REPRESENTATION OF CLIENT DURING IRS EXAMINATION
Conduct of IRS Examination: Four of your team’s clients have contacted you recently. They have advised you that they are under examination by the IRS and want your assistance in dealing with the IRS.The fact patterns are provided below.
CLIENT A:Client A has received a notification from IRS and has forwarded to you IRSCP2000 Notice.This notice reflects that the client appears to have omitted $575,000 of income from sales of securities on client’s 2019 tax return.You have checked the CP2000 and are able to determine that there apparently was a brokerage 1099 that the client had failed to provide you at the time of preparing the return.You further note that the omitted income appears to have resulted because the IRS calculation includes the sales price but not the cost of the securities as the Client has owned the securities for quite a while.In addition, although the securities had been held for more than a year the income is shown as short-term capital gain. The IRS also proposes to assess the accuracy related penalty
QUESTIONS:
Is this an IRS examination?
How do you respond to IRS?
What document do you need in order for IRS to discuss the matter with you?
In Addition to asking your client, how can you confirm that there are no additional accounts that your client may have missed?
In Addition to asking your client What should you do when preparing later years’ returns to prevent a recurrence?
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FS 2018-11, 5/22/2018
Other IRS Documents (RIA)
FS 2018-11
UIL No.
Headnote:
Reference(s):
FULL TEXT:
IRS explains CP 2000 letters sent to taxpayers when tax return information doesn’t match
information from 3
rd
parties
FS-2018-11, May 2018
When a tax return’s information doesn’t match data reported to the Internal Revenue Service by
employers, banks and other third parties, the IRS will send a letter to the taxpayer. The letter is
called an IRS Notice CP 2000, and it gives detailed information about issues the IRS identified and
provides steps taxpayers should take to resolve those issues.
The IRS reminds taxpayers this letter isn’t a formal audit notification but a letter to see if the
taxpayer agrees or disagrees with the proposed tax changes. Taxpayers should respond to the
CP2000 letter, usually within 30 days from the date printed on the letter.
The IRS provides a phone number on each letter. IRS telephone assistors can explain the letter
and what taxpayers need to do to resolve any discrepancies.
The IRS will send another letter to the taxpayer if the taxpayer doesn’t respond to the initial notice
or if the IRS can’t accept the additional information provided. That follow-up letter is called an IRS
Notice CP3219A, Statutory Notice of Deficiency. This letter gives detailed information about why
the IRS proposes a tax change and how the agency determined the change. The letter tells
taxpayers about their right to challenge the decision in Tax Court if they choose to do so. Even if
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they decide not to go to Tax Court, the IRS will continue to work with the taxpayer during the
statutory notice timeframe to help resolve the issue.
Watch out for tax scams
The IRS reminds taxpayers to be on the lookout for tax scams, which can occur through email, on
the phone or through the mail. If taxpayers are uncertain about the validity of a CP2000 notice,
their options for getting more information include visiting Understanding Your CP2000 Notice on
IRS.gov or viewing IRS YouTube videos.
YouTube videos help explain the letters
The IRS released two YouTube videos to help taxpayers understand what happens when the IRS
proposes changes to a tax return. The videos explain the IRS Letters CP2000 and CP3219A and
what to do with them. The videos also refer to additional resources at IRS.gov.
The IRS Letter CP2000 : Proposed Changes to Your Tax Return video tells taxpayers why they
received this letter from the IRS and how to respond if they agree – or disagree – with the proposed
changes.
The IRS Letter CP3219A: Statutory Notice of Deficiency video provides information about a
proposed increase in tax and how the IRS figured this on the tax return. It also gives information
about the taxpayer’s right to challenge the decision, if they choose to do so.
The two new videos are available in English, Spanish and American Sign Language on the IRS
YouTube page. The IRS YouTube channel offers many more topics of interest to taxpayers,
including what to do if they think they may be a victim of identity theft as well as understanding
their IRS bill.
The IRS also embraces taxpayer rights. The Taxpayer Bill of Rights is available on IRS.gov.
More information:
Publication 5181, Tax Return Reviews by Mail – CP2000, Letter 2030, CP2501, Letter 2531
Tax Topic 652 – Notice of Underreported Income – CP-2000
Tax Tip – Tips on How to Handle an IRS Letter or Notice
Guide to Employment-Related Identity Theft
END OF DOCUMENT –
© 2024 Thomson Reuters/Tax & Accounting. All Rights Reserved.
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Tamecca Seril, TC Memo 2020-101, Code Sec(s). 61; 72; 408; 6662, 07/8/2020
Tax Court Memorandum Decisions (Prior Years) (RIA)
Tax Court & Board of Tax Appeals Memorandum Decisions
Tamecca Seril v. Commissioner, TC Memo 2020-101 ,
Code Sec(s) 408; 61.
TAMECCA SERIL, a.k.a. TAMECCA TILLARD, Petitioner v. COMMISSIONER OF INTERNAL
REVENUE, Respondent.
Case Information:
[pg. 947]
Code Sec(s):
408; 61
Docket:
Dkt. No. 4491-19.
Date Issued:
07/8/2020.
Judge:
Opinion by Lauber, J.
Tax Year(s):
Year 2016.
Disposition:
Decision for Taxpayer in part and for Commissioner
in part.
HEADNOTE
1. Taxation of IRA distributions—retirement plan distributions—untimely rollovers—
exceptions and waivers—proof. Pro se taxpayer was taxable on full amount of IRA distributions
she received ostensibly with intent to use part to pay son’s college expenses and to roll part over to
another IRA. Notwithstanding taxpayer’s purported rollover intent, she didn’t actually effect rollover,
didn’t show any error on part of her financial institution that would have prevented her from doing
so, and never sought IRS waiver of applicable 60-day period until few years later, after IRS issued
deficiency notice.
Reference(s): ¶ 4085.03(5) ;¶ 4085.03(70) Code Sec. 408;Code Sec. 61
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2. 10% additional tax on early retirement plan distributions—exceptions—qualified higher
education expenses—proof. Code Sec. 72(t) 10% additional tax was upheld on most, but not all,
of IRA distributions that pro se taxpayer received before she was age 59½, ostensibly with intent to
use part to pay son’s college expenses. Notwithstanding that intent, taxpayer failed to show that
she actually used any but small portion of distributions for son’s college expenses.
Reference(s): ¶ 725.19(37) Code Sec. 72
3. Accuracy-related substantial understatement penalties—reasonable cause; good faith.
Accuracy-related substantial understatement penalty wasn’t upheld [pg. 948] against pro se
taxpayer for year for which she failed to properly report full amount of her early IRA distributions as
taxable and miscalculated amount that was subject to additional tax: taxpayer showed reasonable
cause and good faith for her position with credible testimony that she attempted to report her tax
liability correctly during what was tumultuous time in her life. Moreover, she was correct that portion
of subject distributions were exempt from additional tax, albeit in amount far less than she
calculated.
Reference(s): ¶ 66,625.01(10) Code Sec. 6662
Syllabus
Official Tax Court Syllabus
Counsel
Tamecca Seril, a.k.a. Tamecca Tillard, pro se.
Marissa J. Savit and Thomas A. Deamus, for respondent.
LAUBER, Judge
MEMORANDUM FINDINGS OF FACT AND OPINION
The Internal Revenue Service (IRS or respondent) determined for petitioner’s 2016 taxable year a
deficiency of $9,191 and an accuracy-related penalty of $1,838. The issues remaining for decision
are whether petitioner is: (1) taxable on distributions from her retirement account, (2) liable under
[*2]
section 72(t)
1
for the 10% additional tax on early distributions from that account, and (3)
liable for an accuracy-related penalty.
2
We hold that petitioner is taxable on the distributions and
that a portion of her distributions is subject to the additional tax. But we hold that she is not liable
for any penalty.
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FINDINGS OF FACT
At trial the parties stipulated a number of exhibits which are incorporated by this reference.
Petitioner resided in New York when she filed her petition.
Petitioner is the mother of two boys, the elder of whom was scheduled to graduate from high
school in 2016 and matriculate at Morehouse College (Morehouse) that fall. During this period
petitioner and her family experienced stress. Petitioner had filed for a divorce, which involved
claims of domestic violence and child neglect. Her elder son had encountered problems at school
that threatened his ability to graduate on time.
[*3] On the basis of a letter from Morehouse, petitioner anticipated that the cost of her son’s tuition
and living expenses (absent receipt of a scholarship) would be about $54,000 annually. During
2016 she made two withdrawals totaling $54,500 from her individual retirement account (IRA): a
distribution of $16,500 on January 8 and a distribution of $38,000 on July 25. She was not age 591/2 or older when she received these distributions. From the latter distribution the brokerage firm
withheld Federal income tax of $3,800. Petitioner did not roll over any portion of these distributions
within 60 days. See
sec. 408(d)(3).
During 2016 petitioner also made withdrawals totaling $15,099 from her New York 529 College
Savings Program Account (529 account). Two distributions totaling $5,816 were paid to her. A third
distribution, of $9,283, was made directly to Morehouse.
Petitioner prepared and filed a timely return for 2016. She reported the entire $54,500 of IRA
distributions but reported only $39,500 as being taxable. She included with her return Form 5329,
Additional Taxes on Qualified Plans. She reported $24,664 of her distributions as being subject to
the 10% additional tax and reported additional tax of $2,466.
The IRS’ automated underreporter (AUR) unit flagged petitioner’s return because of a mismatch
between her reported income and the amounts shown on [*4] the Forms 1099 -R, Distributions
From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., that
the brokerage firm had supplied to the IRS. On September 17, 2018, the AUR unit sent petitioner
a Notice CP2000 indicating that she (1) had failed to report $15,000 of taxable distribu[pg. 949]
tions, (2) had underreported the 10% additional tax due, and (3) was subject to an accuracyrelated penalty. The letter instructed her to file a response by October 17, 2018, if she did not
agree with these proposed adjustments.
Petitioner did not file a timely response to the Notice CP2000 and, on December 10, 2018, the
IRS issued her a notice of deficiency determining the adjustments previously proposed. In January
2019 petitioner sent the IRS a belated response to the Notice CP2000, indicating that she had
withdrawn the $54,500 to cover her son’s education expenses. She stated that she intended to
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redeposit $15,000 of that sum (the portion she had not reported), explaining that her $15,099
withdrawal from the 529 account would cover that part of the cost of his education. She requested
a waiver of the 60-day rollover period to enable her to redeposit the $15,000 free of tax, urging as
justification that she had moved following her divorce and was involved in related litigation. She
contended that the $38,000 distribution she had received on July 25 should be exempt from the
[*5]
section 72(t) additional tax because she had used that money to pay for her son’s expenses
at Morehouse.
On March 4, 2019, petitioner filed a timely petition reiterating the contentions advanced in her
response to the Notice CP2000. She also contended that the $3,800 withheld by the brokerage
firm from her July 25 distribution should be refunded because she had spent the $38,000 on
qualified education expenses.
On January 7, 2019, petitioner wrote the brokerage firm that holds her IRA, representing that she
intended to apply for a waiver of the 60-day rollover requirement on the ground that a postal error
occurred. The firm responded that she would need to provide substantiation of a postal error. She
did not provide that substantiation to the firm or to the Court at trial.
Trial was held on January 14, 2020, in New York City. At trial petitioner submitted evidence that her
son had qualified to receive Federal education loans and Pell grants up to approximately $24,000
per semester. Petitioner testified that she declined to take any loans, resolving to pay the tuition
herself. She produced bank statements establishing payments of $9,809 to Morehouse during
2016; this sum was in addition to the $9,283 distributed directly to Morehouse from her 529
account.
[*6] At the close of trial the Court instructed the parties to file seriatim briefs. Respondent filed his
opening brief on March 27, 2020. Petitioner filed on April 27, 2020, as her answering brief, a
document indicating that she had made a $15,000 deposit into her IRA account that day.
OPINION
A. Taxability of Retirement Account Distributions
The Commissioner’s determination of tax liability is generally presumed correct. See Rule 142(a).
For the presumption to attach in a case of unreported income, “the evidence of record must at
least link the taxpayer with some tax-generating acts.” Llorente v. Commissioner,
156 [48 AFTR 2d 81-5028] (2d Cir. 1981), aff’g in part, rev’g in part
649 F.2d 152,
74 T.C. 260 (1980). “Once
the Commissioner makes the required threshold showing, the burden shifts to the taxpayer to
prove by a preponderance of the evidence that the Commissioner’s determinations are arbitrary or
erroneous.” Walquist v. Commissioner,
152 T.C. 61, 67-68 (2019) (citing Helvering v. Taylor,
293 U.S. 507, 515 [14 AFTR 1194] (1935)); Tokarski v. Commissioner,
87 T.C. 74 (1986).
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Petitioner reported on her 2016 return that she had received distributions of $54,500 from her IRA.
Respondent has thus met his threshold showing. The burden accordingly shifts to petitioner to
show that the distributions were not subject [*7] to tax. Petitioner does not contend that the burden
of proof shifts to respondent under
section 7491(a) as to any issue of fact.
Section 61(a) provides that “gross income means all income from whatever source derived.”
Section 408(d)(1) provides that, “[e]xcept as otherwise provided in this subsection, any amount
paid or dis[pg. 950] tributed out of an individual retirement plan shall be included in gross income
by the payee or distributee.”
Section 408(d) provides several exceptions to this rule—e.g., for
rollover contributions, transfers incident to divorce, and distributions for charitable purposes. See
sec. 408(d)(3),
(6),
(8).
3
For a distribution to be excluded from gross income under the rollover exception, the funds must
generally be deposited into an eligible retirement account no later than 60 days after the taxpayer
receives the distribution.
Sec. 408(d)(3)(A). The Secretary may waive the 60-day requirement
“where the failure to waive such requirement would be against equity or good conscience,
including casualty, disaster, or other events beyond the reasonable control of the
***
[taxpayer].”
Sec. 408(d)(3)(I). In determining whether waiver is appropriate, the IRS considers all
relevant factors including:
[*8] (1) errors committed by a financial institution *** ; (2) inability to complete a rollover due
to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country or
postal error; (3) the use of the amount distributed (for example, in the case of payment by
check, whether the check was cashed); and (4) the time elapsed since the distribution
occurred. [
Rev. Proc. 2003-16, sec. 3.01, 2003-1 C.B. 359, modified by
Rev. Proc. 2016-
47, 2017 I.R.B. 346.]
This Court has applied the same factors in determining whether it would be against equity or good
conscience to deny a waiver. See Trimmer v. Commissioner,
(addressing analogous hardship waiver under
148 T.C. 334, 363 (2017)
section 402(c)(3)(B)).
Applying these factors, we do not believe the IRS erred in declining to waive the 60-day rollover
requirement. Petitioner has not alleged any error by a financial institution that prevented her from
effecting a timely rollover. She did not substantiate her contention that a postal error caused the
delay, and she has alleged no disability or the like as a contributing cause. While she contends that
it was always her intention to roll over the $15,000, she produced no evidence that she set the
money aside (e.g., in a separate account) for that purpose. Cf. ibid. (finding that taxpayers had not
used or profited from the distributed funds while holding them for rollover). Petitioner produced no
evidence to establish what she did with the funds or how she used them.
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[*9] Finally, we find it important that nearly four years elapsed between petitioner’s receipt of the
final distribution and her redeposit of the $15,000 to her IRA. Petitioner does not appear to have
made any effort to roll over the funds before the notice of deficiency was issued to her. See
Rev.
Proc. 2016-47, sec. 3.02(3), 2016-37 I.R.B. 346, 347 (requiring self-certification that the rollover
contribution was made “as soon as practicable” after the obstacle preventing the rollover was
removed). Under these facts, declining to waive the 60-day requirement is not against equity or
good conscience, and petitioner is therefore taxable on the full $54,500 that was distributed to her.
B.
Section 72(t) Additional Tax
Where (as here) a taxpayer receives distributions from a qualified retirement plan,
section 72(t)
(1) generally provides that the tax shall be increased “by an amount equal to 10 percent of the
portion of such amount which is includible in gross income.” There are several exceptions to this
rule, e.g., where the taxpayer receiving the distribution has attained the age of 59-1/2 or is
disabled. See
sec. 72(t)(2)(A)(i), (iii). Petitioner qualifies for neither of these exceptions.
Another exception applies “to the extent such distributions do not exceed the qualified higher
education expenses
***
of the taxpayer for the taxable year.”
Sec. 72(t)(2)(E). “Qualified higher education expenses”
include expenses for [*10] tuition, fees, books, supplies, and (to some degree) room and board,
and include expenses that a taxpayer incurs on behalf of a child. See
secs. 72(t)(7),
529(e)(3).
In order to qualify, educational expenses must be incurred in the taxable year in which the dis[pg.
951] tribution is received. See Duronio v. Commissioner,
Memo ¶2007-090]; Lodder-Beckert v. Commissioner,
T.C. Memo. 2007-90 [2007 RIA TC
T.C. Memo. 2005-162 [2005 RIA TC Memo
¶2005-162]. Petitioner relies on this exception and has the burden of production with respect to
that issue. See El v. Commissioner,
144 T.C. 140, 148 (2015).
Petitioner asserted in her response to the Notice CP2000 that the total yearly cost of her son’s
attendance at Morehouse was $54,000. But she presented no evidence that she actually incurred
expenses of that magnitude. Morehouse appears to have provided that figure as an estimate of the
cost of attendance before any grant or scholarship was applied. And that figure reflected the
estimated cost of full-year attendance, whereas the relevant figure here is the amount petitioner
actually paid during calendar 2016.
On her return petitioner reported that $24,660 of her distributions was subject to the 10% additional
tax under
section 72(t). By negative implication this suggests that the expenses she believed to
be exempt from the 10% additional tax totaled $29,840 ($54,500 ! $24,660). But she was not able
to substantiate educational costs or payments that large during 2016.
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[*11] Petitioner substantiated that she paid Morehouse $19,092 during 2016, consisting of $9,283
distributed to Morehouse from her 529 account and $9,809 in payments separately documented by
her bank statements. We find that $5,816 of the latter sum represented the balance of her
withdrawals from the
section 529 account (viz., the portion distributed to her rather than to
Morehouse). This leaves $3,993 (viz., $9,809 ! $5,816) as the amount that petitioner paid
Morehouse using proceeds of her IRA withdrawals.
In sum, we find that $3,993 of the $54,500 that petitioner withdrew from her IRA account was used
during 2016 for “qualified higher education expenses” within the meaning of
section 72(t)(2)(E).
We find that she has failed to meet her burden to show that any exception applies to the balance of
her IRA withdrawals. She is thus liable for additional tax of $5,051 (10% $50,507) under
section
72(t).
C. Accuracy-Related Penalty
The Code imposes a 20% penalty upon the portion of any underpayment of tax that is attributable
to (among other things) “[a]ny substantial understatement of income tax.”
Sec. 6662(a), (b)(2).
An understatement of income tax is “substantial” if it exceeds the greater of $5,000 or 10% of the
tax required to be shown on the return.
Sec. 6662(d)(1)(A).
Section 7491(c) generally
provides that “the [*12] Secretary shall have the burden of production in any court proceeding with
respect to the liability of any individual for any penalty.”
4
Section 6664(c)(1) provides that no accuracy-related penalty shall be imposed with respect to
any portion of an underpayment “if it is shown that there was a reasonable cause for such portion
and that the taxpayer acted in good faith with respect to
***
[it].” The taxpayer bears the burden of showing reasonable cause and good faith. See Higbee v.
Commissioner,
116 T.C. 438, 446 (2001). The decision whether a taxpayer has met this burden
is made on a case-by-case basis, taking into account all pertinent facts and circumstances. See
sec. 1.6664-4(b)(1), Income Tax Regs. Circumstances that may signal reasonable cause and good
faith “include an honest misunderstanding of fact or law that is reasonable in light of all [*13] of the
facts and circumstances, including the experience, knowledge, and education of the taxpayer.”
Ibid.
Petitioner prepared her 2016 return during a very tumultuous time in her life. We found credible her
testimony that she at[pg. 952] tempted to report her tax liability correctly. She reported the full
amount of the IRA distributions she received ($54,500), but treated $15,000 as nontaxable
because she intended to roll over that amount. She reported $24,660 of her distributions as subject
to the 10% additional tax, correctly believing that she was entitled to some exemption for qualified
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education expenses. Although she did not calculate the exemption amount correctly, we find that
she exercised good faith in her reporting. Considering all these facts, we find that petitioner has
demonstrated reasonable cause for her underpayment.
To reflect the foregoing,
Decision will be entered under Rule 155.
1 All statutory references are to the Internal Revenue Code (Code) in effect for the year in
issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. All dollar
amounts are rounded to the nearest dollar.
2 The IRS determined in the notice of deficiency that petitioner was taxable on a $747
payment she received from the New York State College Choice Tuition Program Trust Fund.
Respondent has conceded that issue, as well as petitioner’s liability for any additional tax or
accuracy-related penalty with respect to that $747 payment.
3 Petitioner does not contend that any of her contributions to her IRA account were not
deductible on contribution and not taxable on distribution. See
sec. 408A(c) and
4 The Commissioner’s burden of production includes showing compliance with
(d).
section
6751(b)(1), which requires that the initial determination of any penalty assessment be
“personally approved (in writing) by the immediate supervisor of the individual making such
determination.” This requirement does not apply to any penalty “automatically calculated
through electronic means.”
Sec. 6751(b)(2)(B). This Court has held that substantial
understatement penalties determined by an IRS computer program without human review are
“automatically calculated through electronic means” and are thus exempt from the written
supervisory approval requirement. See Walquist v. Commissioner,
152 T.C. 61, 73 (2019).
Although the penalty in Walquist was calculated by the IRS’ Correspondence Examination
Automated Support program, respondent contends that the same result should follow where
(as here) the penalty is calculated by the AUR program. Since we hold on the merits that
petitioner is not liable for any penalty, we need not decide whether respondent has met his
burden of production.
END OF DOCUMENT –
© 2024 Thomson Reuters/Tax & Accounting. All Rights Reserved.
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FS 2018-11, 5/22/2018
Other IRS Documents (RIA)
FS2018-11
UIL No.
Headnote:
Reference(s):
FULL TEXT:
IRS explains CP 2000 letters sent to taxpayers when tax return information doesn’t match
information from 3
rd
parties
FS-2018-11, May 2018
When a tax return’s information doesn’t match data reported to the Internal Revenue Service by
employers, banks and other third parties, the IRS will send a letter to the taxpayer. The letter is
called an IRS Notice CP 2000, and it gives detailed information about issues the IRS identified
and provides steps taxpayers should take to resolve those issues.
The IRS reminds taxpayers this letter isn’t a formal audit notification but a letter to see if the
taxpayer agrees or disagrees with the proposed tax changes. Taxpayers should respond to the
CP2000 letter, usually within 30 days from the date printed on the letter.
The IRS provides a phone number on each letter. IRS telephone assistors can explain the letter
and what taxpayers need to do to resolve any discrepancies.
The IRS will send another letter to the taxpayer if the taxpayer doesn’t respond to the initial
notice or if the IRS can’t accept the additional information provided. That follow-up letter is called
an IRS Notice CP3219A, Statutory Notice of Deficiency. This letter gives detailed information
about why the IRS proposes a tax change and how the agency determined the change. The letter
tells taxpayers about their right to challenge the decision in Tax Court if they choose to do so. Even
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if they decide not to go to Tax Court, the IRS will continue to work with the taxpayer during the
statutory notice timeframe to help resolve the issue.
Watch out for tax scams
The IRS reminds taxpayers to be on the lookout for tax scams, which can occur through email, on
the phone or through the mail. If taxpayers are uncertain about the validity of a CP2000 notice,
their options for getting more information include visiting Understanding Your CP2000 Notice on
IRS.gov or viewing IRS YouTube videos.
YouTube videos help explain the letters
The IRS released two YouTube videos to help taxpayers understand what happens when the IRS
proposes changes to a tax return. The videos explain the IRS Letters CP2000 and CP3219A and
what to do with them. The videos also refer to additional resources at IRS.gov.
The IRS Letter CP2000 : Proposed Changes to Your Tax Return video tells taxpayers why they
received this letter from the IRS and how to respond if they agree – or disagree – with the
proposed changes.
The IRS Letter CP3219A: Statutory Notice of Deficiency video provides information about a
proposed increase in tax and how the IRS figured this on the tax return. It also gives information
about the taxpayer’s right to challenge the decision, if they choose to do so.
The two new videos are available in English, Spanish and American Sign Language on the IRS
YouTube page. The IRS YouTube channel offers many more topics of interest to taxpayers,
including what to do if they think they may be a victim of identity theft as well as understanding
their IRS bill.
The IRS also embraces taxpayer rights. The Taxpayer Bill of Rights is available on IRS.gov.
More information:
Publication 5181, Tax Return Reviews by Mail – CP2000, Letter 2030, CP2501, Letter 2531
Tax Topic 652 – Notice of Underreported Income – CP-2000
Tax Tip – Tips on How to Handle an IRS Letter or Notice
Guide to Employment-Related Identity Theft
END OF DOCUMENT –
© 2024 Thomson Reuters/Tax & Accounting. All Rights Reserved.
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2/2
Your Rights
as a Taxpayer
Publication 1
This publication explains your rights as a taxpayer and the processes for examination, appeal, collection, and refunds.
Also available in Spanish.
The Taxpayer Bill of Rights
1. The Right to Be Informed
6. The Right to Finality
Taxpayers have the right to know what they need to do to
comply with the tax laws. They are entitled to clear
explanations of the laws and IRS procedures in all tax forms,
instructions, publications, notices, and correspondence. They
have the right to be informed of IRS decisions about their tax
accounts and to receive clear explanations of the outcomes.
Taxpayers have the right to know the maximum amount of
time they have to challenge the IRS’s position as well as the
maximum amount of time the IRS has to audit a particular tax
year or collect a tax debt. Taxpayers have the right to know
when the IRS has finished an audit.
2. The Right to Quality Service
Taxpayers have the right to receive prompt, courteous, and
professional assistance in their dealings with the IRS, to be
spoken to in a way they can easily understand, to receive clear
and easily understandable communications from the IRS, and
to speak to a supervisor about inadequate service.
3. The Right to Pay No More than the
Correct Amount of Tax
Taxpayers have the right to pay only the amount of tax legally
due, including interest and penalties, and to have the IRS
apply all tax payments properly.
4. The Right to Challenge the IRS’s Position
and Be Heard
Taxpayers have the right to raise objections and provide
additional documentation in response to formal IRS actions or
proposed actions, to expect that the IRS will consider their
timely objections and documentation promptly and fairly, and
to receive a response if the IRS does not agree with their
position.
5. The Right to Appeal an IRS Decision in an
Independent Forum
Taxpayers are entitled to a fair and impartial administrative
appeal of most IRS decisions, including many penalties, and
have the right to receive a written response regarding the
Office of Appeals’ decision. Taxpayers generally have the right
to take their cases to court.
The IRS Mission
7. The Right to Privacy
Taxpayers have the right to expect that any IRS inquiry,
examination, or enforcement action will comply with the law
and be no more intrusive than necessary, and will respect all
due process rights, including search and seizure protections,
and will provide, where applicable, a collection due process
hearing.
8. The Right to Confidentiality
Taxpayers have the right to expect that any information they
provide to the IRS will not be disclosed unless authorized by
the taxpayer or by law. Taxpayers have the right to expect
appropriate action will be taken against employees, return
preparers, and others who wrongfully use or disclose taxpayer
return information.
9. The Right to Retain Representation
Taxpayers have the right to retain an authorized representative
of their choice to represent them in their dealings with the
IRS. Taxpayers have the right to seek assistance from a Low
Income Taxpayer Clinic if they cannot afford representation.
10. The Right to a Fair and Just Tax System
Taxpayers have the right to expect the tax system to consider
facts and circumstances that might affect their underlying
liabilities, ability to pay, or ability to provide information timely.
Taxpayers have the right to receive assistance from the
Taxpayer Advocate Service if they are experiencing financial
difficulty or if the IRS has not resolved their tax issues properly
and timely through its normal channels.
Provide America’s taxpayers top-quality service by helping them understand and meet
their tax responsibilities and enforce the law with integrity and fairness to all.
Publication 1 (Rev. 9-2017) Catalog Number 64731W Department of the Treasury Internal Revenue Service www.irs.gov
Examinations, Appeals, Collections, and Refunds
Examinations (Audits)
We accept most taxpayers’ returns as filed.
If we inquire about your return or select it
for examination, it does not suggest that
you are dishonest. The inquiry or
examination may or may not result in more
tax. We may close your case without
change; or, you may receive a refund.
The process of selecting a return for
examination usually begins in one of two
ways. First, we use computer programs to
identify returns that may have incorrect
amounts. These programs may be based
on information returns, such as Forms
1099 and W-2, on studies of past
examinations, or on certain issues
identified by compliance projects. Second,
we use information from outside sources
that indicates that a return may have
incorrect amounts. These sources may
include newspapers, public records, and
individuals. If we determine that the
information is accurate and reliable, we
may use it to select a return for
examination.
Publication 556, Examination of Returns,
Appeal Rights, and Claims for Refund,
explains the rules and procedures that we
follow in examinations. The following
sections give an overview of how we
conduct examinations.
By Mail
We handle many examinations and
inquiries by mail. We will send you a letter
with either a request for more information
or a reason why we believe a change to
your return may be needed. You can
respond by mail or you can request a
personal interview with an examiner. If you
mail us the requested information or
provide an explanation, we may or may not
agree with you, and we will explain the
reasons for any changes. Please do not
hesitate to write to us about anything you
do not understand.
By Interview
If we notify you that we will conduct your
examination through a personal interview,
or you request such an interview, you have
the right to ask that the examination take
place at a reasonable time and place that is
convenient for both you and the IRS. If our
examiner proposes any changes to your
return, he or she will explain the reasons for
the changes. If you do not agree with these
changes, you can meet with the examiner’s
supervisor.
the Appeals Office of the IRS. Most
differences can be settled without
expensive and time-consuming court trials.
Your appeal rights are explained in detail in
both Publication 5, Your Appeal Rights and
How To Prepare a Protest If You Don’t
Agree, and Publication 556, Examination of
Returns, Appeal Rights, and Claims for
Refund.
If you do not wish to use the Appeals
Office or disagree with its findings, you
may be able to take your case to the U.S.
Tax Court, U.S. Court of Federal Claims, or
the U.S. District Court where you live. If
you take your case to court, the IRS will
have the burden of proving certain facts if
you kept adequate records to show your
tax liability, cooperated with the IRS, and
meet certain other conditions. If the court
agrees with you on most issues in your
case and finds that our position was largely
unjustified, you may be able to recover
some of your administrative and litigation
costs. You will not be eligible to recover
these costs unless you tried to resolve your
case administratively, including going
through the appeals system, and you gave
us the information necessary to resolve the
case.
Collections
Publication 594, The IRS Collection
Process, explains your rights and
responsibilities regarding payment of
federal taxes. It describes:
• What to do when you owe taxes. It
describes what to do if you get a tax bill
and what to do if you think your bill is
wrong. It also covers making installment
payments, delaying collection action,
and submitting an offer in compromise.
• IRS collection actions. It covers liens,
releasing a lien, levies, releasing a levy,
seizures and sales, and release of
property.
• IRS certification to the State Department
of a seriously delinquent tax debt, which
will generally result in denial of a
passport application and may lead to
revocation of a passport.
Your collection appeal rights are explained
in detail in Publication 1660, Collection
Appeal Rights.
Innocent Spouse Relief
If we examined your return for the same
items in either of the 2 previous years and
proposed no change to your tax liability,
please contact us as soon as possible so
we can see if we should discontinue the
examination.
Generally, both you and your spouse are
each responsible for paying the full
amount of tax, interest, and penalties due
on your joint return. However, if you
qualify for innocent spouse relief, you may
be relieved of part or all of the joint
liability. To request relief, you must file
Form 8857, Request for Innocent Spouse
Relief. For more information on innocent
spouse relief, see Publication 971, Innocent
Spouse Relief, and Form 8857.
Appeals
Potential Third Party Contacts
If you do not agree with the examiner’s
proposed changes, you can appeal them to
Generally, the IRS will deal directly with you
or your duly authorized representative.
Repeat Examinations
However, we sometimes talk with other
persons if we need information that you
have been unable to provide, or to verify
information we have received. If we do
contact other persons, such as a neighbor,
bank, employer, or employees, we will
generally need to tell them limited
information, such as your name. The law
prohibits us from disclosing any more
information than is necessary to obtain or
verify the information we are seeking. Our
need to contact other persons may
continue as long as there is activity in your
case. If we do contact other persons, you
have a right to request a list of those
contacted. Your request can be made by
telephone, in writing, or during a personal
interview.
Refunds
You may file a claim for refund if you think
you paid too much tax. You must generally
file the claim within 3 years from the date
you filed your original return or 2 years from
the date you paid the tax, whichever is
later. The law generally provides for interest
on your refund if it is not paid within 45
days of the date you filed your return or
claim for refund. Publication 556,
Examination of Returns, Appeal Rights,
and Claims for Refund, has more
information on refunds.
If you were due a refund but you did not
file a return, you generally must file your
return within 3 years from the date the
return was due (including extensions) to get
that refund.
Taxpayer Advocate Service
TAS is an independent organization within
the IRS that can help protect your taxpayer
rights. We can offer you help if your tax
problem is causing a hardship, or you’ve
tried but haven’t been able to resolve your
problem with the IRS. If you qualify for our
assistance, which is always free, we will do
everything possible to help you. Visit
www.taxpayeradvocate.irs.gov or call
1-877-777-4778.
Tax Information
The IRS provides the following sources for
forms, publications, and additional
information.
• Tax Questions: 1-800-829-1040
(1-800-829-4059 for TTY/TDD)
• Forms and Publications:
1-800-829-3676 (1-800-829-4059 for
TTY/TDD)
• Internet: www.irs.gov
• Small Business Ombudsman: A small
business entity can participate in the
regulatory process and comment on
enforcement actions of the IRS by
calling 1-888-REG-FAIR.
• Treasury Inspector General for Tax
Administration: You can confidentially
report misconduct, waste, fraud, or
abuse by an IRS employee by calling
1-800-366-4484 (1-800-877-8339 for
TTY/TDD). You can remain anonymous.
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