Appeal Rights Because people sometimes disagree on tax matters, the Service hasan appeals system. Most differences can be settled within this systemwithout expensive and time-consuming court trials. However, your reasons for disagreeing must come within the scope ofthe tax laws. For example, you cannot appeal your case based only onmoral, religious, political, constitutional, conscientious, or similargrounds. If you do not want to appeal your case within the IRS, you can takeyour case directly to court. Appeal Within the IRS You can appeal an IRS tax decision to a local Appeals Office, whichis separate and independent of your local IRS District, Service orCompliance Center. The Appeals Office is the only level of appealwithin the IRS. Conferences with Appeals Office personnel areconducted in an informal manner. If you want an appeals conference, follow the instructions in theletter you received. Your request will be sent to the Appeals Officeto arrange a conference at a convenient time and place. You or yourrepresentative should be prepared to discuss all disputed issues atthe conference. Most differences are settled at this level. If agreement is not reached at your appeals conference, you can, atany time, take your case to court. See Appeals to the Courts,later. Protests and Small Case Requests When you request an Appeals conference, you may also need to fileeither a formal written protest or a small case request with theoffice named in the letter you received. Also see the special appealrequest procedures in Publication 1660, Collection AppealRights. Written protest.You need to file a written protest: In all employee plan and exempt organization cases withoutregard to the dollar amount at issue, In all partnership and S corporation cases without regard tothe dollar amount at issue, and In all other cases, unless you qualify for the small caserequest procedure, or other special appeal procedures such asrequesting Appeals consideration of liens, levies, seizures, orinstallment agreements. See Publication 1660. If you must submit a written protest, see the instructions inPublication 5 about the information you need to provide. The IRS urgesyou to provide as much information as you can, as it will help speedup your appeal. That will save you both time and money. Caution: Be sure to send the protest within the time limit specified in theletter you received. Small case request.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 writtenprotest. In computing the total amount, include a proposed increase ordecrease in tax (including penalties), or claimed refund. For an offerin compromise, in calculating the total amount, include total unpaidtax, penalty, and interest due. For a small case request, follow theinstructions in our letter to you by sending a letter: Requesting Appeals consideration, Indicating the changes you do not agree with, and Indicating the reasons why you do not agree. Representation You can represent yourself at your appeals conference, or you canbe represented by any federally authorized practitioner, including anattorney, a certified public accountant, an enrolled actuary, or anenrolled agent. If your representative attends a conference without you, he or shecan receive or inspect confidential information only if you have fileda power of attorney or a tax information authorization. You can use aForm 2848, Power of Attorney and Declaration of Representative,or any other properly written power of attorney orauthorization. You can also bring witnesses to support your position. Uniform application of confidentiality privilege to taxpayercommunications with federally authorized practitioners.For communications made after July 21, 1998, the confidentialityprotection that you have with an attorney has been expanded to applyto certain communications that you have with federally authorizedpractitioners in general. Caution: This confidentiality protection cannot be used by you in anyadministrative or court proceeding with an agency other than the IRS. Confidential communications are those that: Advise you on tax matters within the scope of thepractitioner's authority to practice before the IRS, Would be confidential between an attorney and you,and Relate to noncriminal tax matters before IRS, or Relate to noncriminal tax proceedings brought in federalcourt by or against the United States. Confidential communications are not those that: Take place between a federally authorized practitioner and acorporate director, shareholder, officer, employee, agent, orrepresentative, and Promote the corporation's participation in a taxshelter. A tax shelter is any entity, plan, or arrangement, asignificant purpose of which is the evasion of income tax. Appeals to the Courts If you and the IRS still disagree after the appeals conference, youcan take your case to the United States Tax Court, the United StatesCourt of Federal Claims, or the United States District Court. Thesecourts are independent of the IRS. Note.The Government cannot ask you to waive your right to sue the UnitedStates or a Government officer or employee for any action taken inconnection with the tax laws. See Prohibition on requests totaxpayers to give up rights to bring civil action, near thebeginning of this publication, for more information. If you elect to bypass the IRS' appeals system, you also can takeyour case to one of the courts listed above. However, a casepetitioned to the United States Tax Court will normally be consideredfor settlement by an Appeals Office before the Tax Court hears thecase. Caution: If you unreasonably fail to pursue the IRS' appeals system, or ifyour case is intended primarily to cause a delay, or your position isfrivolous or groundless, the Tax Court may impose a penalty of up to$25,000. See Appeal Within the IRS, earlier. Burden of proof.For court proceedings resulting from examinations started afterJuly 22, 1998, the IRS has the burden of proof for any factual issueif you have introduced credible evidence relating to the issue.However, you also must have: Complied with all substantiation requirements of theInternal Revenue Code, Maintained all records required by the Internal RevenueCode, Cooperated with all reasonable requests by the IRS forinformation regarding the preparation and related tax treatment of anyitem reported on your tax return, and Had a net worth of $7 million or less at the time your taxliability is contested in any court proceeding if your tax return isfor a corporation, partnership, or trust. Caution: You must still keep and maintain records needed by the IRS toverify that all taxes have been properly determined and computed evenif the IRS has the burden of proof on disputed factual issues. Caution: The burden of proof does not change on an issue when anotherprovision of the tax laws requires a specific burden of proof withrespect to that issue. Use of statistical information.The IRS has the burden of proof in court proceedings based on anyreconstruction of income, for an individual taxpayer, solely throughthe use of statistical information on unrelated taxpayers. Penalties.The IRS has the burden of initially producing evidence in courtproceedings with respect to the liability of any individual taxpayerfor any penalty, addition to tax, or additional amount imposed by thetax laws. Recovering litigation or administrative costs.These are the expenses that you pay to defend your position to theIRS or the courts. You may be able to recover reasonable litigation oradministrative costs if you are the prevailing party and if: You exhaust all administrative remedies within theIRS, Your net worth is below a certain limit (see Net worthrequirements, later), You do not unreasonably delay the proceeding, and You apply for these costs within 90 days of the date onwhich the final decision of the IRS as to the determination of thetax, interest, or penalty was mailed to you. Note. If the IRS denies your award of administrative costs, and you wantto appeal, you must petition the Tax Court within 90 days of the dateon which the IRS mails the denial notice. Prevailing party.Generally, you are the prevailing party if: You substantially prevail with respect to the amount incontroversy or on the most significant tax issue or set of issues inquestion, and You meet the net worth requirements, discussed later. You will not be treated as the prevailing party if the UnitedStates establishes that its position was substantially justified. Theposition of the United States is presumed not to be substantiallyjustified if the IRS: Did not follow its applicable published guidance (such asregulations, revenue rulings, notices, announcements, and privateletter rulings and determination letters issued to the taxpayer) inthe proceeding. This presumption can be overcome by evidence,or Has lost in courts of appeal for other circuits onsubstantially similar issues. The court will generally decide who is the prevailing party. Reasonable litigation and administrative costs.These costs generally include the following: Both litigation and administrative costs. These include: The costs of studies, analyses, engineering reports, tests,or projects (after January 18, 1999, the reasonable expenses of expertwitnesses and the reasonable costs of the other items listed here)that were agreed to be necessary for the preparation of your case,and Attorney fees that generally may not exceed $120 per hour,for calendar year 1998. The hourly rate is indexed for inflation. (Thebasic rate rises to $130 per hour after January 18, 1999. SeeAttorney fees under Expansion of authority to awardcosts and certain fees after January 18, 1999, later.) Litigation only. These costs include: Reasonable amounts for court costs, and Expenses of expert witnesses. Administrative only. These costs include: Any administrative fees, or Similar charges imposed by the IRS. Timing of costs.Administrative costs can be awarded for costs incurred after theearliest of: The date of the notice of deficiency, The date you receive notice of the IRS Office of Appeals'decision, or Hotelreservierungen LangstiniFor costs incurred after January 18, 1999, the date thefirst letter of proposed deficiency is sent that allows you anopportunity to request administrative review in the IRS Office ofAppeals. Net worth requirements.An individual taxpayer may be able to recover litigation oradministrative costs when certain requirements are met: For individual and estate taxpayers -- your net worthmust not exceed $2 million as of the filing date of your petition forreview. For this purpose, individuals filing a joint return shall betreated as separate individuals. For charities and certain cooperatives -- you must nothave more than 500 employees as of the filing date of your petitionfor review. For all other taxpayers -- your net worth must notexceed $7 million, and you must not have more than 500 employees as ofthe filing date of your petition for review. Expansion of authority to award costs and certain feesincurred after January 18, 1999.Expanded rules apply to your recovering reasonable administrativeand litigation costs and certain fees incurred by you after January18, 1999. Qualified offer rule.You can receive reasonable costs and fees as a prevailing party ina civil action or proceeding when: You make a qualified offer to the IRS to settleyour case, The IRS does not accept that offer, and The tax liability (not including interest) later determinedby the court is equal to or less than the amount of your qualifiedoffer. You must also meet the net worth requirements, discussedearlier, to get the benefit of the qualified offer rule. Qualified offer.This is a written offer made by you during the qualifiedoffer period. It must specify: The amount of your liability (not including interest),and That it is a qualified offer when made. It must also remain open until the earliest of: The date the offer is rejected, The date the trial begins, or 90 days from the date of the offer. Qualified offer period.This is the period beginning with the date that the first letterof proposed deficiency that allows the you to request review by theIRS Office of Appeals is mailed by the IRS to you and ending on thedate that is 30 days before the date your case is first set for trial. Attorney fees.After January 18, 1999, the basic rate for attorney fees is $130per hour and can be higher in certain circumstances. Thosecircumstances include the difficulty of the issues in the case and thelocal availability of tax expertise. The basic rate will be subject toa cost-of-living adjustment each year. TaxTip: Attorney fees include the fees paid by a taxpayer for the servicesof anyone who is authorized to practice before the Tax Court or beforethe IRS. In addition, attorney fees can be awarded in civil actionsfor unauthorized inspection or disclosure of a taxpayer's return orreturn information. Fees can be awarded in excess of the actual amount charged if: The taxpayer is represented for no fee, or for a nominalfee, as a pro bono service, and The award is paid to the taxpayer's representative or to therepresentative's employer. Jurisdiction for determination of employment status.The Tax Court can review IRS employment statusdeterminations (for example, whether individuals hired by ataxpayer are in fact employees of that taxpayer or independentcontractors). Tax Court review can take place only if, in connectionwith an audit of any person, there is an actual controversy involvinga determination by the IRS as part of an examination that: One or more individuals performing services for that personare employees of that person, or That person is not entitled to relief under section530(a) of the Revenue Act of 1978 (discussed later). Further: A Tax Court petition to review these determinations can befiled only by the person for whom the services are performed, If the taxpayer receives an IRS determination notice bycertified or registered mail, the request for Tax Court review must befiled within 90 days of the date of mailing of that notice, If during the Tax Court proceeding, the taxpayer begins totreat as an employee an individual whose employment status is atissue, the Tax Court will not consider that change in its decision, Assessment and collection of tax is suspended while the TaxCourt review is taking place, There can be a de novo review by the Tax Court (areview which does not consider IRS administrative findings), and At the taxpayer's request and with the Tax Court'sagreement, small tax case procedures (discussed later) are availableto simplify the case resolution process when the amount at issue is$50,000 or less ($10,000 or less on or before July 22, 1998) for eachcalendar quarter involved. Section 530(a).Briefly, this section relieves an employer of certain employmenttax responsibilities for individuals treated as independentcontractors and not as employees. It also provides relief to taxpayersunder audit or involved in administrative or judicial proceedings. Tax Court review of request for relief from joint and severalliability on a joint return.As discussed later, under Relief from joint and severalliability on a joint return, you can request relief fromliability for tax you owe, plus related penalties and interest, thatyou believe should be paid by your spouse (or former spouse). You alsocan petition (ask) the Tax Court to review your request for innocentspouse relief or your election to allocate liability if: cheap hotel in LillehammerThe IRS sends you a determination notice denying, in wholeor in part, your request for or election of relief, or You have not received a determination notice from the IRSwithin 6 months from the date you file Form 8857. You must petition the Tax Court to review your request no laterthan the end of the 90-day period that begins on the date the IRSmails you a determination notice. See Publication 971 for moreinformation. Tax Court You can take your case to the United States Tax Court if youdisagree with the IRS over: Income tax, Estate tax, Gift tax, or Certain excise taxes of private foundations, publiccharities, qualified pension and other retirement plans, or realestate investment trusts. For information on Tax Court review of an IRS refusal to abateinterest, see Failure to abate interest may be reviewable by TaxCourt, earlier. To take your case to the Tax Court, the IRS must first send you anotice of deficiency. Then, you can only appeal your case if you filea petition within 90 days from the date this notice is mailed to you(150 days if it is addressed to you outside the United States). TaxTip: Beginning in 1999, the notice will show the 90th (and 150th) day bywhich you must file your petition with the Tax Court. Note.If you consent, the IRS can withdraw any notice of deficiency. Oncewithdrawn, the limits on credits, refunds, and assessments concerningthe notice are void, and you and the IRS have the rights andobligations that you had before the notice was issued. The suspensionof any time limitation while the notice of deficiency was issued willnot change when the notice is withdrawn. Caution: After the notice is withdrawn, you cannot file a petition with theTax Court based on the notice. Also, the IRS can later issue a noticeof deficiency in a greater or lesser amount than the amount in thewithdrawn deficiency. Generally, the Tax Court hears cases before any tax has beenassessed and paid; however, you can pay the tax after the notice ofdeficiency has been issued and still petition the Tax Court forreview. If you do not file your petition on time, the proposed taxwill be assessed, a bill will be sent, and you will not be able totake your case to the Tax Court. Under the law, you must pay the taxwithin 10 days. After 10 days, the tax is subject to immediatecollection. This collection can proceed even if you think that theamount is excessive. Publication 594, The IRS Collection Process,explains IRS collection procedures. If you filed your petition on time, the Court will schedule yourcase for trial at a location convenient to you. You can representyourself before the Tax Court or you can be represented by anyoneadmitted to practice before that Court. Small tax case procedure.If the amount in your case is $50,000 or less ($10,000 or less forcourt proceedings beginning on or before July 22, 1998) for any onetax year or period, the Tax Court has a simple alternative to solveyour case. At your request and if the Tax Court approves, your casecan be handled under the small tax case procedure. In this procedure,you can present your case to the Tax Court for a decision that isfinal and that you cannot appeal. You can get more informationregarding the small tax case procedure and other Tax Court mattersfrom the United States Tax Court, 400 Second Street, N.W., Washington,DC 20217. Motion to request redetermination of interest. In certain cases, you can file a motion asking the Tax Court toredetermine the amount of interest on either an underpayment or anoverpayment. You can do this only in a situation that meets all of thefollowing requirements. The IRS has assessed a deficiency that was determined by theTax Court. The assessment included interest. You have paid the entire amount of the deficiency plus theinterest claimed by the IRS. The Tax Court has found that you made an overpayment. You must file the motion within one year after the decision ofthe Tax Court becomes final. District Court and Court of Federal Claims Generally, the District Court and the Court of Federal Claims heartax cases only after you have paid the tax and filed a claim for acredit or refund. As explained later under Claims for Refund,you can file a claim with the IRS for a credit or refund if you thinkthat the tax you paid is incorrect or excessive. If your claim istotally or partially disallowed by the IRS, you should receive anotice of claim disallowance. If the IRS does not act on your claimwithin 6 months from the date you filed it, you can then file suit fora refund. You must file suit for a credit or refund no later than 2years after the IRS informs you that your claim has been rejected. You can file suit for a credit or refund in your United StatesDistrict Court or in the United States Court of Federal Claims.However, you cannot appeal to the United States Court of FederalClaims if your claim is for credit or refund of a penalty that relatesto promoting an abusive tax shelter or to aiding and abetting theunderstatement 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 Courtof Federal Claims. Refund or Credit of Overpayments Before Final Determination Beginning July 22, 1998, any court with proper jurisdiction,including the Tax Court, can order the IRS to refund any part of a taxdeficiency that the IRS collects from you during a period when the IRSis not permitted to assess, or to levy or engage in any courtproceeding to collect that tax deficiency. In addition, the court canorder a refund of any part of a tax deficiency that is not at issue inyour appeal to the court. The court can order these refunds before itsdecision on the case is final. Generally, the IRS is not permitted to take action on a taxdeficiency during: The 90-day (or 150-day if outside the United States) periodthat you have to petition a notice of deficiency to the Tax Court,or The period that the case is under appeal.