IRC § 6404(a) allows the IRS to abate any assessment of tax and applicable interest and/or penalties if the assessment is excessive, erroneously or illegally made, or made after the statute of limitation has expired. If an erroneous assessment has been made and a taxpayer has not paid it, under certain circumstances the IRS may accept a request for audit reconsideration.
Reasons for Reconsideration
Internal Revenue Manual (IRM) Section 4.13.1 describes the internal procedures the IRS must follow when evaluating a reconsideration request. Additional guidance is found in IRS Publication 3598, What You Should Know About the Audit Reconsideration Process (2007).
Some acceptable reasons for reconsideration, as found in the IRM, include:
- The taxpayer did not appear for an audit;
- The taxpayer moved and did not receive the correspondence from the IRS;
- The taxpayer submitted a document or documents that were not considered; or
- The taxpayer has new documentation to present.
The IRS will accept a request to re-evaluate the results of a prior audit where:
- It assessed additional tax that remains unpaid or it reversed a tax credit;
- The taxpayer requests the abatement of an assessment based on information that was not previously considered that, if considered, would have resulted in a change to the assessment;
- The IRS created a return under IRC § 6020(b) where a taxpayer did not file a tax return, if the taxpayer later files a return that shows the correct tax; or
- There was an IRS computational or processing error in assessing the tax.
Note: If a taxpayer has paid the assessment and believes the assessment was in error, the taxpayer cannot file a reconsideration request but may instead file a claim for refund.
The IRS will not give reconsideration if a taxpayer signed a document such as a closing agreement entered into under IRC § 7121; if it made the assessment as a result of a compromise under section 7122; if the assessed tax is due as a result of a final partnership item adjustment under the Tax Equity Fiscal Responsibility Act of 1982; if it made the assessment as a result of the taxpayer’s entering into an agreement on Form 870-AD, Offer of Waiver of Restrictions on Assessment and Collection of Deficiency in Tax; or if the Tax Court, or another court, issued a final determination as to the tax liability.
Information to Be Submitted
The taxpayer should send a written reconsideration request to the appropriate IRS office. Typically, the following documents should be submitted:
- A statement about the issues the taxpayer contends should be corrected;
- Information that supports the taxpayer’s position. This includes necessary documents such as Forms 1099, canceled checks, bank statements and loan documents;
- Copies of materials previously furnished to the IRS; and
- Copies of letters and reports the IRS sent to the taxpayer.
Action by the IRS
After the documents are reviewed, the IRS should advise the taxpayer whether the assessed tax will be changed and should provide explanations for its conclusions. If a taxpayer does not agree with the IRS’s position, it may request a conference with the Appeals Office by filing a written small case request or a written protest. A taxpayer may also pay the tax in full and then file a formal claim for refund. If the IRS subsequently disallows the claim in full or in part, the taxpayer may request an Appeals conference or file a refund suit in federal district court or the Court of Federal Claims.
It is not unusual for several months to pass before the IRS initiates action on audit reconsideration requests. The national taxpayer advocate’s 2008 Annual Report to Congress showed that reconsideration requests ranked sixth out of the top 15 issues received in the advocate’s office. If a taxpayer is suffering an economic hardship or immediate threat of adverse action or has experienced a significant systematic delay in the IRS’s processing of a reconsideration request, the taxpayer can contact the Taxpayer Advocate’s Office and ask to expedite resolution of the request. This is done by filing Form 911, Request for Taxpayer Advocate Service Assistance.
Joe Marchbein, CPA, is with Jack P. Fitter, CPA, APC, in Chesterfield, Mo.
This article originally appeared in the January 2010 issue of The Tax Adviser , the AICPA’s monthly journal of tax planning, trends and techniques. AICPA members can subscribe to The Tax Adviser for a discounted price. Call 800-513-3037 or e-mail email@example.com for a subscription to the magazine or to become a member of the Tax Section.