IRS Audits & Representations

How the notices relate to the IRS Audits & Representations process:

The 30-day and 90-day letters represent two different stages in the IRS dispute process:

The 30-day letter is your first chance to appeal the audit findings internally with the IRS Office of Appeals.
If you and the appeals office cannot reach an agreement, or if you skip the 30-day appeal, you will receive the 90-day letter. This represents your final opportunity to take the case to an external legal body, the U.S. Tax Court, before the tax is officially assessed.

Pre-assessment and the 30 day letter:

An IRS 30-day letter is a pre-assessment notice that proposes changes to your tax return and gives you a 30-day window to respond. The subsequent 90-day letter, or Notice of Deficiency, is a statutory notice that the IRS will assess the proposed tax if you do not formally challenge it in U.S. Tax Court.

The 30-day letter is typically sent after a tax audit, such as through the mail (Letter 525) or in person (Letter 915). It is your opportunity to resolve a dispute with the IRS before it becomes a formal, binding assessment.

What it includes: The letter comes with an examination report (Form 4549) that explains the proposed tax adjustments and the reasoning behind them.
Your options: Within 30 days, you can take one of the following actions:
- Agree: Sign and return the form to accept the changes. The IRS will then bill you for any additional tax owed.
- Disagree and appeal: Submit a written protest to request a conference with the IRS Independent Office of Appeals. This can help resolve the dispute without going to court.
- Do nothing: If you ignore the letter, the IRS will automatically issue a 90-day letter, taking the case to the next level.

You generally have 30 days from the date on the IRS letter to file a written protest to appeal the proposed changes. If you do not respond to the 30-day letter, the IRS will typically send you a Notice of Deficiency, or 90-day letter, giving you 90 days to petition the U.S. Tax Court if within the United States, or 150 days if your address is outside the United States.

How to appeal within 30 days

To appeal the 30-day letter, you must send a formal, written protest to the IRS. The appeal process varies depending on the amount of tax, penalties, and interest in dispute:

For amounts over $25,000, you must file a formal written protest.
For amounts of $25,000 or less, you can file a "small case request". This can be a brief written statement or you can use IRS Form 12203, Request for Appeals Review.

IRS 90-day letter (Notice of Deficiency)

Also known as a Statutory Notice of Deficiency (e.g., Letter 3219), the 90-day letter is a formal legal notice that follows a failed appeal or lack of response to the 30-day letter. This is your last chance to dispute the tax liability before it becomes final.

What it includes: The notice formally states the IRS's final determination of your tax liability.
Your options: Within 90 days of the date on the letter, you have two options:
- Petition Tax Court: Challenge the assessment by filing a petition with the U.S. Tax Court. This must be done within 90 days (or 150 days if you live outside the U.S.). This deadline cannot be extended by the IRS.
- Pay the tax: Agree to the assessment, pay the tax, and file a claim for a refund in the U.S. District Court.
What happens if you do nothing: If you take no action within 90 days, the IRS will formally assess the tax liability, issue a bill, and can begin collections, including filing liens and levies.

The Internal Revenue Service may use a levy to legally seize a taxpayers property to satisfy a Tax Debt. A levy is a legal seizure of property. The Procedure for an IRS levy typically involves the following steps:

(1) Assessment of Tax: The IRS first assesses the tax and sends a Notice of Demand for Payment to the Taxpayer. If the taxpayer neglects or refuses to pay the tax, the IRS proceeds to the next step.

(2) Final Notice of Intent to Levy: The IRS sends a Final Notice of Intent to Levy and Notice of your rights to a Hearing to the Taxpayeratleast 30 days before the levy. The notice can be given in person, left at the taxpayer's home or business, or sent to the last known address by certified or registered mail.

(3) Issuance of Levy: If the taxpayer does not pay their taxes or make arrangements to settle their debt, the IRS determines that a levy is the next appropriate action. The IRS may levy any property or right to the property the taxpayer owns or has an interest in. This could include wages, retirement accounts, dividends, bank accounts, rental income, accounts receivables, the cash loan value of life insurance, etc. The IRS could also seize and sell property that the taxpayer holds such as a car, boat, or house.

Three Branches of Government: Legislature, Executive and Judicial

Treasury Regulations are published in Federal Register. There are three types of Regulations

(1) Legislative Regulations

(2) Interpretive Regulations and

(3) Procedural Regulations

Regulations are further classified in to:

(a) Propsed Regulation

(b) Temporary Regulation

Revenue Rulings and Revenue Procedures are not binding in Courts and serve the purpose of guidance only.

Penalty for Under reporting of Tax: Substantial Penalty means 10% of correct Tax or greater than 5000.00 for Individuals

Penalty for Valuation Misstatement: Substantial subject to 20% (Up to 150% Misstatement) - Gross subject to 40% (200% or more), Fraud Penalty if 75%

Failure to File Penalty: Failure of an Individual to file a return is 510.00 or 100% of Tax Due. Penalty applies to 1120 and 1040 Returns after 60 days. Penalty is .5% of the amount due for failure to pay up to 25%.

Penalty for Underreporting of Tax (Accuracy Related Penalty): he accuracy-related penalty is 20% of the portion of the underpayment of tax that is attributable to negligence or disregard of rules or regulations.

Due Deligence Preparer Penalty: CTC, AOTC, ODC, HOH, EITC is 635.00 per failure

Preparer Penalty for knowingly or recklessly disclosing or using Tax return information: 1000.00 and/one year in prison.

Reportable Transaction Penalty (Tax Shelters): Penalty is 20% of the reportable transaction understatement when taxpayer adaquately disclose their participation. Penalty is increased to 30% if Taxpayer does not disclose their participation. In addition, a 75% civil penalty may also be imposed with a minimum penalty of 500.00 single or 10,000 MFJ OR a maximum penalty of 100,000.00 for single or 200,000 MFJ

Frivilous Tax Return Penalty: 5000.00 by IRS. Tax Court 25000.00

Penalty for each unfiled informational report: Up to 30 days late, 60.00 each. Over 30 days but before August 1st, 120.00. Filing after August 1st, 310.00. For intentional disregard, 630.00.

Trust Fund Recovery Penalty: 100% of the amount

Preparer Penalty for unreasonable position: Non intentional is 1000.00 or 50% of the prparer fee whichever is greater. Willfull or disregard, 5000.00 or 75% of the preparer fee whichever is higher

The Taxpayer Bill of Rights:

The "Right to Be Informed" means taxpayers have the right to know what they need to do to comply with the tax laws and to receive clear explanations of the laws and IRS procedures in all tax forms, instructions, publications, notices, and correspondence.

Every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These ten rights are known collectively as the "Taxpayer Bill of Rights." These rights cover a wide range of topics and issues and lay out what individual taxpayers can expect in the event they need to work with the IRS. Here are the rights outlined in the Taxpayer Bill of Rights: