Receiving 30-Day Letter

• At the end of an audit, the IRS agent may propose changes to the amount of tax you owe for various reasons. This can be the result of a decision to disallow some of your credits and deductions or because you underreport your income. Regardless of the reason for the adjustment, you have the right to request an immediate meeting with the agent's supervisor. If you are not at the IRS office on the day the audit concludes, the agency will send you a 30-day letter. This standard letter will notify you of your right to an informal appeal through the independent IRS Appeals Office. However, you must make the decision whether to pursue an appeal within 30 days of the date of the letter, not the date you receive it.
  
  

Appeals Office Process

• If the amount of tax in dispute doesn't exceed $25,000, you can respond to the 30-day letter with a brief written explanation of your reasons for disputing the adjustment. For amounts over $25,000, you must prepare a formal written protest within 30 days to exercise your right to an appeal. This written protest also includes your reasons for the dispute, but requires you to draft it in more detail. If the appeals office decides in favor of the IRS, you still have options.
  
  

90-Day Letter

• Once the appeal concludes, the IRS will send you a 90-day letter. The purpose of this letter is to notify you that the IRS will formally assess the increase in tax. The significance of this letter is that you now have 90 days from the date of the letter to decide whether to pursue the tax dispute in court. If you fail to file a petition in one of three courts within 90 days, you can no longer dispute the audit adjustment.
  
  

Choosing a Court

• There are three federal courts you can choose from to file your petition. One option is to immediately file a petition in the Tax Court. However, instead of pursuing the matter in Tax Court, you can pay the tax in dispute and file the case in your local U.S. district court or the U.S. Court of Claims. Paying the tax you owe first and avoiding the Tax Court allows you to eliminate the accrual of interest on the amount in dispute while your case is pending in court. For example, suppose you choose to file in Tax Court and you lose your case one year later. During the year your case is pending, the IRS has the authority to charge you interest on the tax in dispute for the entire period, but only if the court decides in favor of the IRS.