So! You've been through the audit and you and the examiner don't agree on some issues. The first thing you should do is to ask to speak to the examiner's supervisor if available. if not, an audit report will be prepared by the examiner and will ask you or your client to sign off on it. If you or your client feel that the report is wrong, then file an appeal.

The audit report will give you thirty days to appeal the examiner's decision with an Appeal's Officer. Most Appeals Officers are either former Revenue Agents, Revenue Officers, or Office Examiners.

Simply follow the directions of the appeals letter. Make sure to state the facts as to why you disagree.

An appointment will then be scheduled for you to meet at an Appeal's Office.

As you recall, when we prepared for the initial audit, we prepared for it using the "IFRAC" method. Issues, Facts, Rule of Law, Arguments, and Conclusion. The only thing left out was the "Government's Argument".

Let's use the same example and I will insert the "Government Argument" under argument below in RED!

Example:

John Doe owns and operates a pizza store. He won the IRS Lottery. His 2008 tax return, 1040, Schedule "C", is being audited. The examiner requested John to substantiate the rent expense deduction of $36,000 taken on the return via the Information Document Request sent to John.

The following example may be prepared for any expense or deduction taken on a tax return :

John Doe 2008 - 1040 - Sch. C Rent Per Return: 36,000 Per Audit: 36,000 Adjustment: $0,000 Issue: Did taxpayer properly deduct $36,000 of rental expense for his pizza store as instructed by Revenue Code Section 162?? Facts: John owns and operates a pizza store as a sole proprietor. He claims his income and expenses on a Schedule "C" of his 1040 tax return. In 2008, John claimed $36,000 in rental expense deduction. Included with this work paper is a copy of the lease. Reference # A-101. (Please note that on the bottom of this work paper I included "Reference # 100. If you have to present more than one document, please use reference numbers.)   Cancelled Checks Inspected Check Number Amount 999 3000 1011 3000 1210 3000 1325 3000 1400 3000 1501 3000 1626 3000 1745 3000 1825 3000 1950 3000 2001 3000 2025 3000     Total: 36,000 Taxpayer has no discrepancy! Taxpayer paid his December 2007 rent in January of 2008. Taxpayer is a cash basis taxpayer and not accrual. Rule of Law: IRC Section 162 states that "In general there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including.........in connection with such service.

Argument: Taxpayers state that he should be entitled to the full $36,000 deduction since he is a cash basis taxpayer. Government argues that the deduction taken on the 2008 return of $3,000 for the 2007 December rent belongs to the 2007 period. Conclusion: An adjustment should not be made since taxpayer is a cash basis taxpayer and the payment was paid in the current period. Reference # A-100

The previous example is what I call an "IFRAC". Issues, Facts, Rule of Law, Arguments, and Conclusion. Practice it. It is very important especially if you and the examiner don't agree and you appeal the examiner's decision. The only thing that will be missing would be under arguments and that is "Government Argues" as you'll study under "IRS Appeals".

Important Note

Since you originally prepared for the audit utilizing the "IFRAC" method, representation before the Appeal's Division should be simple.

Now, if you and the Appeal's Officer don't see eye to eye, a 90-day letter will be issued giving your client 90 days to petition Tax court! Also, if you don't respond to the 30-day letter, a 90-day letter will be issued. With the issuance of a ninety-day letter, you'd better seek an expert tax lawyer.