If you are presented a tax increase from the IRS that you don't agree with, you may be able to file an IRS Audit Reconsideration. An Audit Reconsideration is an informal process that does not replace the traditional appeals, but can greatly assist a tax payer who is given a tax bill they can't pay or really don't owe. Read this article to find out if an Audit Reconsideration can help you or your client and what to do in the case the IRS does not agree to lower taxes.
When Audit Reconsideration may be available
According to the IRS' own rules, Audit Reconsideration is available when:
- the taxpayer did not appear for the tax audit (also true when taxpayers hired tax representative did not appear at the audit)
- the taxpayer moved and did not receive IRS correspondence
- the taxpayer submitted a document that was not considered
- The tax payer has come across new evidence to support a lowered reduction (like finding lost receipts or getting a court judgment proving a loss)
A taxpayer can request an Audit Reconsideration themselves. However, because of the numerous complexities involved, it is often best to hire a tax professional experienced with audit reconsiderations. The rules are informal, so when the IRS does something out of the ordindary (like close a case without information taxpayer of appeal rights — trust me, that happens), it is best to know exactly what to do in response.
After the IRS received a request for audit reconsideration, typically the IRS will suspend any collection actions such as tax levies or tax liens.
If the IRS rejects your Audit Reconsideration
If an IRS Audit Reconsideration fails, sometimes, we can ask the IRS to reopen an audit. In order to reopen a tax audit, it takes something extraordinary. Here's an example. Suppose a CPA represents both partners in an IRS tax audit. However, CPA is very close with partner A. During the tax audit, partner A and the CPA work in collusion to make it look like partner B owes more taxes than he really owes. If it is proven that the CPA and partner A were involved in fraud, the IRS may reopen the audit.
Usually, if an IRS Audit Reconsideration is not granted and the IRS has not budged on our request to lower the tax bill, we file an appeal as outlined in IRS Publication 5 (Appeal Rights and How to Prepare a Protest if You Don't Agree). If appeals within the IRS are unsuccessful, a petition to tax court may be available.
If you are still stuck with a tax bill you can't pay
Depending on how you collection potential is described to the IRS, you may be available to settle your tax debt using a tax settlement techniques, such as an offer in compromise or even bankruptcy.