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ROBERT E. MCKENZIE, ESQ.
ARNSTEIN & LEHR LLP
120 SOUTH RIVERSIDE PLAZA, SUITE 1200
CHICAGO, IL 60606
312-876-6927
312-876-7318 fax

In situations where an audit deficiency has been assessed and the taxpayer or practitioner is able to convince the Collection Division employee that the taxpayer was not given sufficient opportunity to present the documentation substantiating the disallowed items during the audit process, that employee may recommend that an audit reconsideration be granted. It should be emphasized that audit reconsiderations are not a matter of right; they are discretionary with the Collection Division employee.

“1. Treasury Regulation 301.6404-1 provides that the district director or the director of the regional service center may abate any assessment, or unpaid portion thereof, if:

2. the assessment is made subsequent to the expiration of the applicable period of limitations, or

2. Directors should use their discretionary authority in determining whether tax assessments involving illegal tax protestors and taxpayers with a history of repeatedly ignoring statutory notices are to be reconsidered. Reconsideration will be based upon the facts and circumstances of the case.

3. When exercising this discretionary authority, Service employees should consider the need and opportunity to bring noncompliant taxpayers into compliance.

1. the assessment was made as a result of a closing agreement under Section 7121 of the Internal Revenue Code or in which the tax liability was compromised under Section 7122 of the Internal Revenue Code;

3. the assessment was made as a result of the taxpayer entering into agreement on Form 870-AD, Offer of Waiver of Restrictions on Assessments and Collection of Deficiency in Tax of Acceptance of Overpayment;

4. the assessment results from a final order of the United States Tax Court or other court.[IRM 5.1.12.8]

1. When a taxpayer states that a deficiency has been incorrectly assessed, advise the taxpayer that the request must be in writing. Except as noted in Section 12.8(4) in this chapter, abatement requests should be accepted for reconsideration if:

1. the taxpayer requests in writing that an assessment be abated based upon enclosed information which, if timely submitted, would have resulted in a change in the assessment;

2. the taxpayer files an original delinquent return after an assessment was made as a result of a return executed by the Service under Section 6020(b), Substitute for Return program (SFR);

2. If the taxpayer filed a return for the period in question, advise the taxpayer to include the following in their request:

1. a written request or amended return which identifies the prior examination issues(s) and the reason for the abatement requested;

“1. When a taxpayer states that a deficiency has been incorrectly assessed, advise the taxpayer that the request must be in writing. Except as noted in 1.2(4) above, abatement requests should be accepted for reconsideration if any one of the following occurs:

1. the taxpayer requests in writing that an assessment be abated based upon enclosed information which, if timely submitted, would have resulted in a change in the assessment

2. the taxpayer files an original delinquent return after an assessment was made as a result of a return executed by the Service under Section 6020(b), Substitute for Return (SFR)

1. Generally, the Chief, Planning and Special Programs (PSP) or for EP/EO, the Returns Program Manager, is responsible for requests for reconsideration of a disputed deficiency in which the assessment was done in District Examination.

1. These requests are received from Collection, Customer Service, and as transfers from the Service Center.

2. These requests should be screened for completeness and should satisfy the reconsideration criteria. Incomplete cases should be returned.

2. Cases accepted will be controlled manually or, if available, on an automated inventory control system.

3. A designated examiner will review the reconsideration requests. All cases should be reviewed and classified within 30 days of the taxpayer's request.

4. A case may be accepted at classification if it satisfies referral criteria and adequate documentation is provided. This applies to prior SFR cases where an original return has been received.

6. If adequate documentation is not provided, use Letter 2724(P) to advise the taxpayer that additional information should be submitted within a specific time frame.
1. State clearly in the letter all documentation or information needed to abate the assessment being disputed...............”[IRM 4.3.6.1.3]

The IRS will not grant reconsideration where any one of the following situations applies:

3. the assessment was made as a result of the taxpayer entering into agreement on Form 870-AD, Offer of Waiver of Restriction on Assessments and Collection of Deficiency in Tax of Acceptance of Overpayment

4. The assessment results from a final order of the United States Tax Court or other court. [IRM 4.3.6.1.2]
The Internal Revenue Manual sets out the following requirements:

Since reconsiderations are not accorded as a matter of right, it falls on the practitioner to convince the Collection Division employee that had the taxpayer been allowed to present the documentation which now is being offered, the result of the audit would have been substantially different. The practitioner should be prepared to document the case fully to the Collection Division employee at the time he or she makes the request for the audit reconsideration. Normally, the taxpayer or the practitioner can successfully request suspension of any collection action, including lien filing, while the audit reconsideration is pending. If your request for an audit reconsideration is denied by a collection employee, appeal to his/her supervisor. If your appeal is denied, consider appealing to the Taxpayer Advocate.

PRACTICE TIP
Audit reconsideration is not a matter of right. The practitioner should fully document the case to prevail in obtaining an audit reconsideration for the client.

Audit reconsiderations will not be granted where the taxpayer has been assessed a penalty for a frivolous return [IRC § 6702], or where he has been identified by the IRS as being associated with an illegal tax protest group.