What Businesses Should Know About Challenging an IRS Assessment

For many taxpayers, receiving a notice from the Internal Revenue Service can feel like the end of the road. In reality, it is often just the beginning of a process during which taxpayers may have the right to challenge the IRS’s position and have their case heard before any payment is required.

One of the most significant, yet frequently overlooked, protections afforded to taxpayers is the right to be heard before certain adverse actions are taken.  It is one of the ten rights embodied in the Taxpayer Bill of Rights, a framework designed to promote fairness, transparency, and due process throughout the federal tax system.

Understanding these rights can make a meaningful difference when responding to an IRS examination, proposed assessment, or collection action.

The IRS Must Consider Your Position

A common misconception is that an IRS notice represents the final determination. In many instances, that is simply not the case.

The Taxpayer Bill of Rights provides taxpayers with the opportunity to:

• Present factual and legal objections to the IRS’s conclusions.
• Submit additional records and supporting documentation.
• Have those materials reviewed in a timely and impartial manner.
• Receive an explanation if the IRS ultimately disagrees with the taxpayer’s position.

These procedural protections are rooted in principles of administrative due process. They help ensure that tax liabilities are determined based upon complete and accurate information rather than on incomplete information or unilateral agency action.

A Math Error Notice May Not Be Final

Some IRS correspondence relates to mathematical or clerical corrections identified during the processing of a tax return.

When this occurs, taxpayers generally have an opportunity to dispute the adjustment.

If you believe the IRS made an error, you should:

• Respond within the applicable deadline (generally 60 days from the notice).
• Submit documentation supporting your position.
• Contact the IRS using the information provided in the notice if clarification is needed.

If the IRS agrees, it will correct the account accordingly. If it disagrees, the matter often progresses into the formal examination process, where additional procedural rights become available.

You May Be Able to Go to Court Before Paying the Tax

One of the most valuable procedural protections available to taxpayers is the ability, in many circumstances, to challenge a proposed tax assessment before paying the disputed amount.

When the IRS determines additional tax is owed after an examination, it may issue a statutory notice of deficiency (commonly referred to as a “90-day letter”). That notice provides taxpayers with the opportunity to seek judicial review in the United States Tax Court before the IRS can assess and collect the disputed deficiency.

Generally:

• Taxpayers have 90 days from the date of the notice to file a petition with the Tax Court.
• Taxpayers outside the United States generally receive 150 days.

Failing to meet these statutory deadlines can result in the loss of the opportunity for pre-payment judicial review, making prompt legal evaluation particularly important.

IRS Audits Are Intended to Be a Dialogue

During an examination or audit, taxpayers are entitled to actively participate in the process.

This includes the ability to:

• Explain the factual circumstances surrounding the items under review.
• Present legal arguments supporting their position.
• Submit additional evidence supporting deductions, credits, or reported income.
• Respond to questions raised by IRS examiners.

Importantly, if the IRS ultimately concludes that additional tax is due, it must explain the basis for its determination. Depending on the stage of the proceeding, the taxpayer may then pursue the available administrative or judicial remedies before the assessment becomes final.

Collection Actions Often Include Additional Appeal Rights

Even after a tax has been assessed, taxpayers retain important procedural protections.

Before the IRS takes certain collection actions, such as levying a bank account, garnishing property, or filing a federal tax lien, the agency is often required to provide the taxpayer with notice and an opportunity for an administrative hearing before the IRS Independent Office of Appeals.

These hearings allow taxpayers to:

• Challenge whether collection procedures were properly followed.
• Discuss collection alternatives, including installment agreements or compromise options.
• Raise other issues permitted under applicable tax law.

If the taxpayer disagrees with the determination made by Appeals, judicial review may be available in the United States Tax Court, depending on the type of proceeding involved.

The Legal Significance

The right to challenge the IRS’s position is more than an administrative courtesy; it reflects fundamental principles of procedural fairness.

Federal tax administration is designed to balance the government’s authority to assess and collect revenue with meaningful opportunities for taxpayers to contest proposed actions before significant consequences occur. Strict statutory deadlines govern many of these rights, making timely action essential.

Taxpayers should therefore avoid assuming that an IRS notice represents the final word. In many cases, the law provides multiple opportunities to present evidence, raise legal arguments, seek administrative review, and, when appropriate, obtain independent judicial review.

Final Thoughts

The Taxpayer Bill of Rights serves as an important reminder that taxpayers are not passive participants in the federal tax system. Whether responding to a correspondence audit, disputing a proposed assessment, or addressing collection activity, taxpayers possess enforceable procedural rights that can significantly affect the outcome of a dispute.

Understanding those rights, and acting promptly when deadlines arise, can often be just as important as the underlying tax issue itself. An informed taxpayer is frequently in a better position to resolve a dispute efficiently and protect available remedies.

This article is provided for informational purposes only and does not constitute legal or tax advice. Taxpayers facing an IRS examination, assessment, or collection action should consult qualified legal or tax professionals regarding their specific circumstances.