Every taxpayer wishes to receive a “no change” result at the end of an IRS audit. The result means that your tax return was accepted, and you don’t owe any additional tax liability. However, there are frequent disagreements between the taxpayer and the Internal Revenue Service regarding the results of the audit process. As a taxpayer, you have the legal right to dispute the audit. Appealing an audit is easy, fast, and costs nothing, unless you decide to seek the services of a professional.
The odds of winning an appeal case are surprisingly high – more than 80 percent of the taxpayers who file appeals get their taxes, interests, and penalties reduced. Additionally, the process of submitting a formal protest delays the due date for your tax bill for the duration of the appeal process. Filing an appeal is particularly necessary if you are a healthcare provider facing a prepayment review after a ZPIC audit. Failure to do so can cause havoc to your business if the ZPICs suspect you of fraud.
Write a Protest Letter
If your tax controversy involves less than $25,000 for any tax year, it can be appealed with a simple letter known as a “small case request.” This states the issues you don’t agree with in the IRS findings. However, if the tax examination involves more than 25,000 or includes other issues other than the regular income tax examination, you should write and file a formal protest. Both the “small case request” and official protest should be lodged within thirty days of the date of the examination report.
The formal protest should identify personal details such as your name, address, and phone number, and a statement indicating your wishes to appeal the IRS findings. It should also include the tax periods involved, a list of the disputed issues, and a copy of the IRS findings. The letter should also contain facts that support your position and the tax law on the issue. If you choose to hire a legal representative for the appeal process, they must be qualified to practice before the IRS. Additionally, you will sign a power of attorney that allows the lawyer access your private data at the IRS.
Prepare Your Case
During the appeal process, you can further build your case and gather sufficient facts to present during the appeal negotiations. Go through the audit and identify the points of disagreement between you and the Internal Revenue Service. Prepare any arguments that you have and which may improve your position. If the auditor questioned the connection between your business and your expenses, work on that disconnect and fix any discrepancies. Also, try to obtain any supporting documents that can shed light on the areas that the auditor disputed.
Make sure that you prepare any new facts or findings that may work in your favor. Note down any business expenditure that you may have forgotten to deduct so that you can let the appeals officer. The appeal process is different from a court case where you are given only one opportunity to present your best case. The appeals officer will give fair and impartial consideration to any new issues raised as long as it is based on relevant evidence.
Present the Facts and Evidence
The appeal negotiations are usually informal in nature, and they can be conducted in person or through the mail. State all the facts clearly and outline errors you feel the auditor may have committed during the assessment. The appeals officer will assess the strength of your legal arguments and evidence provided. He may also request further documentation or time to research the matter. Once you come to an agreement, he will prepare a document known as a stipulation. This agreement discusses payment for the tax owed as agreed in the negotiations. However, if you don’t come to an agreement, you will be allowed to appeal the IRS audit findings to the federal tax court.
For you to take your case to the tax court, you must receive a letter from the IRS known as a statutory notice of deficiency. The letter is usually sent within six months after the audit, assuming that you did not agree with the examination report. You should consult a tax lawyer if you have any difficulties filing an appeal or obtaining the relevant evidence to support your case in the negotiations. A lawyer can also walk you through the court process if your appeal is denied and act as your legal representative.