Tax Appeal

A tax appeal is a legal process in which an organization or individual contests a tax department's assessment or decision related to taxation to reverse or review the decision. It provides a window for taxpayers to resolve their tax errors and wrong tax assessments.

Most of the revenue assessments by the IRS (Internal Revenue Service) concerning the amount of duty or tax payable can be appealed after receiving the final assessment notice. The majority of tax disagreements can be settled through correspondence or discussions with the revenue department without visiting the Commission of Tax Appeals.

Tax appeal seeks to offer the best way to resolve issues related to items reported on one's tax return with the IRS. IRS has the mission to resolve tax discrepancies without legal suits as per an impartial and fair process for taxpayers and the government. Moreover, it seeks to do it in a manner that enhances public confidence concerning IRS efficacy and integrity and self-compliance of individuals to tax rules. Hence, it provides an option for taxpayers to appeal against the IRS audit under the following situations:

• If they receive an IRS letter that explains one’s right to appeal the IRS judgement.
• If they disagree with the decision of the IRS.
• They do not want to sign the IRS agreement sent to them.

Moreover, one should only go ahead with filing an appeal against the IRS audit if one feels that the IRS:

• Decided incorrectly depending on a wrong interpretation of the law.
• Failed to understand the facts correctly while applying the law.
• Took improper action of collection against the taxpayer or compromised offer was denied.
• Quoted or used wrong facts in the audit process.

If any of the above options meet the criteria of appeal, then one must file a documentary protest to lodge an appeal with the IRS. The protest must be filed on Form 12203 with- name, telephone number, address, receipt of letter copy showing proposed modifications with tax period and listicles of all disagreed items containing facts aiding every disagreement supported by authority or law, and signature below the perjury statement penalty. 

After that, it must emailed to the address on the IRS letter explaining the appeal rights. It must not be sent directly to the IRS Independent Office of Appeals (Appeals); otherwise, it might delay the appeals process or even get rejected. IRS gives a high chance of awarding a successful appeal to the individuals.

If one finds an error in an IRS audit, then they need to appeal against it following the below procedure: 

1. First, evaluate whether challenging the IRS audit would prove to be beneficial considering the potential results and costs. One must ensure that the records are comprehensive and give confidence for the appeal, including. 
2. Then, approach a professional tax advocate or IRS taxpayer advocate office to learn one’s rights and methods of navigating the appeals procedure efficiently. 
3. After that, try to file the appeal within the 30-day bracket after receipt of the IRS audit report while attempting to make requests for a hearing for resolution and clarity. 
4. Make sure to strictly adhere to the appeals submission cutoff date set by the IRS to prevent any unnecessary complications and exhibit full cooperation during the audit process. 
5. Then, convey in writing to the IRS concerning documentation of all negotiations and interactions while hiring an attorney for a property tax appeal to deal with verbal communication with the IRS.
6. Bargain with IRS associates concerning compromise resolutions or installment payments as per one’s financial situation and assuring them of compliance with accepted terms and conditions. 
7. Further, the appellant must build up a convincing case to present to IRS agents during bargaining, focusing more on willingness and perspective to explore a mutually agreed-upon solution.
8. Finally, hire a tax attorney to take the appeal to the court for a favorable resolution after deciding to go to district court or tax court, depending on the situation of the case.

Interestingly, to handle many appeals, the IRS has set up a specialized service branch named the Office of Appeals, consisting of more than 1500 staff spread across the United States. 

Let us use a few examples to understand the topic.

Example #1 

Let us assume that Jane, who is a small business owner, received a tax notice from the IRS showing a hike in her property taxes. After that, Jane scrutinized the tax assessment and found that the tax authority had wrongly assessed the valuation of her property. Hence, she immediately files an appeal with evidence of recent estate appraisals and contrasting assessments of other properties in the same area.

In her argument of appeal for the tax, Jane puts in her argument that the increased valuation of her property is unfair, and the property's valuation has not changed substantially in recent years. Further, with the thorough records, documentation and effective argument, Jane successfully convinced the tax appeal board to reconsider the tax notice. Therefore, her taxes were reduced by half of the original amount, which gave her huge financial relief.

Example #2

An online article dated 11 October 2023 discusses Microsoft’s ambitions to challenge the IRS demand concerning an extra $28.9 billion in back taxes related to the years 2004-2013. The IRS initiated the demand as a result of a detailed, time-consuming audit of Microsoft’s past records of accounting practices. However, despite the IRS's findings, Microsoft emphasizes its adherence to tax laws and has planned to appeal the judgment of the IRS.

Further, experts feel it will take many years before coming to a topological and fruitful outcome. Meanwhile, Microsoft has expressed confidence in its current provision concerning tax contingencies to emphasize its significant tax contribution to the IRS since 2004. It has since then started the navigation to appeals process and probable legal lawsuits. 

Let us use the table below to understand the pros and cons of tax appeal;