Although an appeal is one of the more commonly known options when going against the findings of an audit, there are alternatives. These can often include a petition before the Tax Court, offer in compromise, installment agreement, or bankruptcy.
Option #1: Tax Court petition
A petition before the U.S. Tax Court allows for a discovery period which allows all parties involved to review the facts of the case. This can allow for greater success in negotiations and lead to a better resolution. It is important to have an advocate that is familiar with the process and knows the applicable laws. This can better ensure the court has all the information they need to help guide the negotiations towards a more favorable outcome.
Option #2: Offer in compromise
An offer in compromise involves the taxpayer settling tax debt with the IRS for less than they owe. This is an option in situations when the taxpayer has financial hardship that impacts their ability to pay. The IRS generally only accepts this option when they believe that the amount offered is all that they can reasonably expect to get as payment.
It is important to carefully review qualifications for an offer in compromise. The IRS is very particular about qualifications but those who do not qualify for this program have other options.
Option #3: Installment agreement
An installment agreement is basically a long-term payment plan. It allows taxpayers the ability to pay off their taxes in more manageable, smaller payments over a set period of time. The rules, like all things with the IRS, are particular. For example, the IRS generally expects you to begin making payments even before the agreement is officially approved.
Option #4: Bankruptcy
There are some situations when taxpayers can use bankruptcy as a tool to help deal with tax debt. Only certain types of tax debts qualify. Examples can include state or federal income tax and it is important that there are no allegations of fraud or intentional attempts to avoid tax obligations.
As noted above, it is important to have an advocate on your side regardless of which option you choose. This advocate can help to better ensure you understand your rights and the impact of tax law on your situation while also working to better ensure a favorable resolution.