The Law Offices of H. Jacob Lager

AUDITS AND CONTROVERSIES

What are my options if I disagree with the IRS' determination of my tax liability?

If you disagree with an IRS determination or are currently undergoing an audit, you have the right to appeal tax determinations within the IRS. This approach tends to be less costly and formal than litigating the matter in court, and can often result in satisfactory resolution of the issues involved.

You can file an appeal with the IRS Office of Appeals (Appeals) in your region if you disagree with the result of your tax examination. The appeal can be filed before you file a Tax Court petition, or even after one is filed (but before litigation). You can also file an appeal to contest certain penalties, or after rejection of a refund claim or compromise offer in a collection case. Under special procedures, you can also appeal a lien, levy, or seizure action proposed by IRS, as well as an IRS attempt to terminate an installment arrangement worked out for tax payments.

A taxpayer can request early referral of certain eligible unresolved issues from IRS's Examination Division to Appeals.

It is also possible to resolve a tax dispute through a mediation process in limited situations. The tax law requires the IRS to prescribe procedures under which either taxpayers or Appeals can request nonbinding mediation on any issue that is still unresolved after the conclusion of either: (1) appeals procedures or (2) unsuccessful attempts to enter into a closing agreement or a compromise. The IRS has established procedures for requesting mediation of certain issues, for cases that are already in the Appeals administrative process.

In accordance with another tax law requirement, the IRS has also established a pilot program under which taxpayers and Appeals may jointly request binding arbitration on any issue that is still unresolved after the conclusion of either (1) or (2) above. The IRS set up a test program for requesting binding arbitration during the one-year period beginning on July 1, 2002. Under the test program, arbitration is used only to resolve factual disputes, where the issue can be severed from the rest of the case. However, arbitration is not as attractive as mediation because arbitration can be almost as difficult as litigation and there is no right of appeal.

You should be aware that there are procedures that represent a middle ground between merely giving in to IRS, or engaging in costly full-blown litigation.

If you wish to discuss these options further, please contact this office.

What can I do if I can't pay my tax liability?

If the IRS is seeking to collect a tax liability beyond your capacity to pay, you may be able to settle your tax debt for a fraction of its face value by making an "offer-in-compromise."

Because the IRS will prefer a partial payment to nothing at all, the IRS is willing to sometimes settle a tax liability for less than the full amount if one of the following requirements are satisfied:

you are unable to pay the full amount,
there is doubt as to the amount of the tax liability,
collection of the liability would create economic hardship for you, or
compelling public policy or equity considerations exist, and due to the exceptional circumstances IRS's collection of the full liability would undermine public confidence that the tax laws are being fairly and equitably administered. Exceptional circumstances for this purpose might include situations where a taxpayer relies on erroneous advice from IRS, or a medical condition prevents a taxpayer from managing his financial affairs.

To begin the settlement process, you will be required to make an initial offer-in-compromise.

If your offer is accepted, you must be careful to file returns and pay taxes for five years. If these requirements are not met, the compromise will terminate and the IRS can seek collection of the original liability amount.

If you have any questions regarding a potential submission of an offer-in-compromise, please contact this office.

The Law Offices of H. Jacob Lager
1601 Cloverfield Blvd.
Second Floor, South Tower
Santa Monica, CA 90404

(310) 471-8773 phone
(310) 943-1545 fax

Email: jake@lagerlaw.com

The information available on this website is meant to provide general information and does not constitute any advice relating to your particular situation.