Reopening IRS audits – are they really final?
I have seen a stream of new calls from readers who went through an IRS audit and are receiving IRS collection notices for amounts they probably do not owe.
Although they disagreed with the audit, they did not understand the need to take the dispute to IRS appeals or Tax Court. As a result, the audit became final, and IRS collections followed. In many cases, there was a lack of understanding on how to deal with an IRS auditor and present documentation.
There is a solution to these frustrations:
It is called IRS audit reconsideration. If you went through an audit that has become final, but you think the IRS did not adequately consider your arguments or you have additional information to submit, a request can be made for the IRS to reopen the audit so you pay the correct amount of taxes.
Authority for IRS audit reconsideration can be found in Internal Revenue Code 6404(a), which allows the IRS to abate a liability if it is erroneous, and in Internal Revenue Manual 4.13, “Audit Reconsideration.” The IRS does not take any collection action while they are reconsidering the audit.
It is best to have all documentation compilied ahead of time and submitted with the audit reconsideration request. For those situations where you are entitled to a deduction but your records may be lacking, the use of affidavits and documentation reconstruction is a strategy accepted by the IRS as a means to telling your story.
At the conclusion of the audit reconsideration, the IRS will either abate the liability or issue Letter 2726 (full disallowance) or Letter 2737 (partial disallowance). If you still disagree, you will then have 30 days to file a request for a hearing with an IRS Appeals Officer for additional audit reconsideration. See Internal Revenue Manual 4.13.4.7 and 4.13.6.1.
Although reopening the audit is discretionary with the IRS, they do have a public interest in collecting the correct amount of tax. Audit reconsideration can be the avenue to not only stop IRS collections, but pay what is really owed.
