Appealing an Internal Revenue Service Examination begins long before a taxpayer considers the United States Tax Court; it is a continuum that starts with an IRS audit, proceeds through the administrative Appeals Office, and, if necessary, culminates in litigation. The audit itself is generally initiated when the Service believes a return is likely incorrect, and it may take the form of a correspondence, office, or field examination. When the agent completes the examination, the taxpayer is issued either a “30-day letter” (inviting a protest to the Office of Appeals) or, if the taxpayer has already declined to participate in an administrative appeal, a “90-day letter,” formally titled the Notice of Deficiency. Understanding how and when to navigate from the Examination Division to the Office of Appeals, and ultimately to the Tax Court, is essential both for preserving rights and for crafting a cost-efficient defense strategy.
Upon receipt of a 30-day letter, the taxpayer has the first meaningful fork in the road. Electing the administrative path requires submission of a written protest—often styled as a formal brief—within the stated thirty-day period (extensions are frequently granted on request). The protest must articulate factual background, legal arguments, applicable statutory and regulatory authority, and, crucially, explain why the proposed adjustments are erroneous. In dollar-restricted cases—generally those not exceeding $25,000 per disputed tax period—a simplified “small case” protest may suffice, but taxpayers with higher stakes benefit from a full narrative. The protest is transmitted to the Appeals Office, a quasi-independent branch of the IRS mandated by statute to resolve controversies without litigation on a basis consistent with the hazards of potential court outcomes. At this stage, taxpayers may introduce new evidence, negotiate settlements, and avail themselves of alternative dispute resolution programs such as Fast Track Settlement. Representation by counsel, a CPA, or an enrolled agent is permitted, and the presence of professional advocacy often materially affects settlement value because Appeals Officers typically evaluate the credibility of potential courtroom success.
The Appeals process is deliberately informal, driven by ex-parte restrictions that prevent substantive off-record communication between Appeals and Examination personnel. Conferences may be in person, by telephone, or via virtual meeting platforms, and may involve multiple sessions. Appeals Officers weigh the “hazards of litigation” standard, which focuses on the strengths and weaknesses of each party’s likely success were the matter tried. Because Appeals does not seek merely to affirm the examining agent, it has broad settlement discretion—including the ability to concede portions of issues that might otherwise withstand judicial scrutiny—so long as overall determinations comport with sound tax administration. If a settlement is reached, the parties execute a Form 870-AD or similar agreement, memorializing concessions and precluding subsequent refund suits for the settled years. If settlement proves elusive, Appeals closes the file and forwards it for statutory notice issuance, or, if the taxpayer already possesses a 90-day letter, retains no further jurisdiction.
When the Notice of Deficiency is issued, the clock governing Tax Court jurisdiction begins to run. The taxpayer has ninety days (one hundred fifty if addressed outside the United States) to file a petition with the United States Tax Court; failure to do so forever bars pre-payment litigation, although post-payment remedies in the District Courts or Court of Federal Claims remain. The petition, while captioned as a pleading, functions as a concise appellate brief identifying disputed determinations and factual predicates. Taxpayers elect a “small tax case” posture—available for disputes of $50,000 or less per tax year—by checking the appropriate box on the petition; such cases enjoy expedited and less formal procedures but yield decisions without precedential value or appeal rights. Regular cases proceed under the Tax Court Rules of Practice and Procedure, commencing with jurisdictional review, answer by IRS counsel, and automatic referral to the Appeals Office for a second round of settlement negotiations known as post-petition Appeals. Even at this juncture, the Appeals Office evaluates hazards of litigation, and many suits still settle without trial.
If settlement is not achieved, pre-trial discovery follows, including mandatory stipulation of facts and the potential use of interrogatories, document requests, and depositions. The burden of proof generally rests with the taxpayer, though specific issues such as penalties under section 6662 or certain basis adjustments under section 7491 may shift the burden to the Commissioner when statutory prerequisites are met. Trial in the Tax Court is de novo, meaning the Court is not limited to the administrative record; both parties may introduce new evidence. Following trial, post-trial briefs are submitted, and the Court ultimately issues a decision. Either party dissatisfied with an adverse opinion may appeal to the geographically appropriate United States Court of Appeals.
Throughout this entire trajectory, strategic considerations loom large. Administrative resolution is typically faster, less costly, and potentially more flexible than litigation, but it may limit the development of novel legal theories or the opportunity to create favorable precedent. Conversely, pressing forward to the Tax Court secures an independent judicial forum and often greater discovery rights, although at the price of increased expense and the uncertainty of litigation. Moreover, deferring payment by invoking Tax Court jurisdiction preserves cash flow, whereas refund suits require full payment and subsequent administrative claim filing. Taxpayers must also weigh collateral ramifications, such as the possibility of triggering accuracy-related penalties and the imposition of increased interest for positions that fail to satisfy substantial-authority thresholds.
In summary, appealing an IRS Examination begins with a timely, well-crafted protest to the Office of Appeals, proceeds through a negotiation process anchored in the hazards-of-litigation framework, and, if unresolved, advances to the United States Tax Court via a petition filed within the statutory period following a Notice of Deficiency. Mastery of procedural deadlines, evidentiary standards, and settlement dynamics at each juncture maximizes the likelihood of a favorable outcome while preserving the taxpayer’s substantive and procedural rights.
Retaining a tax attorney is crucial when navigating the IRS examination and appeals process. A tax attorney brings specialized knowledge of tax law, procedural rules, and negotiation strategies that can significantly impact the outcome of your case. They can help ensure that all filings are timely and properly prepared, advocate effectively during settlement discussions, and protect your rights if litigation becomes necessary. Additionally, a tax attorney can identify and address potential collateral consequences, such as penalties or criminal exposure, and provide guidance tailored to your unique circumstances. Their expertise is invaluable in maximizing your chances of a favorable resolution while minimizing risks and costs.