How to File a Winning Audit Reconsideration Request
When an attorney loses a trial, they have two options–file an appeal or file a motion to request a new trial.
What do you think most good attorneys do? If you said file both, you are correct.
You see, the appeal has its own challenges. There is a whole set of procedural rules that apply to appeals. The motion for a new trial is not subject to these rules.
Think of the motion for a new trial as a “do-over.” It is a long shot, but the courts do grant them.
The IRS audit reconsideration is very similar to the motion for a new trial. It is a filing you can make after the IRS makes a change to your tax account to ask the IRS to reconsider the change. The audit reconsideration can result in the IRS removing all or a part of its prior tax assessment.
The IRS audit reconsideration request can be a great way to reduce your tax liability.
About the IRS Audit Reconsideration Request
What is audit reconsideration?
The audit reconsideration request is a filing a taxpayer can make to ask the IRS to reconsider its prior changes to a tax return. It is a request for the IRS to reduce your tax liability.
Section 6404(a) allows the IRS to remove any tax that is “excessive” or “erroneous.” This section of the Internal Revenue Code provides the IRS with the authority to consider audit reconsideration requests. The IRS is not required to consider these requests, but it does.
When to use the audit reconsideration request?
The audit reconsideration request can be submitted after the taxpayer has filed a tax return, the IRS has made some change to the amounts reported on the tax return, you have information that shows that the change is in error, and you want the IRS to reduce your tax liability.
The last point is the most important. The IRS will generally not consider an audit reconsideration request unless the taxpayer provides new information that the IRS did not previously consider.
A good example of this situation is where the IRS starts a correspondence audit. It sends its audit notice and request for records to the taxpayer. The taxpayer does not receive the IRS letters as the taxpayer has moved to a new address and failed to update their records with the USPS. The IRS auditor closes the file by issuing a report denying most deductions and the IRS assesses the tax due. The taxpayer finds out about this months or years later and wants to contest the IRS assessment. They can do so by filing an audit reconsideration request.
We had a recent case just like this. The taxpayer was in the hospital for an extended stay due to a life-threatening health issue. Little did the taxpayer know, but the IRS had sent him an audit notice right after he was admitted to the hospital. The post office eventually sent all of the taxpayer’s mail back to the senders, so when the taxpayer returned home, he did not even get the IRS’s letters. After a full recovery, he later tried to refinance his house. The mortgage company alerted him to the IRS lien notice that resulted from the IRS audit. The taxpayer was able to file an audit reconsideration request to correct his balance.
The situation does not have to be this extreme to warrant filing an audit reconsideration request. For example, the IRS audit may have requested records that the taxpayer could not locate or did not have access to at the time of the audit. If the records later become available, the taxpayer can submit an audit reconsideration request.
We had a case just like this. The IRS agent turned the taxpayer’s cash register over to the local police department, as it was believed that the taxpayer had committed a crime. The taxpayer’s gross receipts were only recorded in the Z tape included in the cash register. The IRS auditor made an adjustment to the taxpayer’s income, given that the taxpayer did not have any records in his possession to show what his income was. The police closed their investigation several years later and returned the cash register. The taxpayer was then able to submit an audit reconsideration request.
Cases in which the IRS makes a computational or processing error are another example of when an audit reconsideration request can be helpful. The request can be used to get the IRS to fix these types of errors.
In some cases, the audit reconsideration request can even be used if you did not file a tax return. There are instances where the IRS files tax returns for you. The IRS refers to these IRS-prepared returns as a “substitute for return” or SFR. The audit reconsideration request can be used to change the amounts on the SFR.
The audit reconsideration process
File an audit reconsideration request
The audit reconsideration request process starts with the filing of a request. The request has to be made in writing.
Is there an audit reconsideration letter or tax reconsideration form?
There is no standard letter or form to use in making an audit reconsideration request. The request should be submitted as a letter.
Your audit reconsideration letter should:
- Say that it is an audit reconsideration request.
- Identify the taxpayer, the tax period(s), the type of tax (such as income tax), and, if available, the name and contact information for the IRS auditor who previously worked the case.
- Explain the circumstances for the audit,
- Describe the new evidence that the IRS did not have previously, and
- Ask the IRS to reduce your tax liability and the amount due.
This point about “new information” is critical. The IRS may refuse to consider your request if there is no new information.
The request should include a copy of the new evidence if possible. For example, this may include bank statements if you are trying to prove how much income you received during the year. It may include loan documents if you are trying to prove that you paid interest and should be able to deduct the interest.
You should also include a copy of the IRS audit report from the prior audit if you have it. The IRS audit report from the prior audit will usually include a statutory notice of deficiency, a thirty-day letter, or a claim denial letter. These documents may also include calculation forms that show the results of an audit, which is usually a Form 4549 and maybe a Form 866.
If you do not have these documents, you may be able to call the IRS 800 number and ask them to fax the documents to you (this is a long shot). You could also submit a Freedom of Information Act request to get the IRS’s records–but that process takes some time to get a response from the IRS.
Where to mail audit reconsideration request?
The request is usually sent to the IRS office that made the adjustment.
If this address is not known, IRS Publication 3598 provides a list of the IRS Service Centers where the request can be mailed. You can find out more about the IRS and how it is structured here.
You should keep proof of mailing. The IRS can and does lose these requests.
Is there an audit reconsideration phone number?
There is no phone number to call the IRS to inquire about audit reconsideration requests. With that said, you could call the IRS’s 800 number if you want to check on the status of the request. If you know the prior auditor’s phone number, you can call the prior auditor. You might need to ask to speak to their manager, as the manager may have assigned the case to a different auditor.
What happens after I submit an audit reconsideration?
The IRS will assign the case to an IRS auditor who worked the original audit. If they are still with the IRS and working audits for the IRS, this is usually the same auditor that worked the case previously.
The IRS auditor will usually send a written request for additional information. They may issue an Information Document Request or IDR to ask for information. This is an ordinary step with IRS audits and with these requests.
If they do not agree with your position or they agree with it, the IRS auditor may send a letter saying that they are denying the request or a letter saying that they made the changes you requested.
How Long Does Audit Reconsideration Take?
The IRS is usually not fast in working on audit reconsideration requests. Consider yourself lucky if you even hear back from the IRS within several months. Three months would be fast.
We have noted that many requests take three to six months to get assigned to an IRS agent. We have also noted that many requests take more than a year for the IRS to evaluate and close.
You may be able to contact the Taxpayer Advocate Service (“TAS”) within the IRS if the case is delayed for more than a few months. The TAS will usually help get cases like this moving if you can explain that the delay is creating a financial hardship or an immediate threat. This is not that hard to do with reconsideration requests, as penalties and interest are accruing while you wait for the IRS.
Can you Appeal an Audit Reconsideration?
Yes, you can appeal an audit reconsideration request that is denied. The IRS auditor will send you a letter advising you how to file a protest to ask the IRS Office of Appeals to consider your request.
More About the Audit Reconsideration Request
1. The request does not halt the time to submit a refund claim
The audit reconsideration request does not stop the time period for filing a refund claim (i.e., an amended tax return). This is important. You can usually only file a refund claim within three years of the later of the date your tax return was filed or the date the IRS made its tax assessment. If you are still within this three-year period, you may want to file a formal claim for refund instead of an audit reconsideration request (or you may want to file both the refund claim and the audit reconsideration).
2. The request does not halt IRS collection actions
The audit reconsideration request generally does not stop the IRS’s collection actions. Thus, you may have to contact the IRS and ask for a collection hold periodically. The IRS will usually grant these requests, but the IRS only honors these requests for a few months. You can read more about the IRS’s collections actions here.
3. A collection due process request may be a better option
If the IRS does take collection action, such as filing a lien notice or levying on your bank account or wages, you may be able to file a collection due process (“CDP”) hearing request. This CDP hearing request can be used to challenge the underlying liability. Thus, you may be able to use the CDP hearing request to get your case before the Appeals Office. The CDP hearing request comes with the ability to appeal the decision to the U.S. Tax Court, should you not be able to settle the case with the appeals officer.
4. You may want to make a payment or deposit while you wait
You may want to consider making a payment or deposit to the IRS while you wait for the IRS to consider your request. This can help reduce the accrual of interest and penalties should the IRS not agree with your position. You can read more about payments vs. deposits here.
This is important as interest and penalties do continue to accrue while you wait for the IRS to work on your request. You can read more about IRS penalties that accrue here.
5. The request cannot be used to change a closing agreement
If you entered into a formal closing agreement with the IRS, the audit reconsideration request cannot be used to change that agreement. Closing agreements are final.
A closing agreement will be on Form 906, Closing Agreements on Final Determination Covering Specific Matters. The Form 870-AD, Offer of Waiver of Restrictions on Assessment and Collection of Deficiency in Tax, is similar but is not considered to be a closing agreement. You can read more about closing agreements here.
Get Help Submitting Your Audit Request
We are experienced tax attorneys in Houston, Texas. We help submit and defend audit reconsideration requests with the IRS.
If you need to ask the IRS to reconsider its changes to your tax account or if you have questions about these requests, we want to hear from you. Call us at (713) 909-4906.