New York City Tax Attorney Explains 3 Key Elements of a Tax Appeal

The IRS sends a notice of deficiency (often called a 90-day letter) when it proposes to increase your tax liability after an examination. This letter is your gateway to the U.S. Tax Court. You have exactly 90 days from the date the IRS mails the notice to file a petition in Tax Court if you wish to dispute the deficiency before paying. Miss that deadline, and your right to litigate in Tax Court vanishes. State tax appeals follow a similar but separate timeline under New York law. Real-world outcomes depend heavily on whether the taxpayer recognizes this deadline and acts quickly to preserve the right to appeal.

New York State Department of Taxation and Finance follows its own procedure. After an audit, the Department issues a notice of determination. A taxpayer has 90 days to file a petition with the Division of Tax Appeals, which is an administrative tribunal separate from the courts. The Division of Tax Appeals operates under New York Tax Law Section 2006. Practitioners often find that state appeals move faster than federal litigation, but the substantive burden of proof—demonstrating the Department's determination was erroneous—remains demanding. Many taxpayers do not realize they have two separate appeal rights: one at the federal level and one at the state level.

Start with the audit report or examination workpapers. These documents show exactly what the tax authority questioned and why. Next, compile all books, records, invoices, receipts, bank statements, and correspondence that support your original return position. If the issue involves a deduction, you need contemporaneous documentation proving the expense was ordinary, necessary, and properly allocated. For income items, trace the source and demonstrate how you reported it. Create an organized chart or summary showing the audit adjustment, your position, and the supporting evidence. A poorly organized appeal package, even with strong facts, often fails to persuade the appellate officer or judge.

After an IRS examination, you receive a 30-day letter inviting you to file a formal protest if you disagree with the agent's findings. Filing a protest triggers the Internal Revenue Service Appeals Office, a separate division from the examining agent's team. The Appeals Office is supposed to be more neutral and willing to settle on hazards of litigation. Many practitioners recommend filing a protest because it preserves your arguments and sometimes leads to settlement without litigation. However, if you have already paid the tax and want a refund, you may skip the protest and file a claim for refund directly in federal district court or the U.S. Court of Federal Claims. The choice depends on whether you believe Appeals is likely to resolve the dispute, or whether you prefer the discovery process available in court litigation.

U.S. Tax Court is a national tribunal with judges who hear only tax cases. You can litigate there without paying the deficiency first, which preserves cash flow. However, Tax Court judges are specialists, and they apply rigorous standards to factual and legal claims. The burden of proof generally rests on the taxpayer: you must prove the IRS determination was erroneous. Discovery is limited compared to civil litigation. If you lose in Tax Court, you can appeal to the appropriate U.S. Court of Appeals (the Second Circuit covers New York). The Second Circuit applies a deferential standard to factual findings but reviews legal conclusions de novo. For a taxpayer in New York City, an appeal to the Second Circuit means your case will be heard by judges based in New York, which sometimes offers a local advantage in understanding regional business practices and tax issues.

The New York Division of Tax Appeals permits taxpayers to represent themselves or to be represented by an attorney, CPA, or enrolled agent. However, the Division is a quasi-judicial body, and the hearing officer expects professional-level argument and documentation. Unrepresented taxpayers often struggle with burden of proof, evidentiary standards, and the technical requirements for admitting documents into the record. An attorney licensed in New York can file the petition, conduct discovery, prepare witnesses, and present oral argument before the hearing officer. Many cases turn on procedural compliance: missing a filing deadline, failing to respond to a discovery request, or submitting evidence in improper form can result in dismissal or default judgment against you. Representation minimizes these risks and increases the likelihood of a favorable or settlement outcome.