Checklist · Tax

Answering an IRS Notice and Working an Audit or Collection Case: A Practical Checklist

26 U.S.C. § 6213

Type
Checklist
Jurisdiction
National
Date
2023-11-18
Topic
Tax

This checklist sequences a federal tax matter from the arrival of a notice through resolution. It begins with identifying which system the notice comes from and calendaring the deadline it imposes. It then covers transcript analysis, compliance, and the examination response. Separate sections cover the deficiency petition decision, the appeals protest, and the collection hearing request. Later sections cover collection alternatives and their arithmetic, penalty and interest relief, and spousal relief. The final sections cover employment tax exposure, criminal indicators, and closing the file.

Answering an IRS Notice and Working an Audit or Collection Case: A Practical Checklist

Tax > IRS Audits, Collection, and Taxpayer Rights | Published 18 November 2023 - Updated 3 September 2025 | UpLaw - uplaw.us

First: read the notice correctly

☐ Identify the system. Examination proposes changes; collection enforces an assessment. ☐ Find the deadline printed on the notice and calendar it the same day, along with a working deadline two weeks earlier. ☐ Identify the tax type and every year covered. ☐ Determine whether an assessment has already been made. ☐ Check the address the notice was sent to against the taxpayer's address of record. ☐ Note the notice number and date for the file. ☐ ⚠️ If it is a notice of deficiency, treat the ninety-day period under 26 U.S.C. § 6213 as the controlling fact of the entire matter. ☐ If it is a lien or levy notice, calendar the hearing request deadline under 26 U.S.C. § 6320 or 26 U.S.C. § 6330.

Second: get the transcripts

☐ Obtain account, return, record of account, and wage and income transcripts for every year and tax type. ☐ Confirm what was filed — an original return or a substitute prepared under 26 U.S.C. § 6020. ☐ Record the assessment date for each year, because the collection period under 26 U.S.C. § 6502 runs from it. ☐ Identify suspension events — bankruptcies, pending offers, collection hearings, time abroad — and recompute the expiration date. ☐ Confirm the assessment period under 26 U.S.C. § 6501 has not run for years the agency proposes to adjust. ☐ Trace payments and credits and confirm they were applied to the intended periods. ☐ List penalties by type and flag candidates for first-time abatement. ☐ Note every notice issued and its address. ☐ Build a one-page grid: year, return status, balance, assessment date, collection expiration, penalties, pending action.

Third: get compliant

☐ File every delinquent return. No collection alternative is available to a non-filer. ☐ Prioritize years where a correct return will reduce a substitute-return assessment, which is frequently the largest single recovery in a matter. ☐ Check the refund look-back limits at 26 U.S.C. § 6511 before promising refunds on old years. ☐ Fix current-year withholding or estimated payments, and document it. ☐ For businesses, confirm payroll deposits are current, since nothing will be approved otherwise. ☐ Confirm the representation authorization covers every year and tax type. ☐ Use provable mailing for everything, per 26 U.S.C. § 7502.

Responding to an examination

☐ Define the scope in writing and ask the examiner to confirm the issues under review. ☐ Answer what is asked, with documents, organized item by item with an index. ☐ Concede indefensible items explicitly, which is credible and speeds the rest. ☐ Reconstruct missing records using bank statements, third-party confirmations, vendor records, and contemporaneous logs. ☐ Assert recordkeeping compliance under 26 U.S.C. § 6001 where records exist and were maintained. ☐ Handle interviews carefully, exercising the rights at 26 U.S.C. § 7521, including the right to suspend to consult a representative. ☐ Respond to any summons issued under 26 U.S.C. § 7602 — comply or move to quash within the period, and check third-party notice rights at 26 U.S.C. § 7609. ☐ Object to scope expansion that is not explained, in writing. ☐ Negotiate any requested extension of the assessment period narrowly, limited by issue and by date. ☐ Watch for fraud indicators and involve criminal counsel before the next conversation if any appear. ☐ Confirm confidentiality obligations under 26 U.S.C. § 6103 if return information appears to have been disclosed improperly, noting the remedy at 26 U.S.C. § 7431.

The deficiency decision

☐ Calendar the petition deadline from the notice date, not from receipt. ☐ Decide forum: Tax Court without prepayment, or pay and sue for refund under 26 U.S.C. § 6511. ☐ File a protective petition if the decision is not made in time; it can be settled later. ☐ Remember the Anti-Injunction Act at 26 U.S.C. § 7421 forecloses most alternatives. ☐ Expect referral back to appeals after a petition is filed; settlement remains available. ☐ Preserve fee recovery under 26 U.S.C. § 7430 by making a qualified settlement offer where appropriate.

The appeals protest

☐ File within the period stated in the thirty-day letter. ☐ Organize issue by issue: facts with exhibit citations, law, position, and a candid hazards assessment. ☐ Attach the documentation rather than describing it. ☐ Concede weak issues and ask for a corresponding concession on strong ones. ☐ Request a conference and prepare a short oral presentation. ☐ Consider a closing agreement under 26 U.S.C. § 7121 where finality matters, and note settlement authority at 26 U.S.C. § 7123.

The collection hearing

☐ Request in writing within the deadline, identifying every year and every issue to be raised. ☐ State the collection alternatives to be considered: installment agreement, offer, or hardship status. ☐ Raise spousal defenses if applicable. ☐ Raise the underlying liability only if there was no prior opportunity to dispute it. ☐ Raise procedural defects — notice not sent to the last known address, assessment made without required procedures, collection period expired. ☐ Attach a complete financial statement if an alternative is sought; the hearing will otherwise be continued. ☐ Note that collection is suspended while the hearing is pending, and that a determination is reviewable. ☐ ⚠️ A late request yields an equivalent hearing, which neither suspends collection nor produces a reviewable determination.

Choosing a collection alternative

☐ Prepare the financial statement carefully; it will be tested against public records, credit reports, and bank statements. ☐ Value assets at quick-sale value and document liabilities. ☐ Apply allowable expense standards and document any category claimed above them. ☐ Compute monthly disposable income and reasonable collection potential. ☐ Compare reasonable collection potential to the balance and to the remaining collection period. ☐ Choose the alternative the numbers support: streamlined or full installment agreement under 26 U.S.C. § 6159; partial-payment agreement; offer in compromise under 26 U.S.C. § 7122; or currently not collectible status. ☐ Remember that filing an offer suspends collection and extends the collection period, which is a real cost if the offer is unlikely to be accepted. ☐ Request lien withdrawal or subordination once an agreement is in place, especially where a sale or refinance is pending — the lien framework is at 26 U.S.C. § 6321, 26 U.S.C. § 6322, and 26 U.S.C. § 6323. ☐ Seek levy release under 26 U.S.C. § 6343 on hardship grounds, supported by a complete financial statement. ☐ Check exempt property under 26 U.S.C. § 6334.

Penalties and interest

☐ List every penalty by type and year from the transcript. ☐ Request first-time abatement first where the compliance history is clean; it is granted administratively and more readily than reasonable cause. ☐ Build reasonable cause with documents: medical records, disaster declarations, records custodian death certificates, or third-party confirmations, tied to the specific failure and the specific date. ☐ Remember that reliance on an agent to file is not reasonable cause under United States v. Boyle, while reliance on advice about a substantive position may be. ☐ Address accuracy penalties at 26 U.S.C. § 6662 with substantial authority, adequate disclosure, or reasonable cause and good faith. ☐ Take fraud allegations under 26 U.S.C. § 6663 seriously, and involve criminal counsel. ☐ Check failure-to-file and failure-to-pay computations at 26 U.S.C. § 6651, which are frequently miscomputed after a late-filed correct return replaces a substitute. ☐ Request interest abatement under 26 U.S.C. § 6404 only where an agency error or delay in a ministerial or managerial act can be documented. ☐ Avoid frivolous positions, which carry their own penalty under 26 U.S.C. § 6702.

Spousal issues

☐ Identify divergent interests early and address the conflict before any joint submission. ☐ Evaluate all three forms of relief under 26 U.S.C. § 6015: traditional relief, separation of liability, and equitable relief. ☐ Document knowledge, benefit, and hardship with contemporaneous records. ☐ Note the non-requesting spouse's right to participate, which affects strategy and candor. ☐ Consider injured spouse relief where a joint refund was offset for one spouse's separate obligation under 26 U.S.C. § 6402. ☐ Do not sign a joint agreement before the relief analysis is complete.

Employment tax and personal exposure

☐ Stop new accruals first where a business is behind on deposits. ☐ Identify every potentially responsible person and their authority over which bills were paid. ☐ Prepare for the responsibility interview by reviewing signature cards, check registers, and payment approvals. ☐ Assess exposure under 26 U.S.C. § 6672 for each individual separately, with separate counsel where interests diverge. ☐ Designate payments to trust fund portions where permitted, and document the designation. ☐ Consider whether the entity is viable, because an agreement that keeps a business operating usually serves both sides better than closure. ☐ Evaluate worker classification exposure and any available relief for consistent treatment with a reasonable basis.

Criminal indicators

☐ Stop and call counsel on any of the following: contact by special agents; a revenue agent who stops asking questions and withdraws; requests for original records; false statements already made; destroyed or altered records; unexplained cash; consistent multi-year understatement. ☐ Understand privilege limits. The federally authorized practitioner privilege does not extend to criminal matters and does not cover return preparation. ☐ Structure any accountant's work through counsel from that point forward. ☐ Do not correct returns unilaterally without advice on how amended filings will be characterized. ☐ Preserve everything and issue a hold.

Closing the file

☐ Confirm the resolution in writing — the agreement, the accepted offer, the abatement, or the determination. ☐ Verify transcripts reflect it within sixty to ninety days. ☐ Confirm liens released or withdrawn where applicable, and check the recording office. ☐ Set the client's compliance obligations in writing, including the years an accepted offer requires. ☐ Diary the review dates for hardship status or partial-payment agreements. ☐ Compute and record the collection expiration dates for any remaining balance. ☐ Send a closing letter stating what was resolved, what remains, and what must be maintained.

Working notes

On the first meeting. Clients arrive with unopened mail and a story. Neither is reliable. The first productive act is to obtain transcripts, because they replace fear with facts, and in a substantial minority of cases the facts are better than the client believed: balances already expired, years already resolved, penalties abatable on a clean history, and assessments inflated by substitute returns that ignored real deductions. Deliver that picture in plain language before discussing strategy.

On sequencing. Compliance first, always. A brilliant offer package for a taxpayer with two unfiled returns will be returned without consideration. Filing the missing returns is often also the largest single reduction available, because substitute-return assessments are computed without deductions.

On the financial statement. Prepare it as though it will be audited, because in a significant case it will be. Value assets at quick-sale value, document every liability, apply the published expense standards, and justify anything above them with records. A single overstated expense discredits the entire submission, including the parts that were accurate.

On deadlines. The ninety-day petition period and the collection hearing request period are the two dates that cannot be recovered. Everything else in this field is negotiable, extendable, or reconstructible. Those two are not.

On tone. Revenue agents and revenue officers close cases; that is what they are measured on. A representative who is organized, responsive, and realistic makes closure easy and gets better outcomes than one who is combative or absent. Avoidance produces levies, because a levy is the tool that works when nobody responds.

On appeals. It exists to settle and it may weigh hazards of litigation that examination cannot. Skipping it is declining the one forum designed to compromise, and most disputes that reach it resolve there.

On expectations. Say plainly what is achievable. Offers are accepted on a formula, not on sympathy. Liens are rarely enforced against a residence but routinely block a refinance. Bankruptcy discharges some taxes and not others, and never a filed lien as to existing property. Clients handle accurate bad news far better than optimistic guesses that fail.

Documents to assemble at intake

☐ Every notice received, with envelopes and dates ☐ Copies of all returns for the years at issue, filed and unfiled ☐ Prior years' returns for context on carryovers and elections ☐ Bank statements for the periods under examination ☐ Business records: general ledger, invoices, receipts, payroll registers, and deposit records ☐ Third-party information returns received ☐ Any correspondence with the agency, including notes of telephone contacts ☐ Prior representation authorizations and any powers of attorney ☐ Records supporting reasonable cause — medical, disaster, custodian death, records destruction ☐ Divorce decrees, separation agreements, and any indemnity between spouses ☐ Entity documents, signature cards, and check-signing authority records ☐ Current pay records, benefit statements, and a household budget

Notice-by-notice quick guide

Notice type System What it means Deadline to act First step
Proposed changes to a return Examination Nothing assessed yet Response date on the letter Send documents, item by item
Information return mismatch Automated A computer match, frequently wrong Response date Send the reconciling schedule
Thirty-day letter with report Examination Invitation to appeals 30 days File a protest
Notice of deficiency Examination The last chance to litigate before paying 90 days Petition or decide forum
Notice and demand for payment Collection Assessment made Payment date stated Pull transcripts; plan alternative
Notice of federal tax lien filing Collection Lien recorded Hearing request period Request the hearing
Final notice of intent to levy Collection Levy imminent Hearing request period Request the hearing
Levy served on employer or bank Collection Funds being taken Immediate Seek release on hardship; propose an alternative
Refund offset notice Collection Overpayment applied Varies Consider injured spouse relief
Passport certification notice Collection Certification of seriously delinquent debt Varies Resolve the underlying account
Summons Examination or collection Compelled production Return date Comply or move to quash; get advice

⚠️ Two rows in that table are unforgiving: the notice of deficiency and the levy hearing request. Everything else can be recovered from; those two cannot.

The one-page case plan

☐ Grid of years — status, balance, assessment date, collection expiration, penalties. ☐ Open deadlines with dates and owners. ☐ Compliance gaps and the plan to close them. ☐ Issues in dispute and the evidence for each. ☐ Financial picture — assets, income, allowable expenses, disposable income. ☐ Target resolution for each year, with the alternative the numbers support. ☐ Escalation path — group manager, taxpayer advocate under 26 U.S.C. § 7811, appeals. ☐ Client obligations — filings, payments, and documents due, with dates.

📌 Give the client this page. In a field where the main risk is disengagement, a single sheet showing what is true and what happens next is the most effective intervention available.

If the client is in genuine hardship

☐ Say clearly that a path exists, because clients in this position frequently believe none does. ☐ Request currently not collectible status with a complete financial statement showing income below allowable living expenses. ☐ Ask for immediate levy release under 26 U.S.C. § 6343 where a levy is preventing payment of basic living expenses, and support it with the same statement. ☐ Involve the taxpayer advocate under 26 U.S.C. § 7811 where the automated machinery is producing a result no person would choose. ☐ Check the collection expiration dates, because a client near the end of the period may need only to survive it in hardship status. ☐ Evaluate an effective tax administration offer where collection would create economic hardship despite an ability to pay on paper. ☐ Address the practical harms separately — a lien blocking a refinance, a levy on a joint account holding a spouse's separate wages, a passport certification blocking employment abroad — because each has its own remedy. ☐ Document everything about the hardship contemporaneously, since it will support relief here and reasonable cause later.

📌 And one closing instruction for every matter in this field: put the next deadline at the top of the file, in writing, where anyone picking it up will see it first. The single most common cause of a bad outcome here is not a wrong argument; it is a right argument made after the date on which it could still be heard.

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