What Are IRS Appeals?
The IRS appeals process provides taxpayers with an administrative remedy to challenge unfavorable IRS decisions before going to court. When you disagree with an IRS determination—whether it's from an audit, penalty assessment, collection action, or other tax matter—you have the right to request an independent review by the IRS Independent Office of Appeals.
The Office of Appeals operates separately from the IRS division that made the initial decision. This independence ensures that your case receives a fresh, impartial review by an Appeals Officer who wasn't involved in the original determination. Appeals Officers have the authority to consider the hazards of litigation and can offer settlements based on the strengths and weaknesses of both sides' positions.
The appeals process is less formal than going to Tax Court and typically less expensive. It provides an opportunity to resolve disputes without the time and cost of litigation. Most cases that go through appeals are resolved at this level, making it a valuable option for taxpayers seeking a fair resolution.
When You Can Appeal an IRS Decision
You have the right to appeal various types of IRS decisions and actions. Understanding when you can appeal is crucial to protecting your rights and ensuring you don't miss critical deadlines.
After an audit, if you disagree with the proposed changes to your tax return, you can appeal the findings. The IRS will send you a letter explaining your appeal rights, typically giving you 30 days to request an appeal. This is one of the most common situations where taxpayers exercise their appeal rights, and having professional representation can significantly improve your chances of a favorable outcome. Learn more about <Link href="/irs-audit-defense">IRS audit defense strategies</Link>.
You can also appeal penalty assessments. If the IRS has assessed penalties for late filing, late payment, accuracy-related issues, or other violations, you have the right to challenge these penalties through the appeals process. Many penalties can be reduced or eliminated if you have reasonable cause, and Appeals Officers have the discretion to consider the facts and circumstances of your situation. For more information on reducing penalties, visit our <Link href="/irs-penalty-abatement">IRS penalty abatement</Link> page.
Collection actions are another area where appeals rights apply. If you disagree with a Notice of Federal Tax Lien, levy, or seizure, you can request a Collection Due Process (CDP) hearing or equivalent hearing. These hearings allow you to challenge the collection action and propose alternative collection methods, such as installment agreements or offers in compromise.
Additionally, you can appeal decisions regarding innocent spouse relief, trust fund recovery penalties, rejection of an installment agreement, and many other IRS determinations. The key is to act quickly when you receive a notice explaining your appeal rights.
The Protest Letter: Your Gateway to Appeals
The protest letter is your formal request for an appeal and serves as the foundation for your case. Whether you need to file a formal written protest or a small case request depends on the amount in dispute, but both serve the same purpose: to explain why you disagree with the IRS decision.
For cases involving more than $25,000 in any tax period, you must file a formal written protest within 30 days of receiving the IRS letter offering appeal rights. Your protest must include specific information: your name, address, and contact information; a statement that you want to appeal the IRS findings; the tax periods involved; a list of the changes you disagree with; a statement of facts supporting your position; the law or authority you're relying on; and your signature under penalties of perjury.
For smaller cases ($25,000 or less per tax period), you can file a small case request, which has less formal requirements. However, even for small cases, it's beneficial to present a well-organized argument with supporting documentation.
The protest letter is your opportunity to tell your story and present your strongest arguments. It should be clear, factual, and supported by relevant documentation and legal authority. This is where professional representation can make a significant difference. An experienced tax professional knows what Appeals Officers look for and can present your case in the most persuasive manner.
Once you file your protest, your case will be assigned to an Appeals Officer who will schedule a conference to discuss your case. The quality of your protest letter often sets the tone for the entire appeals process.
What Happens at an Appeals Conference
The appeals conference is an informal meeting between you (and your representative) and the Appeals Officer assigned to your case. Unlike a court proceeding, there are no formal rules of evidence, and the atmosphere is designed to be less adversarial and more collaborative.
Before the conference, the Appeals Officer will review your protest letter, the IRS examination report or other relevant documents, and any additional information you've submitted. The officer will prepare for the conference by researching the legal and factual issues in dispute.
During the conference, you'll have the opportunity to explain your position, present additional evidence, and discuss settlement possibilities. Appeals conferences can be conducted in person, by phone, or through correspondence, depending on your preference and the complexity of your case. Many taxpayers find that having representation at the conference allows them to focus on the facts while their representative handles the legal arguments and negotiations.
The Appeals Officer will consider several factors: the strength of the IRS's position, the strength of your position, the hazards of litigation if the case were to go to court, administrative efficiency, and whether a settlement would be in the best interest of both parties. Appeals Officers have significant settlement authority and can often resolve cases that seem deadlocked.
After the conference, if an agreement is reached, you'll sign a settlement agreement and the case will be closed. If no agreement is reached, you'll receive a notice of determination, and you'll have the option to pay the tax and file a refund claim or petition the Tax Court (if applicable).
The appeals process typically takes several months from start to finish, but it's almost always faster and less expensive than litigation. Most importantly, it gives you a real opportunity to resolve your dispute with someone who has the authority to consider all aspects of your case.
Settlement vs. Litigation: Understanding Your Options
One of the most important aspects of the appeals process is understanding the difference between settlement and litigation, and knowing when each option makes sense for your situation.
Settlement through the appeals process offers several advantages. It's faster than going to court, typically less expensive, and allows for more creative solutions. Appeals Officers can consider the "hazards of litigation"—meaning the uncertainty of how a court might rule—and can offer settlements that reflect the relative strengths and weaknesses of both sides. For example, if the IRS's position has a 60% chance of prevailing in court, the Appeals Officer might settle for 60% of the disputed amount.
Settlement also provides certainty. Once you reach an agreement and sign Form 870-AD or another settlement agreement, both parties are bound by the terms (with some exceptions). You'll know exactly what you owe, and you can move forward without the stress and uncertainty of pending litigation.
However, settlement isn't always the best option. If you have a strong case based on clear facts and law, if the IRS's position is clearly wrong, or if the principle at stake is important enough to you, litigation might be the better choice. Going to Tax Court or Federal Court allows you to have a judge decide your case, which can result in a complete victory if the law is on your side.
The key is to make an informed decision based on a realistic assessment of your case. This requires understanding the relevant law, evaluating the strength of your evidence, considering the costs and time involved in litigation, and assessing your tolerance for risk and uncertainty.
An experienced tax professional can help you evaluate these factors and determine the best strategy for your situation. Many cases that seem hopeless at the examination level can be successfully resolved at appeals, while other cases may benefit from the certainty and authority of a court decision.
The IRS Independent Office of Appeals
The IRS Independent Office of Appeals was restructured in 2019 to enhance its independence and ensure taxpayers receive fair, impartial reviews of their cases. Understanding how this office operates can help you navigate the appeals process more effectively.
The Office of Appeals is led by a Chief of Appeals who reports directly to the IRS Commissioner, ensuring organizational independence from the IRS divisions that conduct examinations and collections. This structure is designed to provide taxpayers with confidence that their appeal will be reviewed by someone with no stake in upholding the original decision.
Appeals Officers are experienced IRS employees who receive specialized training in negotiation, tax law, and case resolution. They have the authority to consider not just the technical merits of a case, but also the hazards of litigation and the goal of resolving disputes efficiently and fairly. This broad authority allows Appeals Officers to craft settlements that work for both the taxpayer and the government.
The Office of Appeals handles a wide variety of cases, including audit disputes, penalty appeals, collection matters, innocent spouse claims, and offers in compromise. In recent years, the office has handled hundreds of thousands of cases annually, with high closure rates indicating that most disputes are successfully resolved at this level.
One important aspect of the appeals process is that communications between you and the Appeals Officer are generally protected from disclosure. This allows for frank discussions about settlement possibilities without fear that your statements will be used against you if the case proceeds to litigation.
The independence and authority of the Office of Appeals make it a valuable resource for taxpayers. It's an opportunity to have your case heard by someone who can look at the big picture and work toward a fair resolution.
Your Rights in the IRS Appeals Process
As a taxpayer, you have specific rights throughout the appeals process, and understanding these rights is essential to ensuring you receive fair treatment.
First and foremost, you have the right to representation. You can have an attorney, CPA, enrolled agent, or other authorized representative handle your appeal on your behalf. Your representative can communicate with the Appeals Officer, attend conferences, and negotiate on your behalf. Having professional representation often leads to better outcomes because experienced representatives understand the appeals process and can present your case most effectively.
You have the right to a fair and impartial appeal. The Appeals Officer assigned to your case must be independent from the IRS division that made the initial decision and must give your case a fresh review based on the law and facts. If you believe the Appeals Officer is biased or not conducting a fair review, you have the right to request a different officer or escalate your concerns.
You have the right to confidentiality. With limited exceptions, what you discuss with the Appeals Officer during settlement negotiations cannot be disclosed or used against you if your case goes to court. This protection encourages open and honest discussions about settlement possibilities.
You also have the right to record your appeals conference, provided you give advance notice to the IRS. This can be helpful for keeping an accurate record of what was discussed, though many taxpayers and representatives prefer to focus on the discussion rather than worrying about recording.
You have the right to disagree with the Appeals Officer's determination. If you can't reach an agreement at appeals, you don't have to accept the Appeals Officer's decision. Depending on your case, you may have the right to petition the Tax Court, pay the tax and file a refund claim in District Court or the Court of Federal Claims, or pursue other legal remedies.
Finally, you have the right to quality service. The IRS has established standards for how long appeals cases should take and how Appeals Officers should conduct themselves. If you're not receiving appropriate service, you can contact the Taxpayer Advocate Service for assistance.
Understanding and asserting your rights throughout the appeals process helps ensure you receive fair treatment and the best possible outcome for your case. Don't face the IRS alone—professional representation can help protect your rights and navigate the complexities of the appeals system.