The Right to Challenge the IRS and Be Heard, and the Right to an Independent Appeal

The IRS does not get the last word just because it spoke first. Two of the ten taxpayer rights exist to make sure of that.

Section 7803(a)(3)(D) lists "the right to challenge the position of the Internal Revenue Service and be heard." Section 7803(a)(3)(E) lists "the right to appeal a decision of the Internal Revenue Service in an independent forum." They work as a pair. The first is about being heard by the office that made the decision. The second is about being heard by someone else when that office still says no.

The right to challenge and be heard

Publication 1 describes this right as the right to raise objections and provide additional documentation in response to formal IRS actions or proposed actions, to expect the IRS to consider timely objections and documentation promptly and fairly, and to receive a response if the IRS does not agree.

Three words in that description carry the weight: timely, documentation, and response.

Timely. The right attaches to timely objections. Nearly every IRS notice that proposes a change gives you a response date. Meet it. If you need more time, ask for it before the date passes, in writing, and keep proof.

Documentation. Objections win on paper. A clear cover letter plus organized evidence beats a long phone call every time. Tell the IRS what you disagree with, why, and which documents prove it.

Response. If the IRS disagrees, you are entitled to hear back. Silence is not an answer. If the IRS misses a date it promised, that can open the door to the Taxpayer Advocate Service. See the TAS case acceptance criteria.

How to build an objection the IRS has to take seriously

Keep it simple and make the reviewer's job easy.

1. Identify the notice. Notice or letter number, date, tax year, and the specific item you dispute.
2. State your position in one or two sentences. "The $8,400 of income reported on the 1099 was reported under my Social Security number in error. It belongs to my former business partner."
3. Attach the proof, labeled. Exhibit 1, Exhibit 2. Put an index on top.
4. Say what you want. "Please remove the proposed adjustment" or "Please abate the assessment."
5. Sign, date and keep a full copy.
6. Send it in a way you can prove. See proof of mailing to the IRS.

If you want someone to do this for you, the right person needs a Form 2848. A Form 8821 lets someone see your file but does not let them advocate your position.

Know what the IRS is looking at

You cannot rebut evidence you have not seen. Before you respond, pull your transcripts so you know what the IRS has on file. The wage and income transcript shows information returns the IRS received. If the dispute is in front of Appeals, the case file access rule discussed below may help. And for records in a closed or contested file, the Freedom of Information Act is the formal route.

The right to appeal in an independent forum

When the office that made the decision will not change it, this right takes over. Publication 1 says taxpayers are entitled to a fair and impartial administrative appeal of most IRS decisions, including many penalties, and to a written response regarding the Office of Appeals' decision. It adds that taxpayers generally have the right to take their cases to court.

The independent forum inside the IRS is the Independent Office of Appeals, established by IRC 7803(e). Its statutory function is to resolve federal tax controversies without litigation on a basis that is fair and impartial to both the government and the taxpayer, promotes consistent application of the tax laws, and enhances public confidence in the integrity and efficiency of the IRS. Section 7803(e)(4) says the resolution process "shall be generally available to all taxpayers."

Congress added two protections worth knowing:

• If your request is denied after a notice of deficiency. Under IRC 7803(e)(5), if a taxpayer who has received a notice of deficiency requests referral to Appeals and the request is denied, the IRS must provide a written notice with a detailed description of the facts, the basis for the denial and how it applies, and the procedures for protesting the denial. This does not apply when the denial is based on a frivolous position.
• Access to the case file. Under IRC 7803(e)(7), specified taxpayers who requested an Appeals conference must be given access to the nonprivileged portions of the case file on the disputed issues, other than documents the taxpayer supplied, at least 10 days before the conference. Specified taxpayers are individuals with adjusted gross income of $400,000 or less for the year in dispute, and other taxpayers with gross receipts of $5 million or less.

For the mechanics of protests and conferences, read the existing lesson on the IRS Appeals office. IRS Publication 5 also explains appeal rights and how to prepare a protest.

Deadlines are part of the right

Every appeal right comes with a door, and every door closes on schedule. The appeal deadline is printed on the letter that grants it. Court deadlines, such as the deadline to petition the Tax Court after a notice of deficiency, are set by statute and are unforgiving.

Two things do not extend those deadlines:

• calling the IRS to discuss the case, and
• asking the Taxpayer Advocate Service for help. Form 911 states that signing it does not suspend the periods for actions such as petitioning the Tax Court or requesting a Collection Due Process hearing.

If you are close to a deadline, protect it first and argue the merits second.

What makes a challenge succeed

In my experience, three things decide most challenges.

Facts proven by documents. The best argument in the world loses to a missing receipt.

The right rule, cited correctly. Point to the Code section, regulation or manual provision that supports you. A reviewer can agree with a rule more easily than with a feeling.

A clear ask. Tell the IRS exactly what change you want, by year and amount.

None of this requires shouting. The right to challenge the IRS is not a right to be loud. It is a right to be considered. Make it easy for someone to agree with you.

Mistakes that waste the right

The right to be heard is only as good as the way you use it. These are the mistakes that most often throw it away.

• Responding late. A timely objection must be considered. A late one may not be, and the IRS may already have moved to the next step.
• Calling instead of writing. A phone call can clarify. It rarely creates a record strong enough to win a dispute on its own.
• Sending everything. A shoebox of receipts is not an argument. Organize, label and explain.
• Arguing the wrong issue. If the notice proposes to tax a 1099, prove the 1099 is wrong or not yours. Complaints about the tax system in general will not move the number.
• Ignoring the follow-up letter. If the IRS writes back asking for one more document, the clock usually starts again. Answer it.
• Signing an agreement you do not agree with. Signing a consent form to make the conversation end can give up rights you meant to keep. Read before you sign, and ask what signing does.

What a good response packet looks like

Picture the reviewer opening your envelope. On top is a one-page letter: the notice number and date, the tax year, a two-sentence statement of what you disagree with, and a clear request. Behind it is an index listing each exhibit. Behind the index are the exhibits, tabbed and in the same order, with the key number on each one highlighted. The last page is a copy of the notice itself.

That packet can be read in ten minutes and agreed with in five. A pile of unlabeled receipts with a note saying "see enclosed" cannot. The right to be heard is real, but you control how easy you are to hear.

When to bring in help

You can handle a simple objection yourself. Bring in a representative when the amount is significant, when the issue turns on legal interpretation, when a statutory deadline such as a Tax Court petition is in play, or when you have already been told no once. The right to retain representation covers who can represent you and what they can do.