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IRS APPEALS PROCESS

Why go through the IRS Appeals process? It is commonly believed among taxpayers that this is a costly procedure with the Internal Revenue Service eventually ending up as the winner. This is not the complete story. Of the cases closed in the U S Tax Court during a recently reported twelve month period, only $1.3 billion was ultimately found to be due and owing although the IRS Examination Division had proposed to assess taxes and penalties in the amount of $6.9 billion. Thus, the IRS "only won" 19% of what was originally determined to be due. Clearly the IRS view of tax liabilities is not necessarily the same as the Tax Court's view.

The IRS Appeals process is the "in-between step" bridging the IRS examination and the United States Tax Court process. The IRS Appeals Division acts as an ombudsman. A taxpayer is typically allowed one appeals opportunity to resolve IRS differences at the Appeals Office before the case is taken to the United States Tax Court.

The findings of the Appeals Division of the IRS are to be impartial and independent of the IRS Examination function. IRS Policy Statement P-8-47 states that:

"Appeals will ordinarily give serious consideration to an Offer to settle a tax controversy on a basis which fairly reflects the relative merits of the opposing views in light of the hazards which would exist if the case were litigated. However, no settlement will be made based upon nuisance value of the case to either party."

With the "kinder and gentler" IRS brought about by the IRS Restructuring Act of 1998, any significant proposed tax assessment should be considered as a candidate for the Appeals process and ultimately the United States Tax Court. The IRS administrative process and the United States Tax Court proceeding, while adversarial in nature, are more cost effective than litigation in an Ohio Court of Common Pleas or a Federal District Court. The rules are much more informal and professional fees do not approach that of the typical lawsuit with its pleadings, depositions, discovery and legal posturing.

Conventional wisdom suggests the utilization of a tax attorney rather than an enrolled agent, an accountant or even a Certified Public Accountant in the appeals/US Tax Court process. Statistics released by the United States Tax Court indicate that over 98% of all taxpayers are represented by attorneys in the Tax Court arena. Knowing the tax laws and pressing the right legal buttons can help taxpayers achieve significant tax savings.