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The Tax Practice of IIT Chicago-Kent College of Law
The Tax Practice of IIT Chicago-Kent College of Law

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Posted on in IRS

qualified offer, tax court, Chicago Tax AttorneysYour tax return has been audited, and you're reasonably certain that the IRS is (mostly) wrong.  While your inclination might be to take your winning case directly to the Tax Court, there are very good reasons why you should submit a reasonable offer to settle the case before you file your petition starting the litigation.

According to the IRS' own rules, if you make an offer to settle the case administratively (i.e., with the IRS Appeals Division) that is "qualified", and the IRS rejects the offer and you subsequently succeed in the Tax Court, you may be able to recover the costs you incurred in connection with your attempts to administratively resolve the case.

So, what’s a Qualified Offer?  One that is:

  • Made at least 30 days before the case goes to trial in Tax Court;
  • Specifies an amount of liability that you are willing to accept and pay;
  • Designated by you specifically as a Qualified Offer; and…
  • Not withdrawn (by you) before:
    • The IRS rejects the offer,
    • The trial begins, or
    • 90 days go by after the offer is first submitted to the IRS,

Given the high representation expenses typically incurred when dealing with the IRS Appeals Division (and simultaneously preparing for likely litigation), that is a potentially massive amount of money you can save if you are successful in court after submitting the Qualified Offer.  And, there really is not a downside, other than the time and effort it takes to make certain you comply with the requirements.

Details Added by Tax Court

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idr, audit, Chicago Tax AttorneysThis is one of the more often-asked tax controversy questions.  I’ll  just state the obvious first: simply ignoring the IRS is never going to get you the result you want. The chances of the agency forgetting about you or letting your case "slip through the cracks" is about …nil.

But, let's look at the actual IRS audit process to more fully answer this question:

The Audit Information-Gathering Process

  1. Your return is reviewed, and one or more "red flags" regarding it pop up (or, very rarely, it's chosen for a "random audit" which goes in deep and potentially takes apart your  whole return).
  2. The agent conducting the review determines which documents you (should) possess, that would most effectively answer the questions they have or substantiate the subject deduction claimed.
  3. The agent creates an Informal Document Request (IDR) that asks you (or a third party such as a tax preparer) to provide the documents, or to instead provide a valid reason why those documents are being withheld.
  4. If you don't respond to the IDR in time, the agent will consider sending an administrative Summons, compelling you to appear before him with the documents and submit to an interview.
  5. You can attempt to have the Summons legally "quashed" by filing a motion in federal district court (a very difficult maneuver; only 6 cases out of 117 in 2013 ended without a complete victory on the IRS' part).  You will need to present one or more  compelling reasons why the Summons was issued in error or for an illegal purpose.
  6. If you don't respond to the Summons in time, the agent directs the case to an IRS lawyer, who will decide whether or not to ask the Department of Justice to  enforce the Summons. If they don't, the audit will proceed anyway, the agent typically obtaining the documents he wants from third parties (banks, customers, etc…).

In short, it's rarely to your benefit to ignore an IDR – and it can definitely put you on the agent's bad side, which obviously is not a good thing. If the agent does decide to issue a Summons, its best to consult a professional to determine the scope of your response.

IRS audits can be a scary thing and it is important to have all your ducks in a row in order to emerge from the process successfully, or at least minimize the potential damage At Chicago-Kent Tax Clinic, we offer low-cost audit representation from professionals with in-depth experience working both for the IRS and in private practice. For a free consultation with one of our skilled Chicago tax lawyers, contact our office today at 312-906-5041.

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