IRS Audit Reconsideration: Reopening a Closed Audit You Disagree With

What Audit Reconsideration Is

According to the Internal Revenue Manual (IRM 4.13.1), audit reconsideration is the process the IRS uses to reevaluate the results of a prior audit where additional tax was assessed and remains unpaid, or a tax credit was reversed. A taxpayer who disagrees with the original determination must provide new information on the audited issues that was not considered during the original examination. The same process applies when a taxpayer contests a substitute for return by filing an original delinquent return, or when the IRS made a computational or processing error in assessing the tax.

Who Can Request It

Under IRM 4.13.1, a request generally requires that:

• the taxpayer filed a tax return;
• the assessment remains unpaid, or the IRS reversed tax credits the taxpayer is disputing;
• the taxpayer identifies which adjustments are disputed; and
• the taxpayer provides new information on the audited issues that was not considered during the original examination, or there was an IRS computational or processing error.

A typical situation is one in which the taxpayer did not provide records during the audit, or provided incomplete records, and now has documentation that supports the items the IRS disallowed.

When It Is Not Available

The IRM states that reconsideration will not be considered when the assessment resulted from a closing agreement under section 7121, from an accepted compromise under section 7122, or from final TEFRA partnership proceedings. Additional limits apply to some cases previously closed by the IRS Independent Office of Appeals.

If the audit assessment has already been paid in full, the request is treated as a claim for refund rather than a reconsideration. Under section 6511(a), a refund claim generally must be filed within three years from the time the return was filed or two years from the time the tax was paid, whichever is later.

How to Request It

Requests should be made in writing and include new supporting documentation for each disputed issue. A taxpayer can write a letter or use Form 12661, Disputed Issue Verification. IRS Publication 3598, What You Should Know About the Audit Reconsideration Process, explains the procedure. A copy of the audit report helps identify each adjustment being disputed.

A clear request lists each disputed adjustment, explains why it is wrong, and ties the new documents to that adjustment.

What Happens Next

The IRS reviews the new information and can allow the disputed items in full, allow them in part, or disallow them. If the request is accepted for reconsideration and the result is a full or partial disallowance, the taxpayer can ask for the case to be sent to the IRS Independent Office of Appeals under the procedures in Publication 5. According to the IRM, the case will not be forwarded to Appeals if the taxpayer does not respond to an appointment letter or keep a scheduled appointment.

A taxpayer who does not wish to appeal but still disputes the result can pay the tax and file a claim for refund within the section 6511 period.

How Reconsideration Fits with Other Options

Audit reconsideration is a remedy after assessment. It does not reopen the 90-day period for petitioning the Tax Court after a notice of deficiency, and it is generally better to raise all available information during the audit, in Appeals, or in a timely Tax Court case. In a Collection Due Process hearing, the underlying liability can be challenged only if the taxpayer did not receive a notice of deficiency or did not otherwise have an opportunity to dispute it, which makes reconsideration an important route when that opportunity was missed.

The Bottom Line

Audit reconsideration gives the IRS a way to correct an unpaid audit assessment when new information shows it was wrong. It is available only in defined circumstances, it requires specific documentation for each disputed item, and it does not automatically pause collection, so a request should be complete and prompt.