First, after your audit, the IRS sends an examination report with proposed adjustments to the taxpayer; these will also include additional penalties and interest. Assuming you don’t sign off and return a copy of the report within a few weeks, the IRS will usually send you a 30-day letter with an explanation of your appeal rights. However, the IRS is not required to give you an administrative appeal after an audit and sometimes you will get a 90-day letter instead. In that event, the only way to avoid paying the taxes is to file your appeal with the United States Tax Court. But, let’s assume you got a 30-day letter.
Next, you need to file a protest. Protest in this context is another word for appeal. How long do you have? You must file your protest within 30-days of the date on the appeal notice letter (not the day you received it). But, what if you can’t file your protest on time? Request an extension for another 30 to 60 days to appeal. Requests to auditors or managers are usually granted, send a letter memorializing your conversation with the person who extended your deadline and include their name and ID.
How does the protest process work? That depends largely on how much you owe:
- If you owe less than $2,500: You can simply ask the auditor for an appeal—technically, your oral request is sufficient. But, to make sure you don’t get forgotten, either write a protest letter in your own words and write at the top “Small Case Request” (following the instructions and sample below) or use IRS Form 12203, Request for Appeals Review.
- If you owe between $2,500 and $25,000: Either write a protest letter and write at the top “Small Case Request” or use IRS Form 12203. In this instance, using the form is recommended.
- If you owe more than $25,000: Write a protest letter. The IRS doesn’t have a form for contesting tax debts over this amount so drafting a good protest letter is essential. Don’t rush it.
If you are appealing an audit debt of more than $25,000 (what the IRS considers a large case), then your letter needs to contain the following:
- your name (or names, if husband and wife) and Social Security number(s)
- a statement that you are appealing an examination report
- the findings in the report that you disagree with, including penalties and interest
- a brief explanation of why the report is wrong; although not required, you can attach copies of any documents supporting your explanation
- your signature(s) and date under a penalty-of-perjury clause, and
- copies of the 30-Day Letter and examination report.
Don’t use inflammatory language or attack your auditor; that won’t help and may discredit and otherwise meritorious protest. Be succinct and state why you believe the auditor made an error and provide any supporting documentation you want to be considered.
If your appeal is unsuccessful, you can further appeal to the United States Tax Court and if your audit debt is less than $50,000 you may qualify for “S” case status or “Small Case” status which will afford you a relaxed environment similar to small claims where you can speak to the judge in an informal manner and state your case as you see it.
If would like more information on how to appeal an IRS audit, you can call a Dallas tax attorney with the Perliski Law Group at (214) 446-3934 for a free phone consultation to see how we can help, or fill out our online contact form.