4.9 Audit Reconsideration
4.9 Audit Reconsideration aetrahan Tue, 01/31/2023 - 09:30If a taxpayer has missed the deadline to file a Tax Court petition, the most practical remedy is an “Audit Reconsideration”.1 Audit Reconsideration is an administrative remedy handled by the IRS. Audit Reconsideration is available to reevaluate a prior audit where the taxpayer disagrees with the original determination, to contest a “Substitute for Return” determination by filing an original delinquent return, or to contest the denial of a tax credit as a result of an examination.2
To request an Audit Reconsideration, the taxpayer must have filed a tax return for which the assessment remains unpaid or the IRS has reversed tax credits that the taxpayer disputes.3 A taxpayer who has paid the tax should file a formal claim by using Form 1040X. The taxpayer will also need to submit new evidence that has not been previously reviewed by the IRS. The drawback to Audit Reconsideration is that the IRS has the discretion to continue collection efforts while the Audit Reconsideration is being processed. The process may take 6 to 8 months. So, your client may end up having to make installment payments even while arguing that there is no liability. If Audit Reconsideration is successful, these payments would be refunded to the taxpayer. The IRS has the discretion to stop collections during the processing of an Audit Reconsideration, so an attorney should always request that collections be stopped. If you can submit financial information that shows that collection efforts would place an undue hardship on the taxpayer, your chances of getting this relief will be much greater.
The IRS does not have a form for Audit Reconsideration requests. Audit Reconsideration may be requested by a Form 1040X or letter. A Form 1040X is an amended tax return. Some IRS offices request both a Form 1040X and a cover letter for an Audit Reconsideration. If a Form 1040X is used, state the request for Audit Reconsideration in the cover letter.
The letter requesting Audit Reconsideration should include:
- Taxpayer’s name, Social Security Number, and tax year at issue
- Clear statement of issues and adjustments disputed
- Relief or action desired
- History of the prior audit (Attach original audit report, Form 4549)
- Additional information not considered during the original audit
Because the IRS considers disputed issues issue-by-issue, attach new documentation on each disputed issue. The request for Audit Reconsideration should be filed with the IRS Service Center where the taxpayer’s return was filed.4
In a partially paid assessment, be careful not to miss the 3-year time limit for refund claims. The Taxpayer Advocate Service can help expedite an Audit Reconsideration.5 If a case is accepted for Audit Reconsideration, and the taxpayer’s request is disallowed in full or part, the taxpayer may request an appeal.6