ASK THE LAWYER – WHAT IS THE IRS AUDIT APPEAL PROCESS ALL ABOUT?
By Robert S. Schriebman
In addition to representing our clients before the EDD we also represent clients before the IRS. Our IRS representation may involve IRS audits and appeals from disagreed IRS audit adjustments. We find that our clients are not very familiar with what happens within the IRS Appeals Division.
Once an IRS agent completes his or her audit and there are adjustments to the taxpayer’s income tax return, a taxpayer has a right to challenge those adjustments without first having to pay the taxes, penalties, and interest resulting from the audit. A taxpayer has 30 days to file a challenge to the IRS audit. The challenge is known as a Protest. Once the Protest is filed the agent steps out of the case and allows an independent third party to take a look at the audit and determine whether the case can be settled. A settled case avoids the expense and stress of litigating disagreed audit issues before the U.S. Tax Court. By the way, the U.S. Tax Court is the only federal court where you can challenge an IRS audit without first having to pay what the IRS claims you owe.
In this article I will discuss the roll of the Appeals Division (Appeals) and how it settles disputed audit issues. Again, the roll of Appeals is to settle tax disputes and resolve collection issues without the need for a formal court hearing or trial.
Appeals is separate from and independent of the IRS office that proposed the initial audit adjustments. This is a taxpayer’s opportunity to present his or her side of the audit issues. The Appeals Officer is charged with fully considering your position and arguments. Appeals conducts these discussions in an informal setting. The Appeals Officer sits behind the desk or at a conference table and listens to what you have to say. Appeals tries to resolve audit disputes in a way that is fair and impartial to both parties. The Appeals Officer reviews the IRS examiner’s position and also reviews the information and documentation that you provide before your audit appointment. Sometimes the Appeals Officer will ask you for additional documentation and information before your scheduled appointment.
There are three ways a case may be resolved: 1) IRS concessions, 2) taxpayer concessions, 3) mutual concessions. The Appeals Officer will consider IRS cases and rulings that are similar to the facts of your case. The Appeals Officer will consider the hazards of litigation to the IRS if you took the IRS to court.
After the Appeals conference the Appeals Officer will make a determination about your case and usually recommends a settlement. Of course, the word “settlement” means you are going to have to pay the IRS some money. If you agree to the settlement certain forms will be prepared for your signature, and the case will be closed. You do not have to pay the IRS in full at this time. You may wait for an assigned collector to contact you and arrange an installment agreement or take advantage of the IRS Collection Due Process system.
If you do not agree with the settlement proposal you may have the right to litigate your case in court. If you do agree, the Appeals Officer’s manager will approve the case for settlement. The manager is the boss and has final authority to settle the case.
If you owe the IRS at the end of settlement negotiations, you should know that while your case is in Appeals, interest and penalties continue to accrue on any unpaid balance. Interest is compounded daily. At any time you can make a partial payment which will stop interest from continuing to accrue on the amount you have paid.
Appeals officers are generally over worked. They have a high volume of cases. Audit cases arriving in Appeals are prioritized and worked depending on their status as either docketed or non-docketed. Docketed cases are those that have received a Statutory Notice of Deficiency (90-day letter) and petitioned to the U.S. Tax Court. These cases will be calendared and given a trial date. Calendared cases are given the highest priority since there is minimal flexibility accorded by the Court to the litigating parties. Non-docketed cases are those cases that are being appealed and have not received the 90-day letter. These cases are worked on a first in – first out basis after the docketed and calendared cases are either resolved or forwarded to IRS trial lawyers for trial preparation.
It is not uncommon for a case filed in Appeals to take over one year to resolve if it is a non-docketed case. A tax court related appeal takes between six and nine months to be heard.
An EDD lawyer, Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States.
As a trusted EDD attorney, has successfully dedicated more than 30 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House and the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.