Audit Reconsideration is allowed when you disagree with the results of only two specific events:
1. The assessment of tax liability by the IRS because of an audit of their filed return or
2. The assessment of a tax liability by the IRS because they have filed an SFR for the taxpayer.
This will usually occur when the case is still in the Examinations Division and is a much more informal version of a CAP. The IRS considers the Audit Reconsideration when there is information that was not considered in the original assessment. Representatives should be aware that this also allows the IRS to bring up new things that may not have been reviewed on the original examination as well.
There are also specific times the IRS will not consider an Audit Reconsideration including:
1. A finalized Closing Agreement has been filed
2. An OIC has been agreed to
3. An Agreement has been reached with an Appeals Officer
4. A court has issued a final determination of the tax liability
5. Items that have already been examined in the original audit and there is no new information being added
6. If the taxpayer has not filed a return
If you notice, the second reason for doing a reconsideration and the last reason for not doing one seem to be in conflict. But they are not. If your client has had an SFR filed by the IRS and they want an Audit Reconsideration, they must file a return for the tax year in question!
Once the IRS has considered all the information provided during the Audit Reconsideration you may do one of several things.
1. Agree with the IRS and make arrangements for payment options.
2. Disagree with the IRS and file an appeal
3. Disagree with the IRS, pay the balance due in full and file a Form 1040X (this starts the availability for formal Appeals and Tax Court over again)
4. Disagree with the IRS and do nothing and wait for the collections process to start.
Next: Part 4 – Judicial Review