Options for Challenging a Bad Tax Assessment

If you’re in collections and facing a tax assessment you believe is incorrect, all is not lost. The IRS provides several options to challenge the assessment and manage your tax debt. Here are five key avenues to explore:

1. Audit Reconsideration

Audit reconsideration is an option if you disagree with the results of an IRS audit. This can be particularly useful if you didn’t attend the audit, didn’t present certain facts during the audit, or have new information that could change the outcome.

• How to Apply:

  • Submit a written request to the IRS office that conducted the audit.
  • Provide new documentation or information that supports your position, such as receipts or bank statements.

• Outcome:

  • The IRS will review your request and may adjust your tax liability if they agree with your new evidence.

2. Doubt-as-to-Liability Offer

A Doubt-as-to-Liability Offer in Compromise allows you to settle your tax debt for less than the full amount if there is genuine doubt about the accuracy of the tax liability.

• Eligibility:

  • You must have filed all required tax returns and cannot dispute a tax liability already finally determined by a court.

• Outcome:

  • If accepted, you settle your tax debt for the agreed-upon amount.

3. Collection Due Process (CDP) Hearing

If you receive a Notice of Federal Tax Lien or a Notice of Intent to Levy, you have the right to request a CDP hearing to dispute the collection action.

• How to Request:

  • Submit Form 12153, Request for a Collection Due Process or Equivalent Hearing, within 30 days of the notice.

• During the Hearing:

  • Present your case and any supporting documentation to an independent IRS Appeals Officer.

• Outcome:

  • The Appeals Officer will review your case and make a determination, which could result in the removal of the lien or levy.

4. Pay and Refund

If you disagree with the tax assessment but cannot resolve it through other means, you can pay the disputed amount and then file a claim for a refund.

• How to Proceed:

  • Pay the full amount of the disputed tax.
  • File Form 1040X, Amended U.S. Individual Income Tax Return, or Form 843, Claim for Refund and Request for Abatement, to request a refund.

• Outcome:

  • If the IRS denies your refund claim, you can file a lawsuit in a U.S. District Court or the U.S. Court of Federal Claims to seek a judicial review.

5. Bankruptcy

In some cases, discharging tax debt through bankruptcy might be an option, although this is generally a last resort and has specific criteria.

• Eligibility:

  • The tax debt must be at least three years old, and you must have filed the tax returns at least two years before filing for bankruptcy.
  • Other conditions, such as passing the “240-day rule,” also apply.

• Outcome:

  • If successful, your tax debt may be discharged, relieving you of the obligation to pay it.

Conclusion

Challenging a bad tax assessment while in collections is possible through several IRS mechanisms, including audit reconsideration, Doubt-as-to-Liability offers, Collection Due Process hearings, the pay and refund method, and bankruptcy. Understanding these options and following the appropriate procedures can help you effectively manage and potentially reduce your tax debt.