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IRS Audit Reconsideration

If  presented with a situation where an audit deficiency has been assessed (and you believe it is excessive), the taxpayer or tax practitioner may be able to convince the IRS Collection Division Employee that the taxpayer was not given sufficient opportunity to present necessary documentation to substantiate the disallowed items during the audit process. If successful, the IRS employee may recommend that audit reconsideration be granted. However, audit reconsiderations are not a matter of right. They are discretionary. You must be prepared, and do your homework.  The following is a brief summary of the requirements for audit reconsideration and some of the related Internal Revenue Manual provisions.

Requirements - Reopening Examination Cases

  1. Treasury Regulation 301.6404-1 provides that the district director or the director of the regional service center may abate any assessment, or unpaid portion thereof, if:
    1. the assessment is in excess of the correct tax liability,
    2. the assessment is made subsequent to the expiration of the applicable period of limitations, or
    3. the assessment has been erroneously or illegally made.
  2. Directors should use their discretionary authority in determining whether tax assessments involving illegal tax protestors and taxpayers with a history of repeatedly ignoring statutory notices are to be reconsidered. Reconsideration will be based upon the facts and circumstances of the case.
  3. When exercising this discretionary authority, Service employees should consider the need and opportunity to bring noncompliant taxpayers into compliance.
  4. Abatement requests will not be considered if:
    1. the assessment was made as a result of a closing agreement under Section 7121 of the Internal Revenue Code or in which the tax liability was compromised under Section 7122 of the Internal Revenue Code;
    2. the assessment was made after final TEFRA administrative proceedings;
    3. the assessment was made as a result of the taxpayer entering into agreement on Form 870-AD, Offer of Waiver of Restrictions on Assessments and Collection of Deficiency in Tax of Acceptance of Overpayment;
    4. the assessment results from a final order of the United States Tax Court or other court. [IRM 5.1] 12.8  (06-17-1999)

Correction Requests for Reconsideration of Deficiency Assessments

  1. When a taxpayer states that a deficiency has been incorrectly assessed, advise the taxpayer that the request must be in writing. Except as noted in Section 12.8(4) in this chapter, abatement requests should be accepted for reconsideration if:
    1. the taxpayer requests in writing that an assessment be abated based upon enclosed information which, if timely submitted, would have resulted in a change in the assessment;
    2. the taxpayer files an original delinquent return after an assessment was made as a result of a return executed by the Service under Section 6020(b), Substitute for Return program (SFR);
    3. the Service made a computational or processing error in adjusting the tax.
  2. If the taxpayer filed a return for the period in question, advise the taxpayer to include the following in their request:
    1. a written request or amended return which identifies the prior examination issues(s) and the reason for the abatement requested;
    2. the examination report (if available);
    3. documents supporting their position;
  3. If the taxpayer never filed a return, request they file an original delinquent return. Review the taxpayer's substantiation and determine if sufficient to allow the Service to abate the previous assessment.
    NOTE:
    See Exhibit 12-2 for Standard Information Paragraphs on what records should be supplied to support the adjustment.
  4. For SFR assessments where an original return has now been secured, date stamp the original delinquent return. Verify that each return is complete (contains all schedules, is properly signed, etc.) and all income is reported per the prior examination report. [IRM 5.1] 12.8.1  (06-17-1999)

 

Criteria for Accepting Audit Reconsideration

  1. When a taxpayer states that a deficiency has been incorrectly assessed, advise the taxpayer that the request must be in writing. Except as noted in 1.2(4) above, abatement requests should be accepted for reconsideration if any one of the following occurs:
    1. the taxpayer requests in writing that an assessment be abated based upon enclosed information which, if timely submitted, would have resulted in a change in the assessment
    2. the taxpayer files an original delinquent return after an assessment was made as a result of a return executed by the Service under Section 6020(b), Substitute for Return (SFR)
    3. the IRS made a computational or processing error in adjusting the tax [IRM 4.3.6] 1.3  (05-21-1999)

Requests for Reconsideration of Deficiency Assessments

  1. Generally, the Chief, Planning and Special Programs (PSP) or for EP/EO, the Returns Program Manager, is responsible for requests for reconsideration of a disputed deficiency in which the assessment was done in District Examination.
    1. These requests are received from Collection, Customer Service, and as transfers from the Service Center.
    2. These requests should be screened for completeness and should satisfy the reconsideration criteria. Incomplete cases should be returned.
    3. Use Letter 2727(P) to acknowledge receipt of request.
  2. Cases accepted will be controlled manually or, if available, on an automated inventory control system.
  3. A designated examiner will review the reconsideration requests. All cases should be reviewed and classified within 30 days of the taxpayer's request.
  4. A case may be accepted at classification if it satisfies referral criteria and adequate documentation is provided. This applies to prior SFR cases where an original return has been received.
  5. Use Letter 2738(P), if the request is fully abated.
  6. If adequate documentation is not provided, use Letter 2724(P) to advise the taxpayer that additional information should be submitted within a specific timeframe.
    1. State clearly in the letter all documentation or information needed to abate the assessment being disputed.......IRM 4.3.6] 1.4  (05-21-1999)

 

Inappropriate Requests:

Abatement requests will not be considered if any one of the following situations applies:

  1. the assessment was made as a result of a closing agreement under Section 7121 of the Internal Revenue Code or in which the tax liability was compromised under Section 7122 of the Internal Revenue Code
  2. the assessment was made after final TEFRA administrative proceedings
  3. the assessment was made as a result of the taxpayer entering into agreement on Form 870-AD, Offer of Waiver of Restriction on Assessments and Collection of Deficiency in Tax of Acceptance of Overpayment
  4. The assessment results from a final order of the United States Tax Court or other court [IRM 4.3.6. 1.2  (05-21-1999)

Practice Pointer: Audit reconsideration is not a matter of right. The taxpayer or tax practitioner should fully document their position in order to prevail.  Other relief may be available. Also, consider other provisions of the IRC (e.g., IRS Restructuring and Reform Act of 1998).

For assistance, please contact A. Nathan Zeliff, Attorney at Law

 

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