Audit Appeal Issues and Options

By Dean Alexander

After the first panic of an audit notice, you recover and get to the business of collecting evidence to substantiate your numbers on the tax return. You agree (by yourself or with the representative) with the revenue agent, you present the evidence and either wait for a response for a resolution for issues that may pose a tax problem or you can agree right then and there on those issues.

If there is an agreement then that will be the end of the process. You will receive the thirty day letter whereby you will sign it in the case of agreement or alternatively if there is a disagreement, you will prepare for the appeal.

Audit Appeal Letter

The tax audit appeal usually starts with writing the appeal letter. You may not have to write an appeal letter if the amount of tax liability is less than twenty five thousand dollars. If it is more than that, you must file your audit appeal letter (consult your attorney or your CPA). The appeal letter has to follow a specific format. You must sign it under the penalty of perjury if you sign it yourself. If your CPA or the tax attorney signs the letter they must state that they are aware of the facts of the case. Believe it or not you must state that the protest is timely filed even though this can be proven by the certified mail (see Tax Procedure and Tax Fraud, Camilla E. Watson, Thomson West).

Make sure to provide an outline of the evidence in some detail along with your audit protest as to the items of contention. It may even be appropriate to attach documents to prove your case to appeal. If you are missing the deadline however, you may satisfy yourself with an appeal letter that fulfills the procedure requirement e even though there may be a possibility of rejection of the appeal (same reference in the preceding paragraph).

Appeal Conference vs. Straight to Tax Court

The common norm is to go to appeal before you consider going to court. Some however advocate going
to court to create a favorable outcome when they are called for a conference. You may run the risk of
frivolous filing or if you win you may not be reimbursed for legal expenses.

You should not hesitate however to go to court if you think that appeal is not responsive and your evidence supports your position. Typically a few months after you file for court you will be invited by the IRS for negotiation again (back to appeal). In this instance the IRS is motivated to find a tax resolution to the tax dispute. So in this instance filing a law suit may be the best tax help you can get.

Fast Track Mediation or Arbitration

This alternative is available to self-employed and small business. This mediation can be used if there is one issue not agreed upon while there is a general agreement on the rest of the issues. Although mediation may provide tax relief for both the taxpayers and the IRS, the decision of the mediator is not binding.

Sometimes you can use mediation early for issues that developed in the audit and prove disagreeable. If a key issue is resolved this way before the finalization of the total appeal process, it may help resolve the remaining issues that are negotiated before and after the referral of the major issue. Both the IRS and the taxpayers may find a tax resolution that way.

Although generally speaking appeal within the IRS is the final destination, some cases that result in some disagreement may be referred to arbitration. In this case the arbitration resolution to the tax problem is binding on both parties.

Dean Alexander is the CEO of NFA Tax Help and has been helping clients with tax issues for over 35 years. More information is available at

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