Resolving Tax Disputes with the IRS Appeals Division

Most disputes between a taxpayer and the IRS are settled or compromised in some way. The IRS Appeals Division is the independent organization within the IRS that handles administrative review of certain cases. Porter Law Office, LLC’s experienced Columbus, Ohio tax attorney can assist you with obtaining the most favorable settlement possible at IRS Appeals. This article analyzes some of the most common IRS Appeals policies and procedures from a strategic planning standpoint.

What is the Internal Revenue Service IRS Appeals Division?

The IRS Appeals Division exists to facilitate negotiation and possible settlement of tax debts without going to trial. The IRS Appeals Division’s stated mission is to resolve tax controversies on a fair and impartial basis to both the Internal Revenue Service and the taxpayer, without litigation. I.R.M. 8.1.1.1. The IRS Appeals Division generally handles appeals arising from audits conducted by the IRS examination function, but it also handles appeals of collection actions (i.e., liens, levies, seizures, or denial of installment agreements), refund claims, collection due process hearings, offers in compromise, and interest abatement claims. IRM 8.1.3.1.

Preparing an Appeals Request

If you did not come to an agreement with the revenue agent during the audit, the IRS will issue a preliminary notice of deficiency or “30-day letter.” The 30-day letter contains the proposed adjustments to your tax liability. It also contains a revenue agent report (RAR) that explains the revenue agent’s findings of fact and interpretation of the law.

If you decide to appeal the proposed adjustments, you have 30 days to request a conference with IRS Appeals. To request IRS Appeals consideration of your issue, you must file a formal written protest. If the amount in controversy is less than $25,000, you can use the “small case request” procedures. The small case procedure is less formal than a complete protest memorandum. It only requires a taxpayer to send a letter to IRS Appeals with an explanation what the changes the taxpayer does not agree with and why.

Practice Pointer: If you decide not to protest the 30-day letter, the IRS will issue a Notice of Deficiency. If you petition the U.S. Tax Court for further review, the IRS attorney handling your Tax Court case will refer it back to IRS Appeals for possible settlement before trial. Cases that are protested to Appeals in response to the 30-day letter are called “nondocketed” cases, while cases in Appeals after a Tax Court petition has been filed are “docketed” cases.

IRS Appeals Planning and Strategies

Preparation is key to the success of your appeals conference. You must have full understanding about the items in controversy. You need to work with your tax lawyer to ensure that he or she has all the necessary factual information. If necessary, third party witnesses could be questioned. The Columbus tax lawyer at Porter Law Office, LLC has in depth experience with preparing for IRS Appeals conferences.

An intensive investigation of the facts can give you a substantial edge over the IRS Appeals officer. This is because the only facts known to the IRS Appeals officer will be those uncovered by the revenue agent, which may be limited. Once the facts are prepared, and legal research is conducted, Porter Law Office, LLC can assist you with preparing settlement proposals. Settlement proposals will be structured by issue to show a good faith intention to settle based on the IRS’s hazards of litigation.

What to Expect at IRS Appeals Conference

The IRS Appeals conference is an informal procedure under the IRS guidelines. See I.R.M. 8.6.1.4. The IRS Appeals officer will review your settlement offers and evidence supporting your position. By being prepared, you show the IRS that you are willing to litigate by bringing in a carefully prepared presentation. It will also help highlight to the IRS their hazards of litigating.

Once the conference is completed, the IRS will negotiate until a mutually acceptable settlement has been reached or it will conclude that settlement is not possible.

The “Qualified Offer”

If your case qualifies for an appeal, an IRS Appeals employee will independently review your case. Most cases settle at this point partly because the tax laws encourage settlement with IRS Appeals. As an example, Internal Revenue Code (I.R.C.) § 7430 contains a provision designed to encourage settlement. Pursuant to IRC § 7430(c)(4)(E), a taxpayer may recover reasonable administrative and litigation costs if: (i) the taxpayer makes a “qualified offer” to the IRS; (ii) the IRS rejects the settlement offer; and (iii) the Tax Court’s determination of the taxpayer’s tax liability is less than or equal to the amount that was offered.

To recover fees under the qualified offer rule, the taxpayer must have exhausted administrative remedies meaning that the taxpayer must have pursued the case with IRS Appeals on a nondocketed basis. For questions about whether the qualified offer is right for you, contact an experienced tax lawyer.