Dealing with a Notice of Deficiency

Does anyone have a resource or guide (or general advice) for responding to a notice of deficiency where your client is on solid ground?

Background:
I have a union worker that worked away from home on a job for a rather large outfit. He received no reimbursements or per diem for anything. His 2106 got audited for tye2017. After three rounds of correspondence with his auditor, the auditor has accepted his mileage log but disallowed all lodging and meal expenses "because you need to provide a employer reimbursement letter signed by the owner stating the amount of per diem paid by the employer".

The thing is we provided 2 such letters exactly the way the auditor requested but both times he said the wording needed to be changed. We now have a third letter which we expect to be satisfactory.

The deficiency amounts to a little under $4,000.

I have a lot of questions but the main one's are:
Should we try to get this kicked back to the audit level or move forward by petitioning the tax court?

If we go to tax court do we only need to address the letter which is our only material disagreement with the auditor or do we need to send in all the documentation that we provided to the auditor?

The best resource I've found for responding to a notice of deficiency is the "Petition Kit" provided on the Tax Court's website:

https://www.ustaxcourt.gov/resources/forms/Petition_Kit.pdf

If the IRS issued a notice of deficiency, then the 90-day clock is running, and getting the case "kicked back to the audit level" will likely run out the clock.

You don't address the letter in the petition. You address the disallowance of the deductions. Just state that you disagree with the disallowance and that the taxpayer has submitted all info to the IRS to support the deductions claimed.

After Respondent "answers" does the case always go to appeals? Is there anything that Petitioner must file or answer beforehand?

Dave, followed your instrux for a client where IRS issued CP2000 and THEN a NoD with a doubled income item. It had been reported, but IRS added it again for some reason! We petitioned, it was granted, but apparently never kicked back to IRS audit review, which we figured they'd simply adjust the error and *poof*. But IRS sent a new letter with updated amount with more penalty/interest and Client foolishly paid it!...

JR1, the referral to IRS Appeals is required by Rev. Proc. 2016-22. If IRS sent a bill after a timely petition had been filed, then the IRS made an illegal premature assessment that needs to be reversed. See 6213(a). Contact the IRS attorney identified on the Answer and the Docket Record.

Premature assessments have been happening, and the Tax Court issued a press release to advise how to deal with them:
https://www.ustaxcourt.gov/resources/press/08162021.pdf

If you do not file the petition with the Tax Court, the tax will be assessed and you will be in collections -- where is it often harder to get relief. The petition is not difficult to handle and there is no need to get into details. When District Counsel responds, you can call and discuss an efficient resolution.

Thanks, guys.

JR1, the referral to IRS Appeals is required by Rev. Proc. 2016-22. :
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Dave - I think a better choice of word is generally. Facebook wanted an appeal but it was not given.

Facebook’s case is an exception that rarely occurs. I’m not going to say “generally” when the chances of a petitioned case not being referred to Appeals is extremely small. But you’re right about the Facebook case. In that case, IRS Counsel decided not to refer the case to IRS Appeals on the grounds that it was not in the interest of sound tax administration. IRS Counsel has this right. See section 3.03 of Rev. Proc. 2016-22:

.03 Counsel will not refer to Appeals any docketed case or issue that has been designated for litigation by Counsel. In limited circumstances, a docketed case or issue that has not been designated for litigation will not be referred to Appeals if Division Counsel or a higher level Counsel official determines that referral is not in the interest of sound tax administration. For example, Counsel may decide not to refer a docketed case to Appeals in cases involving a significant issue common to other cases in litigation for which it is important that the IRS maintain a consistent position or in cases related to a case over which the Department of Justice has jurisdiction. If Counsel determines that a docketed case or issue will not be referred to Appeals, Counsel will notify the taxpayer that the case will not be referred to Appeals.

Here's a link to the Facebook case:
https://casetext.com/case/facebook-inc-v-internal-revenue-serv-1

I have a lot of questions but the main one's are:
Should we try to get this kicked back to the audit level or move forward by petitioning the tax court?

Basis - you don't say how much time is left before a petition must be filed. I have had success in dealing with the 90-day unit and fixing the problem without needing to file the petition.

No guarantee here but call the number on the letter - speak to one of the specialists - faxing the documents might work for a resolution.

NYea, the post you quoted was posted back in May, and now it is way past the time to file a petition. So, your suggestion won't work in this case, but it might work in other cases where there is still time left on the 90-day period.

Dave - agree - you're correct - I didn't see this was an update.

As an aside, I am curious if anyone has seen a resolution after the 90 day letter was issued and before a petition was filed. I'm thinking it is not a realistic possibility because the 90 day letter takes authority away from the bureaucracy. That is, you would not be able to find anyone with authority to give you the relief you are seeking.

This used to occur quite often about 20 years ago, but not recently. Right now, the IRS is so slow in reviewing correspondence (if they review it at all) that they usually don't get to it until after the 90-day period has expired.