Lawrence Lawler: Hello! I am Lawrence Lawler, National Director of the American Society of Tax Problem Solvers. This series is on how to prepare for an IRS audit. We are going to discuss how to disagree with the IRS today.
The first step when you disagree with an IRS Auditor is to discuss your case with the Auditor himself, and why you disagree, see if perhaps you can make some headway in getting them to change their position or to see your position if you will.
If that doesn't work, the very next step is to ask them politely to speak to their Supervisor, and by the way that's the IRS's recommended procedure. It's not that you are going to run and tell their boss on them or something of that sort, many people are uncomfortable with that.
But, the way we generally approach and the way any good professional is going to approach is say, you know what, I understand that your position is different than mine. So what I'd like to do is see if perhaps your Supervisor would be more inclined to agree with my position.
I just don't see that we are going to see, so I'd like to just talk to your Supervisor if I could, and IRS Auditor say, I have absolutely no problem with that. I'll tell you in fact there are times when I've known that the Auditor in their heart agreed with me, but were concerned that they might be stepping on some of the IRS rules and therefore weren't changing their position.
When I spoke to their Supervisor who has more authority and is less concerned about the review of the Supervisor looking at their work, the Supervisor agreed with me, the Auditor was very thankful because what it did is it allowed the result he thought was really the fair result, at the same time took the burden off of him of explaining to his Supervisor why he didn't follow things exactly the way he was supposed to. So talking to the Supervisor is very, very good idea, it's well recommended to do that.
Another time when you might find a disagreement with the IRS, and haven't been able to make any headway with either the Auditor or his Supervisor, it means you could go to the Appeals Division. Now, if your tax return is being audited, this means you are going to deal with an Appeals Officer, and the Appeals Officers not only have the greater knowledge of the law, they also have the authority to make decisions, and they have the responsibility to resolve cases as quickly as possible.
One thing they are allowed to do too is consider what they call the hazards of litigation. If the taxpayer was adamant enough about a particular position and they did have some perhaps legal support for their position, the IRS might look at, and say, it's not worth litigating this, it's not worth letting it go to tax court. The issue doesn't merit taking it to that level, and they might either compromise the issue or actually agree with the taxpayer in the end.
If you really can't make an agreement with the Appeals Division after having gone through the Auditor, the Supervisor, and the Appeals Officer, you still have the right to another level hearing which is the Tax Court. Now, Tax Court is broken down into two different types, they have Small Tax Court and then they have Regular Tax Court.
Small Tax Court is much less formal, it involves smaller cases under $50,000 and is much less costly obviously to go through and the process is much simple. But, you do have the right to take a case, and go to tax court. And if you want to exercise that right, you file a petition with the Tax Court, there is a $60 fee, and depending on whether you are over that $50,000 threshold or not, whether or not you would actually go to Small Tax Court or to the Regular Tax Court.
When it comes to going to Tax Court, you should be aware of the fact that you've got away the cost to the benefit. If the dollar amount that you could save by winning your case ends up being $5,000 and your attorney's fees are going to be $10,000, it doesn't pay to be right.
The next thing that you probably are going to be concerned is how much is the IRS going to assess in the areas of penalties and interest if I owe them taxes? We'll discuss that next.