Like many people with tax issues, you buried your head in the sand as long as you could. Then one day you received a notice of proposed assessment (usually in the form of a CP2000, but there are plenty of different variations of this letter).
You pick your head up long enough to open it, only to find that the IRS is coming for you. NOW is the time to pick your head up out of the sand, dust yourself off, and resolve your tax issues (before it is too late and the headaches really begin). Once your tax is assessed and your time to file appeals and Tax Court actions have long passed – you will really find yourself up the creek without a paddle. Here is a brief summary of your options. It is designed to take the fear our of the IRS machine, and put your mind at ease.
1st You Are Selected for an Exam to Determine Any Tax Liability
In what can only be the IRS’ attempt to bring some intrigue to the Tax audit and exam process, the procedure of how the IRS selects a person or business for an IRS audit is shrouded in mystery. There are different methodologies the IRS uses to select a tax return for audit. One method is called a a discriminant function (“DIF”) score for individual, corporate, partnership, and fiduciary returns that is designed to rate the return for potential adjustment. DIF score formulas are devised based on the results of random compliance exams conducted periodically under the National Research Program (“NRP”). Generally, the higher the DIF score, the greater the potential for adjustment.
Other methods are not so “Technical”
2nd You have the Dreaded “Tax Exam”
Depending on your filing status, type of business, and amount of taxes at issue, the first step in the process is called an Exam. There are generally 3 different types of exams -- correspondence, office, and field. For the most part, exams are nowhere near as scary as people think (though it always help to have an Attorney or Enrolled Agent represent you, to make sure you do not say anything “incriminating”)
3rd You have 30 days to accept or reject the Assessment
Once you are assessed the tax liability, the taxpayer has 30 days to consent or reject the assessment. If you agree, great – endgame. You can either pay the full amount at the time the tax is assessed, or, more often than not you can enter into an installment agreement to pay the amount over a specified period of time (usually up to 60 months). If you disagree with the assessment, than you would reject the assessment. And, Please – THE IRS IS NOT PERFECT! IF YOU DO NOT AGREE WITH THE TAX ASSESSMENT YOU HAVE EVERY RIGHT TO REJECT THE ASSESSMENT AND SEEK AN APPEAL!
4th You Decide to Roll the Dice and Appeal the Proposed Assessment=
You have decided to play ball. The process is simple (Even simpler for “Smaller Matters, usually less than $25,000). In the instructions of the Proposed Assessment, you will find directions on how to object to the proposed deficiency. Essentially the taxpayer’s representative will lodge (mail) a written protest to the Appeals Officer, which states the basis for the appeal and a request for an Appeals hearing.
5th You lost the Appeal but Still Believe you are in the Right
Don’t give up hope yet! After your appeal is reject (absent a Request for Audit Reconsideration – which is a topic for another article), you can file in U.S. Tax Court action. Please, do NOT let the word Court scare you. This is your chance to bring the matter before Tax Court Judges, who are all very knowledgeable about the tax law.
You have 90 days from the date of the appeals rejection letter to file with the tax court. PLEASE NOTE, THE 90-DAYS IS A STRICT DEADLINE, IF YOU MISS IT, YOU ARE OUT OF LUCK!. The other benefit of U.S. tax court, is depending on the nature of the dispute, whether you filed an appeal, and amount at issue, the judge may very well send you back to the Appeals level to try an resolve the case before trial. Otherwise, you will bring your matter before the judge, who will then rule on the case and provide you notice (usually within 90-days of the hearing).
In conclusion, the exam process is simply not that bad, but if you are like most people, you should hire an attorney or enrolled agent (tax practitioners credentialed by the IRS) to advocate for you.
**Keep in mind that you are NOT required to go to the Appeals Office after you reject the proposed assessment – you can go straight to U.S. Tax Court if you prefer.
S. MATTHEW GOLDING, ESQ, EA
S. Matthew Golding is one of only a few attorneys licensed in both New York & California and has accumulated 15 years of legal experience. He is also an Enrolled Agent, the highest credential awarded by the IRS. He represents clients worldwide in matters involving Civil & Criminal Tax, Estate Planning, Wealth Management, and International Law. Matthew’s clients include U.S. and foreign citizens living throughout the states, as well as abroad in countries such as Iraq, Japan, Afghanistan, Indonesia, South Africa, Pakistan, and Korea. Matthew is currently enrolled in one of the nation’s Top Master of Tax Law Programs at the University of Denver in a distance program designed for experienced professionals. He worked his way through school, graduating University of Denver and Whittier Law School and earning Dean’s List distinction at both institutions.
Member, State Bar of California, 1999-Present (Inactive 2004-2005 while launching NY practice)
Member, State Bar of New York, 2004-Present
Enrolled Agent, Federally Licensed Tax Practitioner
Admitted, United States Tax Court
Real Estate Broker, California Department of Real Estate
He is the owner an operator of http://www.GoldingTaxSolutions.com; http://www.ExpatTaxAuditHelp.com; and http://www.ImmigrationRemovalHelp.com