At the conclusion of the audit, the taxpayer will receive an official decision from the IRS. The taxpayer has several choices regarding how to respond to the IRS official decision, depending on the type of decision the IRS issues.
No Change in Your Tax Return at the End of the Audit
One possible outcome of an IRS audit is that the IRS will determine that no change needs to be made to your tax return. If the IRS concludes the audit with a no change decision, this means that you have substantiated all of the items being reviewed and no changes are needed. In that case, you do not owe any additional taxes.
The IRS May Propose a Change in Your Tax Return at the End of the Audit
In many cases, the IRS will render its decision at the conclusion of its audit, and the taxpayer will end up owing additional taxes. In this situation, the taxpayer can either agree with the IRS findings, paying the additional tax, or alternatively, the taxpayer may choose to disagree with the IRS and pursue other options.
If You Agree with the Change in Your Tax Return
If you agree with the IRS determination at the conclusion of your audit, then you will be asked to sign the examination report and state that you agree to pay the additional tax levied upon you by the IRS. In this case, the taxpayer usually signs an agreement form such as an 870 or a 4549 form. If you agree with the change to your tax return and complete one of these forms, you will forfeit your right to contest the tax deficiency at Tax Court. However, it will not prevent you from later filing a claim and subsequent refund lawsuit in the Federal District Court.
If You Do Not Agree with the Change in Your Tax Return
If the taxpayer and the examining agent cannot come to an agreement about the proposed adjustment to the tax return, then several outcomes are possible. Depending on the amount left of the audit’s statute of limitations, the examining agent with either send the taxpayer a 30-day letter or a 90-day letter. If there is less than six months remaining in the [I.R.C. § 6501] statute of limitations, often the IRS will issue the 90-day letter (notice of deficiency) to the taxpayer instead of the 30-day letter.
A 30-day letter gives the taxpayer an opportunity to protest the examining agent’s proposed adjustments to an administrative appeals officer. The taxpayer has the opportunity to appeal the IRS’s decision within 30 days of receiving the official determination. If the taxpayer chooses to appeal, an IRS appeals Officer is assigned to the case and further negotiations take place.
The 90-day letter is also known as a statutory notice of deficiency. This letter from the IRS gives the taxpayer the opportunity to appeal the IRS’s assessment with the Tax Court. As the name suggests, the taxpayer is allowed 90 days within which to file a petition with the tax court in protest of the proposed deficiency. If you do not file a petition with the Tax Court within 90 days, the proposed deficiency will become a tax due and the IRS will send a tax bill to the taxpayer for that amount.
Do I Need A Tax Lawyer?
If at the end of the audit, you agree with the assessment and agree to pay the amount that the IRS has levied upon you, then you should be able to arrange a payment plan with the IRS and you do not need a tax lawyer. However, if you do not agree with the assessment of the IRS, then yes, you absolutely need a tax attorney because you have several options and each has numerous rules and procedures that you must follow. An experienced tax lawyer will be able to help you understand the strength of your case, what the potential outcomes could be and what path is necessary in order to achieve those outcomes. Do not attempt to navigate an appeals process on your own.
The Tax Lawyer - William D Hartsock has been successfully helping clients with tax related appeals and litigation since the early 1980's. Mr. Hartsock offers free consultations with the full benefit and protections of attorney client privilege to help people clearly understand their situation and options based on the circumstances of their case. To schedule your free consultation simply fill out the contact form found on this page, or call (858)481-4844.