CP2000

Back to “Issues due to improper filings”

The IRS examines tax returns to determine if income, expenses and credits are being reported accurately. It employs various ways of selecting returns for examination. If your return has been selected, this does not mean that you made an error or were dishonest.

For our clients, reply to an initial letter audit is part of the contracted fee, as long as it relates to information disclosed to us in the course of the engagement.

Here is an overview of the whole process.

Steps in the Examination Process
  1. Review, gather and compare information and proposed changes to your tax return.
  • If you agree, return the signed agreement page with your payment
  • If you disagree, gather supporting documentation and explanation and send to the IRS. If you have questions, contact the IRS thru mail, phone or visit any of its centers or clinics. If there are complexities, you may obtain professional assistance.
  1. Respond to the letter and comply with the requirements within the deadline.
  • If it requires some documents: send only a copy, never the original.
  • If it requires verification, and you failed to obtain the same, provide a detailed explanation on how an amount is determined.
  1. Resolve disagreements
After sending in documentation or explanation and you disagree with the examiner’s decision, you may avail of the following options:
    1. request an informal conference with the examiner
    2. request an appeals conference
    3. petition Tax Court without having to pay the tax first
The Appeals Process

The Appeals Office

To settle tax disagreements, there is an Appeals office which is separate and independent from the IRS office and the courts.

How to appeal a decision

After receipt of letter offering appeal rights, you generally have 30 days to reply if you agree to the decision or you want to appeal the same. Your appeal will only be entertained if you provide all information and your reasons are within the scope of the tax laws.

Kinds of Appeals Requests
  1. Small Case Request – for changes in your tax, penalties and interest $25,000 or less for one tax period.
Requirements:
  1. Form 12203 Request for Appeals Review
  2. Brief Written Statement requesting an Appeal and the changes you do not agree with and your reasons.
2. Formal Protest - for changes in your tax, penalties and interest exceeding $25,000 for one tax period.
Requirements:
A formal letter with the following information:
a. Name, address and daytime telephone number
b. Statement that you want to appeal the IRS findings to the Appeals office
c. A copy of the letter showing the proposed changes and findings you do not agree with.
d. Tax periods or years involved
e. A list of the changes you do not agree with, and why you do not agree
f. The facts supporting your position on any issue that you do not agree with
g. The law or authority, if any, on which you are relying
h. Your signature on the written protest, stating that it is true under the penalties of perjury, as follows:
Under the penalties of perjury, I declare that I examined the facts stated in this protest, including any accompanying documents, and to the best of my knowledge and belief, they are true, correct and complete.

If a representative prepares and signs the protest for you, he should include a declaration stating:
  • That he submitted the protest and the accompanying documents
  • Whether he knows personally the facts stated in the protest and accompanying documents are true and correct.
If the office grants your request, they may hold a conference by phone, correspondence, or at your request, face-to-face. Only attorneys, CPAs or enrolled agent are allowed to represent you at the Appeals Conference.

US Tax Court

Once the IRS sends you a Notice of Deficiency or other letter containing Tax Court rights, you can file a petition with the US Tax Court. However, it will normally be considered by the Appeals office before the Tax Court hears your case. Further, you must avail of your right within the timeframe provided, which is generally 90 days.

For cases involving $50,000 or less in tax, interest and penalties, a simplified procedure is allowed. Be careful however, because in using the same, you cannot appeal the Tax Court’s decision.

Tip : While your case is under Appeals, interest continues to accrue. To avoid the same, you may opt to pay the entire proposed amount. After all, if you win the appeal, you are assured of a refund for any excess tax paid. Refunds take around 6-8 weeks to arrive.

Payment Options
  • Full payment - by check or money order. Make check payable to the “United States Treasury” and mail address to your bill. The tax year, Your SSN and phone number should be indicated on your check.
  • By Credit or Debit Card – by phone or internet using major credit cards. A convenience fee is usually charged. Take note of the confirmation number provided as proof of payment.
  • Electronic Federal Tax Payment System – usually require monthly equal payments. This is more costly however, because the IRS charges an interest and a one-time user fee on this payment scheme.
  • Offer in Compromise – The IRS may accept less than the full amount when it is doubtful that it can collect the entire amount due or if it will cause economic hardship on your part. Usually, there is an application fee and an initial payment.
  • Temporarily Delay the Collection Process - The IRS may opt to wait until your financial condition improves. However, your debt will continue to increase until the tax, interest and penalty are fully paid.
  • Appeal the Collection Process – See Publication 1660 for further details.
Source – IRS Publication 3498-A<