If you received an unfavorable audit determination from the Internal Revenue Service (IRS), challenging the outcome of your audit will involve filing an appeal. In most cases, this starts with filing a “protest” with the appropriate IRS office. Before you file, however, you need to ensure that doing so is in your best interests, and this involves working with an experienced Texas IRS dispute lawyer who can thoroughly assess the circ*mstances of your case.
When Should You Consider Appealing the Outcome of an IRS Audit?
To appeal the outcome of an IRS audit, you must have specific grounds for doing so. You must give the IRS reason to reconsider its determination—and this requires both clear documentation of the relevant facts and a clear understanding of the relevant law.
There are several potential grounds for appealing the outcome of an IRS audit, particularly for high-income and high-net-worth taxpayers who have just undergone complex audits involving substantial discrepancies. For example, depending on the circ*mstances involved, the grounds for appealing an IRS audit determination may include:
- Improper Application of the Law – If the revenue agents conducting your audit improperly applied irrelevant provisions of the Internal Revenue Code (IRC), Foreign Account Tax Compliance Act (FATCA), Bank Secrecy Act (BSA) or the IRS’ regulations, you may be able to avoid substantial unwarranted tax liability by filing an appeal.
- Improper Interpretation of the Law – Improper interpretations of the law are a frequent cause of unjustified audit determinations as well. This is particularly true with complex audits examining sophisticated tax planning strategies and targeting alleged abusive tax schemes.
- Improper Interpretation of Financial Records – Along with improper interpretations of the law, improper interpretations of taxpayers’ financial records and other supporting documentation also can (and do) lead to flawed audit determinations. Here too, this is particularly common with audits targeting high-income and high-net-worth taxpayers.
- Failure to Consider Relevant Documentation – In addition to misinterpreting taxpayers’ financial records, failing to consider relevant documentation is another frequent cause of unwarranted determinations of additional tax liability. Whether revenue agents overlooked relevant documentation that you (or your counsel) provided or you have additional documentation that you didn’t provide during your audit, you should not be held responsible for any more than the minimum amount you lawfully owe.
- Incorrect Calculation of Tax Liability – Sometimes, revenue agents simply get it wrong. If your purported outstanding tax liability is the result of an incorrect calculation, you can—and should—have this corrected through the IRS appeals process.
With all of this said, it is important to keep in mind that IRS appeals can result in both reductions and increases in taxpayers’ liability. If the examiners or officers assigned to your appeal determine that you owe more than the IRS previously determined, filing an appeal can have the opposite of its intended effect. As a result, before initiating the audit process, it is critical to ensure that doing so is in your best interests, and, again, this involves working with an experienced Texas IRS dispute lawyer who can help you make informed decisions.
Deciding Whether to File (and Preparing for) an IRS Audit Appeal
For high-income and high-net-worth taxpayers who have received unfavorable IRS audit determinations, deciding whether to file an appeal—and preparing to file an appeal if warranted—is a multi-step process. Broadly, this process involves:
1. Conducting an Independent Assessment of Tax Liability
Deciding whether to file an IRS audit appeal begins with conducting an independent assessment of tax liability. This will allow you to make an informed decision about whether an appeal is warranted. By working closely with experienced tax counsel, high-income and high-net-worth taxpayers can determine whether the IRS has miscalculated their tax liability—and, if so, to what extent. Taking this step also affords the opportunity to identify any issues that may have gone overlooked during the audit process and that could be raised on appeal.
2. Scrutinizing the Audit Process
In addition to confirming whether an appeal is warranted, high-income and high-net-worth taxpayers facing unfavorable audit determinations must also identify why the IRS reached its flawed determination. This involves scrutinizing all aspects of the audit process—from the auditors’ assumptions and interpretations to their methodologies and conclusions. Taxpayers who can not only identify flaws but also identify the reasons for those flaws will have a much greater chance of efficiently securing a favorable result on appeal.
3. Assessing Potential Outcomes and Identifying a Specific Targeted Outcome
Taking the steps we’ve just discussed affords the ability to assess the potential outcomes of the audit process. With these potential outcomes in mind, high-income and high-net-worth taxpayers can make an informed decision about whether to file an appeal and if they decide to appeal, they can then work with their counsel to identify a specific targeted outcome. Depending on the circ*mstances, this can range from seeking to completely reverse an unfavorable audit determination to seeking to negotiate a settlement with the IRS.
4. Preparing and Filing a Protest
Once the decision to appeal is made, the next step is to prepare and file a formal protest. This requires careful and strategic consideration, as a well-crafted protest can help set the stage for a favorable resolution.
5. Engaging Proactively and Assertively with the IRS
When pursuing IRS audit appeals, high-income and high-net-worth taxpayers need to take a proactive and assertive approach to the process. Convincing the IRS to reconsider its position requires sound arguments and clear evidence, and taxpayers who are facing substantial unwarranted liability need experienced counsel who can take control of the process and steer it toward a positive result.
Request a Confidential Consultation with a Texas IRS Dispute Lawyer at Brown Tax, P.C.
If you need to know more about appealing the outcome of an IRS audit, we invite you to get in touch. Our practice is devoted to representing high-income and high-net-worth taxpayers in significant federal tax controversies. To request a confidential consultation with an experienced Texas IRS dispute lawyer at Brown Tax P.C., please call 888-870-0025 or contact us confidentially online today.
