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The Appeals process is independent of any other IRS office and serves as an informal administrative forum for any taxpayer who disagrees with an IRS determination. Tax Appeals provides a venue where disagreements concerning the application of tax law can be resolved on a fair and impartial basis for both the taxpayer and the government. It is the goal and objective of the tax appeal process to settle tax disagreements without having to go to the Courts and a formal trial.
The IRS appeals is an informal administrative procedure. The IRS has a separate division for appeals. The IRS officer working in appeals is in a peculiar position. He or she is both an advocate for the IRS position, and the judge deciding the case.
You might ask how fair can such a system be where the prosecutor and judge are the same person. Sometimes it’s not fair. But it’s an expedited system that sometimes does work. Remember, the IRS doesn’t like litigating tax cases either, and the appeals process is how it attempts to weed out its own mistakes before they end up in court. If your argument is a good one, you will get the attention of the IRS appeals officer.
One thing to bear in mind is that the appeals process is not required by law. It is a process the IRS has instigated to help catch its own mistakes. You have no right to an IRS appeal. You have a right to contest the tax liability in court, but the IRS appeals process is a gratuity.
To win you case in IRS appeals, you need to have both the law and the facts on your side. Although the process is informal, the manner of deciding the case is not much different from what a judge does. The rules of evidence don’t apply (hearsay is admissible) and there are no rules of civil procedure. A letter usually suffices to present your case. But the tax code, IRS regulations, and case law are the deciding authorities. Smooth talking alone do not win cases in appeals.
If your appeal involves an amount between $2,500 and $25,000, use IRS Form 12203 to start the appeal. Otherwise you must write a letter. The process is simple and it costs nothing. Plus, usually there is no collection activity during the pendency of the appeal. The downside is the Appeals Officer is free to open new issues that were missed during the audit, although this is rare. Also, the appeal process can take months and meanwhile interest continues to run.
Before or during the appeals process, you might want to consider using the Freedom of Information Act to obtain a copy of the auditor’ file, which might contain additional information explaining the IRS’ position.
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