IRS Audit Reconsideration

Introduction

When the IRS completes an audit and determines additional tax, penalties, or interest are owed, many taxpayers feel stuck with unfavorable results, particularly if they missed important deadlines or lacked necessary documentation during the audit process. Fortunately, the IRS provides a solution called audit reconsideration, which enables taxpayers to contest the outcome of a completed audit without navigating the Appeals process or Tax Court.

Audit reconsideration can potentially save taxpayers significant money and reverse incorrect assessments, but achieving success requires understanding the regulations, eligibility criteria, and documentation standards. This comprehensive guide covers every aspect of the audit reconsideration process.

When You Should Request an Audit Reconsideration

Audit reconsideration is appropriate when taxpayers believe an audit assessment was incorrect or incomplete. However, it's important to understand that audit reconsideration is entirely at the IRS's discretion. Taxpayers have no automatic right to have their request reviewed or accepted. Understanding when to file is crucial for maximizing your chances of success.

Common Reasons for Filing

Some taxpayers request reconsideration because they never received the original audit notice. This situation can occur due to a move, incorrect address on file, or lost mail. When the IRS completes an audit without taxpayer participation, the final assessment often relies on assumptions, which can be corrected through reconsideration.

Other taxpayers were unable to submit required documents during the original audit due to illness, emergencies, or missed deadlines. For instance, a freelance consultant may miss an audit appointment and fail to provide receipts for business expenses. The IRS could disallow all deductions, creating a substantial tax bill. By submitting audit reconsideration with receipts, invoices, and logs, the taxpayer can reduce or eliminate the assessed balance.

Fresh or updated documentation represents another frequent reason to seek reconsideration. Examples include bank statements, previously missing receipts, corrected W-2 forms, or updated Forms 1099. The IRS typically evaluates these materials fairly since they weren't accessible during the original audit examination.

Disagreement with audit findings is another reason. This occurs when the IRS misinterprets documentation, misapplies tax rules, or makes a calculation error. Audit reconsideration provides an opportunity to challenge these mistakes.

Situations Where Reconsideration Is Not Allowed

There are certain circumstances where the IRS will not accept an audit reconsideration request. For example, if you've already paid the full amount owed, or previously agreed to pay the assessed tax through a formal agreement, such as a Form 906 Closing Agreement, a Compromise agreement, or Form 870-AD with the Appeals office, the IRS considers the matter resolved and will not reopen it. Note that if you've already paid in full, you must file a formal claim for refund using Form 1040X, Amended U.S. Individual Tax Return.

Reconsideration is also unavailable when your tax balance stems from final partnership item adjustments under the Tax Equity and Fiscal Responsibility Act (TEFRA). Additionally, if the United States Tax Court or any other court has rendered a final judgment on your tax liability, the IRS cannot reconsider the audit since the issue has been legally resolved.

Benefits of Filing for Audit Reconsideration

Audit reconsideration provides several advantages over other IRS dispute options.

Reduction or Elimination of Tax

The primary advantage is monetary. When the IRS has inflated income figures, rejected valid deductions, or committed mistakes, reconsideration can eliminate all or portions of the assessment.

Ability to Submit New Evidence

In contrast to appeals or court proceedings, audit reconsideration permits taxpayers to introduce new documentation. This adaptability proves particularly useful for individuals requiring additional time to gather third-party documentation.

No Fees and Temporary Collection Relief

Audit reconsideration involves no filing fees or penalties. Frequently, you can ask the IRS to temporarily suspend collection activities, including levies or wage garnishments, while your case is being reviewed.

Flexible Timing

No rigid deadline exists for submitting a reconsideration request provided the tax debt remains outstanding and unresolved. Filing quickly is advisable since penalties and interest keep accumulating on unpaid amounts.

Eligibility Requirements: Before You Submit

Eligibility for audit reconsideration requires a completed audit assessment that you consider incorrect, plus new information or documentation that backs your position. The IRS must still be actively pursuing collection of the outstanding balance.

When Other IRS Processes Are Better

When you need to fix an error on your original return, such as omitting a dependent or missing Schedule C income, you should file an amended return instead. If the IRS prepared an SFR, you must first file the original tax return. Conflicts regarding tax law interpretation are more appropriately handled through Appeals rather than reconsideration.

What You Need Before Filing

Effective reconsideration relies on solid documentation. The IRS won't modify your balance based solely on verbal statements. You need to collect all pertinent documents, such as receipts, bank statements, logs, canceled checks, corrected Forms W-2 or 1099, and evidence of education expenses, medical costs, or dependency claims.

Organizing Your Documentation

Clear organization is essential. Categorize documents, label them distinctly, and cite them in your explanation letter. Presenting well-structured documentation enables the IRS examiner to grasp your case rapidly and minimizes the chance of mistakes or processing delays.

How to Request an IRS Audit Reconsideration

Submitting a well-prepared request is essential for success.

Prepare a Written Explanation

Your letter must clearly specify the tax year, detail what you dispute, and explain why the IRS should reconsider. Cite all supporting documents and provide a summary of what each document demonstrates.

Include Required Forms

Although not always required, including Form 12661 (Disputed Issue Verification) along with copies of audit reports or IRS notices gives the examiner helpful background information and can accelerate processing.

Submit the Packet

Mail your completed packet to the IRS office that most recently contacted you. The appropriate fax number or mailing address should be listed on your examination report (Form 4549) or the latest IRS notice you received. Send via certified mail with return receipt requested to verify delivery. Submit only document copies, never originals.

Monitor and Respond

The IRS might confirm receipt, ask for more documentation, or share updates about the review status. Responding quickly is essential to prevent delays.

How Long Audit Reconsideration Takes

The IRS doesn't maintain a fixed processing timeframe for audit reconsideration. Although the IRS states a 30-day response period, processing can extend longer and potentially stretch to several months, depending on case complexity, documentation quality, and whether third-party verification is needed.

Factors That Can Delay Review

Delays frequently happen when documentation is incomplete, confusing, or mailed to the incorrect office. Incomplete or partial evidence can trigger additional information requests from the IRS, lengthening the processing time.

Checking the Status

You can monitor the status via your IRS online account transcript or by phoning the IRS number listed on your audit notice. Adjustments, balance changes, and collection updates frequently appear in transcripts before official correspondence is received.

What Happens During the Review Process

Typically, the IRS assigns your reconsideration request to the same examiner who conducted your original audit. Should that examiner be unavailable, a different examiner within the same office will handle your case. This means your documentation and explanation need to directly respond to the concerns identified in the original audit.

After your request is received, the IRS reviews your explanation and supporting documents. An examiner evaluates the new evidence against the original audit findings and might reach out to third-party sources for verification. Requests for clarification or supplementary documents frequently occur during this phase.

Possible Outcomes

Audit reconsideration can produce a complete adjustment, partial adjustment, or no modification. A complete adjustment fully overturns the original audit, whereas a partial adjustment fixes only certain items. No change means the IRS determined the new documentation was inadequate and the previous assessment remains in effect.

Impact on Tax Balance

Successful reconsideration can lower or remove penalties and interest and might modify existing payment arrangements. Temporary collection suspensions could become permanent, based on the final result.

Your Rights and Protections During Audit Reconsideration

Taxpayers receive protection throughout the reconsideration process. Although collection actions don't automatically halt, the IRS frequently implements temporary suspensions to block wage garnishments, bank levies, or property seizures.

Right to Representation

You can engage a CPA, Enrolled Agent, or tax attorney to interact with the IRS on your behalf. A representative helps guarantee that documentation is thorough and correct.

Appeals and Taxpayer Advocate Service

If you disagree with the reconsideration decision, you have several options. You may request review by an IRS manager, request a conference with the IRS Office of Appeals, or seek assistance from the Taxpayer Advocate Service if you're experiencing delays or financial hardship.

Common Mistakes to Avoid

Avoiding common errors can dramatically increase your chances of success.

Submitting Original Copies

The IRS does not return original receipts or statements. Always send copies.

Providing Incomplete Documentation

If you claim a deduction, you must provide complete proof; partial evidence usually results in denial.

Not Clearly Explaining the Dispute

IRS examiners are not mind readers. You must explain:

Ignoring Follow-up Notices

If the IRS requests additional information and you fail to respond, they will close the reconsideration and reinstate collections.

Not Continuing Installment Agreement Payments

If you have an active installment agreement, you must keep making payments throughout the reconsideration process. The IRS won't automatically pause your payment plan, and failing to meet your agreement obligations can lead to immediate enforcement measures, including levies and liens, even while your reconsideration is being reviewed.

Not Filing the Correct Tax Return

If your issue stems from an SFR assessment, you must file the missing tax return first—reconsideration alone won't work.

Frequently Asked Questions