Q. I am an independent contractor and I just received a notice of deficiency regarding my previous years tax returns. The IRS is claiming I owe them nearly $35,000 in back taxes. They would like me to set-up a payment plan, but I would rather dispute their claim. Am I entitled to appeal their decision?
A. Yes. The appeal process normally begins with the taxpayer receiving a notice called an examination letter. The chances are you received one of two of the following types of letters:
General 30-Day Adjustment Letter
This is the most common form of letter sent to taxpayers. It provides you with their calculation and what they call a “proposed adjustment” to your tax return. If you do not agree with their adjustment figures, you are required to file a request for appeal. You will be required to file your appeal within 30 days from the date of your letter and return it to the IRS Office of Appeals.
Notice of Deficiency Letter
This IRS letter states that you have underpaid and owe them additional money and explains how to dispute the deficiency if you do not agree with their findings. To dispute their underpayment claim, you will need to file a petition with the Tax Court within 90 days from the notice date.
The IRS provides that if you wish to challenge their findings they require that you first telephone or personally meet with them in an attempt to informally resolve the dispute. Should the meeting with the IRS representative not result in resolution, you can then appeal their decision with the IRS Appeals Office.
If you do nothing, which is never advised, you will receive an IRS Bill for the amount of taxes they claim you owe and they will begin collection actions against you which can include, but is not limited to, tax levies on your bank account, seizure of property, and garnishment of your wages. Collection actions usually include fines and penalties. You are asking for big trouble if you ignore the IRS.
90-Day Deadline To Appeal Strictly Enforced
If you are under the 90-day deadline, you will need to act as fast as possible. Do not wait until a week before the 90-day deadline to contact the court and obtain their forms and rules of court. If you don’t have time to get their current forms, see a tax professional immediately. Keep in mind that the IRS will object to a “late filing” of you appeal and the court will dismiss your case without hesitation.
If you pass the deadline, you may be able to file in another federal court, but you will have to pay the tax first and sue the government for a refund. A process you certainly want to avoid if at all possible.
If you have questions about the appeal filing process and requirements you are urged to check online at the U.S. Tax Court’s website at www.ustaxcourt.gov.
United States Tax Court
Assuming you choose to appeal your income tax dispute you will be filing your appeal with the U.S. Tax Court. Upon filing your appeal you will be notified of a trial date and you will be expected to appear to present your case in full. You may represent yourself or you can retain a tax attorney or other approved advocate to present your case for you. This is highly recommended since disputed tax issues can be very difficult to navigate without professional training.
Settlement Before Trial
Based on recent statistics, nearly 90% of all IRS cases settle before trial. It is not unusual therefore for the IRS representative, usually a lawyer, to initially reject your settlement offer only to later make you a counter-offer to consider. Unfortunately, there is still too much gamesmanship in the tax litigation process.
IRS Tax lawyers usually carry large caseloads and simply do not have the time or resources to litigate every case they are assigned. So if you have made some good arguments in your petition, chances are your case will be settled.
Should you settle, the IRS tax attorney will prepare what is called a Stipulated Tax Court Decision. The taxpayer, IRS attorney, and judge must execute this document for the case to be officially resolved.
Finally, it is always recommended bringing a tax professional to court with you. The best choice is a lawyer—but you can also bring an enrolled agent or CPA.
For more information on appeals you are urged to check online at the U.S. Tax Court’s website at www.ustaxcourt.gov.