Tax audits are rough, but you still have recourse even if they don’t end up in your favor. If your business is audited by the IRS, and the auditor rules against you but you believe the ruling to be in error, you can appeal the decision.
You should receive a copy of the auditor’s ruling along with a “30-day letter” that will detail how to make an appeal. You have to file your appeal within 30 days of the date on the letter. The IRS requires you to include the following information in your appeal letter:
- Your name, address, and a daytime telephone number.
- A statement that you want to appeal the audit findings to the Office of Appeals.
- A copy of the letter you received that shows the auditor’s proposed changes.
- The tax periods involved.
- A list of each proposed item with which you disagree.
- The reason you disagree with each item.
- The facts that support your position on each item.
- The law or authority, if any, that supports your position on each item.
- The penalties of perjury statement, which should state: “Under the penalties of perjury, I declare that the facts stated in this protest and any accompanying documents are true, correct, and complete to the best of my knowledge and belief.”
- Your signature under the penalties of perjury statement.
The IRS should get back to you with 90 days. If you don’t hear from them in that time frame, contact the office to which you sent the appeal. If you still can’t get any information, you can call an appeals account resolution specialist at 559-233-1267 to get more information about the person who has been assigned your case.
Preparing for the Appeal Hearing
As you prepare for your hearing, you should submit a Federal Freedom of Information Act (FOIA) letter to the FOIA officer at your local IRS office requesting the auditor’s file. You should send this via certified mail with a request for return receipt. You should receive the file in about a month, but contact the FOIA officer if you don’t receive it within 30 days.
While you wait for the file, put all your support together for your case. Put together any bank statements, checks, and other documentation, organizing them by item you are disputing. A summary spreadsheet detailing each item in question, your reasoning for disputing it, along with references to your support documentation will be helpful in making your case.
Appeals hearings tend to be somewhat informal, but prepare an outline of what you want to say to the officer so you don’t forget anything. The officer may ask for additional information from you. If so, be sure to ask for as much time as you think you need to put it together. Take detailed notes of what the officer says, but keep in mind you are also free to record the session if you wish.
IRS appeals officers are trained to avoid losing a case in court, so they may negotiate a settlement with you. Be willing to do this, but be sure to ask them to waive any penalties assessed in the audit. When discussing the settlement, phrase your proposal in terms of items disputed or a percentage of what you owe. Once settled, the agreement is documented in IRS Form 870 “Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment.” You should receive this form in a couple of months after your hearing. Read it carefully, looking for any errors, and contact the IRS if you have any questions. Keep in mind that once you sign the form, the matter is closed and you cannot take the case to U.S. Tax Court.
Working through the IRS appeals process can be tedious and nerve-racking. Talk to your accountant about the process so that you can have game plan for making an appeal that has the best chance of winning.
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