Many individuals and businesses receive notices from the IRS in one form or another. The individual, owner, or agent of the business often calls our office asking what they can do to contest an IRS letter. This article was written to give a brief overview of the IRS procedure from first notice to Tax Court.
The first contact with the IRS is often in the form of an audit notice. The letter is required to identify the type of tax the IRS is auditing and the period for which the taxpayer is being audited. Upon the completion of the audit, the IRS issues a proposed adjustment. The taxpayer has two obvious options at this point; it can either agree or disagree. If the taxpayer agrees the IRS requires the execution of a Form 870. If the taxpayer disagrees with the findings the IRS will issue what is known as a 30 day letter.
If and when the 30 day letter is issued, the taxpayer’s options become more convoluted. If the taxpayer appeals the 30 day letter within 30 days, then the case is sent to the IRS appeals office. This is an important step taken by the taxpayer because, unlike the at the audit level, this is the first time the IRS can consider the hazards of litigation in its settlement negotiations. If the matter is worked out in Appeals at this stage, then Form 870 AD is executed by the IRS and the taxpayer. If the matter is not settled within Appeals or the taxpayer simply ignores the 30-day letter from the start, then after 30 days a 90-day letter issued.