Specific Types of Representation · Representing a Taxpayer in Audits/Examinations

Explanations of taxpayer options (e.g. agree or appeal)

A client at the end of an examination usually believes there are two options: sign, or fight. There are four, they cost differently, and one of them — doing nothing — is not the absence of a choice but a route with its own consequences and its own unextendable deadline. Explaining them accurately is the representative’s real work at this stage, and it is a communication task before a technical one.

The rule

Agree. The taxpayer signs an agreement form and pays the additional tax, with interest and applicable penalties on any balance due. If payment accompanies the signature, “we will generally calculate interest from the due date of your return to the date of your payment.” Otherwise a bill follows, and prompt payment of it carries a grace period — see the figures table. A taxpayer who cannot pay “should pay whatever amount you can and request an installment agreement for the balance.” Signing also speeds any refund (Pub. 3498).

Try to resolve it without appealing. The taxpayer may contact the IRS employee identified in the letter, and “if you cannot reach an agreement … you may request a discussion with the employee’s supervisor.” Failing that, Fast Track Settlement may be available (Pub. 5; Pub. 3498).

Appeal. The Independent Office of Appeals, established by statute (IRC § 7803(e)(1)), takes the case on a written protest or small case request filed within the time in the letter. Conferences “are held in an informal manner,” by telephone, video or in person. The taxpayer may appear personally or appoint an attorney, certified public accountant or enrolled agent; someone who does not qualify may be included “as a witness, but they may not represent you before Appeals.” A Low Income Taxpayer Clinic may represent a qualifying taxpayer who cannot afford representation (Pub. 5).

New material has a cost: “If you submit new information or raise a new issue requiring additional analysis, Appeals will generally return the case to the originating IRS office for its determination on the new information.” The taxpayer receives that office’s comments, may respond, “and can continue to pursue your appeal rights” (Pub. 5).

Do nothing. On a proposed deficiency the IRS will “send you a notice of deficiency allowing you a limited time to petition the U.S. Tax Court for redetermination. If you don’t timely petition … the IRS will send you a bill for the amount due.” The outcome differs by case type: an employment tax examination generally produces a bill directly for issues not reviewable by the Tax Court, and a denied refund claim produces a notice of claim disallowance with a limited time to sue (Pub. 5).

Go to court. Three forums, subject to each court’s procedural and jurisdictional requirements — see the figures table. The Tax Court is “generally a ‘prepayment’ forum … but its jurisdiction is limited,” and generally requires a notice or determination letter conferring the right. The petition period is set by law: “the IRS or the U.S. Tax Court cannot change this time period,” and it runs “even if you continue to talk to IRS examiners or Appeals” (Pub. 5; IRC § 6213(a)).

The District Court and the Court of Federal Claims are refund forums, available “generally only after you have fully paid the amount and timely filed a claim for refund.” Suit may also be brought on IRS silence, and both that period and the refund-suit deadline are in the figures table. A nonresident alien may seek relief in the Court of Federal Claims but generally not in a District Court (Pub. 5).

The small tax case election. Where neither the deficiency in dispute nor any claimed overpayment exceeds the amount in the figures table, the taxpayer may elect the small tax case procedure, with the Tax Court’s concurrence before hearing. The statute states the trade: such a decision “shall not be reviewed in any other court and shall not be treated as a precedent for any other case” (IRC § 7463(b)).

A petition is not a free option. See the figures table for the Tax Court’s power to penalise proceedings brought primarily for delay, a frivolous or groundless position, or an unreasonable failure to pursue administrative remedies (IRC § 6673(a)(1)).

Current figures

How it works in practice

Set out all four, and price them. Agree; try the supervisor or Fast Track; appeal; or let the letter lapse and litigate. A client told only “sign or appeal” cannot make the decision that is theirs. Each option should carry its cost — interest that keeps running, the time an appeal takes, the full payment a refund suit requires — and what it forecloses.

Doing nothing is a choice with a known destination. A taxpayer who intends to litigate and has no new facts for Appeals may reasonably let the 30-day letter lapse: the notice of deficiency follows, the Tax Court opens, and Pub. 5 says a taxpayer who petitions without having appealed “will normally have an opportunity to attempt settlement with Appeals while you are waiting for your trial.” What must be explained is that the petition deadline cannot be changed by anyone.

The prepayment point decides the forum more often than the merits do. The Tax Court can be petitioned without paying; the other two generally require full payment and a refund claim first. For most individual clients that single difference settles the choice. Say it plainly and early.

Talking to Appeals does not stop the clock. The timeframe to petition runs “even if you continue to talk to IRS examiners or Appeals.” A representative in productive settlement discussions as a 90-day period runs down is in the most dangerous position in this topic. Diary the petition date first, negotiate afterwards.

New information has a price at Appeals. Raising a new issue or producing new material generally sends the case back to the originating office. That is not a reason to withhold it — the case returns and appeal rights survive — but it is a reason to develop the record with the examiner before the case leaves, which is what Pub. 5 asks for in its opening instruction.

Who may appear is narrower than who may help. Attorneys, CPAs and enrolled agents may represent before Appeals. Anyone else — a bookkeeper, a partner, a family member who knows the facts — may attend as a witness only. Settle this before the conference rather than in it. And where the client cannot afford representation, a Low Income Taxpayer Clinic is a real referral, not a formality.

The route depends on the case type. Doing nothing on a deficiency produces a notice of deficiency; on an employment tax case, generally a bill; on a denied refund claim, a notice of claim disallowance with a two-year window that Appeals consideration does not extend. Applying the deficiency pattern to a disallowed claim can lose the client’s suit.

How this has changed

Appeals is independent by statute, not by policy. The Taxpayer First Act of 2019 established the Internal Revenue Service Independent Office of Appeals in IRC § 7803(e)(1) and set out its purposes; before that the function existed by administrative arrangement. The right to an independent administrative forum is now statutory.

Alternative dispute resolution has moved into the ordinary sequence. Fast Track Settlement appears in both Pub. 5 and Pub. 3498 as a step before the formal appeal, the case remaining in the examiner’s jurisdiction while a trained Appeals employee acts as a neutral. Explaining options without it understates what is available.

The partnership route is entirely different now. The Bipartisan Budget Act of 2015 repealed the TEFRA partnership procedures and the electing large partnership provisions, replacing them with a centralised partnership audit regime generally effective for tax years beginning 1 January 2018. A BBA entity’s appeal ends in a Notice of Proposed Partnership Adjustment, agreed or unagreed, with a modification request available in response. Explaining a partner’s options from the TEFRA pattern will be wrong.

Read the revision dates. Pub. 5 is Rev. 4-2021, Pub. 3498 Rev. 5-2025; the appeals pages were last reviewed 28 June and 16 April 2026.

Exam focus

Know the four options — agree, resolve informally (supervisor or Fast Track), appeal, or let the letter lapse — and what each produces.

Know that only the Tax Court is a prepayment forum, and that the District Court and Court of Federal Claims generally require full payment and a timely refund claim.

Know that the petition period cannot be extended by the IRS or the court, and runs during settlement discussions.

Know that Appeals’ consideration does not extend the two-year period to sue after a notice of claim disallowance.

Know that representation before Appeals is limited to attorneys, CPAs and enrolled agents; others may attend only as witnesses.

Know the small tax case election, its ceiling, and its price — no review in any other court and no precedential value (IRC § 7463(b)).

Check yourself

1. A taxpayer cannot pay a proposed deficiency and wants judicial review. Which forum is available? (A) U.S. District Court (B) U.S. Court of Federal Claims (C) U.S. Tax Court (D) Any of the three Answer: C. The Tax Court is generally a prepayment forum; the other two are refund forums requiring full payment and a timely claim.

2. Settlement talks with Appeals are progressing well as the Tax Court petition period runs out. What should the representative do? (A) Request an extension from Appeals (B) Request an extension from the Tax Court (C) File the petition to preserve the forum and continue negotiating (D) Rely on the discussions to toll the period Answer: C. The period is set by law and neither the IRS nor the court can change it; it runs even while discussions continue.

3. A refund claim is disallowed by notice. Appeals considers it for eighteen months and sustains the disallowance. How long does the taxpayer have to sue? (A) Two years from the Appeals decision (B) Two years from the notice of claim disallowance, unextended by Appeals’ consideration (C) Six months from the Appeals decision (D) Ninety days from the Appeals decision Answer: B. Appeals’ consideration does not extend the period, though mutual agreement may.

4. Who may represent a taxpayer at an Appeals conference? (A) Anyone the taxpayer designates (B) An attorney, CPA or enrolled agent (C) Only an attorney (D) Only the taxpayer, in person Answer: B. A person who does not qualify may be included as a witness but may not represent.

5. A taxpayer elects the small tax case procedure in the Tax Court. What is given up? (A) The right to be represented (B) Review in any other court, and any precedential value of the decision (C) The right to settle with Appeals (D) Nothing Answer: B. IRC § 7463(b). New material raised for the first time at an Appeals conference, by contrast, generally sends the case back to the originating office.