Finalizing an IRS Appeal

You may not walk away with a deal from the appeals officer at one sitting. The officer may want more documents from you or to research an issue before rendering a decision or accepting a settlement proposal. And

if you ask, you will usually be given time to confer with a tax pro about our case, send more documents, or do legal research. Request a month to get things in. Appeals officers seem to work at a more leisurely pace than the rest of the IRS, so yours may agree to an even longer time.

The officer may ask you to sign a waiver extending the normal threeyear limit the IRS has for assessing a tax liability. It is usually okay to agree to an extension at the appeals level—but often not during the audit. When you and the appeals officer reach a settlement, the appeals officer does the paperwork. You won’t be asked to write anything except your name.

Don’t expect the settlement papers right away; the IRS may take several months before finalizing the papers. Settlements must be approved by a supervisor before leaving the IRS office.

Make sure you understand the settlement document before signing

Review your notes from the hearing. If the settlement papers don’t match, call the officer and hash it out. If you still have questions, run it by a tax pro, who can check computations and explain the details to you. Once you

sign, you are barred from going to tax court if you change your mind.

If You Don’t Settle on Appeal

If you and the appeals officer can’t reach a settlement at the end of your meeting, maybe further convincing is needed. Keep trying. Ask what else you can do to change the officer’s mind. Maybe he or she needs further documentation or supporting legal precedent. If so, request time to submit it before the decision is final. If in doubt how to follow through, see a tax pro.

If you never settle, you’ll get a letter denying your appeal. It will come with a form called a 90-day letter, or notice of deficiency, advising you of your right to go to tax court. If you don’t act, after 90 days the audit

report becomes final. The tax is assessed and a tax bill from the IRS Service Center will arrive within a few months.

Limits on IRS Settlements on Appeal

In a few situations, the Internal Revenue Manual restricts appeals settlements. If the appeals officer mentions any of the following, you are limited in negotiating with appeals officers or may have to go to tax court:

• Your audit was part of a large group of similar taxpayers with identical issues, and the IRS wants to treat everyone uniformly. In this situation, the IRS may make a “standard” nonnegotiable settlement proposal to everyone. If you don’t accept the settlement, the IRS is prepared to let the judge decide.
• A past court decision or Revenue Ruling directly on point and supporting the IRS position exists, according to the appeals officer. Because you can argue that rarely are two cases ever exactly alike, this shouldn’t prevent you from settling with an appeals officer. If the appeals officer raises this issue, ask for some time to do some research or talk to a tax professional.
• Your case has tax crime potential.
• You are a part of a group of investors who claim tax benefits from investment losses—tax shelters—the IRS concludes were not legitimate business deals, but were tax dodges.
• You formed what the IRS calls “abusive trusts” in order to avoid tax liability.
• You refuse to comply with the tax laws based on moral, political, constitutional, religious, or similar grounds.