to pay is not once of the considerations. The IRS has other options to help taxpayers deal with large tax bills.

Once you’ve evaluated your case’s specifics, then there’s another hurdle to clear. You can ask the IRS’ appeals office to get involved only if all of the following three conditions apply.

  1. You do not agree with the IRS’ decision.
  2. You are not signing an agreement form the IRS sent you.
  3. You received a letter from the IRS explaining your right to appeal the agency’s decision.

Note #3. If the correspondence you got from the IRS was a bill and there was no mention of an appeal, you’re out of luck. Also, don’t think about appealing if your grounds include information you could have, but didn’t, provide during your audit.

Request an appeal: You’ve met the appeal criteria. The next step is formally seeking an appeal by submitting an appeals request.

You must do this in writing. It should include —

  • Taxpayer’s name and address, and a daytime telephone number.
  • A statement that the taxpayer wants to appeal the IRS findings to the Appeals Office.
  • A copy of the letter proposed tax adjustment.
  • The tax periods or years involved.
  • A list of the changes that the taxpayer does not agree with, and reason for disagreement.
  • The facts supporting the taxpayer’s position on any issue that it does not agree with.
  • The law or authority, if any, on which the taxpayer is relying.

You must sign your written protest, stating that it is true, under the penalties of perjury. In fact, you should include the following language, similar to the statement on the Form 1040 signature line:

Under the penalties of perjury, I declare that I examined the facts stated in this protest, including any accompanying documents, and, to the best of my knowledge and belief, they are true, correct, and complete.

Send your written request along with, as noted in the list above, a copy of the letter you got that cited your right to appeal to the office that sent you the letter.

Appeals right image IRS Publication 5

You can get more information on filing a formal written protest in IRS Publication 5, Your Appeal Rights and How To Prepare a Protest If You Disagree.

Appeals Office next steps: Once the IRS office gets your appeal request, it will try to resolve the disputed tax issues. Failing that, it will forward your case to the Appeals Office for consideration.

An Appeals officer should contact you by mail within 45 days to schedule a conference to review your dispute. These conferences typically are informal, and are conducted by correspondence, telephone, video conference or in-person. You get to choose.

The time it takes to resolve your dispute will vary, depending on your case facts and circumstances. But you should expect a result within a reasonable time. If it’s been more than 120 days since you filed your request and still no word, ask for a status update by contacting the IRS office you worked with last.

Appeals decisions: There basically are three outcomes to a taxpayer’s case accepted by the Independent Office of Appeals. They are — 

In the IRS' favor. If the facts and laws support the government's position, the Appeals officer recommends that the taxpayer concede and give up the issue.

In the taxpayer's favor. If the law and facts support the taxpayer's position or courts have ruled in favor of taxpayers in similar cases, the Appeals officer recommends that the IRS concede and give up the issue.

Compromise. The Appeals officer may recommend a compromise when the facts or laws are unclear or the courts have made different rulings on similar cases. In this situation, Appeals may recommend a settlement where the taxpayer pays a percentage of the tax due.

Note, too, that while Appeals reviews a case, interest continues to add up on any unpaid balance owed in the case.

Getting help to appeal: As this Appeals overview shows, getting the IRS to reconsider a decision is not necessarily easy. That’s why getting competent, reputable tax help is a smart move.

If you don’t already have a paid tax adviser, hire one. Specifically, one who’s experienced in IRS audits and appeals.

Why? Because it’s usually worth the cost if you’re hoping to win.

The National Taxpayer Advocate Office’s annual report to Congress in 2020 noted that while the vast majority of taxpayers who appeal an IRS decision are not represented by counsel, in the prior decade only 12 percent of those who went through the process alone won. Taxpayers represented by a tax professional, however, won their appeals 23 percent of the time.

New dispute option: In addition to taking the traditional tax decision reconsideration route, the Independent Office of Appeals announced a new option last month. It is establishing an Alternative Dispute Resolution Program Management Office, or ADR PMO.

The ADR PMO is an add-on. The traditional appeal process will remain available for taxpayers who choose it.

The ADR PMO approach is not necessarily new. The IRS notes that the agency has offered alternative dispute resolution at various stages of the tax administrative process, including Fast Track Settlement, Fast Track Mediation, Rapid Appeals Process and Post-Appeals Mediation.

While these alternative options generally offer a quicker, more collaborative and cost-effective approach to case resolution, their use has declined in recent years. The goal of ADR PMO is to revitalize such programs and implement new approaches, making the options more, well, appealing and accessible to eligible taxpayers.

Among other things, the ADR PMO will make some pilot project changes to Fast Track Settlement. This program allows Appeals to mediate disputes between a taxpayer and the IRS while the case is still in exam’s (known to most of us as audit’s) jurisdiction.

The new office will also remove barriers to participating in Post-Appeals Mediation, a program that introduces a new mediator if the parties are unable to reach agreement during traditional Appeals settlement negotiations.

Michael Baillif, who recently joined Appeals as a senior advisor, will be ADR PMO director. Baillif has dispute resolution experience in both the private sector and the IRS.

“We’re committed to providing taxpayers who wish to resolve their issues without litigation a choice of early resolution options, and the Alternative Dispute Resolution Program Management Office will ensure taxpayers are aware of those options,” said IRS Commissioner Daniel Werfel.

Fighting the law musical addendum: As long-time readers of the ol’ blog know, I am a big music fan. Hence, the “I Fought the Law (and the law won)” song reference at the top of this post.

I’m returning to it now for several reasons.

First, it’s a great song.

Second, it has a Texas origin.

It was written in 1958 by Lone Star State native Sonny Curtis, and first recorded in 1959 by The Crickets — yes, those Crickets — after Curtis joined the band as guitarist following Buddy Holly’s tragic death.

 

Curtis, a native of the tiny South Plains town Meadow, southwest of Holly’s Lubbock hometown, was not officially in the original legendary band. But he was a friend of Holly and had worked with him and the group before.

The song also was hit in the early 1960s for another Texas group, The Bobby Fuller Four.

Curtis was inducted into the Rock and Roll Hall of Fame as a member of the Crickets. His song-writing skills also gained him entry into the Nashville Songwriters Hall of Fame and the Musicians Hall of Fame and Museum.

And a whole new generation were unknowingly introduced to Curtis’ musical prowess through his song "Love is All Around," the theme for The Mary Tyler Moore Show. He made it after all, too.

You also might find these tax items of interest:

 

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