An Internal Revenue Service (IRS) audit can end with a report proposing changes to your tax return, including additional tax, penalties and interest. If you disagree with the results, you may wonder whether you can appeal the agency’s findings.
Reasons to challenge the audit findings
A dispute generally rests on one or more of these reasons:
- Errors involving the facts: The examiner misunderstood or overlooked information relevant to your return.
- Errors involving the law: The examiner incorrectly applied a tax law or regulation to your circumstances.
- Errors involving the evidence: The examiner rejected an item that you can support with records that were not considered during the audit.
You generally bear the burden of demonstrating that the IRS made an incorrect adjustment. Under certain circumstances, that responsibility may shift to the agency if you satisfy federal recordkeeping requirements and cooperate with its requests.
Records to support your position
An audit challenge depends on records that address the specific adjustments in dispute. The relevant documents are often those created near the time of the transaction, including:
- Bank statements and canceled checks tracing deposits and payments
- Invoices, receipts and mileage logs recording business expenses
- Appraisals supporting charitable gifts or disputed asset values
- Third-party records, such as Forms 1099, brokerage statements and loan documents
- Signed statements from people with direct knowledge of the transaction
If original documents are missing, reconstructed records may still help. Courts may accept reasonable estimates for some business expenses, but travel, meals and vehicle use require more detailed proof. Sorting records by tax year and disputed adjustment can also show how each document relates to the issue.
Ways to pursue a formal challenge
Before the IRS assesses additional tax, you may ask the Independent Office of Appeals to review the audit findings. Smaller disputes may qualify for a small case request, while larger disputes generally require a formal written protest.
After receiving a notice of deficiency, you generally have 90 days to petition the U.S. Tax Court without first paying the disputed amount. If the IRS has already assessed the tax, you may request audit reconsideration based on new information.
Alternatively, you may generally pay the liability in full, file an administrative refund claim with the IRS and, if the agency denies the claim or does not act within six months, submit a refund suit in a U.S. district court or the U.S. Court of Federal Claims.
An attorney can review the findings, determine which path fits the stage of your dispute and prepare the required protest, claim or petition. Counsel can also present your position and track the deadlines that may limit your options.