(Part 2 of 3)
6. YOU first receive a contact letter advising you that your return has been selected for examination. It spells out the preliminary areas for audit. You are required to contact the IRS office within 10 days. An appointment is made and you or your rep proceeds to the nearest IRS office. In field audit, the Revenue agent visits your place of business.
7. The agent issues a Revenue Agent Report (RAR) detailing the proposed adjustments at the conclusion of the audit. At this time, you have two choices: pay up or file an appeal.
8. File an appeal if you disagree with the findings. The mission of the Appeals Office is to resolve tax controversies on a fair and impartial basis. It is designed to enhance voluntary compliance and improve public confidence in the integrity and efficiency of the IRS. The purpose of the Appeals process is to provide an administrative procedure for taxpayers to resolve their disagreements with the IRS without resorting to legal action. You may file a formal written protest, a brief written statement, or an oral request, depending on the amount of taxes. Most cases referred to Appeals are settled. In my personal experience and those of my colleagues, the Appeals is a wonderful arena for taxpayers. The Appeals officer is neutral as opposed to being at the examination level where the office auditor or Revenue agent is, of course, pro-government. (Caveat: Be careful in signing Form 870, waiver of the statute of limitations). If your case is not settled in Appeals, tax is assessed and a statutory notice (90-day letter) is issued.
9. File a Tax Court petition within 90 days. If you fail to file that petition, you lose the case – by default. It is equivalent to losing by default in a civil lawsuit. At that juncture, you have no alternative but to pay. You may then file a suit for refund in a Court of Federal Claims or Federal District Court. In the meantime, the IRS is prohibited from collecting the tax and harassing you until the Tax Court has rendered a final decision.
10. Expect the collection phase to start as soon as it is determined that you owe additional taxes. At this time, you then find out that what was supposed to be a kinder, gentler IRS has become a leaner and meaner IRS. The Service assesses the tax and your account is forwarded to the Collection Division for further action. The Service Center issues the first series of collection notices (CP501 through CP504). These notices grow increasingly demanding and forceful in tone and eventually result, if unanswered, in levies and seizures of property.
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Victor Santos Sy graduated Cum Laude from UE with a BBA and from Indiana State University with an MBA. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation in Pasadena, California.
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He has 50 years of experience in defending taxpayers audited by the IRS, FTB, EDD, BOE and other governmental agencies. He is publishing a book on his expertise – “HOW TO AVOID OR SURVIVE IRS AUDITS.” Our readers may inquire about the book or email tax questions at email@example.com.