Navigating IRS Appeals Process: When to Challenge Tax Assessments and Collection Actions

When the IRS Comes Knocking: Your Strategic Guide to Fighting Back Through the Appeals Process

Receiving a notice from the IRS about additional taxes owed or facing aggressive collection actions can feel overwhelming, but taxpayers have powerful rights that many don’t fully understand. The IRS Independent Office of Appeals is here to resolve disputes, without litigation, in a way that is fair and impartial to the government and to you. Understanding when and how to challenge tax assessments and collection actions through the appeals process can mean the difference between paying thousands more than necessary or achieving a favorable resolution.

Understanding Your Appeal Rights: More Than Just a Second Chance

You have the right to appeal most collection actions to Appeals. Appeals is separate from and independent of the IRS Collection office that initiates collection actions. This independence is crucial because it provides taxpayers with an unbiased review of their case by officers who weren’t involved in the original decision.

The appeals process encompasses two main pathways: examination appeals for disputed tax assessments and collection appeals for aggressive IRS collection actions. Because people sometimes disagree on tax matters, the Service has an appeal system. Most differences can be settled within this system without going to court.

When to Challenge Tax Assessments: Red Flags That Demand Action

Not every IRS determination should be accepted without question. Several scenarios warrant immediate consideration of an appeal:

  • Audit Results You Disagree With: A small case request is appropriate if the total amount of tax, penalties, and interest for each tax period involved is $25,000 or less. If more than one tax period is involved and any tax period exceeds the $25,000 threshold, a formal written protest for all periods involved must be filed.
  • Penalty Assessments: When you believe penalties were incorrectly applied or should be abated due to reasonable cause
  • Trust Fund Recovery Penalty: The IRS Trust Fund Recovery Penalty (TFRP) is a penalty that can be assessed against business owners or other individuals responsible for paying payroll taxes on behalf of a business. If you’ve been assessed the TFRP, you can appeal the decision.
  • Rejected Offers in Compromise: If you received a letter notifying you that your offer was rejected, you have 30 days from the date on the letter to request an appeal of the decision.

Collection Actions: When the IRS Crosses the Line

The IRS has substantial collection powers, but taxpayers have specific rights when facing aggressive collection actions. The IRS can take a collection action and taxpayers or their representatives may appeal those actions in various situations. Taxpayers and their representatives can appeal collection actions by: A CDP hearing request.

Key collection actions that can be appealed include:

  • Before or after the filing of a Notice of Federal Tax Lien (NFTL). Before or after the serving of a notice of levy.
  • Before or after the seizure of property. After the denial of a request for property to be discharged from a lien.
  • After the denial of the subordination of a lien. After the denial of the withdrawal of a NFTL.

Normally, the IRS will stop the collection action(s) you disagree with until your appeal is settled. Once the Office of Appeals makes the decision regarding your case, that decision is final, and you cannot go to court if you disagree with the CAP decision.

Strategic Timing: The 30-Day Rule and Beyond

Timing is absolutely critical in the appeals process. Be sure to send the protest within the time limit specified in the letter you received, which is generally 30 days. When a formal protest is required, it should be sent within the time limit specified in the letter. Missing these deadlines can permanently forfeit your appeal rights.

For collection appeals specifically, You must appeal within 30-days of receiving a CDP notice and Form 12153 · An EH request. You must appeal within 1-year of receiving a CDP notice and Form 12153, or · A CAP appeal request. You must appeal within 30-days of the collection action.

The Appeals Process: What to Expect

The IRS office that receives the request will consider the taxpayer’s request and attempt to resolve the disputed tax issues. If that office can’t resolve the taxpayer’s issues, they will forward the case to Appeals for consideration. Once the request is with Appeals, the Appeals officer contacts the taxpayer within 45 days by mail to schedule an informal conference to review the taxpayer’s situation. Appeals conducts conferences by phone, in person and by video.

Appeals officers have significant authority to reach reasonable settlements. Generally, there are three outcomes of an appeal: In the IRS’s favor: If the facts and laws support the government’s position, the Appeals officer recommends that the taxpayer concede and give up the issue. In the taxpayer’s favor: If the law and facts support the taxpayer’s position or courts have ruled in favor of taxpayers in similar cases, the Appeals officer recommends that the IRS concede and give up the issue. Compromise: The Appeals officer may recommend a compromise when the facts or laws are unclear or the courts have made different rulings on similar cases.

Professional Representation: When DIY Isn’t Enough

While taxpayers can represent themselves in appeals, the complexity of tax law and the high stakes involved often make professional representation advisable. Only attorneys, certified public accountants or enrolled agents are allowed to represent a taxpayer before Appeals. Employing an experienced tax attorney-CPA-EA who completely understands IRS appeals regulations and federal tax law will significantly enhance your ability to obtain a favorable outcome.

When facing complex tax disputes or significant collection actions, partnering with experienced professionals like all county tax resolution can provide the expertise needed to navigate the appeals process successfully. Their specialized knowledge of IRS procedures and negotiation strategies can often result in more favorable outcomes than attempting to handle appeals independently.

Potential Risks and Considerations

While appeals offer significant benefits, taxpayers should be aware of potential downsides. One downside is the risk of an appeals officer uncovering previously missed tax liabilities, increasing the amount you owe. The other drawback is that penalties and interest on your balance continue to accrue during an appeal. However, these risks are often outweighed by the potential for significant tax savings and the suspension of collection activities during the appeal period.

Beyond Appeals: Tax Court Options

If appeals don’t resolve your case favorably, certain situations allow for Tax Court review. Two of the most common Tax Court cases are appeals from increases in tax following an audit (known as a deficiency proceeding) and appeals from Collection Due Process hearings: Deficiency proceeding. The IRS usually sends you a Notice of Deficiency (90-day letter) for additional tax assessed after the audit. That letter is often referred to as the ticket to Tax Court. You are entitled to appeal against the assessment to Tax Court and must do so within 90 days, or you lose the right (subject to some exceptions) to challenge a deficiency in Tax Court.

Taking Action: Your Next Steps

If you’ve received an IRS notice proposing additional taxes or threatening collection action, don’t ignore it. Before sending your case to Appeals, the IRS Examination or Collection office that made a tax assessment or initiated collection action will consider your protest and attempt to resolve the disputed tax issues. If that office can’t resolve your issues, they will forward your case to Appeals for consideration.

The appeals process represents one of the most powerful tools available to taxpayers facing IRS disputes. With proper preparation, strategic timing, and potentially professional representation, many taxpayers can achieve significant reductions in their tax liabilities or halt aggressive collection actions. Understanding these rights and acting promptly when they apply can save thousands of dollars and provide the fresh start many taxpayers desperately need.

Remember, the IRS appeals process exists specifically to provide fair resolution of tax disputes outside of costly litigation. By understanding when to challenge assessments and collection actions, taxpayers can level the playing field and often achieve outcomes far more favorable than simply accepting the IRS’s initial determination.