The IRS provides on their web site various publications to address frequently asked questions about federal income tax. This post provides an overview of IRS Publication 5: Right to Appeal and Prepare a Protest.
IRS Publication 5 gives taxpayers guidance on how to appeal a tax case with the IRS in the event the taxpayer does not agree with the ruling.
Taxpayers Should Take Action if They Do Not Agree with IRS Ruling
If a taxpayer does not agree with the ruling of an IRS, the IRS wants the taxpayer to take action. Despite what many taxpayers may believe, the IRS is not in the business of levying and collecting taxes that are not legally due to them. However, the tax law is complicated and at times open to interpretation, interpretation that may be incorrect.
In the event a taxpayer does not agree with all or even parts of a ruling from an IRS agent, the taxpayer should take action rather than do nothing. If the taxpayer does nothing, the IRS will consider the taxpayer as having accepted the findings in the ruling and any amount owed to the IRS. If the taxpayer does not pay an amount owed, the IRS will take appropriate and necessary steps to collect the amount owed.
A taxpayer has several options to appeal an IRS ruling. Taxpayers should generally take these steps in the order listed below. Following this order is not a requirement but rather a recommendation because each subsequent step typically means more time and expense on behalf of the taxpayer.
Supervisor of IRS Agent Who Made Ruling
The taxpayer should start by speaking with the supervisor of the individual who made the ruling the taxpayer considers incorrect. This should be the first step, as scheduling a meeting with the supervisor is not time consuming and typically does not require that the taxpayer entail any additional expenses beyond perhaps paying any fee for the taxpayer’s tax attorney or accountant to prepare for the meeting.
The supervisor will review the IRS ruling to determine if it is accurate. In the event the supervisor and the taxpayer do not agree, the taxpayer can take the appeal to the Appeals Office of the IRS.
Appeals Office of the IRS
The IRS has established an Appeals Office that is separate from the IRS agents and reporting structure that make initial rulings on tax cases. The goal of the Appeals Office is to provide an independent body within the IRS to help resolve disputes.
As with the initial appeal with the supervisor, taxpayers should consider any appeal to the Appeals Office as informal meetings. However, one additional step for a taxpayer when taking a matter before the Appeals Office is the taxpayer may need to submit their concern in writing to the IRS office involved in the tax ruling. This written submission may be a small case request when the amount in question is less than $25,000 or a formal protest based on IRS Publication 1660, Collection Appeal Rights, for amounts over $25,000.
Taxpayers may have their taxpayer or accountant attend the meeting with the Appeals Office, but any persons attending the appeal other than the taxpayer must be qualified to perform tax preparation work with the IRS.
The Appeals Office is able to address most protests from taxpayers concerning IRS rulings. However, in the event the Appeals Office cannot address the matter, taxpayers can still take legal action in the court system to address their concerns.
Appeals to Court System
The final method taxpayers have available to address disagreements with the IRS about tax rulings is the court system.
Courts are completely independent of the IRS. The nature and status of the protest will determine which court hears the tax dispute.
United States Tax Court
The United States Tax Court hears tax disputes related to income tax, estate tax, gift tax, and certain excise tax, as well as penalties related to each of these taxes.
United States District Court and United States Court of Federal Claims
The United States District Court and Court of Federal Claims generally hear tax cases where taxpayers have already paid the taxes owed and are seeking a refund.
Nonresident aliens cannot file tax claims with the United States District Court.
In the event the court rules in favor of the taxpayer, the taxpayer may also be able to recover some or all costs associated with taking the appeal to court. These costs include attorney fees, filing fees, fees paid to expert witnesses, and any other reasonable costs related to preparation of the taxpayer’s case.
However, note that in the event the court not only rules against the taxpayer but finds the taxpayer’s protest was unfounded, the court may award the IRS a penalty of up to $25,000. Unfounded tax protests would include those filed simply to delay payment of taxes legitimately owed or that are made without any legitimate basis in tax law.
If taxpayers need help with an appeal or protest, their federal income taxes, or any other tax question, they can get help by speaking with a tax attorney. Taxpayers can speak with a tax attorney by completing the form on this web site or by calling the phone number located at the top of this page.
Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.