I regularly get questions from individuals that have been assessed an additional tax, either from an audit or just a notice with little explanation. The letter makes it sound like there is they have no choice but to pay. While they could have appealed the decision, more than 90-days has passed, and that option is now closed. Are they stuck with the tax bill even if it is incorrect? Not necessarily; there are ways to reopen the assessment in some cases. Let’s take a look.
The first option is to request an audit reconsideration. If you were unaware of the audit, maybe you moved and never received the notices; if you have more information and documentation that would influence the determination; or if you have reason to believe the assessment is incorrect, then this is the first route you should try.
As part of the reconsideration application, it is essential that you make your argument as completely and thoroughly as possible. Send in all relevant documentation that can help convince the IRS that you are correct.
However, if you have agreed with the prior decision, by signing form 906, agreeing to an Offer in Compromise, already went through the appeals process, or United States Tax Court ruled on your case, then the IRS will not reopen the audit.
Offer in Compromise – Doubt as to Liability
Another option is to submit an Offer in Compromise. While there are different types of Offers available, an Offer due to Doubt as to Liability is designed for those instances where you do not believe the tax liability is correct. This is not the type of Offer you make because you cannot pay the debt or think it would be unfair. This is for when you have a legitimate reason for believing you do not owe the amount the IRS says you do.
While this option has many similarities with audit reconsideration, one crucial difference is that this is still an offer. You have to offer something with the application. The amount of the proposal “should be based on what you believe the correct amount of tax debt should be.” However, you must offer something, and an offer of $0 will be rejected. Another difference is that amounts you have already paid that could be recovered under an audit reconsideration will be lost under an Offer in Compromise.
Collection Due Process
If you never received the notice of deficiency, then you can argue the liability at the Collection Due Process hearing. Usually, the Collection Due Process hearing is an opportunity to come to some agreement with the IRS before a levy action. But, if you have not had the chance to argue the amount you owe, you can do so during this hearing.
You have to do this at the first opportunity that you have to raise the issue. If you received the lien notice and did not make your argument, you will not be able to argue it when you get the levy notice. If you only received the levy notice and not the notice of deficiency or the lien notice, then you can do it at that time.
There are other ways to reopen the assessment, but these are the most common ways. If you are in a situation that the IRS is claiming you owe an amount and do not believe it is correct, contact us to figure out the best course of action.