Accounting Question

Description

Protest and Written Submissions to Appeals Division: If an IRS examination is not resolved

within the Examination Division, a thirty-day letter will be issued to set forth the proposed
adjustments. The taxpayer has the right to request an administrative appeal to the Appeals
Division of IRS within thirty days of the date of the receipt of Letter 525, general 30 day letter
(“Protest letter”). During the Appeals process, the Appeals Division may request further factual
and legal submissions.
Assignment: Draft a Protest Letter (See attachments including IRS Publication 5 attached). The
general requirements in the preparation and submission of a protest letter are also attached.
FACTS:
Your client Robert Richards’ 2019 form 1040 was examined by Internal Revenue Agent Williams.
The only adjustment made was related to Robert having claimed a business bad debt deduction for
a debt of his wholly owned company, “Robert’s Rulers, Inc.
Robert is an employee of Robert’s Rulers, Inc. (an S Corporation). In fact, the salary and
distributions that Robert’s Rulers, Inc. pays to him are his primary source of income.
Robert’s Rulers, Inc. has had severe cash flow problems for some time and has fallen behind on
paying suppliers of products that Robert’s Rulers, Inc. uses in its business.
Inch by Inch, Inc., is Robert’s Rulers, Inc.’s most important supplier. Inch by Inch’s president,
Michael Meter has called Robert and told him that, unless prior invoices were paid, Inch by Inch
would not sell any additional products to Robert’s Rulers, Inc. This would be an unmitigated
disaster as Inch by Inch’s provides the primary component in Robert’s Rulers, Inc.’s products.
Not only that but Michael Meter has threatened to force Robert’s Rulers, Inc. into bankruptcy.
Not only would this result in the likely demise of Robert’s Rulers, Inc. but it would also destroy
Robert’s business reputation and basically ruin him.
In order to prevent this, Robert paid Robert’s Rulers, Inc.’s debt to Inch by Inch individually.
Unfortunately, this did not save Robert’s Rulers, Inc. which went out of business at the end of the
year anyway. On his form 1040 for 2019 Robert claimed the business bad debt for personally
paying the debt to Inch by Inch.
You have explained all this to the Revenue Agent Williams but to no avail. At the end of his
examination, Williams issues a form 4549 (see attached 4549).
You discussed the issue with Robert and you both do not agree with the revenue agent’s
adjustment. You mention the possibility of taking the matter to the Appeals division of the IRS.
Robert agrees to let you represent him before Appeals.

You have told Robert that you are required to prepare and submit a Protest Letter requesting a
conference with the Appeals division. You have a template (attached) that the manager of the
CPA firm you work for has provided to you to assist in properly structuring the protest letter.
Likewise, your manager provided you with a sample protest letter (attached).
You advised Revenue Agent Williams that the taxpayer does not agree with the adjustment. RA
Williams writes the case up unagreed and assesses the Accuracy Related Penalty on top of the
deficiency for the disallowed item.
In addition, even if the IRS was successful in finding that the payment was not a business bad debt,
no accuracy related penalty should be assessed because you feel that your client had reasonable
cause for the position taken on his 2019 tax return. Your protest letter will address these two
issues. Please note, Robert’s 2019 income tax return did not have a form 8275 Disclosure
Statement attached.
You need some direction in doing your research so that you can properly describe why Robert
should be entitle to the deduction. Your manager suggested that you research the topic of business
bad debt, job preservation, and perhaps other searches, In order to determine the position you will
take in your protest letter. You should also determine if Robert has reasonable cause as a defense
for the accuracy related penalty. Your manager has also suggested that you consult the Internal
Revenue Manual (IRM) as she feels that if there was something helpful on point it would be very
powerful in making your case. You understand that a protest doesn’t mean that you will win in
Appeals. However, Robert wants you to appeal so you begin the job.
The following documents are attached:
1. From 4549-E Income Tax Discrepancy Adjustments.
2. Form 915 Letter 915 – Letter to Transmit Examination Report.
3. Explanation of proposed adjustment prepared by the Revenue Agent.
4. Preparing a written Protest Letter to the Appeals Office.
5. Appendix 22B Sample Protest Letter.
6. Publication 5, “Your Appeal Rights and How to Prepare a Protest If You Do Not Agree.”
You may use the information from item 3 above in lieu of the “How to Prepare” section
of Publication 5.

Unformatted Attachment Preview

Form 4549-E
(Rev. 12-2004)
Department of the Treasury-Internal Revenue Service
Income Tax Discrepancy Adjustments
Name and Address of Taxpayer
Robert Richards
1234 West 80th Road
Miami, FL 33133
SS or EI Number
1. Adjustments to Income
201912
1
of
2
Return Form No.:
333-44-5555
Person with whom
examination
changes were
discussed.
Period End
Page
1040
Name and Title:
Alejandro Menendez, CPA
POA
Period End
Period End
243,950.00
a. Business Bad Debt
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.
p.
2. Total Adjustments
3. Taxable Income Per Return or as Previously Adjusted
243,950.00
4. Corrected Taxable Income
Tax Method
Filing Status
5. Tax
348,000.00
104,050.00
93,290.00
6. Additional Taxes / Alternative Minimum Tax
7. Corrected Tax Liability
8. Less
93,290.00
a.
b.
c.
d.
Credits
93,290.00
9. Balance (Line 7 less total of Lines 8a thru 8d)
10. Plus
Other
Taxes
a.
b.
c.
d.
11. Total Corrected Tax Liability (Line 9 plus Lines 10a thru 10d)
93,290.00
12. Total Tax Shown on Return or as Previously Adjusted
56,872.00
13. Adjustments to: a. Special Fuels Credit
b.
c.
14. Deficiency-Increase in Tax or (Overassessment Decrease in Tax)
(Line 11 less 12 adjusted by 13a thru 13c)
36,418.00
15. Adjustments to Prepayment Credits
16. Balance Due or (Overpayment) (Line 14 adjusted by Line 15) (Excluding
interest and penalties)
36,418.00
The Internal Revenue Service has agreements with state tax agencies under which information about federal tax, including increases or decreases, is
exchanged with the states. If this change affects the amount of your state income tax, you should amend your state return by filing the necessary
forms.
You may be subject to backup withholding if you underreport your interest, dividend, or patronage dividend, or patronage dividend income you earned
and do not pay the required tax. The IRS may order backup withholding (withholding of a percentage of your dividend and/or interest payments) if the
tax remains unpaid after it has been assessed and four notices have been issued to you over a 120-day period.
Catalog Number 13383E
publish.no.irs.gov
Form 4549-E
Form 4549-E
(Rev. 12-2004)
Department of the Treasury-Internal Revenue Service
Income Tax Discrepancy Adjustments
Name and Address of Taxpayer
Robert Richards
1234 West 80th Road
Miami, FL 33133
2
of
SS or EI Number
Return Form No.:
333-44-5555
1040
Person with whom
examination
changes were
discussed.
Period End
17. Penalties
Page
Name and Title:
Alejandro Menendez, CPA
CPA
201912
a. 6662(b)(2) Substantial Understatement of Tax
2
Period End
Period End
7,284.00
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
18. Total Penalties
7,284.00
Underreporter attributable to negligence: (1981 – 1987) A tax addition of
50 percent of the interest due on underpayment will accrue until paid or
assessment.
Underreporter attributable to fraud:: (1981 – 1987)
A tax addition of 50 percent of the interest due on underpayment
will accrue until paid or assessed.
Underreporter attributable to Tax Motivated Transactions TMT interest
will accrue and be assessed at 120% of underpayment rate in
accordance with IRC 6621(c)
19. Summary of Taxes, Penalties and Interest:
a. Balance due or Overpayment Taxes – Line 16, Page 1
b. Penalties (Line 18, Page 2) – computed to
c. Interest (IRC § 6601) – computed to 12/31/2019
d. TMT Interest – computed
on TMT underpayment
e. Amount due or refund (sum of Lines a, b, c and d)
36,418.00
7,284.00
1,679.00
0.00
45,381.00
Other Information:
Examiner’s Signature:
Employee ID:
Office:
Date:
Cambridge Williams III, IRA
1234568
Miami
09/15/2021
Consent to Assessment and Collection- I do not wish to exercise my appeal rights with the Internal Revenue Service or to contest in the United States
Tax Court the findings in this report. Therefore, I give my consent to the immediate assessment and collection of any increase in tax and penalties, and
accept any decrease in tax and penalties shown above, plus additional interest as provided by law. It is understood that this report is subject to
acceptance by the Area Director, Area Manager or Director of Field Operations.
PLEASE NOTE: If a joint return was filed. BOTH taxpayers must sign
Signature of Taxpayer
By:
Catalog Number 13383E
Date:
Signature of Taxpayer
Date:
Title:
Date:
publish.no.irs.gov
Form 4549-E
Internal Revenue Service
Date: August 15: 2021
Robert Richards
1234 West 80″‘ Real
Miami, FL 33131
Department of the Treasury
Taxpayer Identification Number: 333-445555 Form: 1040
Person to Contact: Williams
Contact Telephone Number: ——————-Employee Identification Number.
Last Date to Respond to This Letter September 15, 2021
Tax Year Ended: 201912
We have enclosed an examination report showing proposed changes to your tax for the period(s) shown above.
Please read the report and tell us whether you agree or disagree with the changes by the date shown above. (This
report may not reflect the results of later examinations of partnerships, “S” Corporations, trusts, etc., in which you
may have an interest. Changes to those accounts could also affect your tax).
If you agree with the proposed changes
1. Sign and date the enclosed agreement form. If you filed a joint return, both taxpayers must sign the form.
2. Return the signed agreement form to us.
3. Enclose payment for the tax, interest, and penalties due. Make your check or money order payable to the
United States Treasury. You can call the person identified above to determine the total amount due as of
the date you intend to make payment.
4. After we receive your signed agreement form we will close the case.
If you pay the full amount due now, you will limit the amount of interest and penalties charged to your account If you
agree with our findings, but can only pay part of the bill: please call the person identified above to discuss different
payment options. You can write to us or visit your nearest IRS office to explain the circumstances. We may ask you
to complete a collection information statement to determine your payment options, such as paying in installments.
You can also write to us or visit your nearest IRS office to explain your circumstances. If you do not enclose
payment for the additional tax: interest: and any penalties, we will bill you for the unpaid amounts._
If you area “C” Corporation: Section 6621© of the Internal Revenue Code provides that that an interest rate 2%
higher than the standard rate of interest will be charged on deficiencies of $100,000 or more.
IF YOU DO NOT AGREE with the proposed changes ….
1. You may request a meeting or telephone conference with the supervisor of the person identified in the
heading of this letter. If you still do not agree after the meeting or telephone conference, you can:
2. Request a conference with our Appeals Office. If the total proposed change to tax is:
◼
$25,000 or less for each tax period, send us a letter requesting consideration by Appeals. Indicate
the issues you do not agree with and the reasons why you do not agree. If you do not want to write a
separate letter, you can complete the Statement of Disputed Issues at lie end of this letter and return It to
us.
TAX 6065 RX4 1208 FALL 2021
TEAM ASSIGNMENT 3
REVENUE AGENTS UNAGREED REPORT
EXPLANATION OF ADJUSTMENT
The amount paid on a debt of a corporation which taxpayer owns is not deductible as a business bad
debt.
Deductions are a matter of legislative grace COMM. v. TELLIER, Cite as 17 AFTR 2d 633 (86 S. Ct. 1118),
Code Sec(s) 162, (S Ct), 03/24/1966.
The taxpayer has failed to demonstrate that taxpayer is entitled to deduct the payment as a business
expense. It is well settled that merely paying a debt of a corporation that one has invested in does not
make a payment of a corporate debt a business bad debt.
Taxpayer has claimed a business bad debt for amounts paid to satisfy a loan of his wholly owned
company of which he is also an employee. Taxpayer indicates that the payment should be an ordinary
and necessary business expense, and therefore, deductible. However, the taxpayer is not in the
business of making loans. Furthermore, the taxpayer was not personally liable on the debt and,
therefore, had no obligation to pay it. The fact that the debt was to the company’s major supplier is
not relevant.
In the year of payment, the noncorporate guarantor, endorser, or indemnitor of a noncorporate
obligation may deduct the loss sustained upon his/her payment of the obligation as a business bad
debt, provided he/she can establish that (a) the agreement to guarantee such debt was entered into in
the course of the guarantee’s trade or business; and (b) the borrower’s obligation to the person to
whom the payment was made was worthless at the time of payment. Since your loss did not reflect
these circumstances, we have disallowed it. The taxpayer is in the trade or business of being an
employee PUTOMA CORP., ET AL. v. COMM., Cite as 44 AFTR 2d 79-5576 (601 F.2d 734), Code Sec(s)
461; 61, (CA5), 08/27/1979 and not in the business of making loans. The taxpayer’s dominant motive
for making the loan was to protect taxpayer’s investment in the corporation. Thus, there was no
proximate relation between the loan and taxpayer’s trade or business of being an employee.
Therefore, taxpayer is not entitled to the business bad debt deduction, and his losses are capital
losses (PUTOMA).
Preparing a Written Protest to the Appeals Office
Source of this page is RIA checkpoint
Generally, an appeal is initiated by filing a written protest stating the reasons why the taxpayer does not agree with
the disputed adjustments. If the total amount of tax exceeds $25,000, a formal protest is required. The outline of a
sample formal protest disagreeing with a proposed estate tax adjustment is as follows. See Appendix 22B for a
complete sample protest.
RE: Protest by Robert Richards
Social Security Number
Dear Mr. Richards:
I, Robert Richards, hereby protest the proposed adjustments income tax liability set forth in your 30-day letter dated
[date of 30-day letter], and the examination report transmitted therewith. The following information is submitted in
support of this protest.
(1) Conference.
The Estate wants to appeal the findings to the Estate Tax Attorney and requests a hearing before the Appeals Office.
(2) Name, address and daytime telephone number of taxpayer.
[Name and address of taxpayer]
[care of with name and address of attorney or accountant] [Telephone number]
Oct 15, 2021
Reply Refer to: 1484-6423
FYE 201812
Form 1040
Return filed April 15, 2020
(3) Itemized schedule of unagreed adjustments.
(4) Statement of facts.
(5) Statement of law.
(6) Summary of position.
Under penalties of perjury, I declare that I examined the facts stated in this protest, including any accompanying
documents, and, to the best of my knowledge and belief, they are true, correct, and complete.
[Alternatively, or additionally, the attorney or accountant may sign the protest using the following language:]
This protest was prepared by the undersigned. The undersigned does (or does not) know personally whether the
statements of fact contained in the protest [and any accompanying documents] are true and correct.
Your Appeal Rights and
How to Prepare a Protest
if You Disagree
The IRS Independent Office of Appeals Mission
To resolve Federal tax controversies without litigation on a basis which is fair and impartial to both the
Government and the taxpayer, promotes a consistent application and interpretation of, and voluntary
compliance with, the Federal tax laws, and enhances public confidence in the integrity and efficiency of the
Service.
Introduction
This publication explains actions you should take
prior to requesting an administrative appeal of
your tax case if you don’t agree with the Internal
Revenue Service’s (IRS) proposed changes or
findings. It also provides an overview of your
administrative appeal rights within the IRS and a
summary of your rights to have your case heard in
the United States Federal Courts.
While this publication mainly focuses on disputes
resulting from an examination of a tax return or
claim for refund or credit, the information on how
to prepare a protest also applies to disputes
resulting from many other types of IRS actions,
including, but not limited to the following:
„ Denial of a request for certain penalty
abatement
„ Denial of a request for innocent spouse relief
„ Rejection of an offer in compromise
„ Determination affecting tax-exempt status
„ Determination affecting qualification of a
retirement plan
These actions result in a proposed change to your
Federal tax liability, a denial of your request to
change your Federal tax liability, or a change to
your reporting requirements. This publication refers
to all these actions as proposed changes.
The Taxpayer Bill of Rights states you have the
right to appeal an IRS decision in an independent
forum. You are entitled to a fair and impartial
administrative appeal of most IRS decisions,
including many penalties, and have the right to
receive a written response regarding the IRS
Independent Office of Appeals’ (hereinafter,
Appeals) decision. You also generally have the right
to take your case to court. For more information on
the Taxpayer Bill of Rights, see Publication 1, Your
Rights as a Taxpayer.
„ Determination that you owe a penalty
Publication 5 (Rev. 4-2021) Catalog Number 46074I Department of the Treasury Internal Revenue Service www.irs.gov
Additional Resources
For some types of cases, the appeals process
and available court actions are different than a
tax deficiency or claim disallowance case, which
are overwhelmingly the most common disputes
in Appeals. See www.irs.gov/appeals for more
information. The letter that you received from the
IRS proposing the changes may contain important
information about the appeal rights available to
you for your specific type of case, including how
to request an appeal and what will happen if you
decide not to appeal.
gov/forms-instructions or call 800-TAX-FORM
(800-829-3676) for IRS Publications.
If your case involves one of the issues listed in
the table on this page, refer to the appropriate
publication for specific guidance. Visit www.irs.
If your case involves…
Refer to…
A change in tax-exempt
status
Publication 892, How to Appeal
an IRS Determination on TaxExempt Status
An employee plans
examination change
Publication 1020, Appeal
Procedures Employee Plans
Examinations
An employment tax
examination change
Publication 5146, Employment
Tax Returns: Examinations and
Appeal Rights
Disqualification of a
retirement plan
Publication 5153, Appeal
Procedures: Adverse
Determination Letter on
Qualification of a Retirement Plan
If You Don’t Agree
Before you request an appeal, make sure that
you have provided the IRS employee handling
your case with any information, documents, and
explanations that the employee requested, or that
you would like the IRS to consider. If you have
not submitted this information, contact the IRS
employee identified in the letter you received and
provide this information within the specified time
limit. If you provide new information or raise new
issues to Appeals that the IRS has not previously
considered, it may first need to be considered
by an IRS employee, which will likely delay
the resolution of your case. See The Appeals
Conference on page 5.
If you don’t agree with the changes proposed
by the IRS, you may contact the IRS employee
identified in the letter you received to discuss
the issues. Generally, if you cannot reach an
agreement with the IRS employee, you may
request a discussion with the employee’s
supervisor. If you still don’t agree after your
attempts to resolve the matter with the IRS
employee and/or supervisor, you may request Fast
Track Settlement (FTS) if your case qualifies, or an
administrative appeal with Appeals. See Protests
on page 3 for more information on how to request
an administrative appeal.
If You Do Nothing…
And Your Case Is…
The IRS Will…
An examination of your income, estate
(and generation-skipping transfer), gift (and
generation-skipping transfer), or certain excise
taxes or penalties, with a proposed deficiency
Send you a notice of deficiency allowing you a limited time to petition the U.S. Tax
Court for redetermination. If you don’t timely petition the U.S. Tax Court, the IRS will
send you a bill for the amount due.
An examination of your employment tax
liabilities
Send you a bill for the amount due relating to issues not reviewable by the U.S.
Tax Court. In certain instances, you may receive a Notice of Employment Tax
Determination Under IRC 7436 which affords you a limited time to petition the U.S.
Tax Court. If you don’t timely petition the U.S. Tax Court, the IRS will send you a bill
for the amount due relating to the issues included in that notice. Refer to Publication
5146, Employment Tax Returns: Examinations and Appeal Rights; and Publication
3953, Questions and Answers About Tax Court and the Notice of Employment Tax
Determination Under IRC § 7436.
2
And Your Case Is…
The IRS Will…
A denial of a claim for refund
Send you a notice of claim disallowance explaining that you have a limited time to
file suit with the appropriate U.S. District Court or the U.S. Court of Federal Claims.
You may have already received this notice.
A proposal of a trust fund recovery penalty or
certain information return penalties
Send you a bill for the amount due.
A rejection of an offer in compromise (OIC)
based on doubt as to liability.
Continue collection action after the expiration of a 30 day period following the
rejection, as warranted.
A denial of a penalty abatement
Close your case without abating the penalty.
A denial of a request for innocent spouse relief
Generally send you a final determination letter regarding your request allowing you a
limited time to petition the U.S. Tax Court.
A determination on tax-exempt status or on
qualification of a retirement plan
Send you a final adverse determination letter. In general, if you do not file a protest
to the proposed adverse letter, you cannot appeal the final adverse determination
letter. In addition, you must have exhausted your administrative remedies to be able
to seek a declaratory judgment in court.
Appeals Mediation Programs
In certain IRS cases, you may request an
expedited dispute resolution process called Fast
Track Settlement (FTS). The disputed issue must
be fully developed and the IRS must agree to
participate in this process. During FTS, your case
remains in the examiner’s jurisdiction while a
specially trained Appeals employee serves as a
neutral party using dispute resolution techniques
to facilitate an agreement between you and the
IRS. You may withdraw from the FTS process at
any time. You will retain your usual appeal rights if
any issues remain unresolved.
prepare for the Appeals conference. Refer to Notice
609, Privacy Act Notice, for more information about
how the IRS uses information you provide.
Send your protest to the IRS address in the letter
you received within the time limit specified in the
letter. A formal protest is required in all cases
unless you qualify for a small case request, as
discussed below, or another appeal procedure.
Small Case Request
If the total amount of tax and penalties for each
tax period involved is $25,000 or less in the letter
you received, you may make a small case request
instead of filing a formal written protest. See under
“Formal Written Protest” for cases that are not
eligible for small case requests. In computing
the total amount, include a proposed increase or
decrease in tax (including penalties), or claimed
refund. For an offer in compromise, the entire
amount for each tax period includes total unpaid
tax, penalty and interest due. For a small case
request, you may either:
To request FTS, inform the IRS employee handling
your case that you are interested in FTS. If the
examination division agrees to participate in this
process, they will work with you to jointly complete
the necessary form to start the process.
See Publication 4167 or the Appeals Mediation
– Alternative Dispute Resolution (ADR) website
at www.irs.gov/appeals/appeals-mediationprograms for more information on FTS and other
Appeals’ ADR programs.
„ Prepare a brief written statement listing the
disputed issues and why you disagree, or
Protests
You must submit a written protest to request
an Appeals conference. The Appeals employee
assigned to your case will use your protest to
„ Complete the appeal request form included
with the letter you received proposing the
change, if applicable, or you can use Form
12203, Request for Appeals Review.
3
Formal Written Protest
disagree with each issue.
A formal written protest is required if the proposed
change to the total amount of tax and penalties
for any tax period is more than $25,000 in the
letter you received. The total amount includes
the proposed increase or decrease in tax and
penalties or claimed refund. If more than one tax
period is involved and any tax period exceeds the
$25,000 threshold, you must file a formal written
protest for all periods involved. For an offer in
compromise, include total unpaid tax, penalties
and interest due. A formal written protest is also
required in the following cases:
„ Facts supporting your position on each
disputed issue.
„ Law or authority, if any, supporting your
position on each disputed issue.
„ Penalties of perjury statement, as follows:
“Under penalties of perjury, I declare to the best
of my knowledge and belief, the information
contained in this protest and accompanying
documents is true, correct, and complete.”
Note: Representatives who submit the protest
must use the applicable penalties of perjury
statement below, based upon whether they have
personal knowledge regarding the information
stated in the protest and accompanying
documents:
„ Employee plan and exempt organization cases
regardless of the dollar amount.
„ Partnership and S Corporation cases
regardless of the dollar amount.
— Personal Knowledge:
“Under penalties of perjury, I declare that I
submitted the protest and accompanying
documents, and to the best of my personal
knowledge and belief, the information
stated in the protest and accompanying
documents is true, correct, and complete.”
„ In all other cases, unless you qualify for
the small case request procedure, or other
special appeal procedures, such as requesting
Appeals consideration of liens, levies, seizures,
or installment agreements. See Publication
1660, Collection Appeal Rights, for more
information on special collection appeals
procedures.
„ Your name, address, and a daytime telephone
number.
— No Personal Knowledge:
“Under penalties of perjury, I declare that
I submitted the protest and accompanying
documents, and I have no personal
knowledge concerning the information
stated in the protest and accompanying
documents.”
„ List of all disputed issues, tax periods or years
involved, proposed changes, and reasons you
„ Your (or your representative’s) signature under
the penalties of perjury statement.
In your formal protest, include a statement that you
want to appeal the changes proposed by the IRS
and include all of the following:
IRS Independent Office of Appeals
Appeals is an independent function of the IRS,
separate from the division of the IRS that proposed
the changes. It is the only level of administrative
appeal within the IRS. Appeals employees fairly
and impartially settle disputes between taxpayers
and other divisions of the IRS by considering the
arguments made by both sides, and then applying
the relevant tax law (including court decisions and
other legal authorities) to the facts of the case.
Most disputes can be settled informally at the
Appeals level without litigation.
As an administrative function of the IRS, Appeals
can only consider your arguments if they are
based on tax laws. Appeals cannot consider
your arguments if they are based only on moral,
religious, political, constitutional, conscientious, or
similar objections to the assessment or payment of
Federal taxes.
The IRS is legally required to assess proposed tax
by a certain date in most cases. We refer to this
date as the statute of limitations. Generally, before
4
provide a properly completed power of attorney
to the IRS before the representative can receive
or inspect confidential information. You can use
Form 2848, Power of Attorney and Declaration
of Representative, or any other properly written
power of attorney or authorization for this purpose.
If you can’t afford representation, a Low Income
Taxpayer Clinics (LITC) may be able to represent
you if you qualify. In addition, LITCs also provide
assistance to taxpayers who speak English as a
second language to help taxpayers understand
their rights and responsibilities. You can find
more information about LITCs in Publication
4134, Low Income Taxpayer Clinic List. LITCs are
independent from the IRS. You can get copies of
Form 2848 or Publication 4134 from www.irs.gov,
an IRS office, or by calling 800-TAX-FORM (800829-3676).
an examination case is received in Appeals, IRS
policy for originating functions may require greater
than 365 days remain on the statute of limitations.
The IRS will ask you to agree to extend this date
if additional time is needed to meet the required
number of days. If you choose not to extend the
date, Appeals will not accept your case. Note that
docketed U.S. Tax Court cases do not have the
statute of limitation concerns that non-docketed
cases do.
The Appeals Conference
Appeals conferences are held in an informal
manner. Appeals will contact you and/or your
authorized representative to arrange a conference
at a convenient time.
You may represent yourself at your appeals
conference, or you may appoint a person
authorized to practice before Appeals to
represent you such as an attorney, certified public
accountant, or enrolled agent. See Circular No.
230, Regulations Governing Practice Before the
Internal Revenue Service, for more information
on qualifications to practice before Appeals. You
may include a person who doesn’t meet these
qualifications in your appeals conference as a
witness, but they may not represent you before
Appeals.
You or your authorized representative should be
fully prepared to discuss all disputed issues and
the reasons you disagree with each issue at the
conference. If you submit new information or
raise a new issue requiring additional analysis,
Appeals will generally return the case to the
originating IRS office for its determination
on the new information. You will receive the
originating office’s comments, have an opportunity
to respond, and can continue to pursue your
appeal rights.
If you want your representative to participate in
an appeals conference without you, you must
Court Actions
U.S. Tax Court
If you do not appeal your case within the IRS, or
were unable to reach a settlement with Appeals,
you may be able to take your case to one of the
following courts if you satisfy the court’s procedural
and jurisdictional requirements:
You may be able to file a petition with the U.S. Tax
Court to review the changes proposed by the IRS.
The U.S. Tax Court is generally a “prepayment”
forum, which means you can petition the U.S.
Tax Court before making full payment, but its
jurisdiction is limited. You generally cannot petition
the U.S. Tax Court unless you have received a
notice or determination letter that informs you that
you have the right to do so. However, you may also
petition the Tax Court if you have not received a
notice or determination involving: a determination
of tax-exempt status under IRC 7428 if the IRS
has not made a determination after 270 days; the
„ United States Tax Court
„ United States Court of Federal Claims
„ United States District Court in the judicial
district where you reside or have your principal
place of business
You can obtain rules from each court. These
courts are independent judicial bodies and have no
connection with the IRS.
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Caution: If the Tax Court determines that your case
is intended primarily to cause a delay, or that your
position is frivolous or groundless, the court can
impose a penalty against you of up to $25,000 in its
decision.
abatement of interest if the IRS has not mailed a
final determination within 180 days of a claim for
abatement under IRC 6404; or an innocent spouse
relief request if the IRS has not issued a final
determination letter after six months since filing
Form 8857, Request for Innocent Spouse Relief.
District Court and the U.S. Court of
Federal Claims
You must file your petition with the U.S. Tax Court
within the timeframe specified in the notice, usually
90 days (or 150 days if the notice is addressed to a
person outside the United States). There is a filing
fee, but the fee may be waived if you qualify. The
law sets the time to file your petition; the IRS or the
U.S. Tax Court cannot change this time period. You
have only the timeframe specified to petition the
court, even if you continue to talk to IRS examiners
or Appeals.
You can take your case to your U.S. District Court
or the U.S. Court of Federal Claims, but generally
only after you have fully paid the amount and timely
filed a claim for refund with the IRS. If you are a
nonresident alien, you may seek relief in the U.S.
Court of Federal Claims, but you generally cannot
take your case to a U.S. District Court because
you are not a resident of any United States judicial
district.
If you filed a timely claim for a refund with the IRS
but haven’t received a written response on your
claim within 6 months from the date you filed it, you
can file suit for a refund in your U.S. District Court
or the U.S. Court of Federal Claims. Certain types
of cases, such as those involving some employment
tax issues or manufacturers’ excise taxes, can only
be heard by these courts.
You can get more information about the U.S. Tax
Court’s procedures and other matters on the
court’s website at www.ustaxcourt.gov or by
writing to:
U.S. Tax Court
Attn: Office of the Clerk of the Court
400 Second Street, N.W.
Washington, DC 20217-0002
Note: You have 2 years from the date of the notice
of claim disallowance to file a refund suit. Appeals’
consideration of a disallowed claim doesn’t extend
the 2-year period for filing suit. However, it may be
extended by mutual agreement.
If you timely petition the Tax Court, and you did not
previously appeal your case within the IRS, you will
normally have an opportunity to attempt settlement
with Appeals while you are waiting for your trial. The
Tax Court will still follow its normal procedures to
schedule your case for trial, but you may not need
to appear at trial if you settle your case before the
trial date. If unable to settle, you may appear pro
se (by yourself) at Tax Court or by a representative
admitted to the Tax Court that you appointed.
You can get information about procedures for filing
suit in either court on their websites:
„ U.S. District Courts website: www.uscourts.
gov
„ Court of Federal Claims website: www.cofc.
uscourts.gov
Innocent Spouse Appeals
If you are the spouse who filed Form 8857,
Request for Innocent Spouse Relief, requesting
innocent spouse relief (the “requesting spouse”),
you can generally request an appeal if the IRS
denies your request in whole or in part. If you are
a non-requesting spouse, you can request an
appeal if the IRS grants innocent spouse relief
in whole or in part to your requesting spouse (or
former spouse). However, a non-requesting spouse
cannot appeal an IRS decision to deny relief to
the requesting spouse (or former spouse). Your
appeal request must be submitted in writing. You
can use Form 12509, Innocent Spouse Statement
of Disagreement, to explain why you disagree
with the IRS’s proposed determination concerning
your request or your (current or former) spouse’s
request for innocent spouse relief.
If you are the requesting spouse, you can petition
the U.S. Tax Court to review your request for
innocent spouse relief if:
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1. Six months have passed since you filed
Form 8857 and you have not received a final
determination letter from the IRS; or
If you petition the U.S. Tax Court for relief, the Tax
Court’s scope of review will be limited to the IRS’s
administrative record established at the time of the
determination (the date of the final determination
letter), and any newly discovered or previously
unavailable evidence. Therefore, it is important for
both the requesting and non-requesting spouse to
provide all relevant, available evidence to the IRS
before it issues its final determination.
2. You have received a final determination letter
denying relief in full or in part and you petition the
U.S. Tax Court no later than 90 days after the IR