Remedies for resolving Taxpayer disputes with the Internal Revenue Service

The Internal Revenue Service was created in 1862 as the federal agency responsible for collection of tax and interpretation and enforcement of the Internal Revenue Code. As with any collection of laws and regulations the Internal Revenue Code is open to varying levels of interpretation. Congress and the IRS have developed, over time, an effective set of tools and remedies for taxpayer disputes with the IRS arising out of the varying interpretations of the complex set of laws and regulations that compromise the Internal Revenue Code.

The remedies provided to taxpayers and the IRS in resolving disputes can be divided into four major categories:

1. Determination Letters and Rulings – These are letters or rulings with varying degrees of binding effect to transactions. The transactions can be proposed or contemplated transactions, or completed transactions that have not been subject to the examination process
2. Examination Process – During the examination process discussions are opened with the IRS and the taxpayer is afforded the opportunity to explain the stance taken under the laws and regulations for specific transactions. The examination process is a period for both finding of fact as well as discussing application of law to specific transactions. Audit determinations, if agreed to, are final and binding.
3. Appeals Process and Tax Court – The Appeals Process and the US Tax Court afford the taxpayer an additional avenue for dispute resolution when the taxpayer disagrees with the finding at the examination level. Appeals are an informal process that focuses on determining rule of law to the transactions that were considered in examination. New issues are generally not raised at Appeals. The US Tax Court is the taxpayer’s last step after appeals (before Appellate Courts or the US Supreme Court) to litigate issues under examination.
4. Taxpayer Advocate Service – The Taxpayer Advocate Service is available to taxpayers as an independent source within the IRS to help resolve taxpayer disputes. This function is mostly related to resolving issues with communication between the taxpayer and IRS personnel.  Read more