IRS Appeals: An Essential Tactic

If you’ve been audited, you’re probably not pleased with the results. But did you know you may be able to cut a big bite out of your tax bill with a simple procedure?

You can formally appeal the final decision (i.e., the amount of money you owe). According to the IRS’s own statistics, appeals result in a tax bill that’s 40% lower on average.

Whether or not you win your case, an IRS appeal is usually to your advantage. It’s easy to see why taxpayers find the IRS appeals process so…appealing.

The IRS appeal delays your tax bill for several months. Even if you ultimately lose, you’ll have more time to save up the cash to pay your taxes. Another advantage is the simple fact that an appeal usually gives you some savings on your tax bill, even if you don’t win an absolute victory.

IRS appeals are reviewed by completely different people than the agent who handled your audit. They have a separate office that’s usually in a different building and sometimes in a different city. They’re generally less knowledgeable about your case, and they may be less zealous about taking your money.

In fact, IRS Appeals Officers are hired to settle cases—not necessarily to win them. Their performance is evaluated by how quickly they close appeals cases, not on how much revenue they manage to take.

Because of this, IRS appeals officers are more inclined to be open minded about your situation. IRS statistics show that 70% of these cases are settled in a way that’s satisfactory to the taxpayer making the appeal.

To start the IRS appeals process, have your tax attorney write a formal protest letter. For a total tax bill that’s less than $10,000 this is a fairly simple procedure. For higher amounts you’ll need to provide more documentation. In any case, your protest letter will clearly state that you disagree with the IRS’s conclusions, and offer some reason as to why.

Next, you should request the IRS auditor’s file. You’re entitled to copies of almost all the documents in this file, under the Freedom of Information Act (FOIA). There’s a possibility that you’ll uncover some useful insight regarding the decisions that the agent made in your case.

If the IRS delays in sending you the necessary FOIA information, this may be grounds for postponing your appeals hearing. When dealing with the IRS, almost any kind of delay or postponement works to your advantage.

It’s important to have an experienced tax attorney help you with FOIA requests. Send it by Certified mail, and document everything.

When it’s time for your appeals hearing, you and your tax attorney will usually meet the appeals officer in his or her office. You present your case, note the disputed items, and answer the officer’s questions.

Usually you’ll negotiate a settlement on the spot. The appeals officer will then write this up in a formal document, IRS Form 870, Consent to Proposed Tax Adjustment. Don’t hold your breath, because it may take months before your receive this document in the mail.

Once you sign IRS Form 870, you agree to pay the amount of the settlement and you can no longer challenge that particular tax case. If you still feel the IRS is in error, don’t sign it. You can take the case to Tax Court. Tax court is a much more difficult affair, and you’ll need to work with a tax attorney when you go this route.

While some people opt to handle IRS appeals on their own, it is useful to have a tax attorney back you up. Obviously, an experienced tax attorney will make sure that all of the necessary paperwork and documentation is filed correctly and on time.

Perhaps more importantly, a tax attorney shows the IRS that you’re serious. Since the IRS Appeals Officer wants to settle your case as quietly as possible, a tax attorney at your side may persuade the appeals officer to be more lenient.

Finally, if you’ve been mistreated throughout the audit and the appeals process, and your only redress is through Tax Court, a tax attorney could be your most powerful ally as you stand up to the IRS.