Were you audited by the IRS and you disagree with the assessment? Or you forgot to file and the IRS filed for you? Rather making fists in your pockets or doing something more extreme, consider the possibility of obtaining one of 3 types of IRS reconsiderations.
A reconsideration of your taxes can be obtained through the IRS when it receives information related to the assessment that was not previously considered. In other words, the initial determination is not necessarily the final one.
It is important to note that this must be NEW information that leads the IRS to conclude that the assessment was improper. This is where an experienced tax attorney can help – to demonstrate that you, the taxpayer – could not have presented or did not have the information available at the time the original assessment was made.
I have put together a list of the IRS reconsiderations to help taxpayers to determine whether or not they should apply for one. I urge you to consult with a tax attorney such as myself, before you submit any form of reconsideration, but whether you do or not, after reading my recommendations, I advise you to also study the IRS website. I’ve added several links to help you to decide on the best route.
- Audit Reconsiderations,
- IMF/AUR Reconsiderations, and
- SFR/ASFR reconsiderations.
Audit reconsiderations are reviews of assessments made during the course of an audit that resulted in an additional liability for the taxpayer. If the taxpayer disagrees with the original determination he/she must provide information that was not previously considered during the original examination.
It is rare for the IRS to reconsider an audit that results in an additional refund for the taxpayer because of the statute of limitations on seeking a refund; however this does occasionally happen.
If you have a claim for a credit or refund not previously reported or allowed, or a request for reduction of tax, penalty, and/or associated interest, there is a chance that the IRS would respond to an IMF-AUR Reconsideration.
Failure to summarize all income on Form 1040, Form 1040A, Form 1040EZ, or Form 1040NR is defined by the IRS as an underreported (UR) condition. Tax adjustments can be based on the underreported amounts. The amount can also be modified on the declaration that the taxpayer omitted paying a certain portion such as self-employment tax.
Do you have a claim for a credit or refund not previously reported or allowed, or a request for mitigation of tax, penalty, and/or interest? If so, you will need to file for a BMF-AUR Reconsideration.
There are two main determinants that can strengthen the case for a BMF-AUR Reconsideration:
- The Business Master File which contains information the taxpayer reports to the IRS.
- The Information Return Master File which contains information reported on Form 1120, U.S. Corporation Income Tax Return, and Form 1041, U.S. Income Tax Return for Estates and Trusts.
Finally, SFR (or Substitute for Return) reconsiderations occur when the taxpayer has failed to file a tax return. In a case like this, the IRS files a return for the taxpayer and makes an assessment on their behalf.
Normally, a taxpayer can trigger an SFR reconsideration simply filing the return in question as the IRS will give preference to the return that was actually filed by the taxpayer over their own estimation.
For individual and business tax returns that are identified as delinquent, there is an automated program, similar to the SFR. Like the SFT, the IRS computes tax, penalty and interest using the Information Return Program data and makes the assessment for the non-filer.
All of these are the instances where the IRS will reconsider an assessment of a liability and, by default, generally will not reconsider assessments for any other circumstance.
However, asking the IRS to reconsider an assessment is nevertheless a good strategy to mitigate taxes in certain circumstances. Keep in mind that reducing the underlying assessment will also reduce interest and penalties associated with the account (make sure the IRS calculates these correctly).
The IRS is Not in the Business of Reducing Liabilities
As a final note, the IRS is not in the business of reducing liabilities or giving money back to taxpayers simply because they ask. Many abatement requests are therefore denied or taxpayers fail to submit them properly.
Although many IRS problems can be handled on your own, I strongly recommend consulting with a tax professional if you are considering submitting a reconsideration request. The professional will likely have a good understanding of the procedural requirements and any pitfalls you many encounter, and can walk you through the process.
Obviously, there may be some out-of-pocket expenses associated with hiring a tax professional, but their help can substantially increase the likelihood that your request will be reconsidered. The potential tax savings often outweigh the costs in these circumstances.
 Author’s note: it is better to fight an audit at the time the audit occurs, rather than rely solely on an IRS reconsideration to get your assessment reversed. I have written a good article here on IRS audit strategy.
 More information from the Internal Revenue Manual on substitute for returns can be found here: http://www.irs.gov/irm/part4/irm_04-004-009.html#d0e1223.