IRS Form 12661: How To Dispute an IRS Audit

If there’s anything worse than dealing with an IRS audit, it’s getting through an audit only to find out that the IRS believes you owe them money. Not only is owing money to the IRS bad enough, but there’s the fact that this tax bill was unexpected, and now you’re scrambling to figure out how you’re going to pay it.

But what if you disagree with the findings and conclusions of the audit? There’s an audit reconsideration process that offers you the opportunity to challenge the IRS by providing additional information. The primary method of doing this is to submit IRS Form 12661, Disputed Issue Verification. The goal of this article is to provide an overview of this form, including what it is, when to use it, and how to file it. 

Key Takeaways 

• You use IRS Form 12661 to dispute the findings of an IRS audit.
• You should use this form if you disagree with a tax assessment and you have new information to provide the IRS as to why you disagree.
• Completing Form 12661 consists primarily of providing your taxpayer information, listing the reasons for your disagreement, and providing documentation in support.
• You can submit Form 12661 and the supporting documentation by mail or fax. 

What Is IRS Form 12661? 

Form 12661 is a form you can use to request audit reconsideration from the IRS. It’s fairly simple as far as IRS forms go, as it’s basically a form where you point how what you disagree with from the audit and what evidence you have to support your position.

You don’t have to use this form to request audit reconsideration. In its place, you can submit an audit reconsideration letter. This letter includes the information you’d otherwise have provided on Form 12661. 

Who Can Use Form 12661 from the IRS? 

Practically anyone who wants to file a dispute with the IRS following an audit can use this form. That being said, you’ll usually need the following two conditions to be met before using Form 12661:

• You received an audit determination from the IRS that you disagree with.
• You have new information to provide the IRS.

This last requirement is important because some taxpayers might be tempted to use the audit reconsideration process to rehash previously made arguments with the IRS. If you try to use Form 12661 to submit the information you’ve already submitted to the IRS, your reconsideration request will be unsuccessful. The one exception to this rule is if the IRS never saw previously submitted information, such as a document that got lost in the mail during a correspondence audit. 

Who Can’t Use Form 12661? 

If you’re not eligible for audit reconsideration, then you can’t use Form 12661 to dispute the audit. This will usually occur in the following scenarios:

• You already agreed to pay the tax amount that you now disagree with. This might happen if you signed IRS Form 906, Closing Agreement or entered into an offer in compromise;
• A court (such as the U.S. Tax Court) has already issued a final determination about the tax assessment you’re trying to challenge; or
• You already paid the tax balance you disagree with.

In this last situation, paying the disputed tax bill doesn’t mean you’re out of luck. But instead of challenging the IRS with Form 12661, you’ll instead use IRS Form 1040X, Amended U.S. Individual Income Tax Return to submit a tax refund claim. 

How to Complete IRS Form 12661 

Completing Form 12661, Disputed Issue Verification consists of three steps. 

Step 1: Provide Your Taxpayer Information 

In the first two lines of this form, you’ll give your name, the tax period in question, and your Social Security number (or other applicable TIN). 

Step 2: Identify the Reasons You Disagree with the IRS 

You should have an audit report (IRS Form 4549, Income Tax Examination Changes) that the IRS sent you following the audit. This will outline the changes the IRS made after completing the audit, including any additional tax liability, penalties, and interest.

Based on your understanding and involvement in your audit, you may review Form 4549 and immediately know where these tax adjustments came from and why. If not, you’ll need to consult with a tax professional with experience in IRS tax audits to help you use Form 4549 to identify your areas of disagreement.

After you identify where you disagree, you need to explain why you disagree. In addition to a written response, you’ll also likely need to reference other documents, which you can attach to Form 12661. 

Step 3: Attached Supporting Documentation 

In most situations, any reason you provide the IRS for disputing a tax adjustment will need support from documentation. Make copies of any documents you plan to use as support and only send the copies with your Form 12661 submission. You want to keep the originals because the IRS won’t return any paperwork you send them with Form 12661. The one document you’ll almost always want to attach to Form 12661 (assuming you have a copy) is Form 4549. 

Common Form 12661 Mistakes 

The three most common mistakes taxpayers make when filling out Form 12661 are:

• Not providing sufficient documentary evidence to support the reasons of disagreement given on Form 12661.
• Providing supporting documentation that the IRS has already reviewed, whether it’s from a prior tax return or during the audit.
• Not offering a clear reference to connect the reason for the dispute listed on Form 12661 and the attached documents.

To this last point, remember that the IRS employee reviewing your submission is likely overworked and has a large backlog of Form 12661 submissions to get through. The last thing you want is for the IRS to deny your reconsideration request due to insufficient new information when you provided that information, but the IRS employee could readily find it. 

How to Submit a Dispute Issue Verification Form 12661 

You can submit Form 12661 to the IRS by mail or by fax. There will usually be a specific address or fax number to use, both of which should have been provided on the audit examination report the IRS sent you after the audit. If you never got this report, you can call either 1-866-897-0161 or 1-866-897-0177 to ask for the address or fax number you should use.

When faxing Form 12661, be sure to write your taxpayer identification number (TIN) and tax year on each page submitted. 

Using Form 12661 to Stop IRS Collection Actions 

If you’re worried about IRS collection actions that stem from an audit, such as liens and levies, requesting audit reconsideration with Form 12661 is an option. Depending on your tax situation, the IRS will sometimes agree to pause tax collection actions while it considers your audit reconsideration request. There are a few things to keep in mind about this approach.

First, the pause is temporary and usually maxes out at 60 days per request. However, you’re allowed to ask for multiple extensions.

Second, the IRS doesn’t have to agree to grant an extension, as it’s a discretionary decision. The IRS is more likely to grant the request if you have no other unpaid tax balances besides the one relating to the audit reconsideration, and if a successful audit reconsideration request will fully resolve the audit tax dispute.

Third, the IRS granting a collections pause doesn’t alleviate you from any other payment obligations you might have relating to that tax debt. For example, if you’re disputing a tax assessment, but have set up a payment plan or installment agreement to begin paying off that tax balance, you must continue making payments as required to prevent a default.

If you’re facing aggressive IRS tax collection actions, there are also other ways to stop or pause IRS efforts. You can learn more about these by consulting with a tax resolution professional. 

IRS Form 12661 FAQs 

How long will it take for the IRS to process Form 12661? 

The IRS aims to complete the audit reconsideration review within 30 days of receipt of your audit reconsideration request. However, it often takes longer if the IRS is busy with requests and/or your request involves complex tax or factual issues. 

Therefore, the IRS could take up to a year to make a decision after receiving Form 12661. However, most decisions can be expected within a few months of Form 12661 submission. 

Can Form 12661 be filed electronically? 

Form 12661 can only be submitted by mail or fax. 

What documents should I include with IRS Form 12661? 

You need to submit documents that contain information not previously reviewed by the IRS. What kind of documents this entails could be anything, from bank statements, to medical bills, to real estate appraisals. The documents you need to include will depend on what you’re disagreeing with and your reason(s) for that disagreement. 

Will filing Form 12661 guarantee an audit reversal? 

It won’t, as almost nothing is guaranteed with taxes except the fact that they’ll probably exist in some shape or form. As far as IRS appeal or review processes go, audit reconsideration is one of the simpler options available. Just keep in mind that depending on your specific tax situation, it usually helps to consult with a tax professional when deciding if filing Form 12661 is worth it and if so, the best way to do it.

Can I appeal if the IRS denies my Form 12661 request? 

Yes. If the IRS confirms the original audit’s findings, you can request an appeals conference with the IRS Office of Appeals. If you disagree with the outcome of this conference, your next option is to file a formal claim for a tax refund with the Court of Federal Claims or the U.S. District Court.

If your audit reconsideration request is unsuccessful and you want to further challenge the IRS, you should probably hire a tax attorney or other IRS audit tax resolution professional. They can help decide if other options are available and if not, how to better present your arguments to the IRS Office of Appeals or federal court when continuing the audit reconsideration appeals process.

Getting Audit Reconsideration Help from Damiens Law 

Not all audit reconsideration requests utilizing Form 12661 require professional tax help. If your reasons for disputing an IRS audit are clear and simple, then you can probably fill out Form 12661 on your own. For more complex tax audit disagreements or when there’s a large amount of money at stake, it’s probably a good idea to talk to a tax professional, such as a lawyer from the Damiens Law Firm. 

Contact us to schedule a free consultation today. We can help you dispute audit findings, represent you through an audit, or help with any other part of the audit process.

Sources
https://www.irs.gov/dmaf/form/f12661
https://www.irs.gov/pub/irs-pdf/f12661.pdf
https://www.irs.gov/pub/irs-pdf/p3598.pdf
https://www.taxpayeradvocate.irs.gov/get-help/interacting-with-the-irs/audit-reconsiderations/
https://www.irs.gov/irm/part5/irm_05-001-015r#idm140638234820000
https://www.irs.gov/irm/part4/irm_04-013-001r