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McFarlane Law

A Tax Law Firm - 480.991.0032

What is the difference between a proposed asseessment and an assessment and why does it matter?

Reduction or Elimination of Penalties -when can I request a reduction and what is the effect if the IRS or ADOR has only proposed assessment vs. after an assessment has been made?

An “assessment” is the entry of an unpaid tax liability on the books of the IRS. Before assessment, the liability (be it tax, penalty, interest) is only “proposed.” What if the tax, penalty and interest is not yet assessed and you wish to object to the proposed assessment? What if the tax, penalty and interest has been assessed and you wish to remove or reduce that assessment? The two matters are treated differently by the IRS.

Before you are assessed tax, penalty and interest, a taxpayer is given the adjustments proposed by the revenue agent (exam function). The taxpayer is allowed the opportunity to object or protest the proposed assessment of tax, penalty, and interest. With the IRS, the examining revenue agent will issue either a 30-Day Letter (giving the taxpayer 30 days to furnish the revenue agent further information and documents), or issue a statutory notice of deficiency (IRS-known as a “SNOD” or a “90-Day Letter” in IRS parlance). This gives the taxpayer either 30 or 90 days to object to the revenue agent’s findings and present more evidence, or file an appeal (with either the Office of Appeals (30-Day Letter) or US Tax Court (90-Day Letter)). The ADOR has a similar procedures and issues a Notice of Proposed Assessment (an “NPA” or “30-Day Letter” in ADOR parlance) prior to their Notice of Assessment (whoops! Too late to object to the revenue agent).

As you can see, the request procedures are more complex than merely asking the IRS or ADOR agent or officer to remove or reduce the penalty. They also are time sensitive and a taxpayer can lose their rights to object very easily. Understand that collection/”revenue officers” are commissioned with collecting the tax (“revenue agents” are an exam function-they audit). Revenue Officers cannot and will not reduce the amount they are told to collect – they do not have that authority. However, there are special separate units that review requests and make determinations that are reviewable by an administrative appeals process. Because the procedures are somewhat complex, and the case important to the argument, it is essential to engage an attorney who has done dozens of these cases. That attorney is Stephen McFarlane of McFARLANE LAW, PLC, Arizona’s premier tax litigation and tax problem-solving law firm. Do you owe taxes? Call McFARLANE LAW, PLC@ 480.991.0032.

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