Audit Reconsideration
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Audit Reconsideration
Presenter(s):
Robert E. McKenzie ©2013
Arnstein & Lehr LLP
312.876.6927
Date: June 3, 2014
Time: 2:00-4:00PM Eastern
Learning Objectives
Upon completion of this webinar you will be able to:
· Define audit reconsideration
· Recognize problems created by correspondence exams
· Identify problems created by taxpayers who get correspondence notices
· List reasons for an audit reconsideration request
· Advise your clients on when and when not to request audit reconsideration
· List exam rules
· Prepare audit reconsideration requests
· Identify reasons for non-acceptance of requests
· Identify options if a request is denied
Problems Created by Correspondence Exams
• IRS correspondence exams create many improper assessments
• Even when taxpayer properly responds IRS often loses
documentation
Problems Created by Your Client
• Failure to respond to IRS notices
• Ignores correspondence notices
• Failure to attend office exam
• Failure to respond to a request for a field exam
• Failure to provide adequate documentation
• Bad attitude at an office exam or field exam
Client Fails to File
• IRS assesses a Substitute for Return (SFR)
Table 14. Information Reporting Program, Fiscal Year 2013
Item
Number or amount
Number of information returns received
(thousands) :
Total
Paper
Electronic
Other
Automated Underreporter Program :
Number of contacts (closed cases,
thousands)
Amount of additional assessments
(thousands of dollars)
Number of full-time equivalent positions
Automated Substitute for Return Program
:
Number of contacts (closed cases,
thousands)
Amount of additional assessments
(thousands of dollars
Number of full-time equivalent positions
2,085,295
36,515
1,829,565
219,215
4,116
7,731,603
2,035
589
3,159,585
155
Audit Reconsideration (Overview)
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Definition
Discretionary
Taxpayer perspective
Practitioner perspective
IRS perspective
When should reconsideration be considered
When should reconsideration not be
considered
• Use of the Taxpayer Advocate Service (TAS)
• Ways of Making a Request for Audit
Reconsideration
• Documentation and Substantiation
Review Questions for Self Study CPE:
Now’s the time to answer the review questions 1-3.
Click here:
http://www.proprofs.com/quiz-school/story.php?title=NzI1NjU451ZU
*Please leave quiz window open and wait to submit until prompted to
complete questions 4-6. Once all questions are complete submit and
close quiz window.
AUR Problems
• The IRS Does Not Always Answer the Phone
<70%
• The IRS Does Not Always Timely Respond by
Mail
IRS was late in responding to math error submissions
about 40% of the time.
• Many Assessments Not Collected
IRS actually collected less than ten percent of the
ASFR assessments from FY 2006 through FY 2011.
IRS abates or reports as currently not collectible a
significant %.
• When should reconsideration be considered
Definition
• An Audit Reconsideration is the process the IRS
uses to reevaluate the results of a prior audit
where additional tax was assessed and remains
unpaid, or a tax credit was reversed. If the
taxpayer disagrees with the original
determination he/she must provide
information that was not previously considered
during the original examination. It is also the
process the IRS uses when the taxpayer
contests a Substitute for Return (SFR)
determination by filing an original delinquent
return.
Discretionary
Note: Audit Reconsideration is a discretionary
service provided by the IRS; it is not a matter of
taxpayer right
Taxpayer Probably Caused Problem
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Ignored IRS notices
Failed to respond to correspondence exam
Failed to appear at office audit
Ignored 90 day letter
Taxpayer Perspective
(A last hope!)
• Common Situation:
Taxpayer has received many notices from the IRS,
but has not responded:
• Client does not appear for an audit, or
• Client does not file an original return and the IRS
prepares a substitute for return (SFR) under §6020(b)
• Consequence:
Client has an unpaid deficiency, and applicable
statutory and administrative rights have expired
• Opportunity:
Taxpayer may present new information and argue
the merits of the case
Practitioner Perspective
(Not an everyday practice tool)
• Audit reconsideration is a process not well
known or used in everyday tax controversy
practice
• Audit reconsideration is a process not well
known or discussed in academic circles
Most textbooks dedicate less than a page to
the topic
Reconsideration is not a topic of choice for
law review or practitioner journals
When Should Reconsideration Not Be
Considered
A request for reconsideration will not be considered if:
– The assessment was made as a result of a closing
agreement, or
– The assessment was made as a result of final TEFRA
administrative proceedings, or
– The assessment was made as a result of the taxpayer
entering into an agreement on Form 870-AD, “Offer to
Waive Restrictions on Assessment and Collection of Tax
Deficiency and to Accept Overassessment,” or
– The United States Tax Court has entered a decision that
has become final, or a district court or the United States
Court of Federal Claims has rendered a judgment on the
merits which has become final.
Audit Reconsiderations: Collection Rules
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To reevaluate the results of a prior audit when a
taxpayer disagrees with the original determination by
providing information that was not previously
considered during the original examination
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When the taxpayer contests an ASFR/SFR
determination by filing an original delinquent return
and the assessment remains unpaid or, as a result of
the assessment, the tax credit is reversed.
Reasons for Reconsideration
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Did not appear for the audit;
Moved and did not receive the IRS correspondence;
Disagrees with an assessment from an audit of their
return and has additional information to be
considered;
Disagrees with an assessment created under the
authority of Internal Revenue Code 6020 (b)
(ASFR/SFR);
Has been denied tax credits such as EITC claimed,
during a prior examination.
Preparing Request
• Must be in writing
• Publication 3598
If Taxpayer Filed a Return
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Written request or amended return which identifies
the prior examination issue(s) and the reason for
the abatement request;
Attach examination report Form 4549, Income Tax
Examination Changes or Form 1902-B, Report of
Individual Tax Examination Changes. If he does not
have a copy must explain why;
Attach documents supporting their position.
If TP Never Filed a Return: SFR
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Prepare a proper return
Substantiation sufficient to allow the Service
to consider abatement of the previous
assessment.
Preparing Request
• Must be in writing
• Publication 3598
Exam Rules
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Except for SFR’s taxpayer must have filed a tax
return.
The assessment remains unpaid or the Service has
reversed tax credits that the taxpayer is disputing.
The taxpayer must know which adjustments they
are disputing.
The Taxpayer must provide additional information
not considered during the original examination [IRM
4.13.1.4 ]
Non-acceptance
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The taxpayer has already been afforded a
reconsideration request and did not provide any
additional information with his current request that
would change the audit results.
The assessment was made as a result of a closing
agreement entered into under IRC section 7121,
using Form 906 and "Closing Agreements on Final
Determination Covering Specific Matters" or Form
866 "Agreement as to Final Determination of Tax
Liability" , or some combination of the two forms.
The assessment was made as a result of a
compromise under IRC Section 7122. These
agreements are final and conclusive. Identify a final
compromise determination on IDRS by the posting of
a TC 788.
Non-acceptance
• The assessment was made as the result of final
TEFRA administrative proceedings.
• The assessment was made as a result of the
taxpayer entering into an agreement on Form
870-AD, "Offer of Waiver of Restrictions on
Assessment and Collection of Deficiency in
Tax".
• The United States Tax Court has entered a
decision that has become final, or a district
court or the United States Court of Federal
Claims has rendered a judgment on the merits
that has become final.
Options if Denied
• TAS
• Pay and file an amended return
– If denied may sue IRS U. S. District Court or
Court of Clams
• Bankruptcy
Use of the Taxpayer Advocate Service
• Hardship Cases
• Client is about to suffer a significant hardship
• Client experienced a delay of more than 30
days to resolve their case
• Client has not received a response by the date
promised
• Due to an IRS system failure, your client was
unable to resolve their problem
TAS Perspective
(One of the many tools used to resolve cases)
• Used to resolve underlying tax discrepancies often
noted in TAS collection cases
• Can achieve the same result as a Doubt to Liability
filing without the $150 filing fee and the required
compliance for the next five years
Review Questions for Self Study CPE:
Now’s the time to answer the review questions 4-6.
Click here:
http://www.proprofs.com/quiz-school/story.php?title=NzI1NjU451ZU
*Once all questions are complete please submit and close quiz
window.
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