1. Respond to the IRS Examination with a Focused Record
A federal tax dispute often begins with a notice requesting records or questioning items on a return. Read the notice first because response dates and procedures vary. A focused federal tax audit response addresses the issues under examination and keeps a clear record of what was provided.
Start with the Notice
- Identify the tax periods, disputed items, requested documents, and response date.
- Preserve returns, supporting records, correspondence, and relevant workpapers.
- Keep a consistent record of communications and materials submitted to the examiner.
Support Each Disputed Position
- Match records and explanations to each proposed adjustment instead of sending unrelated material.
- Separate factual questions from legal issues when documents alone do not explain the return position.
- If the dispute reaches court, IRC § 7491 may shift the burden on a factual issue when its statutory requirements are met.
Questions about the underlying treatment may also involve federal income tax rules.
2. Use the Administrative Appeal before Court
If an examination produces proposed adjustments, the IRS may offer administrative review through a 30-day letter. Letter 525, for example, generally gives a taxpayer who disagrees 30 days to request an appeal. The Independent Office of Appeals is separate from the examination function.
Prepare the Protest
- Follow the letter instructions and identify each adjustment still disputed.
- State the relevant facts, legal grounds, and reasons for disagreement.
- Address gaps in the administrative record before the dispute moves closer to court.
Evaluate Resolution at Appeals
- Appeals may consider litigation hazards when evaluating settlement.
- Distinguish factual disagreements from disputes over legal interpretation.
- If a deficiency remains unresolved, the IRS may issue a statutory Notice of Deficiency.
Related administrative issues may arise within broader tax disputes.
3. Act before the Notice of Deficiency Deadline Expires
A statutory Notice of Deficiency creates a different deadline. IRC § 6213 generally allows 90 days after mailing to petition the U.S. Tax Court, or 150 days if the notice is addressed to a person outside the United States. Continued IRS discussions do not extend that statutory period.
Compare the Available Court Paths
- A timely Tax Court deficiency case generally allows review without first paying the proposed deficiency.
- Refund litigation generally requires payment and a proper administrative refund claim before suit.
- A qualifying refund action may proceed in a U.S. District Court or the U.S. Court of Federal Claims.
Treat the Petition Date As a Separate Deadline
- The Tax Court filing period is not another audit-response period.
- Continued discussions with the IRS do not extend the statutory deadline.
- If no timely petition is filed, the IRS may assess the deficiency after the applicable restriction period ends.
4. Prepare the Tax Court Case Around the Disputed Issues
After a petition is filed, the dispute follows the Tax Court’s Rules of Practice and Procedure. The petition identifies the challenged determinations and claimed errors. The parties then develop the record through stipulations, appropriate discovery, motions, settlement discussions, and, when needed, trial.
Develop the Litigation Record
- Organize documents and testimony around each adjustment placed in dispute.
- Use discovery when relevant information cannot be resolved through informal exchange.
- Consider expert evidence when valuation or another specialized issue requires technical analysis.
Prepare for Resolution or Trial
- Stipulate facts and documents that are not genuinely disputed.
- Use appropriate motions to narrow issues when the Tax Court Rules permit.
- Continue evaluating settlement while unresolved issues move toward trial.
Cases requiring judicial resolution may also involve broader litigation and trial considerations.
5. Plan for Settlement and Review after a Decision
A federal tax dispute may end through settlement or a court decision. The next step depends on the proceeding and the issues that remain. Collection Due Process proceedings under IRC §§ 6320 and 6330 concern lien and levy procedures and should not be treated as ordinary deficiency cases.
Assess Settlement in Context
- Settlement terms should identify the tax periods, issues, and liabilities being resolved.
- A qualified offer under IRC § 7430 can affect litigation-cost rules when statutory conditions are satisfied.
- Evaluate settlement against the existing record and unresolved factual or legal issues.
Know the Appellate Route
- A regular Tax Court decision may be appealed to the applicable U.S. Court of Appeals.
- A decision under small tax case procedures generally cannot be appealed.
- IRC § 7430 may permit qualifying taxpayers to seek reasonable administrative or litigation costs under specified conditions.
Review after federal litigation is addressed further under federal appeals.
6. Frequently Asked Questions
Can the IRS audit a return after three years?
Yes, in some circumstances. Although federal law generally provides a three-year assessment period, longer periods or no limitations period can apply under specified statutory conditions. The return and issue should be reviewed before relying on a limitations defense.
Can I settle after filing a Tax Court petition?
Yes. Filing a petition does not necessarily mean the dispute will go to trial. Settlement discussions can continue while the parties meet court deadlines and prepare unresolved issues.
Do I have to pay the disputed tax before going to Tax Court?
Generally, a timely deficiency petition permits Tax Court review without first paying the proposed deficiency. A refund suit follows a different route and generally requires payment and an administrative refund claim first.
Can a small tax case decision be appealed?
Generally, no. A decision entered under the Tax Court’s small tax case procedures is not appealable, making the choice of procedure significant when that option is available.
7. Review the Federal Tax Dispute with SJKP
The available response can change as a dispute moves from examination to Appeals or federal court. SJKP’s attorneys can review the IRS notice, disputed adjustments, administrative record, filing deadlines, and available forum to identify the procedural options at the current stage. Contact SJKP to discuss the next step in a federal tax dispute.
02 Apr, 2026
