The IRS Appeals Process

A taxpayer has the right to appeal the results of an IRS tax audit. There are two principal ways that taxpayers end up in the Appeals Division following an audit. Generally this right arises after the taxpayer receives one of the following:

1. 30-Day Letter (an audit report giving the taxpayer 30 days to file a written protest of the audit results), or

2. Statutory Notice of Deficiency (also known as a 90-Day Letter that formally asserts a deficiency in tax).

When deciding whether to appeal the result of an audit, a taxpayer should consider that the Appeals Division settles approximately 90% of the cases before it. This is largely because the Appeals Division has broader settlement authority than an auditor. An auditor can only resolve a case based on the law as applied to the facts. An Appeals Officer, however, can settle a case based on the “hazards of litigation” that a case presents.

The rule governing appeals settlements is: “Appeals will ordinarily give serious consideration to an offer to settle a tax controversy on a basis which fairly reflects the relative merits of the opposing views in light of the hazards which would exist if the case were litigated.” It is important to note, however, that no settlement will be made based on the nuisance value of a case.

During an appeal, if a taxpayer makes a good faith but unacceptable offer to settle a case, the appeals officer should respond in a manner that gives the taxpayer an idea as to what would constitute an acceptable settlement.

Ultimately, the appeal of an audit is a settlement negotiation. The negotiation turns on the law, the facts and the relative risks of pushing the case into litigation. It is up to the taxpayer, or representative, to explain the merits of the particular case in a way that encourages settlement.