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ROBERT E. MCKENZIE, ESQ.

ARNSTEIN & LEHR LLP


120 SOUTH RIVERSIDE PLAZA, SUITE 1200
CHICAGO, IL 60606
312-876-6927
312-876-7318 fax

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IRS AUDIT SYSTEM
IRS AUDIT PROCEDURES

In situations where an audit deficiency has been assessed and the taxpayer or practitioner is able to convince
the Collection Division employee that the taxpayer was not given sufficient opportunity to present the
documentation substantiating the disallowed items during the audit process, that employee may recommend
that an audit reconsideration be granted. It should be emphasized that audit reconsiderations are not a matter
of right; they are discretionary with the Collection Division employee.

Requirements

“1. Treasury Regulation 301.6404-1 provides that the district director or the director of the regional service
center may abate any assessment, or unpaid portion thereof, if:

1. the assessment is in excess of the correct tax liability,

2. the assessment is made subsequent to the expiration of the applicable period of limitations, or

3. the assessment has been erroneously or illegally made.

2. Directors should use their discretionary authority in determining whether tax assessments involving illegal
tax protestors and taxpayers with a history of repeatedly ignoring statutory notices are to be reconsidered.
Reconsideration will be based upon the facts and circumstances of the case.

3. When exercising this discretionary authority, Service employees should consider the need and opportunity
to bring noncompliant taxpayers into compliance.

4. Abatement requests will not be considered if:

1. the assessment was made as a result of a closing agreement under Section 7121 of the Internal Revenue
Code or in which the tax liability was compromised under Section 7122 of the Internal Revenue Code;
2. the assessment was made after final TEFRA administrative proceedings;

3. the assessment was made as a result of the taxpayer entering into agreement on Form 870-AD, Offer of
Waiver of Restrictions on Assessments and Collection of Deficiency in Tax of Acceptance of Overpayment;

4. the assessment results from a final order of the United States Tax Court or other court.[IRM 5.1.12.8]

Correction Requests for Reconsideration of Deficiency Assessments

1. When a taxpayer states that a deficiency has been incorrectly assessed, advise the taxpayer that the
request must be in writing. Except as noted in Section 12.8(4) in this chapter, abatement requests should be
accepted for reconsideration if:

1. the taxpayer requests in writing that an assessment be abated based upon enclosed information which,
if timely submitted, would have resulted in a change in the assessment;

2. the taxpayer files an original delinquent return after an assessment was made as a result of a return
executed by the Service under Section 6020(b), Substitute for Return program (SFR);

3. the Service made a computational or processing error in adjusting the tax.

2. If the taxpayer filed a return for the period in question, advise the taxpayer to include the following in their
request:

1. a written request or amended return which identifies the prior examination issues(s) and the reason for
the abatement requested;

2. the examination report (if available);

3. documents supporting their position;” [IRM 5.1.12.8.1]

“1. When a taxpayer states that a deficiency has been incorrectly assessed, advise the taxpayer that the
request must be in writing. Except as noted in 1.2(4) above, abatement requests should be accepted for
reconsideration if any one of the following occurs:

1. the taxpayer requests in writing that an assessment be abated based upon enclosed information which,
if timely submitted, would have resulted in a change in the assessment

2. the taxpayer files an original delinquent return after an assessment was made as a result of a return
executed by the Service under Section 6020(b), Substitute for Return (SFR)

3. the IRS made a computational or processing error in adjusting the tax

1. Generally, the Chief, Planning and Special Programs (PSP) or for EP/EO, the Returns Program Manager,
is responsible for requests for reconsideration of a disputed deficiency in which the assessment was done in
District Examination.

1. These requests are received from Collection, Customer Service, and as transfers from the Service
Center.

2. These requests should be screened for completeness and should satisfy the reconsideration criteria.
Incomplete cases should be returned.
2. Cases accepted will be controlled manually or, if available, on an automated inventory control system.

3. A designated examiner will review the reconsideration requests. All cases should be reviewed and
classified within 30 days of the taxpayer's request.

4. A case may be accepted at classification if it satisfies referral criteria and adequate documentation is
provided. This applies to prior SFR cases where an original return has been received.

5. Use Letter 2738(P), if the request is fully abated.

6. If adequate documentation is not provided, use Letter 2724(P) to advise the taxpayer that additional
information should be submitted within a specific time frame.
1. State clearly in the letter all documentation or information needed to abate the assessment being
disputed...............”[IRM 4.3.6.1.3]

Inappropriate Requests

The IRS will not grant reconsideration where any one of the following situations applies:

1. the assessment was made as a result of a closing agreement under Section 7121 of the Internal Revenue
Code or in which the tax liability was compromised under Section 7122 of the Internal Revenue Code

2. the assessment was made after final TEFRA administrative proceedings

3. the assessment was made as a result of the taxpayer entering into agreement on Form 870-AD, Offer of
Waiver of Restriction on Assessments and Collection of Deficiency in Tax of Acceptance of Overpayment

4. The assessment results from a final order of the United States Tax Court or other court. [IRM 4.3.6.1.2]
The Internal Revenue Manual sets out the following requirements:

Documentation

Since reconsiderations are not accorded as a matter of right, it falls on the practitioner to convince the
Collection Division employee that had the taxpayer been allowed to present the documentation which now is
being offered, the result of the audit would have been substantially different. The practitioner should be
prepared to document the case fully to the Collection Division employee at the time he or she makes the
request for the audit reconsideration. Normally, the taxpayer or the practitioner can successfully request
suspension of any collection action, including lien filing, while the audit reconsideration is pending. If your
request for an audit reconsideration is denied by a collection employee, appeal to his/her supervisor. If your
appeal is denied, consider appealing to the Taxpayer Advocate.

PRACTICE TIP
Audit reconsideration is not a matter of right. The practitioner should fully document the case to prevail in
obtaining an audit reconsideration for the client.

Audit reconsiderations will not be granted where the taxpayer has been assessed a penalty for a frivolous
return [IRC § 6702], or where he has been identified by the IRS as being associated with an illegal tax protest
group.
COPYRIGHT 2005 ROBERT E. MCKENZIE

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Changes last made on: 02/09/2007