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Appeal Rights(p8)


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Because people sometimes disagree on tax matters, the Service has an appeals system. Most differences can be settled within this system without expensive and time-consuming court trials.
However, your reasons for disagreeing must come within the scope of the tax laws. For example, you cannot appeal your case based only on moral, religious, political, constitutional, conscientious, or similar grounds.
In most instances, you may be eligible to take your case to court if you do not reach an agreement at your appeals conference, or if you do not want to appeal your case to the IRS Office of Appeals. See Appeals to the Courts, later, for more information.
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Appeal Within the IRS(p8)


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Appeal Within the IRS

You can appeal an IRS tax decision to a local Appeals Office, which is separate from and independent of the IRS office taking the action you disagree with. The Appeals Office is the only level of appeal within the IRS. Conferences with Appeals Office personnel are held in an informal manner by correspondence, by telephone, or at a personal conference.
If you want an appeals conference, follow the instructions in the letter you received. Your request will be sent to the Appeals Office to arrange a conference at a convenient time and place. You or your representative should be prepared to discuss all disputed issues at the conference. Most differences are settled at this level.
If agreement is not reached at your appeals conference, you may be eligible to take your case to court. See Appeals to the Courts, later.
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Protests and Small Case Requests(p8)


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Protests and Small Case Requests

When you request an Appeals conference, you may also need to file either a formal written protest or a small case request with the office named in the letter you received. Also, see the special appeal request procedures in Publication 1660. In addition, for the appeal procedures for a spouse or former spouse of a taxpayer seeking relief from joint and several liability on a joint return, see Rev. Proc. 2003-19, which is on page 371 of the Internal Revenue Bulletin 2003-5 at www.irs.gov/pub/irs-irbs/irb03-05.pdf.
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Written protest.(p9)


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You need to file a written protest in the following cases.
If you must submit a written protest, see the instructions in Publication 5 about the information you need to provide. The IRS urges you to provide as much information as you can, as it will help speed up your appeal. That will save you both time and money.
Caution
Be sure to send the protest within the time limit specified in the letter you received.
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Small case request.(p9)


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If the total amount for any tax period is not more than $25,000, you may make a small case request instead of filing a formal written protest. In figuring the total amount, include a proposed increase or decrease in tax (including penalties), or claimed refund. If you are making an offer in compromise, include total unpaid tax, penalty, and interest due. For a small case request, follow the instructions in our letter to you by sending a letter:
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Representation(p9)


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You can represent yourself at your appeals conference, or you can be represented by any federally authorized practitioner, including an attorney, a certified public accountant, an enrolled actuary, or an enrolled agent.
If your representative attends a conference without you, he or she can receive or inspect confidential information only if you have filed a power of attorney or a tax information authorization. You can use a Form 2848 or any other properly written power of attorney or authorization.
You can also bring witnesses to support your position.
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Confidentiality privilege.(p9)


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Generally, the same confidentiality protection that you have with an attorney also applies to certain communications that you have with federally authorized practitioners. See Confidentiality privilege under If Your Return Is Examined, earlier.
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Appeals to the Courts(p9)


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If you and the IRS still disagree after the appeals conference, you may be entitled to take your case to the United States Tax Court, the United States Court of Federal Claims, or the United States District Court. These courts are independent of the IRS.
If you elect to bypass the IRS' appeals system, you may be able to take your case to one of the courts listed above. However, a case petitioned to the United States Tax Court will normally be considered for settlement by an Appeals Office before the Tax Court hears the case.
Caution
If you unreasonably fail to pursue the IRS' appeals system, or if your case is intended primarily to cause a delay, or your position is frivolous or groundless, the Tax Court may impose a penalty of up to $25,000. See Appeal Within the IRS, earlier.
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Prohibition on requests to taxpayers to give up rights to bring civil action.(p9)


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The Government cannot ask you to waive your right to sue the United States or a Government officer or employee for any action taken in connection with the tax laws. However, your right to sue can be waived if:
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Burden of proof.(p9)


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For court proceedings resulting from examinations started after July 22, 1998, the IRS generally has the burden of proof for any factual issue if you have met the following requirements.
Caution
The burden of proof does not change on an issue when another provision of the tax laws requires a specific burden of proof with respect to that issue.
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Use of statistical information.(p9)
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In the case of an individual, the IRS has the burden of proof in court proceedings based on any IRS reconstruction of income solely through the use of statistical information on unrelated taxpayers.
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Penalties.(p10)
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The IRS has the burden of initially producing evidence in court proceedings with respect to the liability of any individual taxpayer for any penalty, addition to tax, or additional amount imposed by the tax laws.
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Recovering litigation or administrative costs.(p10)


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These are the expenses that you pay to defend your position to the IRS or the courts. You may be able to recover reasonable litigation or administrative costs if all of the following conditions apply.
Prevailing party, reasonable litigation costs, and reasonable administrative costs are explained later.
Note.If the IRS denies your award of administrative costs, and you want to appeal, you must petition the Tax Court within 90 days of the date on which the IRS mails the denial notice.
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Prevailing party.(p10)
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Generally, you are the prevailing party if:
You will not be treated as the prevailing party if the United States establishes that its position was substantially justified. The position of the United States is presumed not to be substantially justified if the IRS:
The court will generally decide who is the prevailing party.
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Reasonable litigation costs.(p10)
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These include the following costs.
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Reasonable administrative costs.(p10)
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These include the following costs.
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Timing of costs.(p10)
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Administrative costs can be awarded for costs incurred after the earliest of:
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Net worth requirements.(p10)
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An individual taxpayer may be able to recover litigation or administrative costs if the following requirements are met.
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Qualified offer rule.(p10)
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You can also receive reasonable costs and fees and be treated as a prevailing party in a civil action or proceeding if: You must also meet the remaining requirements, including the exhaustion of administrative remedies and the net worth requirement, discussed earlier, to get the benefit of the qualified offer rule.
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Qualified offer.(p11)
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This is a written offer made by you during the qualified offer period. It must specify both the offered amount of your liability (not including interest) and that it is a qualified offer.
To be a qualified offer, it must remain open from the date it is made until the earliest of:
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Qualified offer period.(p11)
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This period begins on the day the IRS mails you the first letter of proposed deficiency that allows you to request review by the IRS Office of Appeals. It ends 30 days before your case is first set for trial.
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Attorney fees.(p11)
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For the calendar year 2007, the basic rate for attorney fees is $170 per hour and can be higher in certain limited circumstances. Those circumstances include the level of difficulty of the issues in the case and the local availability of tax expertise. The basic rate will be subject to a cost-of-living adjustment each year.
Deposit
Attorney fees include the fees paid by a taxpayer for the services of anyone who is authorized to practice before the Tax Court or before the IRS. In addition, attorney fees can be awarded in civil actions for unauthorized inspection or disclosure of a taxpayer's return or return information.
Fees can be awarded in excess of the actual amount charged if:
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Jurisdiction for determination of employment status.(p11)


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The Tax Court can review IRS employment status determinations (for example, whether individuals hired by you are in fact your employees or independent contractors) and the amount of employment tax under such determinations. Tax Court review can take place only if, in connection with an audit of any person, there is an actual controversy involving a determination by the IRS as part of an examination that either:
The following rules also apply to a Tax Court review of employment status.
For further information, see Publication 3953, Questions and Answers About Tax Court Proceedings for Determination of Employment Status Under IRC Section 7436.
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Section 530(a) of the Revenue Act of 1978.(p11)
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This section relieves an employer of certain employment tax responsibilities for individuals not treated as employees. It also provides relief to taxpayers under audit or involved in administrative or judicial proceedings.
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Tax Court review of request for relief from joint and several liability on a joint return.(p11)


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As discussed later, at Relief from joint and several liability on a joint return under Claims for Refund, you can request relief from liability for tax you owe, plus related penalties and interest, that you believe should be paid by your spouse (or former spouse). You also can petition (ask) the Tax Court to review your request for innocent spouse relief or separation of liability if either:
If you receive a determination notice, you must petition the Tax Court to review your request during the 90-day period that begins on the date the IRS mails the notice. See Publication 971 for more information.
Note.Your spouse or former spouse may file a written protest and request an Appeals conference to protest your claim of innocent spouse relief or separation of liability.
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Tax Court(p12)


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You can take your case to the United States Tax Court if you disagree with the IRS over:
For information on Tax Court review of a determination of employment status, see Jurisdiction for determination of employment status, earlier.
For information on Tax Court review of an IRS refusal to abate interest, see Tax Court can review failure to abate interest, earlier under Examination of Returns.
For information on Tax Court review of Appeals determinations with respect to lien notices and proposed levies, see Publication 1660.
You cannot take your case to the Tax Court before the IRS sends you a notice of deficiency. You can only appeal your case if you file a petition within 90 days from the date the notice is mailed to you (150 days if it is addressed to you outside the United States).
Deposit
The notice will show the 90th (and 150th) day by which you must file your petition with the Tax Court.
Note.If you consent, the IRS can withdraw a notice of deficiency. Once withdrawn, the limits on credits, refunds, and assessments concerning the notice are void, and you and the IRS have the rights and obligations that you had before the notice was issued. The suspension of any time limitation while the notice of deficiency was issued will not change when the notice is withdrawn.
Caution
After the notice is withdrawn, you cannot file a petition with the Tax Court based on the notice. Also, the IRS can later issue a notice of deficiency in a greater or lesser amount than the amount in the withdrawn deficiency.
Generally, the Tax Court hears cases before any tax has been assessed and paid; however, you can pay the tax after the notice of deficiency has been issued and still petition the Tax Court for review. If you do not file your petition on time, the proposed tax will be assessed, a bill will be sent, and you will not be able to take your case to the Tax Court. Under the law, you must pay the tax within 21 days (10 business days if the amount is $100,000 or more). Collection can proceed even if you think that the amount is excessive. Publication 594 explains IRS collection procedures.
If you filed your petition on time, the court will schedule your case for trial at a location convenient to you. You can represent yourself before the Tax Court or you can be represented by anyone admitted to practice before that court.
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Small tax case procedure.(p12)


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If the amount in your case is $50,000 or less for any 1 tax year or period, you can request that your case be handled under the small tax case procedure. If the Tax Court approves, you can present your case to the Tax Court for a decision that is final and that you cannot appeal. You can get more information regarding the small tax case procedure and other Tax Court matters from the United States Tax Court, 400 Second Street, N.W., Washington, DC 20217. More information can be found on the Tax Court's website at www.ustaxcourt.gov.
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Motion to request redetermination of interest.(p12)


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In certain cases, you can file a motion asking the Tax Court to redetermine the amount of interest on either an underpayment or an overpayment. You can do this only in a situation that meets all of the following requirements. You must file the motion within one year after the decision of the Tax Court becomes final.
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District Court and Court of Federal Claims(p12)


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District Court and Court of Federal Claims

Generally, the District Court and the Court of Federal Claims hear tax cases only after you have paid the tax and filed a claim for a credit or refund. As explained later under Claims for Refund, you can file a claim with the IRS for a credit or refund if you think that the tax you paid is incorrect or excessive. If your claim is totally or partially disallowed by the IRS, you should receive a notice of claim disallowance. If the IRS does not act on your claim within 6 months from the date you filed it, you can then file suit for a refund.
You generally must file suit for a credit or refund no later than 2 years after the IRS informs you that your claim has been rejected. However, you can file suit if it has been 6 months since you filed your claim and the IRS has not yet delivered a decision.
You can file suit for a credit or refund in your United States District Court or in the United States Court of Federal Claims. However, you cannot appeal to the United States Court of Federal Claims if your claim is for credit or refund of a penalty that relates to promoting an abusive tax shelter or to aiding and abetting the understatement of tax liability on someone else's return.
For information about procedures for filing suit in either court, contact the Clerk of your District Court or of the United States Court of Federal Claims. For information on District Court review of Appeals determinations with respect to lien notices and proposed levies, see Publication 1660.
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Refund or Credit of Overpayments Before Final Determination(p13)


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Refund or Credit of Overpayments Before Final Determination

Any court with proper jurisdiction, including the Tax Court, can order the IRS to refund any part of a tax deficiency that the IRS collects from you during a period when the IRS is not permitted to assess that deficiency, or to levy or engage in any court proceeding to collect that deficiency. In addition, the court can order a refund of any part of an overpayment determined by the Tax Court that is not at issue on appeal to a higher court. The court can order these refunds before its decision on the case is final.
Generally, the IRS is not permitted to take action on a tax deficiency during: