Writing a formal protest to IRS Appeals: when one is required, what Publication 5 says it must contain, and what gets it returned

When a formal protest is required

Publication 5 (Rev. 4-2021) states the rule: “A formal written protest is required if the proposed change to the total amount of tax and penalties for any tax period is more than $25,000 in the letter you received.” The total includes the proposed increase or decrease in tax and penalties, or the claimed refund. If one period exceeds $25,000, the protest must cover every period in the case. For an offer in compromise, the total includes unpaid tax, penalties and interest.

Regardless of amount, a formal protest is also required in:

• employee plan and exempt organization cases;
• partnership and S corporation cases;
• all other cases that do not qualify for a small case request or a special appeal procedure (such as the collection procedures in Publication 1660).

A protest is also how a taxpayer gets Appeals to look at a “no immediate tax consequence” case, for example adjustments to a net operating loss carryforward that produce no deficiency in the year examined (IRM 8.1.1.4.2).

The 30-day letter that triggers the protest is usually Letter 950 for a field examination or Letter 525 for a correspondence examination, each with the examiner's report (Form 4549 or 886-A). BBA partnerships have their own Appeals sequence, ending with a notice of proposed partnership adjustment (Pub 5); see BBA cases in Appeals and Tax Court.

What Publication 5 requires

Publication 5 tells the taxpayer to include a statement that it wants to appeal the proposed changes, and all of the following:

For the full template with each section laid out, see the formal protest letter template.

The perjury statement for representatives

The taxpayer's version reads: “Under penalties of perjury, I declare to the best of my knowledge and belief, the information contained in this protest and accompanying documents is true, correct, and complete.”

A representative who submits the protest must use one of two statements, depending on personal knowledge. With personal knowledge: “Under penalties of perjury, I declare that I submitted the protest and accompanying documents, and to the best of my personal knowledge and belief, the information stated in the protest and accompanying documents is true, correct, and complete.” Without it: “Under penalties of perjury, I declare that I submitted the protest and accompanying documents, and I have no personal knowledge concerning the information stated in the protest and accompanying documents.”

Many practitioners use the no-personal-knowledge version and have the taxpayer also sign the taxpayer statement, so the facts are verified by someone who knows them. Publication 5 does not require both, but it does require the correct one.

How Appeals uses the protest

Publication 5 says the assigned Appeals employee will use the protest to prepare for the conference. The protest and the examiner's report together frame the dispute. Rev. Proc. 2012-18 describes the administrative file, which contains the proposed determination and the protest, as the document that “sets forth the boundaries of the dispute between the taxpayer and the IRS”. That has three consequences.

Issues are defined by the protest. A new issue is a matter not raised during the examination, and “Any issue not raised by Compliance in the report (e.g., 30-Day Letter) or rebuttal and disputed by the taxpayer is a new issue.” (IRM 8.6.1.7.1). Appeals considers a new issue the taxpayer raises only after the originating function has had a chance to examine it, which may mean the case goes back to Examination.

New facts belong in the examination, not the protest. If the protest attaches documents the examiner never saw and they need additional analysis or verification, Appeals will route them back for review and comment, or release the case, depending on the statute (IRM 8.6.1.7.5). Publication 5 warns that this “will likely delay the resolution of your case.” Give the examiner the documents before the protest is due if at all possible.

New arguments are fine. “A new theory or alternative argument is not a new issue.” Appeals may consider new theories and new authorities that support a position already taken (IRM 8.6.1.7.2). The protest is the place to lay out the strongest legal analysis, including authorities the examiner was not shown.

If Examination writes a rebuttal to the protest, Rev. Proc. 2012-18 sec. 2.03(4)(c) requires it to be shared with the taxpayer or representative when it is sent to Appeals. Ask for it if you do not receive it.

Writing each part

1. Issue list first. Number each disputed adjustment and use the same numbering throughout. State the dollar amount and period for each. Concede small items expressly if you intend to; it focuses the conference.
2. Facts by issue. Write facts as findings a judge could adopt, with exhibit references. Distinguish what the examiner accepted from what is disputed. Appeals evaluates the evidence as it would be presented at trial (IRM 8.6.2.6.4.1), so say who would testify to what.
3. Law by issue. Apply the authorities to the facts. Address the examiner's authorities directly; the ATE will. Note any circuit precedent that would control under the Golsen rule (IRM 8.6.4.2.7).
4. Penalties separately. Penalties are settled on their own merits in Appeals, not traded (IRM 8.6.4.2). Address reasonable cause, substantial authority and written supervisory approval under IRC 6751(b) as separate issues.
5. Request. Ask for a conference and state the preferred format (telephone, video or in person). If the client is a specified taxpayer, the request for the case file can go in the cover letter too; see the Appeals conference.

Where and when to send it

“Send your protest to the IRS address in the letter you received within the time limit specified in the letter.” (Pub 5). The protest goes to Compliance, which forwards the protested case to Appeals (IRM 8.2.1.2). Do not send it to an Appeals office. Use a method that proves the mailing date, and keep the complete package as sent.

If more time is needed to prepare the protest, ask the examiner or group manager before the deadline and confirm any extension in writing. An extension of the protest deadline does nothing for the assessment statute. If the statute will have fewer than 365 days left when Appeals receives the case, expect a request to sign Form 872; without it, Appeals will not accept the case (statute and Appeals).

Why protests get cases returned

IRM 8.2.1.5 lists grounds on which the Appeals Officer returns a case to Examination as a premature referral. The first one listed is about the protest itself: a “Missing protest, or the protest, when required, fails to set forth the taxpayer’s position, lacks detail, or fails to meet the requirements of Publication 5”. Other grounds on the list that a protest can trigger:

• the taxpayer provides new information or evidence;
• the taxpayer raises new issues the originating function has not considered;
• timely statute consents were not secured.

A returned case loses weeks. A protest that lists every disputed adjustment, states facts and law for each, uses the correct perjury statement and is signed avoids the most common return.

Questions practitioners ask