Facing an IRS tax audit can be a scary experience for individuals and small businesses alike. Most taxpayers are at a disadvantage during IRS audits, so it’s especially important to understand the audit reconsideration process. But if you disagree with the results of an IRS audit, there is an option available known as IRS audit reconsideration. This process allows you to ask the Internal Revenue Service to review and potentially change the audit findings after a final assessment has been made.
Key Points
- IRS audit reconsideration gives you a chance to challenge audit results after a final assessment has been made, especially if you missed the deadline to appeal in tax court.
- This process allows you to submit new evidence, corrected tax returns and legal arguments to reduce or eliminate additional tax liability, penalties and interest.
- Audit reconsideration can also address state tax audit issues and compliance gaps with state taxing authorities, in addition to federal tax dispute resolution.
- Working with experienced tax professionals, such as tax attorneys, certified public accountants or enrolled agents, increases your chances of a favorable outcome.
- The process can result in penalty abatement, installment agreements, avoidance of tax liens and bank levies and overall tax relief.
- If the IRS denies the reconsideration request, you can appeal to the IRS Office of Appeals which is generally the final administrative step.
- Timely action, thorough documentation and professional representation are key to successfully navigating audit reconsideration and protecting your financial future.
What is Audit Reconsideration
Audit Reconsideration is a process provided by the Internal Revenue Service (IRS) that gives you a second chance to challenge the results of an audit after a final assessment has been issued. Whether you are an individual or a small business owner facing tax audits or dealing with complex tax issues, understanding the audit reconsideration process can be critical to protecting your rights and financial interests.
Understanding IRS Audits
IRS tax audits are conducted to ensure taxpayers are complying with federal tax laws and accurately reporting their income, deductions and credits. During a tax audit the IRS will review your tax return and supporting financial records to verify the information you provided. If you receive an audit notice it will detail the specific items under review and the documentation you need to provide.
Act quickly and thoroughly to avoid additional tax penalties or assessments. Working with a tax professional, such as a certified public accountant (CPA) or enrolled agent (EA) can guide you through the audit process. These professionals can help you organize your financial records, address any discrepancies and develop strategies to minimize liabilities, comply with tax laws and get the best possible outcome for your tax situation. Learn more about professional tax audit representation.
Learn more about the benefits of professional tax audit representation.
What is IRS Audit Reconsideration?
IRS audit reconsideration is an administrative process where taxpayers can dispute the outcome of an income tax audit if they believe the IRS made an error or overlooked key information. It’s especially useful if you missed the deadline to file a petition in the United States Tax Court in response to a Notice of Deficiency. During this process you can submit additional documentation, legal arguments or corrected financial records to support your case.
Missing the Deadline for Notice of Deficiency
Missing the deadline to file a petition in response to a Notice of Deficiency can be a big setback in contesting an IRS audit assessment. The Notice of Deficiency, sometimes called a “90-day letter,” informs taxpayers of the IRS’s proposed changes to their tax return and provides a limited window – usually 90 days – to file a petition with the United States Tax Court. If this deadline passes without action the IRS’s determination becomes final and binding making it much harder to dispute the assessment through traditional legal channels.
However, audit reconsideration offers an alternative route for taxpayers who missed this deadline. While it’s not a substitute for timely tax court petitions, audit reconsideration allows you to submit new evidence, corrected returns or legal arguments that were not considered during the initial audit. This process can sometimes result in a reduction or elimination of the additional tax liability, penalties and interest assessed.
Note that audit reconsideration requests must be well-documented and substantiated. Just missing the deadline is not enough to get a favorable outcome. Taxpayers should gather all relevant financial records, receipts and documentation to support their position. Consulting with an experienced CPA or other tax professional is highly recommended to prepare a strong reconsideration request and navigate the IRS procedures.
Also, taxpayers should be aware that audit reconsideration is an administrative process within the IRS and its decisions are generally final unless further appealed through the IRS Office of Appeals. So, timely action and professional guidance are key to getting a successful audit reconsideration especially when the initial opportunity to challenge the audit in tax court has been lost.
When Should You Request an Audit Reconsideration?
You should consider filing an audit reconsideration request if:
- You have new evidence, eligible deductions, or missing or incorrect tax returns that were not presented during the original audit.
- You believe the IRS made mistakes in calculating your tax liability or penalties.
- You failed to respond to the audit or missed deadlines but want to resolve the tax dispute.
- You want to avoid or reduce tax penalties, tax liens, or other enforcement actions such as a bank levy.
Eligibility for Audit Reconsideration
Not all taxpayers are eligible for audit reconsideration so it’s important to understand the requirements before submitting a request. Generally you must have received a final assessment from the IRS and not have filed a Petition in the United States Tax Court regarding the disputed tax year. The IRS will consider an audit reconsideration request if you have new information such as additional documentation or evidence that was not available during the original audit.
Consult with a CPA or tax attorney to determine your eligibility and to ensure your audit reconsideration request is properly prepared and submitted. A knowledgeable tax professional can help you navigate the process and increase your chances of a successful outcome.
How Does the Audit Reconsideration Process Work?
Once you submit your audit reconsideration request, the IRS will review your case again. They may accept your changes in full or in part, or reject them. If the IRS rejects your request, you can file an administrative appeal with the IRS Office of Appeals as part of the IRS appeals process. Note that the decision of the IRS Office of Appeals is typically final and cannot be challenged further in court.
Benefits of Audit Reconsideration
Benefits of audit reconsideration include:
- Potential reduction or elimination of additional tax assessments.
- Opportunity to resolve tax disputes without costly litigation.
- Avoidance of federal tax liens, tax liens, and bank levies, including the risk of an IRS levy on your bank account.
- Peace of mind through personalized solutions and stress-free resolution.
- Protection of your financial future by ensuring compliance and minimizing tax liabilities.
Audit reconsideration can help address tax liabilities through payment plans, installment agreements, and penalty abatement. This process provides taxpayers with an opportunity to negotiate manageable payment options that fit their financial situation, potentially avoiding more severe collection actions such as bank levies or wage garnishments. By working closely with the IRS during audit reconsideration, taxpayers may qualify for installment agreements that allow them to pay their tax debt over time, easing immediate financial burdens.
Additionally, penalty abatement through audit reconsideration can reduce or eliminate penalties that have accrued due to late payments or underreported income if the taxpayer can show reasonable cause or other qualifying circumstances. This reduces the overall tax liability and helps get the taxpayer back in compliance with the IRS.
Furthermore, audit reconsideration can be a platform to introduce new evidence, correct errors and clarify misunderstandings from the original audit which can lead to a more accurate determination of tax obligations. Working with experienced tax professionals during this process can enhance the effectiveness of audit reconsideration by ensuring all relevant documentation and legal arguments are presented.
Audit Reconsideration and the State
Audit reconsideration can also help resolve state tax issues and address compliance gaps that may have been found during audits. This is not limited to federal tax matters; many taxpayers have issues with state tax agencies such as the Georgia Department of Revenue. State audits can uncover discrepancies similar to those found in IRS audits including underreported income, improper deductions or failure to comply with state specific tax regulations.
By engaging in audit reconsideration at the state level taxpayers can present new evidence or corrected returns to address these issues and potentially reduce their state tax liability. Addressing compliance gaps through audit reconsideration also helps taxpayers avoid penalties and enforcement actions like tax liens or levies from state authorities.
Moreover, resolving state tax disputes through audit reconsideration can complement federal tax resolution efforts and provide a comprehensive approach to managing overall tax obligations. Tax professionals experienced in both federal and state tax law can coordinate these efforts to get the best possible outcome for the taxpayer while staying in compliance across all taxing jurisdictions.
Other Ways to Challenge a Tax
Amending a Tax Return
Amending a tax return is another important option for taxpayers who identify errors or omissions after filing their original return. If you discover that you made a mistake, missed eligible deductions, or failed to report certain income, filing an amended return can correct these issues and potentially reduce your tax liability.
Amending a return can be especially helpful if the changes affect multiple years or if the original audit didn’t consider certain information. Filing amended returns timely can avoid additional penalties and interest and may also be used as supporting evidence during audit reconsideration.
Taxpayers should be aware that amending a return doesn’t guarantee a refund or reduction in tax debt but it’s a useful tool to make sure your tax filings are accurate and complete. Working with a tax professional can help you determine if amending your return is the best course of action for your situation.
Doubt as to Liability Offer
A Doubt as to Liability (DATL) Offer is an alternative way to challenge a tax assessment when you truly believe the IRS has incorrectly determined the amount of tax you owe. Unlike an Offer in Compromise based on inability to pay, a DATL offer focuses solely on disputing the tax liability itself. This allows taxpayers to present evidence and legal arguments showing the IRS’s proposed tax is incorrect or unjustified.
To make a Doubt as to Liability Offer you must provide substantial documentation to support your position, such as corrected tax returns, financial records or proof of eligible deductions that were missed during the audit. The IRS will review your submission and may accept the offer if they conclude there’s reasonable doubt about the tax liability. Successfully negotiating a DATL offer can result in a reduction or elimination of the disputed tax amount.
This process requires careful preparation and a good understanding of tax law so working with a tax attorney or CPA is highly recommended. They can help you gather the necessary evidence, craft persuasive legal arguments and communicate with the IRS to maximize your chances of success.
Request for Penalty Abatement
In some cases, taxpayers may owe the additional tax assessed but seek relief from penalties imposed by the IRS. Penalty abatement is a process where the IRS may reduce or remove penalties if the taxpayer can demonstrate reasonable cause, such as illness, natural disaster, or reliance on incorrect advice from a tax professional.
Requesting penalty abatement involves submitting a formal request with supporting documentation explaining the circumstances that led to the penalties. A tax professional can assist in preparing a compelling case to increase the likelihood of penalty relief.
Penalty abatement can be especially beneficial for taxpayers who have a history of compliance but encountered an isolated incident that caused the penalties. The IRS recognizes several grounds for reasonable cause, including serious illness or death in the family, unavoidable absence, or errors resulting from reliance on erroneous written advice from the IRS or a qualified tax professional.
Additionally, the IRS offers first-time penalty abatement as a one-time administrative waiver for taxpayers who have a clean compliance history for the past three years and have filed all required returns and paid any tax due. This option can provide quick relief without the need for extensive documentation.
It is important to act promptly when seeking penalty abatement, as delays may reduce the chances of success. Working with an experienced tax attorney or CPA can help ensure that the request is properly documented and submitted in accordance with IRS guidelines. They can also advise on alternative relief options if penalty abatement is not granted, such as installment agreements or offers in compromise.
Taxpayer Advocate Service
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that helps taxpayers with significant hardships or unresolved tax issues. If you’re experiencing financial difficulty, delays or other problems with the IRS audit or reconsideration process the TAS can help.
Contacting the Taxpayer Advocate Service can provide additional support and resources to resolve your tax dispute efficiently and fairly. This service is especially helpful when normal IRS channels have been exhausted or aren’t producing timely results.
By understanding these other options and seeking professional guidance taxpayers can challenge IRS tax assessments and protect their financial interests beyond the audit reconsideration process.
Conclusion
Dealing with an IRS audit or final assessment can be overwhelming but audit reconsideration is a second chance to challenge potentially incorrect or unfair tax determinations. Whether you missed the deadline to appeal in tax court or have new evidence and documentation that weren’t considered during the original audit this administrative process allows you to present your case again to the Internal Revenue Service.
By working with experienced tax professionals—tax attorneys, certified public accountants, or enrolled agents—you can increase your chances of success including reductions in tax liability, penalty abatement and installment agreements to manage tax debt. Audit reconsideration also applies to state tax matters so you have comprehensive relief options across federal and state taxing authorities.Act quickly, be thorough and get professional help. If you’ve received an IRS audit notice or a final tax assessment that you think is wrong don’t wait.
Act quickly, be thorough and get professional help. If you have received an IRS audit notice or a final tax assessment that you think is wrong, don’t wait.
Besides audit reconsideration, taxpayers can challenge a tax assessment through other options. Filing an amended tax return corrects errors or omissions on the original return and may reduce tax liability. A Doubt as to Liability Offer allows you to dispute the tax amount by presenting evidence and legal arguments and potentially reduce or eliminate the disputed tax. If penalties are unjustified due to reasonable cause such as illness or reliance on incorrect advice, taxpayers can request penalty abatement with first-time penalty abatement available for qualifying individuals. The Taxpayer Advocate Service also offers independent help to taxpayers with significant hardships or unresolved IRS issues.
Frequently Asked Questions
What is the difference between an IRS audit and audit reconsideration?
An IRS audit is the initial review of your tax return and financial records by the Internal Revenue Service to verify accuracy and compliance. Audit reconsideration is the process to dispute the results of a completed audit if you think errors were made or new information has come to light after the audit was finished.
How long does the audit reconsideration process take?
The audit reconsideration process duration varies depending on the complexity of the case and the IRS workload. Typically, it can take several months for the IRS to review your request, evaluate new evidence, and make a determination. Prompt submission of complete documentation can help expedite the process.
Can I request audit reconsideration if I missed the deadline to appeal in tax court?
Yes. Audit reconsideration is often the best option for taxpayers who missed the deadline to file a petition with the United States Tax Court following a Notice of Deficiency. It provides an administrative avenue to challenge the assessment after the audit is finalized.
What kind of documentation should I provide for audit reconsideration?
You should provide any new or previously unsubmitted evidence that supports your tax position. This can include corrected tax returns, receipts, invoices, bank statements, legal documents, or expert opinions. The more comprehensive and well-organized your documentation, the stronger your case will be.
Can audit reconsideration reduce penalties and interest?
Yes. Besides challenging the underlying tax liability, audit reconsideration can be used to request penalty abatement if you can demonstrate reasonable cause for the penalties assessed. Interest, however, is generally not abated but may be reduced in some circumstances.
Is professional representation necessary for audit reconsideration?
While not required, working with a tax attorney, CPA or enrolled agent experienced in IRS procedures will greatly increase your chances of success. These professionals know tax law and IRS procedures, can prepare thorough documentation and communicate with the IRS on your behalf.
What happens if the IRS denies my audit reconsideration request?
If the IRS rejects your audit reconsideration request, you can file an administrative appeal with the IRS Office of Appeals. This is typically the final step within the IRS before any further legal action, such as litigation in tax court, can be pursued.
Can audit reconsideration be used for state tax audits?
Yes. Many state taxing authorities have similar reconsideration processes. If you’re facing a state audit, such as from the Georgia Department of Revenue, you may be able to request audit reconsideration to address new evidence or errors found after the audit was complete.
How can I avoid future IRS audits?
Maintaining accurate and organized financial records, timely filing complete and truthful tax returns, and engaging in prudent tax planning strategies can reduce the likelihood of future audits. Consulting with tax professionals regularly can help ensure compliance and minimize audit risk.
What are some common reasons the IRS selects returns for audit?
The IRS uses various criteria, including random selection, computer screening for discrepancies, high deductions relative to income, unreported income, and information from third parties. Complex tax issues, large transactions, or involvement with foreign tax authorities can also increase audit risk.
How does audit reconsideration relate to tax litigation?
Audit reconsideration is an administrative process aimed at resolving disputes without court involvement. If reconsideration and appeals fail, taxpayers may pursue tax litigation in the United States Tax Court or other courts to challenge tax assessments.
Can audit reconsideration help with back taxes?
Yes. Audit reconsideration can address issues related to back taxes by correcting errors or omissions in previous returns, potentially reducing the amount owed and associated penalties.
What is the role of a CPA or enrolled agent in audit reconsideration?
An IRS attorney specializes in tax law and can represent clients during audit reconsideration, negotiate with the IRS, prepare legal arguments, and provide guidance on tax litigation if needed. Their expertise is valuable in navigating complex tax issues and achieving favorable outcomes.
Are there any fees associated with audit reconsideration?
There is no fee charged by the IRS for filing an audit reconsideration request. However, if you hire a tax professional, such as a tax lawyer or CPA, for representation and assistance, their fees will apply.
How can I check the status of my audit reconsideration request?
You can contact the IRS or your tax professional to monitor the progress of your reconsideration request. The IRS may also contact you by mail or phone during the review process.
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