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The tax litigation process

When taxpayers receive notification from the IRS about a tax problem, their main goal is to resolve the issue and make the problem go away. In some cases, when the tax debts are significant or the taxpayer denies the alleged wrong-doing, litigation is the only course of action.

In tax litigation, unlike other forms of litigation, the opponent is always the IRS. The IRS is a daunting adversary, with their seemingly endless budget and legions of staff. While tax litigation presents a unique set of challenges, cases can be successfully litigated by attorneys defending their client's position.

The four phases

Tax disputes can span a few months or several years depending on the case. Each case is unique and involves anything governed or taxable under the Internal Revenue Code. This can include revenue and income, gifts or estates. Although each case is singular, tax litigation generally has four phases.

  • Audit phase: The IRS reviews the taxpayer's federal return. They look at reported earnings and taxes paid. Generally corporations are subject to routinely scheduled audits on a cycle that can review one to six tax years at a time. Audits have several possible outcomes. Once finished with the audit the IRS might be satisfied and have no changes to make. Instead, the IRS may propose changes to which the taxpayer agrees, and settlement is reached. When the IRS proposes adjustments the taxpayer does not agree with, the case moves to the next phase.
  • Appeal phase: If the taxpayer does not agree to some or all of the adjustments proposed by the IRS the audit can be appealed. The goal of the appeal is to reach a resolution between all parties and avoid litigation. During the appeal phase both parties may concede items in order to reach a resolution.
  • Trial phase: If an agreement cannot be reached during the appeal phase the parties move forward with litigation. There are two types of litigation. The first is deficiency litigation, which is used to determine a taxpayer's financial liability. The second is refund litigation where the taxpayer sues to recover taxes already paid.
  • Appellate phase: After the trial is resolved at the court level, the unsuccessful party can appeal the court's decision.

Litigation is not always necessary or the best approach, but there are times when fighting the IRS is imperative to your financial future. Although the IRS may seem a daunting adversary, a carefully prepared case often proves successful.

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