If your audit case is closed and you did not agree with the IRS proposed adjustments, you can appeal the audit findings. If you don’t sign the audit report the auditor will send you a 30-day letter before which you must file the appeal.
Advantages & Disadvantages
In an IRS audit appeal you will usually attain some success. You will get something better than what you negotiated with the auditor who was conducting your audit. Also appeal gives you a chance to delay collection. Finally, if you could not fully prepare for the case, audit appeal gives you a chance to file additional evidence.
The major disadvantage that you may run into is that the appeal officer may raise other issues that were not raised by the original auditor which may increase your tax liability. The appeal officer will not usually raise other issues unless they are material and would impact the tax liability. Of course, if you are sensitive to IRS interest and penalty, you will be assessed more of them as you go through the audit appeal process.
Is the Audit Appeal Granted Automatically?
Usually it is granted as a matter of routine unless among other things, your case may be considered a candidate for fraud, you are a tax protester or your case is one of a group case such as large tax shelter participants audit.
How to File an IRS Audit Appeal
You appeal the audit findings by filing a protest letter that follows a certain format (no need for format if the amount you are appealing is less than $10,000. You just say that you disagree with the auditor) The letter must include a statement that you are appealing the audit under the penalty of perjury. You must state why you are appealing, the items you are appealing and cite the law supporting your position.
You file the protest with the auditor and addressed to the district director. The auditor will have a chance to review the basis of your protest and may discuss his position with his manager or may even change his mind and contact you to settle before going to his manager or appeal. When you mail your letter, make sure you mail it certified and addressed to the district director whose address should be in the 30-day letter.
Preparing Your Audit Appeal Case
1) You must verify your own facts, organize them and address them in order of the audit report written by IRS auditor.
2) Study the relevant laws and prepare a list of citations. Print copy of relevant material for your reference if it is not prohibitive.
3) Obtain as much information about what the auditor have on you in his file. You can obtain a copy of this information under Freedom of Information Act FOIA (they may drag their feet to provide you with this.) At leas obtain a copy of the auditor rebuttal to your disagreement (what he thinks about what you are saying) Send a separate certified letter to the same IRS address requesting a copy of your file a under FOIA, along with your driver license copy offering to pay for the copies.
Presenting the Audit Appeal Case
1) Organize your new evidence to make it easier on the appeal officer to follow your thought.
2) Speak only of items that are material. Don’t waste time on small potatoes.
3) Understand that negotiation is give and take. So, be prepared to give something.
4) Don’t forget to ask for penalty abatement.
5) Do not attack the auditor personally. Stick to the issues.
6) The appeal officer may send the case back to the original auditor if you presented substantial information or evidence that the auditor needs to review or may just rule of the evidence as presented.
Beyond the IRS Appeal
If you don’t settle at the appeal level, the next errand is to the court. The IRS will issue a 90 day letter or Notice of Deficiency ( a notorious letter, your CPA will not like it). If you take no action, you have an IRS tax debt unless you go to court before the lapse of the 90 days.