In order to properly file a tax appeal disagreeing with income, estate, or gift tax, the taxpayer must file with the Appeals Office. The appeal must contain a written protest stating why the IRS’s findings are incorrect (1). There are certain exceptions to the protest requirement, namely (1) in an office examination case, or (2) in a field examination or any other case if the amount of the proposed additional tax, proposed overpayment, or refund is $2,500 or less (2). Another optional appeals situation exists when the proposed additional tax, over-assessment, or claimed refund from a field examination review is between $2,500 and $10,000. In those cases, a written protest is actually optional to obtain review by the Appeals Office.
Why Should I File a Written Protest?
Not every case will be appropriate for an appeal from a local IRS office to the Appeals Office. An Appeals Office hearing is available to taxpayers if a protest is filed within the thirty-day period after receiving the 30-Day Letter.
An appeals process is also available to taxpayers who miss the thirty-day period but file a petition to the Tax Court within ninety days of receiving a notice of deficiency. As a taxpayer, you must generally decide whether to file a protest in Appeals, or bypass the Appeals Office and proceed straight to Tax Court. In some cases, it might be more advantageous for a taxpayer to skip the appeal, pay the amount of the assessment of deficiency, and then file a claim for refund. In order to make this determination, there are several different factors to consider.
- One factor to consider before filing a written protest is the Appeals Office conference process. An Appeals Office conference gives the taxpayer the opportunity to settle his or her disputes with the IRS without resorting to tax court litigation. Appeals Officers have the responsibility to consider the hazards of litigation even if no actual litigation is pending. A regular revenue agent does not have this requirement. This is a benefit to the taxpayer because the Appeals Officer will consider the outcome of a potential settlement, but the taxpayer does not have to actually incur the expense of litigation.
- Filing an appeal before litigating can also work in the taxpayer’s benefit because it allows the taxpayer to keep open the option of filing a petition in the Tax Court or instituting a refund suit in a district court or the claims court. Typically, a taxpayer who receives a notice of deficiency from the IRS must decide which forum in which to file a suit. By filing an appeal, the taxpayer can follow a “wait and see” approach to choosing a forum in which to litigate – by watching how the law develops in the various forums, the taxpayer can then choose the forum which will be most advantageous to his or her case. The increased time in the Appeals process may also lead to beneficial timing advantages in the filing of a bankruptcy petition.
- By filing an Appeals protest, the taxpayer and the IRS have the opportunity to discuss settlement provisions over an extended period of time. In contrast, the Appeals Office can only consider settlement in a docketed case which has appeared on a trial calendar with the permission of the Chief Counsel (3). In small cases, this might not be an important consideration but in larger, more complicated cases, this advantage may save a large amount of time for the taxpayer.
- Filing a protest in Appeals allows the taxpayer to defer the payment of tax.
- By filing a protest in Appeals, the taxpayer might be able to learn important information about the IRS’s case against him or her. Through negotiations and communications with the Appeals Officer, the taxpayer can attempt to demonstrate that the local revenue agent who initially caused the assessment against the taxpayer was wrong. In doing so, a court case may be avoided altogether. However, even if the Appeals Officer does not find in favor of the taxpayer and the case proceeds to tax litigation, the taxpayer is still at an advantage due to the increased access to evidence through the discovery process. This is particularly true for cases litigated in Tax Court, where opportunities for discovery are limited. Furthermore, going through the Appeals process gives the taxpayer additional time to prepare and plan for any future litigation. A final advantage of going through the Appeals process before litigation is that the taxpayer can gauge the appeals officer’s reaction to various arguments, allowing the taxpayer to see which arguments will be most effective in a future litigation.
- The Appeals process takes place in a non-public forum, allowing for dispute resolution without the divulgence of private personal details, specific transactions, or business dealings to the public.
- If a taxpayer prevails in an Appeals process, he or she may be able to recover reasonable attorneys fees and costs associated with the proceeding, so long as the government’s position was not substantially justified (4). In order to receive reasonably attorneys fees and costs, the taxpayer must be able to demonstrate that he or she “exhausted administrative remedies available to (the taxpayer) within the Internal Revenue Service.” The costs of the Appeals conference itself may not always be recoverable by the taxpayer as an administrative cost; however, in order to receive reasonable costs at the end of litigation, the taxpayer must have completed an Appeals conference.
How a Taxpayer Can Help with Appeals
Deciding to engage in the Appeals process involves weighing various pros and cons. This article lists many of the benefits that can come to the taxpayer by participating in Appeals. If you think that your tax situation might make you a candidate for an Appeals process, you should consult with a knowledgeable tax attorney.
San Diego Tax Lawyer - William D Hartsock, Esq. has been successfully helping clients with appeals since the early 1980s. 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.
Tax Law References:
- 26 CFR § 601.106(a)(1)(ii).
- 26 CFR §§ 601.105(d)(2), 601.106(a)(1)(ii).
- Rev. Proc. 87-24, 1987-1 CB 720, § 2.02.
- IRC § 7430(a).