The IRS Topic No. 151, Understanding Your Appeal Rights

The IRS Topic No. 151, Understanding Your Appeal Rights

IRS Topic No. 151

When a US Taxpayer disagrees with the outcome of an Internal Revenue Service exam, audit, penalty notice, or tax liability –– they have various processes and procedures available in order to dispute the liability. One of the most misunderstood aspects of the Internal Revenue Service machine is how the administrative appeal process works. This type of administrative appeal is different than appealing a Tax Court case to the US Court of Appeals or filing a Collection Appeal Process Hearing on Form 9423. The administrative appeals process has undergone some changes over the past 25-to-30 years, so let’s take a look at some of the basics and insight into how the process works.

Appeals Officers and Settlement Officers

Not all IRS officers are the same. In general, there are two main categories of appeal officials – an Appeals Officer (AO) and a Settlement Officer (SO). More often than not, the Settlement Officer will be assigned to the more complicated matters and they tend to have more experience and negotiating power than an Appeals Officer, but this is not always the case. In general, the Settlement Officers tend to go through additional training intended to be less focused on preserving initial findings and more focused on trying to provide a global settlement on matters involving issues such as Assessable Penalties and Collection Due Process Hearings.

Protest Letter (Usually) Comes First

In order to get to appeals, the first stop is usually making a protest with the IRS. In a typical situation that we handle at our firm (we specialize exclusively in international tax matters) – the taxpayer will receive a CP15 Notice for an assessable penalty such as a Form 3520 or Form 8938 violation. These are assessable penalties because they are assessed without providing the taxpayer an opportunity to dispute the issuance of the penalty beforehand. Therefore, the first time the taxpayer really gets an opportunity to put their narrative to paper is when they submit a protest letter.  The protest letter should be a thorough submission that explains why the penalty should be abated — but strategies vary on how to most effectively craft the protest based on each person’s specific facts and circumstances. While taxpayers are generally inclined to submit absolutely everything they can in a protest letter — there are other strategies they may want to consider, and of course, the fact that most agents only give these letter a cursory review at best — so submitting a 25-page statement may not be the best strategy.

Appeals is an Informal Hearing

Engaging in an appeals conference is not the same as going to court. The appeals conference tends to be relatively informal and oftentimes the taxpayer will not appear but rather the representative will appear on their behalf and communicate with the Appeals Officer as to why they believe taxpayers should not be penalized and/or have the penalty removed. Even when the Taxpayer wants to appear at the hearing — caution is important. That is because oftentimes it may be a detriment for the Taxpayer’s case — especially if the taxpayer is (understandably) emotional and they end up making statements that actually put them in a worse position.

If The Penalty is Abated…

Depending on the facts and circumstances, it is not uncommon for the appeals officer to remove the penalty –– especially if there are facts sufficient to show that the taxpayer acted with reasonable cause and not willful neglect. In cases involving assessable penalties, some of the key issues tend to involve whether or not there have been prior penalties in the past (and on the same issue) and whether or not there is any unreported income. If the penalties are waived, then the taxpayer and the representative should receive notice generally within 4-to-12 weeks explaining the decision and either identifying that the penalty will be removed and/or a refund will be issued for any payment that was made earlier — payments for disputed penalties are typically made in order to avoid additional interest.

Disagree with the Appeals Conference Outcome?

If you disagree with the outcome of the appeals conference, you still have rights. As provided by the IRS:

• • • If the matter is not resolved in Appeals, we will send you a notice of the penalty amount due. If you disagree, you must first pay the total amount due and file a claim for refund on Form 843.

    • If the claim is rejected, or the IRS does not take action on the claim within six (6) months after the date you file the claim, you may proceed to litigate in either the U. S. District Court or the U. S. Court of Federal Claims. Publication 1 contains additional information regarding appeal rights.

IRS Topic 151

As provided by the IRS:

• • • The IRS works with taxpayers to try to settle tax disputes in an effort to avoid court proceedings through an administrative appeals process. The role of the IRS Independent Office of Appeals (Appeals) is to make an independent review of a tax dispute and to consider the positions taken by both the taxpayer and the IRS. Appeals strives to resolve tax disputes in a fair way and remain impartial to both parties.

    • The IRS will send you a report and/or letter that will explain the proposed adjustments or proposed or taken collection action. The correspondence also tells you of your right generally to request a conference with an Appeals or Settlement Officer, as well as how to make your request for a conference. In addition to examination adjustments, many other things can be appealed, such as penalties, denial of interest abatement, trust fund recovery penalties, liens, levies, and rejection of offers in compromise. If you request an Appeals conference, be prepared to support your position with records and documentation.

    • Appeals conferences are informal meetings. You may represent yourself, or have an attorney, certified public accountant, or other individual authorized to practice before Appeals represent you. For more information, see Circular No. 230, Regulations Governing Practice Before the Internal Revenue Service. If you don’t reach an agreement with the Appeals or Settlement Officer or you don’t wish to appeal within the IRS, you may appeal certain actions through the courts.

    • For further information on Appeals and information on how to stop interest from accruing on any anticipated liability, refer to Publication 5, Your Appeal Rights and How to Prepare a Protest If You Don’t Agree and Publication 556, Examination of Returns, Appeal Rights and Claims for Refund. You can also refer to Publication 1660, Collection Appeal Rights and Publication 1, Your Rights as a Taxpayer. Visit Appeals to find information about alternative dispute resolution processes, technical guidance, international programs, and more.

    • Get the latest Appeals news, information, and settlement guidelines by following the IRS News and IRS Tax Professionals accounts as well.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

This resource may help taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.