When the IRS examines a tax return and proposes changes that the taxpayer disagrees with, the first instinct is often to think about Tax Court. But for most taxpayers, the most effective path to resolution runs through the IRS Independent Office of Appeals—a division within the IRS that exists specifically to resolve tax disputes without litigation. Appeals settles the vast majority of cases that reach it, and understanding how the process works is essential for any taxpayer facing an examination result they believe is wrong.

What Is the Office of Appeals?

The IRS Independent Office of Appeals (formerly the IRS Office of Appeals) is a separate function within the IRS that resolves tax controversies on a basis that is fair to both the government and the taxpayer. Appeals officers are experienced professionals who are independent from the examination division—they do not report to the examining agent or the agent's manager, and they are not bound by the examination team's conclusions.^[1]

The Taxpayer First Act of 2019 formalized the Office of Appeals' independence, redesignating it as the "Independent Office of Appeals" and codifying the taxpayer's right to an appeals conference in most cases. The Act also established the principle that Appeals will resolve cases based on the "hazards of litigation"—meaning the risk that the IRS might lose if the case were litigated—rather than simply rubber-stamping the examination result.^[2]

How to Get to Appeals

The path to Appeals typically begins with an IRS examination (audit) that results in a proposed adjustment the taxpayer disagrees with. After the examination is completed, the IRS issues a "30-day letter" informing the taxpayer of the proposed changes and the right to file a written protest with Appeals. The protest must be filed within 30 days of the date of the letter (hence the name).

The Written Protest

For cases involving more than $25,000 in proposed adjustments for any single tax period, the taxpayer must file a formal written protest. The protest must include the taxpayer's name and contact information, a statement that the taxpayer wants to appeal the proposed changes, the tax periods involved, a list of the specific findings being disputed, a statement of the facts supporting the taxpayer's position, a statement of the law or other authority on which the taxpayer relies, and a penalties-of-perjury declaration.^[3]

For cases involving $25,000 or less, a "small case request" (Form 12203) can be filed instead of a formal protest. The small case procedure is less formal but provides the same access to an Appeals conference.

The Appeals Conference

After the protest is filed, the case is assigned to an Appeals officer who will schedule a conference. The conference is typically conducted by telephone or video, though in-person conferences can be requested. The conference is informal—there is no judge, no court reporter, and no formal rules of evidence. The Appeals officer reviews the examination file, the taxpayer's protest, and any additional evidence or arguments the taxpayer presents.

The Appeals officer evaluates the case based on the hazards of litigation. If the IRS has a 60 percent chance of prevailing on an issue, Appeals might propose a settlement at 60 percent of the disputed amount. If the taxpayer has strong authority supporting their position, Appeals may concede the issue entirely. The goal is to reach a resolution that reflects the realistic outcome if the case were litigated.

Settlement Dynamics

Appeals has broad settlement authority. The officer can accept the taxpayer's position in full, sustain the examination position in full, or propose any settlement in between. The settlement can also address penalties—Appeals has the authority to abate penalties if the taxpayer demonstrates reasonable cause or other grounds for penalty relief.

If the taxpayer and Appeals reach agreement, the settlement is documented in a closing agreement (Form 906) or other written agreement. The settlement is binding on both the IRS and the taxpayer and generally cannot be reopened.

If no agreement is reached, the IRS will issue a statutory notice of deficiency (a "90-day letter"), which gives the taxpayer 90 days to file a petition in the United States Tax Court. At that point, the dispute moves from the administrative process to the judicial process.^[4]

Why Appeals Is Usually the Best Option

The Appeals process offers several advantages over proceeding directly to Tax Court. It is faster (most cases are resolved within 6 to 12 months at Appeals, compared to 2 to 4 years in Tax Court), less expensive (no filing fees, no formal discovery, and generally less attorney time), and more flexible (Appeals can consider factors like ability to pay and administrative convenience that a court cannot). For the vast majority of tax controversies, Appeals is the most efficient and effective path to resolution.

Taxpayers who are facing an IRS examination result they disagree with should consult with a tax controversy attorney before the 30-day protest deadline expires. A well-prepared protest that identifies the legal issues, marshals the facts, and presents the taxpayer's position persuasively can make the difference between a favorable settlement and an unfavorable outcome.^[5]