Question: We’ve been audited by the IRS, and they’re claiming we owe over $25,000 in taxes and penalties for the last couple of years. There is no way we owe that much! And anyway, we couldn’t pay it even if we did. The auditor said we’re s*** out of luck because she’s the final word on what we owe. Is that true, or is there someplace we can turn to? Please help us!
Response: Don’t believe everything you hear. You do have rights and a way to appeal, or challenge, the IRS’s decision.
First, you could use the IRS’s own internal appeals process. This lets you challenge an outcome to an IRS Appeals Office. Before you dismiss this idea, the Appeals Office is a separate unit within the IRS and, theoretically at least, independent of the auditor and department you are challenging. Better yet, if you don’t receive a satisfactory outcome from the Appeals Office, you can take your case to the courts.
Before going to the courts, there is also another IRS resource that may be able to help you: the Taxpayer Advocate Service, which is an independent organization within the IRS dedicated to helping taxpayers who have tax problems. You can reach them at 1-877-777-4778.
If you end up going to court, you’ll be going to federal court: the U.S. Tax Court, the U.S. Court of Federal Claims, or your local U.S. District Court. They all have pros and cons as forums, and since you should not head to federal court for any matter, let alone one as complex as taxes, without an attorney, if you get to this stage, ask your lawyer’s advice on where to take the case. Be warned: bringing a case in federal court with a good lawyer is not cheap, so unless you really think you might win, going to court could just end up adding legal fees on top of your taxes and penalties.
You could also try to negotiate with the IRS. You say that could not pay the taxes and penalties. If there is either some legitimate question about what you owe, or you would experience economic hardship from paying, you can make an “offer in compromise” to the IRS and try to negotiate paying less than the full amount.
Answered by Steven Zweig
Additional Resource: IRS publication on Audit Appeals
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