Guide to Tax Disputes and Controversies and How to Resolve Them

Many Americans have experienced disputes or disagreements with the IRS or other tax agencies as to how much we owe in taxes. These disagreements, known as tax controversies, can be stressful and complex. This article explores the nature of tax controversies, common triggers, and strategies for resolving them.

Note that if you don’t dispute the amount you owe, but you are having trouble paying it, this is covered under tax resolution strategies.

Also be sure to see our Guide to the Law for Taxpayers.

What are tax controversies?

Tax controversies occur when a tax authority, like the Internal Revenue Service (IRS), objects to a taxpayer’s tax filing, arguing the taxpayer owes more than the filing shows. These disagreements can stem from a variety of issues, including:

  • Income reporting: The tax agency may have information that your income is higher than what you reported.
  • Deductions claimed or credits applied: The tax agency may disagree with the types or amounts of deductions and credits you claimed.
  • Tax law interpretation: You may have a different interpretation of tax laws and regulations than the tax agency. This is ultimately up to a court to determine.
  • Business practices: Disputes regarding transfer pricing (pricing between related companies), classification of workers (employee vs. contractor), or research and development expenses.

What are common triggers for tax controversies?

Several factors can trigger a tax controversy:

  • Audits: The IRS and state tax agencies routinely conduct audits to verify the accuracy of tax returns.
  • Mathematical errors: Simple calculation mistakes on tax forms can raise red flags.
  • Aggressive tax planning: Some tax planning strategies, while legal, might be viewed as overly aggressive by the tax authorities.
  • Failure to file or pay taxes: Not filing tax returns or failing to pay taxes owed can lead to significant penalties and potential controversy.

How can I resolve a tax dispute?

Tax controversies can be resolved in several ways, depending on the severity of the disagreement:

  • Self-correction: If you discover an error on a previously filed return, you can file an amended return to correct it.
  • Negotiation: Working directly with the IRS or state tax agency to reach a settlement is often the most efficient approach.
  • Mediation: A neutral third party can facilitate communication and help both sides find a solution.
  • Appeals process: The IRS and state tax agencies have an internal appeals process for taxpayers who disagree with their findings.
  • Litigation: In some cases, taking the dispute to tax court might be necessary. This is usually a last resort due to the time and expense involved.

Who can help me with my tax dispute?

Tax controversies can be complex, and navigating them effectively often requires professional help. Consider consulting with either a tax lawyer or a CPA.

  • Tax attorney: An attorney with expertise in tax law can advise you on your rights and options throughout the process. Find a good tax lawyer.
  • Certified Public Accountant (CPA): A CPA with tax experience can help analyze your situation, prepare necessary documentation, and represent you before the tax agency.

Related Reading

See our Guide to the Law for Taxpayers.

Photo credit: Image by Drazen Zigic on Freepik

Share the Legal Info With Your Friends: