All tax audits are not performed at a work desk. Many audits are conducted entirely through the mail. Regardless of how informal the audit might be, an additional tax assessment usually becomes a binding obligation. Tax filers who disagree with the outcome of a tax audit may request an administrative appeal to address the dispute rather than taking the issue directly to court.
The U.S. Tax Court routinely hears a wide variety of cases surrounding tax law, many of which result from audit disputes. As an alternative to court proceedings, the Office of Appeals within the IRS hears audit appeals in a more informal manner. The first step in appealing an audit decision through the Office of Appeals is to respond to the initial letter received from the IRS after the completion of your audit.
The 30-day letter
A few weeks after an audit is complete, you will receive a letter summarizing the proposed changes to your original tax return. You have 30 days from the date of the letter to either accept the changes or appeal the audit result. If you decide to appeal the proposed changes, a written request must be sent to the IRS at the address included in the letter.
Written appeal request
The information required on an appeal request depends on the amount owed and the nature of the entity that was audited. If the amount of additional tax and penalties is over $25,000, your written request should cite the legal basis for your position and explain the facts that support your reasoning. Along with your legal argument, include your signature alongside a notation that the request is being signed under penalties of perjury.
A request for an appeal of $25,000 or less is generally referred to as a small case request. Entities and individuals eligible for a small case request should indicate which proposed changes are disputed and the reason for the disagreement. The following four entity types are not eligible to submit a small case request, regardless of the size of the audit assessment.
- Tax-exempt organizations
- S corporations
- Employee retirement plans
The 90-day letter
If your request for appeal is denied, you then have 90 days from the date of the denial letter to file a case with the U.S. Tax Court. The so-called 90-day letter is also sent out if an appeal request is granted but the subsequent appeal process is not successful.
Although you can represent yourself, practice before the IRS is limited to attorneys, CPAs, and enrolled agents. Contact a tax preparation service for assistance in appealing a tax audit.