IRS updates procedures for unagreed employment tax cases

The IRS has updated its procedures regarding unagreed employment tax case procedures. When taxpayers disagree with proposed adjustments, it is beneficial to all parties to resolve disputes at the lowest level possible. Code Sec. 7123 provides for alternative dispute resolution techniques by Appeals, which is separate from and independent of the IRS office that proposed the adjustment. In addition, the Taxpayer Advocate Service is an independent organization within the IRS whose employees assist taxpayers who experience economic harm, seek help in resolving tax problems that have not been resolved through normal procedures, or believe that an IRS system or procedure is not working as it should. If the examiner and taxpayer are unable to reach an agreement on one or more issues, the taxpayer should be encouraged to request early referral of these unagreed issues to Appeals.

Fast Track Settlement Program

The Fast Track Settlement Program (FTS) offers Examination personnel a way to resolve audit issues utilizing the settlement authority and mediation skills of Appeals while retaining jurisdiction of the case. The FTS is designed to be completed within 120 days for large business and international (LB&I) taxpayers or 60 days for small business/self-employed (SB/SE) taxpayers. The Appeals FTS Official uses mediation techniques to lead LB&I (or SB/SE) and the taxpayer to self-determine the likely outcome of the dispute. Unless specifically excluded from Appeals consideration, all cases are eligible to be forwarded to Appeals as long as the taxpayer submits an adequate protest. Generally, if the taxpayer submits new information or evidence to Appeals, or raises a new issue that Examination has not considered, the case will be returned to Examination.

30-day letter

The 30-day letter, Unagreed Case Procedures, is issued in employment tax cases to advise taxpayers of all unagreed proposed adjustments to their tax liabilities, and of conclusions reached in no-change cases involving the disallowance in full or in part of claims for refund. After review of the protest, the IRS will prepare a rebuttal to address or clarify any new facts presented or arguments made by the taxpayer. If the taxpayer raises a relevant new issue and there will be less than 210 days remaining on the statute of limitations when the originating function receives the case, Appeals will not return the case unless the taxpayer provides a consent to extend the statute of limitations. If the Service erroneously makes an assessment of taxes attributable to any Code Sec. 7436 issues without issuing a Letter 3523 or obtaining a waiver of restrictions on assessment (e.g., Form 2504–T) from the taxpayer, the taxpayer is entitled to an automatic retraction of the assessment. However, once any such procedural defects are corrected, the Service may reassess the employment taxes if the statutory period of limitations for assessment has not expired. The taxpayer may file a refund suit in the District Court or Court of Federal Claims to contest the Service’s employment tax determinations (including worker classification and Code Sec. 530) as an alternative to filing a Tax Court petition. Finally, the taxpayer is not eligible for interest-free adjustments after receipt of notice and demand for payment or after receipt of a Letter 3523. (IRM 4.23.22, May 15, 2018.)

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