Unresolved IRS tax problems only get worse over time. In addition to penalties and interest accruing, options to dispute the tax issue become fewer. Thus, it is important to respond to any IRS notice prior to the required response date. In cases where a timely response wasn’t possible or was simply overlooked, there may still be some options to dispute IRS tax assessments, penalties or collection actions.
Types of IRS Audits
There are three types of IRS audits or examinations, as the IRS refers to them:
- Correspondence Audit: A correspondence audit is the least intrusive of the three audit types and focuses on a few issues such as omitted income or large, unusual or questionable deductions.
- Office Audit: Office audits are conducted in-person by IRS personnel known as Tax Compliance Officers. Office audits usually involve less complex tax returns and are conducted at an IRS office during a scheduled appointment.
- Field Audit: The field audit, conducted by a Revenue Agent, is the most comprehensive of these three types of audits. It typically involves the agent’s request for an in-person interview and in the case of a business owner, a tour of the business
Disputing an Audit
For a short time after the audit is completed, an opportunity exists to dispute the auditor’s proposed tax changes by filing a protest with the IRS Independent Office of Appeals or by filing a petition with the U.S. Tax Court.
Failing to respond to an audit report in a timely matter by filing a protest or petition will result in IRS legally assessing and then billing you for the proposed tax change. When this happens, two options are still available to dispute the tax increase.
You may request audit reconsideration if you:
- Did not appear for your audit
- Moved and did not receive correspondence from the IRS
- Have additional information to present that you did not provide during your original audit
- Disagree with the assessment from the audit
An audit reconsideration request can be made any time after an examination assessment has been made and the tax remains unpaid. When requesting audit reconsideration, send any new documentation that supports your request.
Offer in Compromise – Doubt as to Liability
Doubt about whether a tax liability is correct can exist in cases where there is a dispute regarding IRS actions or tax law interpretations that led to the additional tax assessment. These offers are different from Doubt as to Collectability offers since they are not based on the ability to pay the outstanding liability.
Like Audit Reconsideration, an Offer in Compromise – Doubt as to Liability must include supporting documentation or evidence that will help the IRS identify the reasons to doubt the accuracy of the tax debt. You must include a written statement explaining why the tax debt or portion of the tax debt is incorrect.
Knowing whether to submit an Audit Reconsideration request or an Offer in Compromise – Doubt as to Liability can be a difficult decision and will depend on a variety of factors. In these cases, consulting with a tax professional experienced in handling IRS tax disputes is highly recommended.
We’re Here to Help
Bennett Thrasher’s Tax Controversy practice can help you navigate how to best respond to IRS examination matters when responding late. To learn more about our services, contact James Pickett, leader of our Tax Controversy practice, by calling 770.396.2200.