On average, a couple of thousand taxpayers experience a unique sense of anxiety each day. While sorting their mail, they find a white envelope from the IRS: Today is not a good day. These taxpayers' income tax returns were selected for audit. After the initial shock wears off, the taxpayers (hopefully) engage professional help and respond to their individual IRS notices, and audits of their tax returns (or examinations, as the IRS likes to call them) begin.
Each taxpayer shares information with the revenue agent (RA) assigned to the audit. After examining the tax return and its supporting documentation, the RA compiles a Revenue Agent Report (RAR) to summarize the audit findings. If the RA is proposing an assessment as a result of the audit, the RAR will describe how the adjustment to the taxpayer's tax liability was determined. Sometimes the taxpayer agrees with the RAR and pays the additional tax owed. Other times, the taxpayer disagrees with some (or all) of the RAR's findings.
If the taxpayer does not agree with the proposed assessment in the RAR, the taxpayer can take two possible paths to resolve the tax dispute. The judicial path allows the taxpayer to challenge the proposed assessment in Tax Court, or to pay the proposed assessment amount, file a refund request with the IRS, and, if it is denied, file a refund suit challenging it in the appropriate federal district court or the Court of Federal Claims. However, going to court is generally time-consuming and expensive for both the taxpayer and the IRS. Alternatively, the taxpayer can first seek an administrative resolution with the IRS Office of Appeals. According to a U.S. Government Accountability Office study from 2018, Appeals is effective at resolving 85% of all cases within one year of an appeals request (see Tax Administration: Opportunities Exist to Improve Monitoring and Transparency of Appeal Resolution Timeliness, Rep't No. GAO-18-659). In addition, if a favorable result in not achieved in Appeals, the taxpayer can still pursue a resolution in court.
For Appeals to consider the case, the taxpayer must generally file a written protest of the RAR within 30 days of the date of the letter notifying the taxpayer of the agent's findings. Time is of the essence for taxpayers who choose this path, given the short window for filing a timely appeal. This article helps make best use of these 30 days by providing a blueprint for how to win on paper --by writing a logically organized and easy-to-understand legal argument that persuades the IRS Appeals officer to rule in the taxpayer's favor.
OVERVIEW OF IRS APPEALS
Founded in 1927, the Independent Office of Appeals (renamed effective July 1,2019, under Sec. 7803(e)) is a working group within the IRS that is intentionally independent from the core operations of tax enforcement. This group's mission is to impartially resolve tax disputes that remain at the conclusion of an audit. While pursuing an appeal within the IRS may seem counterintuitive because taxpayers most often think of the IRS as a tax collecting agency, the Service staunchly defends the independence of Appeals. The IRS recognizes this independence is crucial in supporting the overall goal of strengthening taxpayer compliance and confidence in the IRS while resolving tax disputes outside of court.
The appeals process is outlined in the IRS Internal Revenue Manual (IRM). First, the taxpayer files a written protest of (or, if the taxpayer qualifies to do so, makes a small case request regarding) the proposed adjustments in the RAR with Appeals. The Appeals officer reviews the arguments of the taxpayer and the RA and holds an Appeals conference or hearing with the taxpayer...