Going to Appeals – Preparing the Protest

Originally published by Larry Jones.

Overview of the Appeals Process

The goal of the Appeals Office is to settle as many cases as possible within the broad guidelines of its Mission Statement:

The Appeals mission is to resolve tax controversies, without litigation, on a basis which is fair and impartial to both the Government and the taxpayer and in a manner that will enhance voluntary compliance and public confidence in the integrity and efficiency of the Service.

Even though much of the work of Appeals comes from examinations, its jurisdiction has expanded over the last few years.  In examination cases, the taxpayer receives the 30-day letter.  This letter is accompanied by the Revenue Agent Report and gives the taxpayer 30 days to request an Appeals conference.  In most cases, the taxpayer is required to file a protest describing the taxpayer’s position.  If the taxpayer does not request an Appeals conference, then the IRS will send the taxpayer a notice of deficiency.  If the taxpayer files a petition with the Tax Court, and has not had an Appeals conference, the IRS will send the case to Appeals to investigate a possible settlement.  In other types of cases, the IRS will send the taxpayer a letter advising the taxpayer of his right to an Appeals and giving the taxpayer a time limit in which to request an Appeals conference. You file the protest as stated in the letter from the IRS and within the 30-day period.

 

The Need for a Protest

The taxpayer must request in writing an Appeals conference with respect to an audit.  The dollar limitation for requiring a formal protest has increased.  If the total amount for any tax period (including tax and penalties) is more than $25,000, the taxpayer must submit a written protest to obtain Appeals consideration.  If the total amount for any tax period is $25,000 or less, the taxpayer can request an appeal by making a Small Case Request.  A taxpayer can make such a request for Appeals consideration by writing the IRS, indicating the disputed issues and the taxpayer’s reason for not agreeing.

Special appeal procedures may be provided for cases such as appeals of liens, levies, seizures, or installment agreements.  The IRS provides an appeal request form for these types of cases.  See Publication 1660, Collection Appeal Rights.  The taxpayer must submit a written protest to obtain consideration in all employee plan and exempt organization cases, and in all partnership and S corporation cases.

Preparing the Protest

The taxpayer’s first step in going to Appeals is preparing a protest requesting an Appeals conference.  The protest is a written document which sets forth the taxpayer position.  The taxpayer must file the protest within the 30‑day period required in the IRS’s letter summarizing the Revenue Agent’s findings or advising of other action that gives the taxpayer the right to request an appeal.

The taxpayer may request, and the IRS usually grants, a 30‑day extension to prepare the protest.  If a taxpayer does not retain a representative until after the time for filing the protest has expired, the taxpayer’s representative should go ahead and file a protest.  There is always the possibility that the IRS will accept and process the protest and give the taxpayer an Appeals conference.  Although there is no official form for protests, the protest must contain the following information:

1. Name and Address – list your name, current address, and phone number.
2. Statement of Appeal – state that you want to Appeal.
3. Letter Date and Symbols – place the date and symbol shown on the IRS letter.
4. Tax Period(s) or Year(s) Involved – state the year or years involved.  List only the year(s) or tax period(s) covered by the appeal which is found on the Revenue Agent’s report of income tax changes.
5. Itemized Schedule of Tax Changes – This should correspond to the Revenue Agent’s report of income tax changes.  The taxpayer(s) should list the items he disagrees with and the years in which the adjustments appear.
6. Statement of Facts – The statement of facts section is very important.  In this section, the taxpayer should individually address each item in the itemized schedule that he disagrees with.  The taxpayer should state the facts and the reasons why these items were included on the tax return.  For penalties, the taxpayer should explain why he disagrees with the Revenue Agent.  It is not sufficient to state, at the time of the Appeals conference I will present my facts. The Appeals Officer should be able to make a preliminary determination based on a combination of the taxpayer’s explanation of the statement of facts and the Revenue Agent report.  This should save time in reaching a final resolution of the taxpayer’s case.
7. Statement of Law or Authority – The taxpayer should state the law and authority that supports his position and include the IRS Code sections, Revenue Rulings, Publications, or court cases that substantiate his position.  If the taxpayer chooses, he can incorporate the statements of law or authority into each item under the statement of facts fact instead of making a separate section.
8. Perjury Statement – The perjury statement is mandatory, and the taxpayer must sign it.  The exact wording the taxpayer should use is:Under the penalties of perjury, I declare that I have examined the statement of facts presented in the protest and in any accompanying schedules and, to the best of my knowledge and belief, it is true, correct, and complete.If a representative submits the protest, he or she may substitute a declaration stating that he or she prepared the protest and accompanying documents, and whether he or she knows personally that the statement of fact(s) contained in the protest and accompanying documents are true and correct.
9. Signatures Required for a Written Protest – If the protest relates to a jointly filed return, both the husband and wife must sign the protest.  If the protest relates to a corporation, the corporation’s name should be followed by the signature and title of the officer authorized to sign for the corporation.  A Power of Attorney may also sign the protest.

There are different views as to how detailed a protest should be either it can be very skeletal or very detailed. Experience shows that it is usually better to have a detailed protest setting forth the facts and the law that support the taxpayer’s position.

The protest should set forth why the taxpayer should prevail, and should be written in positive language and not to attack the IRS employee or rebut the IRS’s allegations.  Attacking the IRS or trying to rebut the IRSs position will place the taxpayer on the defense and show a weakness in the taxpayer’s case.  The taxpayer should never pass up the opportunity to go to Appeals.

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