Many view the IRS as an agency shrouded in mystery and the IRS is generally perceived as the omnipotent “big brother” that we should all fear. It is true that the IRS does have the ability to unilaterally garnish wages or levy on assets, whereas almost every other creditor would only have these rights only after filing a lawsuit and successfully getting a judgment from the courts.
However, that does not mean you do not have rights if you disagree with the IRS, and the IRS does have administrative procedures available when a taxpayer disagrees with an IRS determination.
In general, disputes with the IRS from individual taxpayers will usually fall into several categories which include:
- Deficiency determinations: Taxpayer disagrees with a determination of income or certain other taxes or penalties assessed by the IRS after an examination (audit). Typically, when the IRS assesses additional taxes after an examination, they will send a letter stating what changes were made which could be on a Letter 915 or “30 day letter.” If there was no examination but the IRS believes additional taxes are due, they may send a “balance due” notice instead. Typically, if you disagree with the determination by the IRS, you should file a “Protest” with the office issuing the letter within thirty (30) days. The notice you receive from the IRS usually includes a summary explanation of your rights or options if you disagree, and so read those notices carefully, and especially any time limitations stated in the letter. For additional information on preparing Protests, see IRS Publication 5.
- Collection Actions: Taxpayer disagrees with actions the IRS intends to take to collect on taxes owed, or is planning to deny or revoke a proposal for tax resolution such as an installment agreement or offer in compromise. The issue in these types of cases is not whether the tax liability is valid or not, but whether the proposed collection action by the IRS is reasonable and/or whether the IRS followed the required procedures. For example, the IRS filed a federal tax lien, or purports to seize assets from the Taxpayer without complying with the notice requirements in 26 U.S.C. §6331(d). In these circumstances, you may have the right to a Collection Due Process Hearing (CDP) with the Office of Appeals or an appeal under the Collection Appeals Program (CAP). There are differences in which types of actions can be appealed as a CDP or as a CAP, and there is no right to judicial review of CAP decisions, and so you must familiarize yourself with the rules for these procedures which you can find under IRS Publication 1660 and in the Internal Revenue Manual Section 5.1.9. This should also be done within 30 days of the date of the notice or according to the date stated in the notice.
- Disallowing Refund Claims: The IRS disallows all or part of a refund claim filed by the taxpayer. The deadlines for filing Refund Claims is generally 3 years from the return due date or 2 years from the date the tax was paid. IRS Form 843 is generally used for this purpose. If you disagree with the determination of the IRS with respect to a refund claim, the procedures for disputing the IRS determination and requesting an Appeals conference can be similar to deficiency procedures and more information can be found in IRS Publication 556.
- Penalty Abatement: If you disagree with a penalty proposed by the IRS, it is important that you respond timely to the deadline stated in your notice and usually to the office that proposed the penalty. You may be able to obtain relief under the provisions for “First Time Penalty Abatement, ”the “Reasonable Cause Exception,” or other basis for relief. Details on the factors for meeting these exceptions can be found in the Internal Revenue Manual from the IRS.
In any written dispute to the IRS, you should always include copies of all documents and any legal authorities supporting your dispute. This may include documents previously sent or received from the IRS including, the legal notice you received, IRS tax transcripts, receipts, affidavits or sworn statements from third parties in support of your dispute, and send your dispute certified mail with return receipt.
This is where an attorney who is experienced in such tax issues who can research your specific issue and present your legal arguments in an organized and logical manner setting forth the facts, the law, and legal analysis applying the facts to the law can be helpful. Above all, always make sure the IRS has a current address for you and do not ignore IRS Notices as failure to take advantage of these dispute procedures will effectively waive your rights.
If you are not satisfied with the administrative remedies with the IRS, you may have an option to litigate the matter in tax court. The procedures and rules are similar to litigation in court. For more information on your rights and options with the IRS, refer to the Taxpayer’s Bill of Rights.