What Is a Tax Appeal? Everything You Need To Know

Key Takeaways

A tax appeal is your legal right to challenge IRS decisions before going to court, offering a cost-effective way to resolve disputes through the Independent Office of Appeals.

• File appeals within 30 days of receiving IRS correspondence explaining your appeal rights to preserve your opportunity for review.

• Appeals cover major tax disputes, including audit adjustments, collection actions, employment tax assessments, and denied offers in compromise.

• Appeals officers can compromise tax amounts by evaluating litigation risks, making settlement more likely than court proceedings.

• Three court options exist if appeals fail: Tax Court (no prepayment required), District Court (jury trial available), or Court of Federal Claims.

The appeals process resolves over 100,000 tax disputes annually without court involvement, making it an essential tool for taxpayers seeking fair resolution of IRS disagreements while avoiding costly litigation.

What is a tax appeal?

A tax appeal is a process through which taxpayers challenge Internal Revenue Service decisions related to their taxes. This mechanism is a chance to seek additional review of tax matters and resolve disputes without pursuing traditional litigation. The process allows taxpayers who disagree with IRS determinations to request reconsideration before escalating to formal court proceedings.

The IRS Independent Office of Appeals handles tax appeals as a separate division within the agency. This office functions as an independent entity and operates separately from the rest of the IRS. Appeals officers review cases submitted by taxpayers and meet with them informally. They think about both the taxpayer's position and the IRS's position in a fair and unbiased manner. The Office of Appeals helps more than 100,000 taxpayers resolve their tax disputes without going to Tax Court each year.

Most differences can be settled without court involvement because the appeals system exists within the IRS structure. Taxpayers may appeal the tax decision reached by an examiner to a local appeals office, which maintains separation and independence from the IRS office that conducted the examination. An appeals office represents the only level of appeal within the IRS. Conferences with appeals office personnel occur through various formats, including in-person meetings, correspondence, or telephone discussions with the taxpayer or authorized representative.

The grounds for tax appeals must fall within the scope of tax laws. Appeals cannot be based on moral, religious, political, constitutional, conscientious, or similar grounds alone. Taxpayers retain the option to take a case directly to tax court if they prefer not to appeal within the IRS system. Most disputes are settled at the appeals level, making it an effective alternative to litigation.

Appeals officers represent the most experienced IRS employees and specialize in the specific area of tax law or administration involved in each dispute. The office does not seek to take sides in disagreements but offers an objective point of view on individual cases. It reviews cases after the applicable IRS compliance function has made its decision and works to resolve disagreements on a basis that is fair and impartial to both the government and the taxpayer.

How the IRS Office of Appeals works

The IRS Independent Office of Appeals operates with a staff of approximately 1,240 employees. The team consists of Appeals Officers and Settlement Officers. Appeals Officers handle matters with audit-related issues such as penalties or additions to tax. Settlement Officers address collection matters including liens and levies for unpaid taxes. This organizational structure will give specialized expertise for different types of tax disputes.

Taxpayers become eligible to file an appeal when they receive a letter from the IRS explaining their right to appeal the IRS's decision, disagree with that decision, and have not signed an IRS agreement form. The grounds for disagreement must fall within the scope of tax laws. Disputes based on moral, religious, political, constitutional, conscientious, or similar grounds do not qualify for appellate review.

The appeals process begins with submitting a written protest to the IRS address specified in the letter explaining appeal rights. Taxpayers must not send protests to the Independent Office of Appeals. This delays the process and may prevent case consideration. The IRS Examination or Collection office that made the tax assessment or initiated collection action reviews the protest before forwarding cases to Appeals. They attempt to resolve disputed issues.

The type of protest required depends on the disputed amount. A small case request applies when the total amount of tax, penalties, and interest for each tax period is $25,000 or less. Disputes exceeding this threshold require a formal written protest. When multiple tax periods are involved with any period exceeding $25,000, a formal written protest becomes necessary for all periods.

A formal written protest must contain specific elements: the taxpayer's name, address, and daytime telephone number; a statement requesting appeal to the Appeals Office; a copy of the proposed tax adjustment letter; the tax periods or years involved; a list of disputed changes with reasons for disagreement; facts supporting the taxpayer's position; and applicable law or authority. The protest requires a signed declaration stating under penalties of perjury that the facts are true, correct, and complete. Taxpayers must submit protests within the time limit specified in the IRS letter, which is 30 days from the letter date.

Taxpayers may represent themselves or participate with professional representation during the appeal process. Attorneys, certified public accountants, and enrolled agents authorized to practice before the IRS qualify as representatives. Representatives need a completed Form 2848, Power of Attorney and Declaration of Representative to communicate with the IRS.

Appeals conferences operate through correspondence, telephone, video conference, or in-person meetings. The assigned Appeals Officer or Settlement Officer reviews cases with a fresh, objective point of view and thinks over both the taxpayer's position and the administrative case file. Appeals possesses unique authority to compromise tax amounts by evaluating hazards of litigation and assessing the probable outcome if cases proceeded to court. Resolution timeframes vary based on case type, factual complexity, issue complexity, and available legal precedents. The process averages 7 to 8 months from case receipt to resolution for non-docketed examination or collection appeals.

What tax disputes can you appeal?

Taxpayers can appeal various IRS decisions with examination adjustments, collection actions, and penalty assessments. The Independent Office of Appeals reviews disputes related to income tax, employment tax, collection enforcement, and relief claims.

Income tax audit adjustments

Examination adjustments represent the most common category of appealable disputes. Taxpayers who receive audit results proposing additional tax liability can challenge these findings when they believe the IRS misinterpreted the law or misunderstood the facts. A notice of deficiency, typically issued following an audit, allows taxpayers 90 days to file an appeal. The disputed amount determines whether a small case request (for amounts of $25,000 or less per tax period) or a formal written protest is required.

Employment tax assessments

Employment tax disputes involve disagreements over payroll tax calculations, withholding requirements, and related employer obligations. These assessments can be appealed through the standard appeals process when taxpayers contest the IRS determination.

Collection actions like liens and levies

Collection enforcement actions qualify for multiple appeal procedures. Taxpayers can challenge federal tax liens (filed or proposed), levy actions (taken or proposed), property seizures, and decisions regarding installment agreements. The Collection Due Process program allows appeals when the IRS issues notices such as the Notice of Federal Tax Lien Filing or Final Notice of Intent to Levy. The Collection Appeals Program addresses a broader range of collection actions, including rejection, termination, or modification of installment agreements.

Denied offers in compromise

Rejected offers in compromise can be appealed within 30 days from the date of the rejection letter. A returned offer is different from a rejection, as returns occur due to procedural issues without full review and provide no appeal rights. Appeals of rejections allow taxpayers to dispute the IRS calculation of reasonable collection potential or present additional financial information.

Trust fund recovery penalties

Trust fund recovery penalty assessments apply when responsible persons willfully fail to collect, account for, or pay withheld employment taxes. Recipients have 60 days to appeal the proposed penalty after receiving Letter 1153 proposing the assessment.

Innocent spouse claims

Innocent spouse relief provides three forms of protection: traditional innocent spouse relief, separation of liability, and equitable relief. Taxpayers must request relief within 2 years of receiving an IRS notice of audit or taxes due. Denied relief claims can be appealed by filing Form 12509 within 30 days of receiving the preliminary determination.

Steps to file a tax appeal with the IRS

Filing a tax appeal with the IRS requires you to meet specific procedural requirements and deadlines. The process begins after you receive correspondence that explains appeal rights and requires you to submit formal documentation to the appropriate IRS office.

Prepare your written protest

The type of protest depends on the disputed amount. A small case request is enough for disputes where the total tax, penalties, and interest for each tax period equals $25,000 or less. Taxpayers can complete Form 12203, Request for Appeals Review, or prepare a brief written statement that lists disagreed items and reasons for disagreement. At the time any tax period exceeds the $25,000 threshold, a formal written protest becomes mandatory for all periods involved.

Include required documentation

A formal written protest must contain the taxpayer's name, address, and daytime telephone number. It needs a statement requesting appeal to the Appeals Office and a copy of the letter showing proposed changes. You must include tax periods or years involved and a list of disputed changes with reasons for disagreement. The protest also requires facts supporting the taxpayer's position and applicable law or authority. The protest requires a signed declaration under penalties of perjury stating the information is true, correct, and complete.

Submit within the deadline

You must submit protests within the time limit specified in the IRS letter, which is 30 days from the letter date generally. Mail the protest to the IRS address shown on the letter explaining appeal rights, not directly to the Independent Office of Appeals. Sending protests directly to Appeals delays the process and may prevent case consideration.

Attend your appeals conference

The assigned officer contacts the taxpayer to schedule a conference after the IRS Examination or Collection office reviews the protest and forwards the case to Appeals. Conferences occur through correspondence, telephone, or meetings that happen in person. Taxpayers may represent themselves or involve attorneys, certified public accountants, or enrolled agents as representatives.

Taking your tax dispute to court

Taxpayers have access to three federal trial courts for resolving tax disputes once settlement cannot be reached through the IRS appeals process.

U.S. Tax Court option

The United States Tax Court provides a specialized federal forum where taxpayers can challenge IRS determinations before paying the disputed tax. This court maintains independence from the IRS and consists of judges with expertise in tax law. Taxpayers must file a petition within 90 days of receiving a Notice of Deficiency to initiate a case. The filing fee is $60. Cases involving $50,000 or less qualify for simplified small tax case procedures, though decisions under this option cannot be appealed.

U.S. District Court and Court of Federal Claims

U.S. District Courts and the Court of Federal Claims handle tax refund suits but require full payment of the disputed tax before filing. District Court offers the option of a jury trial, distinguishing it from other tax forums. The Court of Federal Claims exercises concurrent jurisdiction with District Courts over tax refund matters and addresses cases involving complex statutory construction issues.

Thinking over legal action

Litigation becomes appropriate once administrative settlement efforts fail or cases involve most important legal questions requiring judicial interpretation. Tax Court petitions often increase settlement power during pre-trial negotiations.

FAQs

Q1. What is a tax appeal and how does it work? A tax appeal is a process that allows taxpayers to challenge IRS decisions regarding their taxes. It provides an opportunity to seek additional review and resolve disputes without going to court. The IRS Independent Office of Appeals, a separate division within the agency, handles these appeals by reviewing cases with a fair and unbiased approach, considering both the taxpayer's and the IRS's positions.

Q2. What types of tax issues can be appealed? You can appeal various IRS decisions including income tax audit adjustments, employment tax assessments, collection actions such as liens and levies, denied offers in compromise, trust fund recovery penalties, and innocent spouse claims. The disputed matter must be based on tax law grounds rather than moral, religious, political, or constitutional reasons.

Q3. How much time do I have to file a tax appeal? Generally, you have 30 days from the date of the IRS letter to submit your appeal. For notices of deficiency, you typically have 90 days to file. It's crucial to submit your protest within the specified deadline shown in your IRS correspondence to preserve your appeal rights.

Q4. Do I need to pay the disputed tax before filing an appeal? No, you don't need to pay the disputed tax to file an appeal with the IRS Office of Appeals or U.S. Tax Court. However, if you choose to take your case to U.S. District Court or the Court of Federal Claims, you must pay the full disputed amount before filing a refund suit.

Q5. Can I represent myself during the tax appeal process, or do I need professional help? You can represent yourself during the appeal process. However, if you prefer professional representation, only attorneys, certified public accountants, or enrolled agents authorized to practice before the IRS can serve as your representative. If using a representative, you must provide Form 2848, Power of Attorney and Declaration of Representative.