The IRS examined your return and concluded you owe more than you reported. You believe they’re wrong. This is not the end of the road — it’s actually just the beginning of a formal dispute process with multiple stages, each offering a genuine chance to resolve the issue in your favor.
First: request a conference with the examiner’s supervisor
Before formally appealing, you have the right to request a conference with the examiner’s immediate supervisor. Sometimes a supervisor will see the case differently — especially if the original examiner applied a rule too strictly or didn’t adequately consider your documentation. This costs nothing and can resolve simple disputes quickly. Ask for it in writing, referencing your case number.
Option 1: IRS Office of Appeals (the most powerful free option)
The IRS Office of Appeals is an independent function within the IRS, completely separate from examination. Its mission is specifically to resolve disputes without litigation. Appeals officers have settlement authority — they can compromise on positions the examiner wouldn’t budge on.
Approximately 80% of cases that reach Appeals are resolved without going to court.
To request Appeals, you typically submit either:
- Small case request: For total disputed amounts under $25,000 per tax year — just a letter explaining your position
- Written protest: For amounts over $25,000 — a more formal document listing each disputed item, the relevant facts, applicable tax law, and your argument
How Appeals officers think differently
Examiners apply the tax law strictly. Appeals officers weigh the “hazards of litigation” — meaning they consider: if this went to Tax Court, how likely is the IRS to win? If your position has a reasonable legal basis even if not airtight, an Appeals officer may settle for a middle ground rather than risk losing in court. This is why Appeals resolves cases that examiners won’t settle.
Option 2: US Tax Court
If Appeals doesn’t resolve the dispute, or if you skip Appeals, the IRS issues a Statutory Notice of Deficiency (90-day letter). You have 90 days to file a petition with the US Tax Court. This deadline is absolute — missing it forfeits your right to contest the assessment before paying.
Tax Court has two tracks:
- Small Tax Case (S-Case) procedure: For disputes of $50,000 or less per year. Informal proceedings, you can represent yourself, and cases are decided by a judge without a jury. Decisions are final — you cannot appeal an S-Case decision.
- Regular Tax Court: For larger amounts or complex legal issues. More formal, discovery process, attorney representation strongly advised. Decisions can be appealed to the Circuit Court of Appeals.
Option 3: Pay and sue for a refund
As an alternative to Tax Court, you can pay the assessed tax in full, then file a refund claim with the IRS. If the IRS denies the claim, you can sue in US District Court or the US Court of Federal Claims. This option is sometimes strategically preferable because District Court juries may be more sympathetic on certain issues.
Penalty abatement — often overlooked
Even if you ultimately owe additional tax, accuracy-related penalties (typically 20%) can often be abated separately. First-time abatement removes penalties if you have a clean compliance history for the prior 3 years — no specific reason required. Request it in writing after any audit assessment.
Request penalty abatement separately
Many taxpayers accept audit results including penalties because they don’t know they can separately challenge them. Even after agreeing to additional tax, write to the IRS requesting first-time abatement. It’s a short letter — and it often works.