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The Appeals Process

An examination usually begins when you are notified that your return has been selected. Any proposed changes to your return will be explained to you and/or your authorized representative.

If you "agree" with the proposed changes, you can sign an agreement form and pay any additional tax you may owe. You must pay interest on any additional tax. If you pay when you sign the agreement, the interest is generally figured from the due date of your return to the date of payment. If you do no pay the additional tax when you sign the agreement, you will receive a bill that includes interest. If you pay the amount due within 10 business days of the billing date, you will not have to pay more interest or penalties. The period is extended to 21 calendar days if the amount due is less than $100,000.

If you "do not agree" with the proposed changes, the examiner will explain your appeal rights. Within a few weeks after your closing conference with the examiner, you will receive a package with:

- 30 Day Letter - This letter notifies you of your right to appeal the proposed changes
- A copy of the examination report explaining the examiner's proposed changes
- An agreement of waiver form
- A copy of Publication 5, Your Appeal Rights and How To Prepare a Protest If You Don't Agree

You have 30 days from the date of the 30-day letter to tell the IRS whether you will accept or appeal the proposed changes. The letter will explain what steps you should take, depending on which action you choose. If you do not respond to the 30-day letter, or if you later do not reach an agreement with an Appeals Officer, the IRS will send you a "90-day letter," which is also known as a notice of deficiency. You will have 90 days from the date of this notice to file a petition with the Tax Court.

If you "later agree" with the examiner's proposed changes after receiving the examination report or the 30-day letter, sign and return either the examination report or the waiver. You can pay any additional amount you owe without waiting for a bill. Include interest on the additional tax at the applicable rate. This interest rate is usually for the period from the due date of the return to the date of payment. The examiner can tell you the interest rate(s) or help you figure the amount. If you pay the amount due within 10 business days after the date of notice and demand for immediate payment, you will not have to pay any additional penalties and interest. The period is extended to 21 calendar days if the amount due is less than $100,000.

Appeal Rights:

The Internal Revenue Service has an appeals system. However, your reasons for disagreeing must fall within the scope of the tax law. For example, you cannot appeal your case based only on moral, religious, political, constitutional, conscientious, or similar grounds. If you do not want to appeal your case within the IRS, you can take your case directly to court.

You can appeal an IRS tax decision to a local Appeals Office, which is separate and independent of your local IRS District, Service, or Compliance Center. The Appeals Office is the only level of appeal within the IRS. If you want an appeals conference, follow the instructions in the letter you received (30-day letter). Your request will be sent to the Appeals Office to arrange a conference at a convenient time and place. If an agreement is not reached at your appeals conference, you can, at any time, take your case to court. You can represent yourself at your appeals conference, or you can be represented by any federally authorized practitioner, including an attorney, a certified public accountant, an enrolled agent, or an enrolled actuary. If your representative attends a conference without you, they can receive and inspect confidential information only if you have filed a power of attorney or tax information authorization. You can use Form 2848, Power of Attorney and Declaration of Representative, or any other properly written power of attorney or authorization.

If you and the IRS still disagree after the appeals conference, you can take your case to one of the trial level courts; the U.S. Tax Court, the U.S. Court of Federal Claims, or the U.S. District Court. These courts are independent of the IRS. For court proceedings resulting from examinations started after July 22, 1998, the IRS has the burden of proof for any factual issue if you have introduced credible evidence relating to the issue. If you elect to bypass the IRS appeal system, you also can take your case to one of those courts. However, a case petitioned to the United States Tax Court will normally be considered for settlement by an Appeals Office before the Tax Court hears the case.

Generally, the District Court and the Court of Federal Claims hear tax cases only after you have paid the tax and filed a claim for a credit or refund. You can file a claim with the IRS for a credit or refund if you think that the tax you paid is incorrect or excessive. If your claim is totally or partially disallowed by the IRS, you should receive a "notice of claim disallowance." If the IRS does not act on your claim within 6 months from the date you filed it, you can then file suit for a refund. You must file suit for a credit or refund no later than 2 years after the IRS informs you that your claim has been rejected. For information about procedures for filing suit in either court, contact the Clerk of your District Court or of the United States Court of Federal Claims.

Recovery of Litigation and Administrative Costs:

These are the expenses that you pay to defend your position to the IRS or the courts. You may be able to recover reasonable litigation or administrative costs if you are the prevailing party and if:
- You exhaust all administrative remedies within the IRS
- Your net worth is below a certain limit
- You do not unreasonably delay the proceeding
- You apply for these costs with in 90 day of the date on which the final decision of the IRS as to the determination of the tax, interest, or penalty was mailed to you

Generally you are the prevailing party if you substantially prevail with respect to the amount in controversy or on the most significant tax issue or set of issues in question; and you meet the net worth requirements. If the IRS denies you award of administrative costs, and you want to appeal, you must petition the Tax Court within 90 days of the date on which the IRS mails the denial notice.