When taxpayer’s come into our Richardson, TX tax office with what they believe is an erroneous tax assessment by the IRS, two options that we commonly use to challenge the underlying tax are Audit Reconsideration and a Doubt-as-to-Liability Offer-In-Compromise. There are similarities and differences between these two alternatives and you should understand the differences before deciding which option to use.
Audit Reconsideration often gives taxpayer’s another “bite at the apple” even after the audit was completed when you disagree with the results of the audit determination. There is no statute of limitations for filing for Audit Reconsideration.
Situations where a taxpayer may request audit reconsiderations include the following:
- New information has come available or the Taxpayer is aware of that wasn’t considered originally.
- The Taxpayer did not send the IRS information related to the audit or appear at the audit conference.
- The Taxpayer did not receive the original audit notice.
The Taxpayer cannot request reconsideration if:
- The Taxpayers have already paid the full amount they owe (May be able to file a claim for refund with an Amended Return).
- The Taxpayer previous signed a Form 906, accepted an OIC, or an agreement on Form 870-AD with the Office of Appeals in which they agreed to pay the amount due.
- Tax court, or another court, has issued a final determination that the taxpayer owes the tax.
There is no form for Audit Reconsideration. The Taxpayer will write a letter to the last office they corresponded with an explain why they disagree with the IRS claims they owe. The need to identify specifically why they disagreement and document their case. It is critical that it is new information. Information previously considered will not be reconsidered.
Once a letter is received that the IRS is considering the case, contact Collections and request a Collections hold. While the IRS is not required to put a hold on collections, it is IRS policy to do so.
Once considers, the IRS may accept the tax and abate the penalty in whole or in part or deny the request.
Doubt-as-to-Liability Offer-in-Compromise (DATL-OIC)
Most Offers-In-Compromise are due to the Taxpayer’s inability to pay the tax owed. With a DATL-OIC, the taxpayer is not disputing their ability to pay, they are disputing the actual tax assessed by the IRS. Similar to Audit Reconsideration, the Taxpayer must convince the government that they tax assessment is incorrect.
To request a DATL-OIC, complete Form 656-L. The form is fairly simple to complete but similar to Audit Reconsideration, there may be extensive work to explain why the assessment is incorrect and provide support to prove the Taxpayer’s position.
While the support needed is very similar to Audit Reconsideration, keep in mind that this is technically an Offer-In-Compromise. First, even though the Taxpayer may not feel they owe the IRS, they must make an Offer to Settle the debt, the amount they believe they owe or at minimum $1. In addition, they must be in tax compliance to file the offer and remain in compliance for 5 years. Failure to do so, can void the settlement agreement. Also, as with all OIC’s, collection ceases while the Offer is pending but the Statute of Limitations also stops.
Do You Need Help?
If you need help with challenging what you believe to be an erroneous tax or need help with any IRS Audit or Collection issue, I’d be happy to talk with you. Please give me a call at (972) 821-1991 or email me at bob@jablonskyandassociates.