Taxpayers curious about the IRS appeals process should start by learning as much as possible about it to decrease unnecessary tax debt and penalties.
In this article:
- What Motions or Actions Can Lead to a Tax Appeal?
- But First, What Are the Requirements for a Taxpayer to File an IRS Appeals Motion?
- Offer in Compromise Appeals Process
- Appealing an Audit in the IRS Office
- IRS Appeals for Levies and Liens
3 Common IRS Cases and Their Appeals Process
What Motions or Actions Can Lead to a Tax Appeal?
These three motions are:
- Offer In Compromise (OIC)
- Judgments from an IRS audit
- Tax levies and liens
Other motions that can lead to an appeal include the IRS decisions regarding Innocent Spouse Relief, rejection or disagreement with a request for Penalty Abatement, and Installment Plans.
However, taxpayers usually do not know that an OIC, an IRS audit, and tax levies and liens can lead to an appeal. These three motions are relatively common, and shedding light on how taxpayers can apply the appeal process can help a lot of taxpayers find resolutions that work in their favor.
But First, What Are the Requirements for a Taxpayer to File an IRS Appeals Motion?
Just because you receive an IRS Notice or Letter does not mean that you can file an appeal directly. Some cases require an actionable issue and a reply before you can negotiate with the IRS.
There are three main requirements before a taxpayer can file an appeal.
First, the taxpayer receives a notice from the IRS other than a bill.
Second, the IRS rejects the motion of the taxpayer.
The issue of the appeal must focus on something other than the ability to pay the taxes.
To clarify, stating that you cannot pay the full amount of taxes will not lead to an appeal. The taxpayer can apply for an Offer In Compromise rather than appeal the amount of taxes stated.
However, once the IRS rejects the OIC, the taxpayer can appeal the judgment. In this case, the issue relates to the rejection of the OIC and not the capability of paying taxes.
Do note that appeals may take around 30 days before the IRS sends a reply. Applying for an appeal as early as possible can help reduce this long timeframe.
Lastly, there are two main types of appeals.
A taxpayer can file a small case request if the taxes in question amount to $25,000 or less. On the other hand, a taxpayer should file a formal written protest if the tax amount reaches $25,001 or more.
The tax amounts include not just the original tax debt, but also penalties, fees, and interest.
Offer in Compromise Appeals Process
In 2015, the IRS accepted a little over 41% of all Offer In Compromise motions. The high acceptance rate makes the OIC a common route for taxpayers filing an appeal.
The whole Offer in Compromise process takes around 6 to 8 months until the acceptance or the first rejection. With an appeal, a taxpayer can expect a timeframe of 14 to 16 months for the whole process.
For a taxpayer to have a valid cause, he or she must prove at least one of the following:
- A collectibility issue arises if the tax amount does not change. This reason becomes valid if the assets and income of the taxpayer are lower than the tax debt owed to the IRS.
- The taxpayer has doubts about liability. If the taxpayer believes that the penalty or the tax amount is incorrect, he or she can appeal to the IRS for an explanation or recalculation of the tax debt.
- Administration of taxes becomes affected, as the taxpayer may undergo financial difficulty. Another common appeal type is when taxpayers prove that the circumstances may make payments difficult.
The OIC process begins with a Form 656 by a taxpayer. The form allows the taxpayer to suggest a lower tax debt.
The IRS will look at the OIC and decide if the form is valid within 3 to 6 weeks. The taxpayer will know who the IRS officer assigned to them will be within 4 to 6 weeks, and a decision will be made in another 4 weeks to 8 months.
If the taxpayer does not agree with the decision, he or she fills out Form 13711 within 30 days of the decision. The IRS then replies with a judgment affirming or changing the previous decision.
Another crucial piece of information most taxpayers ignore is the distinction between a returned OIC and a rejected OIC.
Remember the 3-to-6 week period wherein the IRS decides whether the OIC is valid? If the IRS finds the OIC lacking, they return the motion to the taxpayer, and it cannot be appealed.
Appealing an Audit in the IRS Office
Sometimes, the IRS performs an audit because taxpayers innocently trigger avoidable audits. On the other hand, some audits have serious issues that need addressing, and a decision can make or break a financial plan.
An audit can affect a taxpayer’s finances and is most likely difficult to appeal, so preparing for an audit is necessary.
The IRS usually audits up to 3 years back, but they are legally allowed to dig up to 6 years worth of records. Legally speaking, taxpayers are required to keep records of receipts for 3 years, and digging up paperwork from the past can be costly or even impossible.
IRS audits come in 3 forms: the common mail audit, in-person audit, and an IRS office audit.
Depending on which kind of audit the taxpayer merits, the appeal process lengthens.
Interestingly, mail correspondence may lead to faster resolutions, as an IRS officer, as well as the venue, still needs scheduling. However, replies from an in-person or IRS office audit are almost always instantaneous, so preparing an appeal may be easier.
Once the IRS informs the taxpayer about the method (mail, in-person, or IRS office) as well as the tax issue, the taxpayer has 30 days to reply or else the penalties and changes in the notice become legal and valid.
The taxpayer can reply to the first notice of an audit by sending a protest letter.
If the IRS does a mail audit, the notice will list down required documents, receipts, and paperwork that will help answer their issue.
If the audit is through an IRS office audit or an in-person audit, the taxpayer can still send a letter stating their side and wait for the schedule.
It can take at least one month for the IRS to finish the audit via mail. In-person or office audits may take less time, but again, scheduling may be a problem.
Once the taxpayer receives the decision, he or she can send an appeal letter. The timeframe for the filing of the appeal is within 1 month, and the process of correspondence starts anew.
If the tax amount in question is $25,000 or lower, the taxpayer can use the IRS Form 12203 or write their protest letter with the headline Small Case Request. If the tax amount is $25,001 or higher, a protest letter is the only method.
IRS Appeals for Levies and Liens
One of the most common collection methods for delinquent taxpayers, tax levies can seriously cripple the financial health of a taxpayer. Liens can decrease credit scores of taxpayers, while levies can discourage creditors, as well as take away needed assets.
(Update: as of 2015, Tax liens no longer affect the credit score. However, some credit reports may still show a tax lien recorded, but does not decrease the credit score).
These tax levies and liens do not need a court decision, but both may take some time before they prosper.
Both motions require Form 12153 for any appeal. An important caveat though; the form cannot be faxed as the IRS requires the form be received by mail.
When the taxpayer receives the IRS Notice of Lien or Notice of Tax Levy, the taxpayer has 30 days to reply.
If the 30-day window lapses, the lien or levy proceeds. The IRS forwards a levy or lien to the local registrar or courts.
If the court has received the lien or levy, the state usually gives a month for the taxpayer to reply. This additional 30-day period is the time to file another appeal through Form 12153.
Sending the appeal may postpone the lien or levy.
Do note that different states may have different process times, especially for liens. While the IRS will state that the court has received the decision, the taxpayer may still appeal the decision.
Lastly, if the appeal prospers, liens and levies may take at least a month before these encumbrances no longer show up in the title.
An appeal can serve two purposes: canceling or correcting a wrong decision by the IRS, or postponing the tax process. By knowing the most common IRS actions and their appeals process, taxpayers can cut down tax expenses and provide ample time and information on how to move forward.
Do you know anyone who has undergone the appeals process? How was the experience? Let us discuss in the comments section below.
If you owe back taxes, visit taxreliefcenter.org for more information on tax relief options.