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Appealing an IRS Audit

Submitted by admin on Fri, 1/28/2011 - 12:00 am

As IRS audits heat up this year, there are a few things you want to make sure you are definitely aware of and prepared for, because results show that IRS audits are wrong between 60% and 90% of the time. If you do nothing to challenge the audit, the IRS will find in their favor and assess a balance with penalties and interest, leaving you behind the 8-ball to ever fight the assessment at a later date.

Getting the IRS to perform an audit reconsideration is like pulling teeth without Novocain. Even worse, once the IRS assesses a liability and you fail to pay, here comes the collection action with levies, liens, and seizures of wages and bank accounts. Do NOT fall into this category of taxpayers under audit if you have an opportunity to act during the audit.

Here are three things to keep in mind when the IRS notifies you that you are under audit examination for a particular tax year.

  1. You must remember this, the IRS auditor’s findings are NEVER final. Taxpayers often believe the findings are final, and the IRS auditor will lead you to believe that you have no say after their determination, but that is far from the truth. Auditors cannot put you in jail, levy your bank account, or garnish your wages, they have no such power in this regard, and they cannot even disallow your deductions without approval of a supervisor, unless you sign the auditor’s report agreeing to accept the results of their findings. If you do not agree with the auditor’s findings, DO NOT SIGN the report, IRS Form 4549, Income Tax Discrepancy Adjustments. If you sign this form, you are agreeing to the findings and more importantly, you are WAIVING all rights to an appeal, and the IRS cannot force you to sign either. Every audit we have represented taxpayers in, has improved drastically by not signing the initial audit results, and appealing it to a manager. Most IRS audit managers have many more years of experience under their belt, and are willing to work with the taxpayer a bit more.
  2. When you disagree with the auditor’s findings, you should ask for an IRS Letter 950 if you have not already received one. The IRS Letter 950 is a written protest letter against the findings of the IRS. You will only have 30-days to file this letter, but once submitted, your case goes directly from the audit to the appeals office for assignment and review. The Office of Appeals is there to work with you, often times they will allow deductions that the auditor did not. Be prepared to make your case and explain why you feel you were treated unfairly during the audit, by identifying the adjustments recommended by the auditor and clearly state your position with support.
  3. You must know how to identify a “Notice of Deficiency”, and understand what your options are at that time. Once the IRS makes an assessment of tax liability, whether through an audit, appeals, or an IRS filed return (substitute for return) for you, the taxpayer will receive a “Notice of Deficiency”. This notice will state the tax liability due and will provide you with 90 days to appeal. If you do not file an appeal, the IRS will issue a default assessment on the liability and assume the taxpayer is in agreement because there was no appeal filed. The 90 day appeal will be to the US Tax Court, and 9 times out of 10, all appeals to the US Tax Court will be thrown back into the Appeals Office for resolution. The US Tax Court is extremely backlogged and overwhelmed to take on a case they believe can be resolved in Appeals. Do not be afraid to file an appeal/protest to go to Tax Court if you can make a valid case for your situation.

In summary though, always obtain qualified advice from a tax professional as soon as you receive IRS notices, because putting them on the back burner may remove any chance you had to fight the issues at hand.