What are my appeal rights from an IRS audit?

The traditional view of an IRS audit is a face-to-face contact with an IRS auditor. About one-third of IRS "tax audits" are in the form of letters asking for explanations of various items on a tax return or supporting tax documentation.

First, it is possible that you can avoid the IRS audit completely.
If you have been audited for the same tax item in either of the two previous tax years and the prior tax audit resulted in no change in your tax bill, you may challenge the IRS on the selection of your tax return with respect to the same tax issue. The IRS procedure in such situations is to suspend the audit, examine the file and make a redetermination whether to continue the audit or close out the tax matter.  

If all of the following conditions apply to you, then the IRS's proposed examination may not be necessary:

If you meet all three of the above conditions, then you should notify the IRS and ask them not to conduct the audit.

Second, there are different types of audits. An IRS correspondence audit is handled strictly through the mail. It is used for minor tax items or for potential tax return discrepancies in W-2 or 1099 reporting.

An IRS office audit is where the taxpayer is invited to the IRS office to meet with an IRS auditor. An IRS field audit is where the IRS comes out to the taxpayer's place of business.

There is also a Taxpayer Compliance Measurement Program (TCMP) audit, which is the most thorough IRS audit of all. Persons selected for TCMP audits must verify all data on their tax return. This information could include birth certificates for children, a marriage license for a spouse, and complete documentation of all tax deductions taken.

If you are audited by the IRS or are subject to a tax collection procedure, you have a number of rights.

If you receive notice of an IRS office audit contact the IRS and  try to convert the audit into a correspondence audit. If you can't convert it into a correspondence audit, at the audit, produce your best evidence and try to settle the case if possible. If you feel the IRS auditor is not being fair, ask to speak to his or her supervisor.

After you get the tax auditor's results and you're not satisfied with them, you can appeal to the IRS appeals office. You will get a thirty (30) day letter from the IRS auditor which will inform you that you have thirty days to exercise your appeal rights. It is likely that it will be nine months to one year before your IRS appeals audit is heard. If possible, try to settle the tax case before or at this appeal.

If you are unable to resolve a problem with the IRS through regular channels, you can seek relief through the IRS Taxpayer Advocate Office, which acts like an ombudsman for taxpayers.

After receiving the IRS appeals decision you will receive a ninety (90) day letter from the IRS, which gives you ninety days to file a petition with the U.S. Tax Court if you still disagree with the IRS  findings. There is a simplified small tax case procedure if the case is $50,000 or less for any tax period or tax year. A tax case settled under this procedure cannot be appealed.

If you are not satisfied with the Tax Court result, or if you decide not to go to Tax Court and wish to go directly to U.S. District Court, then you will almost certainly need to utilize an attorney, and the cost will go up dramatically. Accordingly, it is usually wise to settle either at the IRS audit level, the IRS appeals level, or the Tax Court level. However, don't be afraid to exercise your rights of appeal if you feel you are not being treated fairly by the IRS or did not receive a just tax decision.

If you win a tax case against the IRS, you may be able to recover legal fees and related expenses from the IRS. Taxpayers who contend they are the target of an unauthorized IRS tax collection action can sue the IRS if they believe the agent recklessly or intentionally disregarded the tax law or IRS regulations.