Department of the Treasury

Department of the Treasury

Internal Revenue Service

Publication 556

(Rev. September 2013)

Cat. No. 15104N

Examination

of Returns,

Appeal Rights,

and Claims for

Refund

Contents

The IRS Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Reminders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Examination of Returns . . . . . . . . . . . . . . . . . . . . . 2

Appeal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Claims for Refund . . . . . . . . . . . . . . . . . . . . . . . . 13

How To Get Tax Help . . . . . . . . . . . . . . . . . . . . . . 17

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

The IRS Mission

Provide America's taxpayers top quality service by helping

them understand and meet their tax responsibilities and

by applying the tax law with integrity and fairness to all.

Reminders

Penalty for filing erroneous claim for refund or

credit. You may have to pay a penalty if you file an erroneous claim for refund or credit. See Penalty for errone­

ous claim for refund, later under Claims for Refund.

Interest and penalties suspended if notice not mailed

within 36 months. If you file your return timely (including

extensions), interest and certain penalties will be suspended if the IRS does not mail a notice to you within 36

months. See Suspension of interest and penalties, later

under Examination of Returns.

Fast track mediation. The IRS offers fast track mediation services to help taxpayers resolve many disputes resulting from:

Examinations (audits),

Offers in compromise,

Trust fund recovery penalties, and

Other collection actions.

See Fast track mediation under If You Do Not Agree.

Introduction

Get forms and other Information

faster and easier by:

Internet IRS.gov

Sep 26, 2013

The Internal Revenue Service (IRS) accepts most federal

tax returns as filed. However, the IRS examines (or audits)

some returns to determine if income, expenses, and credits are being reported accurately.

If your return is selected for examination, it does not

suggest that you made an error or are dishonest. Returns

are chosen by computerized screening, by random sample, or by an income document matching program. See

Examination selection criteria, later. You should also know

that many examinations result in a refund or acceptance

of the tax return without change.

This publication discusses general rules and procedures that the IRS follows in examinations. It explains

what happens during an examination and your appeal

rights, both within the IRS and in the federal court system.

It also explains how to file a claim for refund of tax you already paid.

As a taxpayer, you have the right to be treated fairly,

professionally, promptly, and courteously by IRS employees. Publication 1, Your Rights as a Taxpayer, explains

your rights when dealing with the IRS.

Comments and suggestions. We welcome your comments about this publication and your suggestions for future editions.

You can write to us at the following address:

Internal Revenue Service

Tax Forms and Publications Division

1111 Constitution Ave. NW, IR-6526

Washington, DC 20224

We respond to many letters by telephone. Therefore, it

would be helpful if you would include your daytime phone

number, including the area code, in your correspondence.

You can send your comments from www.irs.gov/

formspubs/. Click on “More Information” and then on

“Comment on Tax Forms and Publications.”

Although we cannot respond individually to each comment received, we do appreciate your feedback and will

consider your comments as we revise our tax products.

Ordering forms and publications. Visit www.irs.gov/

formspubs to download forms and publications, call

1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after

your request is received.

Internal Revenue Service

1201 N. Mitsubishi Motorway

Bloomington, IL 61704-6613

Tax questions. If you have a tax question, check the

information

available

on

www.irs.gov

or

call

1-800-829-1040. We cannot answer tax questions sent to

either of the above addresses.

Useful Items

You may want to see:

Publication

1

Your Rights as a Taxpayer

5

Your Appeal Rights and How To Prepare a

Protest If You Don't Agree

547 Casualties, Disasters, and Thefts

594 The IRS Collection Process

910 Guide to Free Tax Services

971 Innocent Spouse Relief

Page 2

1546 Taxpayer Advocate Service–Your Voice at the

IRS

1660 Collection Appeal Rights

3605 Fast Track Mediation

3920 Tax Relief for Victims of Terrorist Attacks

4134 Low Income Taxpayer Clinic List

Form (and Instructions)

843 Claim for Refund and Request for Abatement

911 Request for Taxpayer Advocate Service

Assistance (and Application for Taxpayer

Assistance Order)

1040X Amended U.S. Individual Income Tax Return

2848 Power of Attorney and Declaration of

Representative

4506 Request for Copy of Tax Return

4506-T Request for Transcript of Tax Return

8379 Injured Spouse Allocation

8857 Request for Innocent Spouse Relief

See How To Get Tax Help, near the end of this publication, for information about getting these publications and

forms.

Examination of Returns

Your return may be examined for a variety of reasons, and

the examination may take place in any one of several

ways. After the examination, if any changes to your tax

are proposed, you can either agree with those changes

and pay any additional tax you may owe, or you can disagree with the changes and appeal the decision.

Examination selection criteria. Your return may be selected for examination on the basis of computer scoring. A

computer program called the Discriminant Inventory Function System (DIF) assigns a numeric score to each individual and some corporate tax returns after they have been

processed. If your return is selected because of a high

score under the DIF system, the potential is high that an

examination of your return will result in a change to your

income tax liability.

Your return may also be selected for examination on

the basis of information received from third-party documentation, such as Forms 1099 and W-2, that does not

match the information reported on your return. Or, your return may be selected to address both the questionable

treatment of an item and to study the behavior of similar

taxpayers (a market segment) in handling a tax issue.

In addition, your return may be selected as a result of

information received from other sources on potential noncompliance with the tax laws or inaccurate filing. This information can come from a number of sources, including

Publication 556 (September 2013)

newspapers, public records, and individuals. The information is evaluated for reliability and accuracy before it is

used as the basis of an examination or investigation.

Call 1-888-734-3247.

Notice of IRS contact of third parties. The IRS must

give you reasonable notice before contacting other persons about your tax matters. You must be given reasonable notice in advance that, in examining or collecting your

tax liability, the IRS may contact third parties such as your

neighbors, banks, employers, or employees. The IRS

must also give you notice of specific contacts by providing

you with a record of persons contacted on both a periodic

basis and upon your request.

File a comment or complaint online at www.sba.gov/

ombudsman.

!

This provision does not apply:

CAUTION

To any pending criminal investigation,

When providing notice would jeopardize collection of

any tax liability,

Where providing notice may result in reprisal against

any person, or

When you authorized the contact.

Taxpayer Advocate Service. The Taxpayer Advocate

Service is an independent organization within the IRS

whose goal is to help taxpayers resolve problems with the

IRS. If you have an ongoing issue with the IRS that has

not been resolved through normal processes, or your

problems with the IRS are causing financial difficulty, contact the Taxpayer Advocate Service.

Before contacting the Taxpayer Advocate Serv­

ice, you should first discuss any problem with a

supervisor. Your local Taxpayer Advocate will as­

sist you if you are unable to resolve the problem with the

supervisor.

TIP

For more information, see Publication 1546. See How

To Get Tax Help, near the end of this publication, for more

information about contacting the Taxpayer Advocate

Service.

Comments from small business. The Small Business

and Agricultural Regulatory Enforcement Ombudsman

and 10 Regional Fairness Boards have been established

to receive comments from small business about federal

agency enforcement actions. The Ombudsman will annually evaluate the enforcement activities of each agency

and rate their responsiveness to small business. If you

wish to comment on the enforcement actions of the IRS,

you can take any of the following steps.

Fax your comments to 1-202-481-5719.

Write to the following address:

Office of the National Ombudsman

U.S. Small Business Administration

409 3rd Street, SW

Washington, DC 20416

Publication 556 (September 2013)

Send an email to ombudsman@sba.gov.

If Your Return Is Examined

Some examinations are handled entirely by mail. Examinations not handled by mail can take place in your home,

your place of business, an Internal Revenue office, or the

office of your authorized representative. If the time, place,

or method is not convenient for you, the examiner will try

to work out something more suitable. However, the IRS

makes the final determination of when, where, and how

the examination will take place.

Throughout the examination, you can act on your own

behalf or have someone represent you or accompany

you. If you filed a joint return, either you or your spouse, or

both, can meet with the IRS. The person representing you

can be any federally authorized practitioner, including an

attorney, a certified public accountant, an enrolled agent

(a person enrolled to practice before the IRS), an enrolled

actuary, or the person who prepared the return and signed

it as the preparer.

If you want someone to represent you in your absence,

you must furnish that person with proper written authorization. You can use Form 2848 or any other properly written

authorization. If you want to consult with an attorney, a

certified public accountant, an enrolled agent, or any other

person permitted to represent a taxpayer during an interview for examining a tax return or collecting tax, you

should make arrangements with that person to be available for the interview. In most cases, the IRS must suspend

the interview and reschedule it. The IRS cannot suspend

the interview if you are there because of an administrative

summons.

Third party authorization. If you checked the box in

the signature area of your income tax return (Form 1040,

Form 1040A, or Form 1040EZ) to allow the IRS to discuss

your return with another person (a third party designee),

this authorization does not replace Form 2848. The box

you checked on your return only authorizes the other person to receive information about the processing of your return and the status of your refund during the period your

return is being processed. For more information, see the

instructions for your return.

Confidentiality privilege. Generally, the same confidentiality protection that you have with an attorney also

applies to certain communications that you have with federally authorized practitioners.

Confidential communications are those that:

Advise you on tax matters within the scope of the

practitioner's authority to practice before the IRS,

Would be confidential between an attorney and you,

and

Relate to noncriminal tax matters before the IRS, or

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Relate to noncriminal tax proceedings brought in federal court by or against the United States.

In the case of communications in connection with the

promotion of a person's participation in a tax shelter, the

confidentiality privilege does not apply to written communications between a federally authorized practitioner and

that person, any director, officer, employee, agent, or representative of that person, or any other person holding a

capital or profits interest in that person.

A tax shelter is any entity, plan, or arrangement, a significant purpose of which is the avoidance or evasion of

income tax.

Recordings. You can make an audio recording of the examination interview. Your request to record the interview

should be made in writing. You must notify the examiner

10 days in advance and bring your own recording equipment. The IRS also can record an interview. If the IRS initiates the recording, you must be notified 10 days in advance and you can get a copy of the recording at your

expense.

Transfers to another area. Generally, your return is examined in the area where you live. But if your return can

be examined more quickly and conveniently in another

area, such as where your books and records are located,

you can ask to have the case transferred to that area.

Repeat examinations. The IRS tries to avoid repeat examinations of the same items, but sometimes this happens. If your tax return was examined for the same items

in either of the 2 previous years and no change was proposed to your tax liability, please contact the IRS as soon

as possible to see if the examination should be discontinued.

The Examination

An examination usually begins when you are notified that

your return has been selected. The IRS will tell you which

records you will need. The examination can proceed more

easily if you gather your records before any interview.

Any proposed changes to your return will be explained

to you or your authorized representative. It is important

that you understand the reasons for any proposed

changes. You should not hesitate to ask about anything

that is unclear to you.

The IRS must follow the tax laws set forth by Congress

in the Internal Revenue Code. The IRS also follows Treasury Regulations, other rules, and procedures that were

written to administer the tax laws and court decisions.

However, the IRS can lose cases that involve taxpayers

with the same issue and still apply its interpretation of the

law to your situation.

Most taxpayers agree to changes proposed by examiners, and the examinations are closed at this level. If you

do not agree, you can appeal any proposed change by

following the procedures provided to you by the IRS. A

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more complete discussion of appeal rights is found later

under Appeal Rights.

If You Agree

If you agree with the proposed changes, you can sign an

agreement form and pay any additional tax you may owe.

You must pay interest on any additional tax. If you pay

when you sign the agreement, the interest is generally figured from the due date of your return (excluding any extension of time to file) to the date of your payment.

If you do not pay the additional tax when you sign the

agreement, you will receive a bill that includes interest. If

you pay the amount due within 10 business days of the

billing date, you will not have to pay more interest or penalties. This period is extended to 21 calendar days if the

amount due is less than $100,000.

If you are due a refund, you will receive it sooner if you

sign the agreement form. You will be paid interest on the

refund.

If the IRS accepts your tax return as filed, you will receive a letter in a few weeks stating that the examiner proposed no changes to your return. You should keep this

letter with your tax records.

If You Do Not Agree

If you do not agree with the proposed changes, the examiner will explain your appeal rights. If your examination

takes place in an IRS office, you can request an immediate meeting with the examiner's supervisor to explain your

position. If an agreement is reached, your case will be

closed.

If you cannot reach an agreement with the supervisor at

this meeting, or if the examination took place outside of an

IRS office, the examiner will write up your case explaining

your position and the IRS's position. The examiner will forward your case for processing.

Fast track mediation. The IRS offers fast track mediation services to help taxpayers resolve many disputes resulting from:

Examinations (audits),

Offers in compromise,

Trust fund recovery penalties, and

Other collection actions.

Most cases that are not docketed in any court qualify

for fast track mediation. Mediation can take place at a

conference you request with a supervisor, or later. The

process involves an Appeals Officer who has been trained

in mediation. You may represent yourself at the mediation

session, or someone else can act as your representative.

For more information, see Publication 3605.

Publication 556 (September 2013)

30-day letter and 90-day letter. Within a few weeks after your closing conference with the examiner and/or supervisor, you will receive a package with:

A letter (known as a 30-day letter) notifying you of

your right to appeal the proposed changes within 30

days,

A copy of the examination report explaining the examiner's proposed changes,

An agreement or waiver form, and

A copy of Publication 5.

You generally have 30 days from the date of the 30-day

letter to tell the IRS whether you will accept or appeal the

proposed changes. The letter will explain what steps you

should take, depending on which action you choose. Be

sure to follow the instructions carefully. Appeal Rights are

explained later.

90-day letter. If you do not respond to the 30-day letter, or if you later do not reach an agreement with an Appeals Officer, the IRS will send you a 90-day letter, which

is also known as a notice of deficiency.

You will have 90 days (150 days if it is addressed to

you outside the United States) from the date of this notice

to file a petition with the Tax Court. Filing a petition with

the Tax Court is discussed later under Appeals to the

Courts and Tax Court.

TIP

The notice will show the 90th (or 150th) day by

which you must file your petition with the Tax

Court.

Suspension of interest and penalties. Generally, the

IRS has 3 years from the date you filed your return (or the

date the return was due, if later) to assess any additional

tax. However, if you file your return timely (including extensions), interest and certain penalties will be suspended

if the IRS does not mail a notice to you, stating your liability and the basis for that liability, within a 36-month period

beginning on the later of:

The date on which you filed your tax return, or

The due date (without extensions) of your tax return.

If the IRS mails a notice after the 36-month period, interest

and certain penalties applicable to the suspension period

will be suspended.

The suspension period begins the day after the close of

the 36-month period and ends 21 days after the IRS mails

a notice to you stating your liability and the basis for that

liability. Also, the suspension period applies separately to

each notice stating your liability and the basis for that liability received by you.

!

The suspension does not apply to a:

Fraudulent tax return,

Penalty, interest, addition to tax, or additional amount

with respect to any tax liability shown on your return or

with respect to any gross misstatement,

Penalty, interest, addition to tax, or additional amount

with respect to any reportable transaction that is not

adequately disclosed or any listed transaction, or

Criminal penalty.

Seeking relief from improperly assessed interest.

You can seek relief if interest is assessed for periods during which interest should have been suspended because

the IRS did not mail a notice to you in a timely manner.

If you believe that interest was assessed with respect

to a period during which interest should have been suspended, submit Form 843, writing “Section 6404(g) Notification” at the top of the form, with the IRS Service Center

where you filed your return. The IRS will review the Form

843 and notify you whether interest will be abated. If the

IRS does not abate interest, you can pay the disputed interest assessment and file a claim for refund. If your claim

is denied or not acted upon within 6 months from the date

you filed it, you can file suit for a refund in your United

States District Court or in the United States Court of Federal Claims.

If you believe that an IRS officer or employee has made

an unreasonable error or delay in performing a ministerial

or managerial act (discussed later under Abatement of In­

terest Due to Error or Delay by the IRS), file Form 843 with

the IRS Service Center where you filed the tax return. If

the IRS denies your claim, the Tax Court may be able to

review that determination. See Tax Court can review fail­

ure to abate interest later under Abatement of Interest Due

to Error or Delay by the IRS.

If you later agree. If you agree with the examiner's

changes after receiving the examination report or the

30-day letter, sign and return either the examination report

or the waiver form. Keep a copy for your records. You can

pay any additional amount you owe without waiting for a

bill. Include interest on the additional tax at the applicable

rate. This interest rate is usually for the period from the

due date of the return (excluding any extension of time to

file) to the date of payment. The examiner can tell you the

interest rate(s) or help you figure the amount.

You must pay interest on penalties and additions to tax

for failing to file returns, for overstating valuations, for understating valuations on estate and gift tax returns, and for

substantially understating tax liability. Interest is generally

figured from the date (including extensions) the tax return

is required to be filed to the date you pay the penalty

and/or additions to tax.

If you pay the amount due within 10 business days after

the date of notice and demand for immediate payment,

you will not have to pay any additional penalties and interest. This period is extended to 21 calendar days if the

amount due is less than $100,000.

CAUTION

Failure­to­pay penalty,

Publication 556 (September 2013)

Page 5

How To Stop Interest From Accruing

If you think that you will owe additional tax at the end of

the examination, you can stop the further accrual of interest by sending money to the IRS to cover all or part of the

amount you think you will owe. Interest on part or all of any

amount you owe will stop accruing on the date the IRS receives your money.

You can send an amount either in the form of a deposit

in the nature of a cash bond or as a payment of tax. Both a

deposit and a payment stop any further accrual of interest.

However, making a deposit or payment will stop the accrual of interest on only the amount you sent. Because of

compounding rules, interest will continue to accrue on accrued interest, even though you have paid the underlying

tax.

To stop the accrual of interest on both tax and in­

terest,

you must make a deposit or payment for

TIP

both the tax and interest that has accrued as of

the date of deposit or payment.

Payment or Deposit

Deposits differ from payments in two ways:

1. You can have all or part of your deposit returned to

you without filing for a refund. However, if you request

and receive your deposit and the IRS later assesses a

deficiency for that period and type of tax, interest will

be figured as if the funds were never on deposit. Also,

your deposit will not be returned if one of the following

situations applies:

a. The IRS assesses a tax liability.

b. The IRS determines that, by returning the deposit,

it may not be able to collect a future deficiency.

c. The IRS determines that the deposit should be applied against another tax liability.

2. Deposits returned to you will include interest based

on the Federal short-term rate determined under section 6621(b).

The deposit returned will be treated as a tax payment to

the extent of the disputed tax. A disputed tax means the

amount of tax specified at the time of deposit as a reasonable estimate of the maximum amount of any tax owed by

you, such as the deficiency proposed in the 30-day letter.

Notice not mailed. If you send money before the IRS

mails you a notice of deficiency, you can ask the IRS to

treat it as a deposit. You must make your request in writing.

If, after being notified of a proposed liability but before

the IRS mails you a notice of deficiency, you send an

amount large enough to cover the proposed liability, it will

be considered a payment unless you request in writing

that it be treated as a deposit. Keep copies of all correspondence you send to the IRS.

If the amount you send is at least as much as the proposed liability and you do not request that it be treated as

Page 6

a deposit, the IRS will not send you a notice of deficiency.

If you do not receive a notice of deficiency, you cannot

take your case to the Tax Court. See Tax Court, later under Appeal Rights.

Notice mailed. If, after the IRS mails the notice of deficiency, you send money without written instructions, it will

be treated as a payment. You will still be able to petition

the Tax Court.

If you send money after receiving a notice of deficiency

and you have specified in writing that it is a “deposit in the

nature of a cash bond,” the IRS will treat it as a deposit if

you send it before either:

The close of the 90-day or 150-day period for filing a

petition with the Tax Court to appeal the deficiency, or

The date the Tax Court decision is final, if you have

filed a petition.

Using a Deposit To Pay the Tax

If you agree with the examiner's proposed changes after

the examination, your deposit will be applied against any

amount you may owe. The IRS will not mail you a notice of

deficiency and you will not have the right to take your case

to the Tax Court.

If you do not agree to the full amount of the deficiency

after the examination, the IRS will mail you a notice of deficiency. Your deposit will be applied against the proposed

deficiency unless you write to the IRS before the end of

the 90-day or 150-day period stating that you still want the

money to be treated as a deposit. You will still have the

right to take your case to the Tax Court.

Installment Agreement Request

You can request a monthly installment plan if you cannot

pay the full amount you owe. To be valid, your request

must be approved by the IRS. However, if you owe

$10,000 or less in tax and you meet certain other criteria,

the IRS must accept your request.

Before you request an installment agreement,

you should consider other less costly alterna­

tives, such as a bank loan. You will continue to be

charged interest and penalties on the amount you owe un­

til it is paid in full.

TIP

Unless your income is below a certain level, the fee for

an approved installment agreement has increased to

$105 ($52 if you make your payments by electronic funds

withdrawal). If your income is below a certain level, you

may qualify to pay a reduced fee of $43.

For more information about installment agreements,

see Form 9465, Installment Agreement Request.

Interest Netting

If you owe interest to the IRS on an underpayment for the

same period the IRS owes you interest on an

Publication 556 (September 2013)

overpayment, the IRS will figure interest on the underpayment and overpayment at the same interest rate (up to the

amount of the overpayment). As a result, the net rate is

zero for that period.

Abatement of Interest Due to

Error or Delay by the IRS

The IRS may abate (reduce) the amount of interest you

owe if the interest is due to an unreasonable error or delay

by an IRS officer or employee in performing a ministerial

or managerial act (discussed later). Only the amount of interest on income, estate, gift, generation-skipping, and

certain excise taxes can be reduced.

The amount of interest will not be reduced if you or anyone related to you contributed significantly to the error or

delay. Also, the interest will be reduced only if the error or

delay happened after the IRS contacted you in writing

about the deficiency or payment on which the interest is

based. An audit notification letter is such a contact.

The IRS cannot reduce the amount of interest due to a

general administrative decision, such as a decision on

how to organize the processing of tax returns.

Ministerial act. This is a procedural or mechanical act,

not involving the exercise of judgment or discretion, during

the processing of a case after all prerequisites (for example, conferences and review by supervisors) have taken

place. A decision concerning the proper application of

federal tax law (or other federal or state law) is not a ministerial act.

Example 1. You move from one state to another before the IRS selects your tax return for examination. A letter stating that your return has been selected is sent to

your old address and then forwarded to your new address. When you get the letter, you respond with a request that the examination be transferred to the area office closest to your new address. The examination group

manager approves your request. After your request has

been approved, the transfer is a ministerial act. The IRS

can reduce the interest because of any unreasonable delay in transferring the case.

Example 2. An examination of your return reveals tax

due for which a notice of deficiency (90-day letter) will be

issued. After you and the IRS discuss the issues, the notice is prepared and reviewed. After the review process,

issuing the notice of deficiency is a ministerial act. If there

is an unreasonable delay in sending the notice of deficiency to you, the IRS can reduce the interest resulting

from the delay.

Example. A revenue agent is examining your tax return. During the middle of the examination, the agent is

sent to an extended training course. The agent's supervisor decides not to reassign your case, so the work is unreasonably delayed until the agent returns. Interest from

the unreasonable delay can be abated since both the decision to send the agent to the training class and not to reassign the case are managerial acts.

How to request abatement of interest. You request an

abatement (reduction) of interest on Form 843. You

should file the claim with the IRS Service Center where

you filed the tax return that was affected by the error or

delay.

If you have already paid the interest and you would like

a credit or refund of interest paid, you must file Form 843

within 3 years from the date you filed your original return

or 2 years from the date you paid the interest, whichever

is later. If you have not paid any of the interest, these time

limitations for filing Form 843 do not apply.

Generally, you should file a separate Form 843 for each

tax period and each type of tax. However, complete only

one Form 843 if the interest is from an IRS error or delay

that affected your tax for more than one tax period or for

more than one type of tax (for example, where 2 or more

tax years were being examined).

If your request for abatement of interest is denied, you

can appeal the decision to the IRS Appeals Office.

Tax Court can review failure to abate interest. The

Tax Court can review the IRS's refusal to abate (reduce)

interest if all of the following requirements are met:

You filed a request for abatement of interest (Form

843) with the IRS after July 30,1996.

The IRS has mailed you a notice of final determination

or a notice of disallowance.

You file a petition with the Tax Court within 180 days

of the mailing of the notice of final determination or the

notice of disallowance.

The following requirements must also be met:

For individual and estate taxpayers — your net worth

must not exceed $2 million as of the filing date of your

petition for review. For this purpose, individuals filing a

joint return shall be treated as separate individuals.

For charities and certain cooperatives — you must not

have more than 500 employees as of the filing date of

your petition for review.

For all other taxpayers — your net worth must not exceed $7 million, and you must not have more than 500

employees as of the filing date of your petition for review.

Managerial act. This is an administrative act during the

processing of a case that involves the loss of records or

the exercise of judgment or discretion concerning the

management of personnel. A decision concerning the

proper application of federal tax law (or other federal or

state law) is not a managerial act.

Publication 556 (September 2013)

Page 7

Abatement of Interest for

Individuals Affected by

Presidentially Declared Disasters

or Military or Terrorist Actions

If you are (or were) affected by a Presidentially declared

disaster occurring after 1996 or a terrorist or military action occurring after September 10, 2001, the IRS may

abate (reduce) the amount of interest you owe on certain

taxes. The IRS may abate interest for the period of any

additional time to file or pay that the IRS provides on account of the disaster or the terrorist or military action. The

IRS will issue a notice or news release indicating who are

affected taxpayers and stating the period of relief.

If you are eligible for relief from interest, but were

charged interest for the period of relief, the IRS may retroactively abate your interest. To the extent possible, the

IRS can take the following actions:

Make appropriate adjustments to your account.

Notify you when the adjustments are made.

Refund any interest paid by you where appropriate.

For more information on disaster area losses, see Dis­

aster Area Losses in Publication 547. For more information on other tax relief for victims of terrorist attacks, see

Publication 3920.

Offer in Compromise

In certain circumstances, the IRS will allow you to pay less

than the full amount you owe. If you think you may qualify,

you should submit your offer by filing Form 656, Offer in

Compromise. The IRS may accept your offer for any of the

following reasons:

There is doubt about the amount you owe (or whether

you owe it).

There is doubt as to whether you can pay the amount

you owe based on your financial situation.

An economic hardship would result if you had to pay

the full amount owed.

Your case presents compelling reasons that the IRS

determines are a sufficient basis for compromise.

If your offer is rejected, you have 30 days to ask the Appeals Office of the IRS to reconsider your offer.

The IRS offers fast track mediation services to

TIP help taxpayers resolve many issues including a

dispute regarding an offer in compromise. For

more information, see Publication 3605.

Generally, if you submit an offer in compromise, the

IRS will delay certain collection activities. The IRS usually

will not levy (take) your property to settle your tax bill during the following periods:

The 30 days immediately after the offer is rejected.

While your timely-filed appeal is being considered by

Appeals.

Also, if the IRS rejects your original offer and you submit a

revised offer within 30 days of the rejection, the IRS generally will not levy your property while it considers your revised offer.

For more information about submitting an offer in compromise, see Form 656.

Appeal Rights

Because people sometimes disagree on tax matters, the

IRS has an appeals system. Most differences can be settled within this system without expensive and time-consuming court trials.

However, your reasons for disagreeing must come

within the scope of the tax laws. For example, you cannot

appeal your case based only on moral, religious, political,

constitutional, conscientious, or similar grounds.

In most instances, you may be eligible to take your

case to court if you do not reach an agreement at your appeals conference, or if you do not want to appeal your

case to the IRS Office of Appeals. See Appeals to the

Courts, later, for more information.

Appeal Within the IRS

You can appeal an IRS tax decision to a local Appeals Office, which is separate from and independent of the IRS

office taking the action you disagree with. The Appeals

Office is the only level of appeal within the IRS. Conferences with Appeals Office personnel are held in an informal

manner by correspondence, by telephone, or at a personal conference.

If you want an appeals conference, follow the instructions in the letter you received. Your request will be sent to

the Appeals Office to arrange a conference at a convenient time and place. You or your representative should be

prepared to discuss all disputed issues at the conference.

Most differences are settled at this level.

If agreement is not reached at your appeals conference, you may be eligible to take your case to court. See

Appeals to the Courts, later.

Protests and Small Case Requests

When you request an Appeals conference, you may also

need to file either a formal written protest or a small case

request with the office named in the letter you received.

Also, see the special appeal request procedures in Publication 1660.

While the IRS is evaluating your offer in compromise.

Page 8

Publication 556 (September 2013)

Written protest. You need to file a written protest in the

following cases:

Claims, or a United States District Court. These courts are

independent of the IRS.

All employee plan and exempt organization cases

without regard to the dollar amount at issue.

If you elect to bypass the IRS's appeals system, you

may be able to take your case to one of the courts listed

above. However, a case petitioned to the United States

Tax Court will normally be considered for settlement by an

Appeals Officer before the Tax Court hears the case.

All partnership and S corporation cases without regard

to the dollar amount at issue.

All other cases, unless you qualify for the small case

request procedure, or other special appeal procedures such as requesting Appeals consideration of

liens, levies, seizures, or installment agreements.

If you must submit a written protest, see the instructions

in Publication 5 about the information you need to provide.

The IRS urges you to provide as much information as you

can, as it will help speed up your appeal. That will save

you both time and money.

!

Be sure to send the protest within the time limit

specified in the letter you received.

CAUTION

Small case request. If the total amount for any tax period is not more than $25,000, you may make a small case

request instead of filing a formal written protest. In figuring

the total amount, include a proposed increase or decrease in tax (including penalties), or claimed refund. If

you are making an offer in compromise, include total unpaid tax, penalty, and interest due. For a small case request, follow the instructions in our letter to you by sending a letter:

Requesting Appeals consideration,

Indicating the changes you do not agree with, and

Indicating the reasons why you do not agree.

Representation

You can represent yourself at your appeals conference, or

you can be represented by any federally authorized practitioner, including an attorney, a certified public accountant,

an enrolled actuary, or an enrolled agent.

If your representative attends a conference without you,

he or she can receive or inspect confidential information

only if you have filed a power of attorney or a tax information authorization. You can use a Form 2848 or any other

properly written power of attorney or authorization.

You can also bring witnesses to support your position.

Confidentiality privilege. Generally, the same confidentiality protection that you have with an attorney also applies to certain communications that you have with federally authorized practitioners. See Confidentiality privilege

under If Your Return Is Examined, earlier.

Appeals to the Courts

If you unreasonably fail to pursue the IRS's ap­

peals system, or if your case is intended primarily

CAUTION

to cause a delay, or your position is frivolous or

groundless, the Tax Court may impose a penalty of up to

$25,000. See Appeal Within the IRS, earlier.

!

Prohibition on requests to taxpayers to give up

rights to bring civil action. The Government cannot ask

you to waive your right to sue the United States or a Government officer or employee for any action taken in connection with the tax laws. However, your right to sue can

be waived if:

You knowingly and voluntarily waive that right,

The request to waive that right is made in writing to

your attorney or other federally authorized practitioner,

or

The request is made in person and your attorney or

other representative is present.

Burden of proof. For court proceedings resulting from

examinations started after July 22, 1998, the IRS generally has the burden of proof for any factual issue if you

have met the following requirements:

You introduced credible evidence relating to the issue.

You complied with all substantiation requirements of

the Internal Revenue Code.

You maintained all records required by the Internal

Revenue Code.

You cooperated with all reasonable requests by the

IRS for information regarding the preparation and related tax treatment of any item reported on your tax return.

You had a net worth of $7 million or less and not more

than 500 employees at the time your tax liability is

contested in any court proceeding if your tax return is

for a corporation, partnership, or trust.

!

CAUTION

The burden of proof does not change on an issue

when another provision of the tax laws requires a

specific burden of proof with respect to that issue.

Use of statistical information. In the case of an individual, the IRS has the burden of proof in court proceedings based on any IRS reconstruction of income solely

through the use of statistical information on unrelated taxpayers.

If you and the IRS still disagree after the appeals conference, you may be entitled to take your case to the United

States Tax Court, the United States Court of Federal

Publication 556 (September 2013)

Page 9

Penalties. The IRS has the burden of initially producing evidence in court proceedings with respect to the liability of any individual taxpayer for any penalty, addition to

tax, or additional amount imposed by the tax laws.

The reasonable costs of studies, analyses, engineering reports, tests, or projects found by the court to be

necessary for the preparation of your case.

Recovering litigation or administrative costs. These

are the expenses that you pay to defend your position to

the IRS or the courts. You may be able to recover reasonable litigation or administrative costs if all of the following

conditions apply:

Attorney fees that generally may not exceed $125

maximum hourly rate as set by statute and indexed for

inflation. See Attorney fees, later.

You are the prevailing party.

You exhaust all administrative remedies within the

IRS.

Your net worth is below a certain limit (see Net worth

requirements, later).

You do not unreasonably delay the proceeding.

You apply for administrative costs within 90 days of

the date on which the final decision of the IRS Office

of Appeals as to the determination of the tax, interest,

or penalty was mailed to you.

You apply for litigation costs within the time frames

provided by Tax Court Rule 231, found at

www.ustaxcourt.gov.

The reasonable costs of expert witnesses.

Reasonable administrative costs. These include the

following costs:

Any administrative fees or similar charges imposed by

the IRS.

The reasonable costs of studies, analyses, engineering reports, tests, or projects.

The reasonable costs of expert witnesses.

Attorney fees that generally may not exceed $125 per

hour. See Attorney fees, later.

Timing of costs. Administrative costs can be awarded for costs incurred after the earliest of:

The date the first letter of proposed deficiency is sent

that allows you an opportunity to request administrative review in the IRS Office of Appeals,

Prevailing party, reasonable litigation costs, and reasonable administrative costs are explained later.

The date you receive notice of the IRS Office of Appeals' decision, or

Note. If the IRS denies your award of administrative

costs, and you want to appeal, you must petition the Tax

Court within 90 days of the date on which the IRS mails

the denial notice.

Net worth requirements. An individual taxpayer may

be able to recover litigation or administrative costs if the

following requirements are met:

Prevailing party. Generally, you are the prevailing

party if:

You substantially prevail with respect to the amount in

controversy or on the most significant tax issue or set

of issues in question, and

You meet the net worth requirements, discussed later.

You will not be treated as the prevailing party if the United States establishes that its position was substantially

justified. The position of the United States is presumed

not to be substantially justified if the IRS:

Did not follow its applicable published guidance (such

as regulations, revenue rulings, notices, announcements, private letter rulings, technical advice memoranda, and determination letters issued to the taxpayer) in the proceeding (This presumption can be

overcome by evidence.), or

Has lost in courts of appeal for other circuits on substantially similar issues.

The court will generally decide who is the prevailing

party.

Reasonable litigation costs. These include the following costs:

The date of the notice of deficiency.

For individuals — your net worth does not exceed $2

million as of the filing date of your petition for review.

For this purpose, individuals filing a joint return are

treated as separate individuals.

For estates — your net worth does not exceed $2 million as of the date of the decedent's death.

For charities and certain cooperatives — you do not

have more than 500 employees as of the filing date of

your petition for review.

For all other taxpayers — as of the filing date of your

petition for review, your net worth does not exceed $7

million, and you must not have more than 500 employees.

Qualified offer rule. You can also receive reasonable

costs and fees and be treated as a prevailing party in a

civil action or proceeding if:

You make a qualified offer to the IRS to settle your

case,

The IRS does not accept that offer, and

The tax liability (not including interest, unless interest

is at issue) later determined by the court is equal to or

less than the amount of your qualified offer.

Reasonable court costs.

Page 10

Publication 556 (September 2013)

You must also meet the remaining requirements, including

the exhaustion of administrative remedies and the net

worth requirement, discussed earlier, to get the benefit of

the qualified offer rule.

Qualified offer. This is a written offer made by you

during the qualified offer period. It must specify both the

offered amount of your liability (not including interest) and

that it is a qualified offer.

To be a qualified offer, it must remain open from the

date it is made until the earliest of:

The date it is rejected,

The date the trial begins, or

90 days from the date it is made.

Qualified offer period. This period begins on the day

the IRS mails you the first letter of proposed deficiency

that allows you to request review by the IRS Office of Appeals. It ends 30 days before your case is first set for trial.

Attorney fees. Attorney fees generally may not exceed $125 maximum hourly rate as set by statute and indexed for inflation. However, this amount can be higher in

certain limited circumstances depending on the level of

difficulty of the issues in the case and the local availability

of tax expertise. See IRS.gov for more information.

Attorney fees include the fees paid by a taxpayer

for the services of anyone who is authorized to

practice before the Tax Court or before the IRS.

In addition, attorney fees can be awarded in civil actions

for unauthorized inspection or disclosure of a taxpayer's

return or return information.

TIP

Fees can be awarded in excess of the actual amount

charged if:

You are represented for no fee, or for a nominal fee,

as a pro bono service, and

The award is paid to your representative or to your

representative's employer.

Jurisdiction for determination of employment status.

The Tax Court can review IRS employment status determinations (for example, whether individuals hired by you

are in fact your employees or independent contractors)

and the amount of employment tax under such determinations. Tax Court review can take place only if, in connection with an audit of any person, there is a controversy involving a determination by the IRS that either:

One or more individuals performing services for that

person are employees of that person, or

That person is not entitled to relief under Section

530(a) of the Revenue Act of 1978(discussed later).

The following rules also apply to a Tax Court review of

employment status:

A Tax Court petition to review these determinations

can be filed only by the person for whom the services

are performed,

Publication 556 (September 2013)

If you receive a Notice of Determination by certified or

registered mail, you must file a petition for Tax Court

review within 90 days of the date of mailing that notice

(150 days if the notice is addressed to you outside the

United States),

If during the Tax Court proceeding, you begin to treat

as an employee an individual whose employment status is at issue, the Tax Court will not consider that

change in its decision,

Assessment and collection of tax is suspended while

the Tax Court review is taking place,

Payment of the asserted employment tax deficiency is

not required to petition the U.S. Tax Court for a determination of employment status.

There can be a de novo review by the Tax Court (a review which does not consider IRS administrative findings), and

At your request and with the Tax Court's agreement,

small tax case procedures (discussed later) are available to simplify the case resolution process when the

amount at issue (including additions to tax and penalties) is $50,000 or less for each tax period involved.

For further information, see Publication 3953, Questions and Answers About Tax Court Proceedings for Determination of Employment Status Under IRC Section

7436.

Section 530(a) of the Revenue Act of 1978. This

section relieves an employer of certain employment tax

responsibilities for individuals not treated as employees. It

also provides relief to taxpayers under audit or involved in

administrative or judicial proceedings.

Tax Court review of request for relief from joint and

several liability on a joint return. As discussed later, at

Relief from joint and several liability on a joint return under

Claims for Refund, you can request relief from liability for

tax you owe, plus related penalties and interest, that you

believe should be paid by your spouse (or former spouse).

You also can petition (ask) the Tax Court to review your

request for innocent spouse relief or separation of liability

if either:

The IRS sends you a determination notice denying, in

whole or in part, your request, or

You do not receive a determination notice from the

IRS within 6 months from the date you file Form 8857.

If you receive a determination notice, you must petition

the Tax Court to review your request during the 90-day

period that begins on the date the IRS mails the notice.

See Publication 971 for more information.

Note. Your spouse or former spouse may file a written

protest and request an Appeals conference to protest

your claim of innocent spouse relief or separation of liability. See Rev. Proc. 2003-19, which is on page 371 of the

Internal Revenue Bulletin 2003-5 at

www.irs.gov/pub/irs­irbs/irb03­05.pdf.

Page 11

Tax Court

You can take your case to the United States Tax Court if

you disagree with the IRS over:

Income tax,

Estate tax,

Gift tax,

Employment tax involving IRS employment status determinations, or

Certain excise taxes of private foundations, public

charities, qualified pension and other retirement plans,

or real estate investment trusts.

For information on Tax Court review of a determination

of employment status, see Jurisdiction for determination

of employment status, earlier.

For information on Tax Court review of an IRS refusal

to abate interest, see Tax Court can review failure to

abate interest, earlier under Examination of Returns.

For information on Tax Court review of Appeals determinations with respect to lien notices and proposed levies, see Publication 1660.

You cannot take your case to the Tax Court before the

IRS sends you a notice of deficiency. You can only appeal

your case if you file a petition within 90 days from the date

the notice is mailed to you (150 days if it is addressed to

you outside the United States).

TIP

The notice will show the 90th (or 150th) day by

which you must file your petition with the Tax

Court.

Generally, the Tax Court hears cases before any tax

has been assessed and paid; however, you can pay the

tax after the notice of deficiency has been issued and still

petition the Tax Court for review. If you do not file your petition on time, the proposed tax will be assessed, a bill will

be sent, and you will not be able to take your case to the

Tax Court. Under the law, you must pay the tax within 21

days (10 business days if the amount is $100,000 or

more). Collection can proceed even if you think that the

amount is excessive. Publication 594 explains IRS collection procedures.

If you filed your petition on time, the court will schedule

your case for trial at a location convenient to you. You can

represent yourself before the Tax Court or you can be represented by anyone admitted to practice before that court.

Small tax case procedure. If the amount in your case is

$50,000 or less for any 1 tax year or period, you can request that your case be handled under the small tax case

procedure. If the Tax Court approves, you can present

your case to the Tax Court for a decision that is final and

that you cannot appeal. You can get more information regarding the small tax case procedure and other Tax Court

matters from the United States Tax Court, 400 Second

Street, N.W., Washington, DC 20217. More information

can be found on the Tax Court's website at

www.ustaxcourt.gov.

Motion to request redetermination of interest. In certain cases, you can file a motion asking the Tax Court to

redetermine the amount of interest on either an underpayment or an overpayment. You can do this only in a situation that meets all of the following requirements:

The IRS has assessed a deficiency that was determined by the Tax Court.

The assessment included interest.

Withdrawal of notice of deficiency. If you consent,

the IRS can withdraw a notice of deficiency. A notice of

deficiency may be rescinded if the notice was issued as a

result of an administrative error; the taxpayer submits information establishing the actual tax due is less than the

amount shown in the notice; the taxpayer specifically requests a conference with the appropriate Appeals office

for the purpose of entering into settlement negotiations.

However, the notice may be rescinded only if the appropriate Appeals office first decides that the case is susceptible to agreement. See Revenue Procedure 98-54 for a

more detailed explanation of the requirements. Once withdrawn, the limits on credits, refunds, and assessments

concerning the notice are void, and you and the IRS have

the rights and obligations that you had before the notice

was issued. The suspension of any time limitation while

the notice of deficiency was issued will not change when

the notice is withdrawn.

After the notice is withdrawn, you cannot file a

petition with the Tax Court based on the notice.

CAUTION

Also, the IRS can later issue a notice of defi­

ciency in a greater or lesser amount than the amount in

the withdrawn deficiency.

!

Page 12

You have paid the entire amount of the deficiency plus

the interest claimed by the IRS.

The Tax Court has found that you made an overpayment.

You must file the motion within one year after the decision

of the Tax Court becomes final.

District Court and Court of Federal Claims

Generally, the District Courts and the Court of Federal

Claims hear tax cases only after you have paid the entire

tax and penalties, and filed a claim for a credit or refund.

The taxpayer may litigate certain types of employment

tax cases in either the United States District Court or the

United States Court of Federal Claims. Before taxpayers

can initiate suit in either of these courts with respect to

certain employment taxes, they will have to pay, at a minimum, the employment tax assessment attributable to one

employee for any one quarter and file a claim for refund of

the tax. Once the claim for refund is denied or 6 months

elapse without any action by the IRS, the taxpayer may initiate suit.

Publication 556 (September 2013)

As explained later under Claims for Refund, you can

file a claim with the IRS for a credit or refund if you think

that the tax you paid is incorrect or excessive. If your claim

is totally or partially disallowed by the IRS, you should receive a notice of claim disallowance. If the IRS does not

act on your claim within 6 months from the date you filed

it, you can then file suit for a refund.

You generally must file suit for a credit or refund no

later than 2 years after the IRS informs you that your claim

has been rejected. However, you can file suit if it has been

6 months since you filed your claim and the IRS has not

yet delivered a decision.

You can file suit for a credit or refund in your United

States District Court or in the United States Court of Federal Claims. However, you cannot appeal to the United

States Court of Federal Claims if your claim is for credit or

refund of a penalty that relates to promoting an abusive

tax shelter or to aiding and abetting the understatement of

tax liability on someone else's return.

For information about procedures for filing suit in either

court, contact the Clerk of your District Court or of the United States Court of Federal Claims.

Refund or Credit of Overpayments

Before Final Determination

Any court with proper jurisdiction, including the Tax Court,

can order the IRS to refund any part of a tax deficiency

that the IRS collects from you during a period when the

IRS is not permitted to assess that deficiency, or to levy or

engage in any court proceeding to collect that deficiency.

In addition, the court can order a refund of any part of an

overpayment determined by the Tax Court that is not at issue on appeal to a higher court. The court can order these

refunds before its decision on the case is final. Taxpayers

should thoroughly review IRS settlement offers before

signing a Tax Court Decision document to ensure that all

adjustments are correct, including the inclusion of any tax

credits that the taxpayer is allowed to claim.

Note. The court may no longer order a refund of an

overpayment after the case is final.

Generally, the IRS is not permitted to take action on a

tax deficiency during:

The 90-day (or 150-day if outside the United States)

period that you have to petition a notice of deficiency

to the Tax Court, or

The period that the case is under appeal if a bond is

provided.

Claims for Refund

If you believe you have overpaid your tax, you have a limited amount of time in which to file a claim for a credit or

refund. You can claim a credit or refund by filing Form

1040X. See Time for Filing a Claim for Refund, later.

Publication 556 (September 2013)

File your claim by mailing it to the IRS Service Center

where you filed your original return. File a separate form

for each year or period involved. Include an explanation of

each item of income, deduction, or credit on which you

are basing your claim.

Corporations should file Form 1120X, Amended U.S.

Corporation Income Tax Return, or other form appropriate

to the type of credit or refund claimed.

TIP

See Publication 3920 for information on filing

claims for tax forgiveness for individuals affected

by terrorist attacks.

Requesting a copy of your tax return. You can obtain

a copy of the actual return and all attachments you filed

with the IRS for an earlier year. This includes a copy of the

Form W-2 or Form 1099 filed with your return. Use Form

4506 to make your request. You will be charged a fee,

which you must pay when you submit Form 4506.

Requesting a copy of your tax account information.

Use Form 4506-T, Request for Transcript of Tax Return,

to request free copies of your tax return transcript, tax account transcript, record of account, verification of nonfiling, or Form W-2, Form 1099 series, Form 1098 series, or

Form 5498 series transcript. The tax return transcript contains most of the line items of a tax return. A tax account

transcript contains information on the financial status of

the account, such as payments, penalty assessments,

and adjustments. A record of account is a combination of

line item information and later adjustments to the account.

Form W-2, Form 1099 series, Form 1098 series, or Form

5498 series transcript contains data from these information returns.

Penalty for erroneous claim for refund. If you claim

an excessive amount of tax refund or credit relating to income tax (other than a claim relating to the earned income

credit), you may be liable for a penalty of 20% of the

amount that is determined to be excessive. An excessive

amount is the amount of the claim for refund or credit that

is more than the amount of claim allowable for the tax

year. The penalty may be waived if you can show that you

had a reasonable basis for making the claim.

Time for Filing a Claim for Refund

Generally, you must file a claim for a credit or refund

within 3 years from the date you filed your original return

or 2 years from the date you paid the tax, whichever is

later. If you do not file a claim within this period, you may

no longer be entitled to a credit or a refund.

If the due date to file a return or a claim for a credit or

refund is a Saturday, Sunday, or legal holiday, it is filed on

time if it is filed on the next business day. Returns you filed

before the due date are considered filed on the due date.

This is true even when the due date is a Saturday, Sunday, or legal holiday.

Disaster area claims for refund. If you live in a Presidentially declared disaster area or are affected by

Page 13

terroristic or military action, the deadline to file a claim for

a refund may be postponed. This section discusses the

special rules that apply to Presidentially declared disaster

area refunds.

A Presidentially declared disaster is a disaster that occurred in an area declared by the President to be eligible

for federal assistance under the Disaster Relief and Emergency Assistance Act.

Postponed refund deadlines. The IRS may postpone for up to 1 year the deadlines for filing a claim for refund. The postponement can be used by taxpayers who

are affected by a Presidentially declared disaster. The IRS

may also postpone deadlines for filing income and employment tax returns, paying income and employment

taxes, and making contributions to a traditional IRA or

Roth IRA. For more information, see Publication 547.

If any deadline is postponed, the IRS will publicize the

postponement in your area and publish a news release,

revenue ruling, revenue procedure, notice, announcement, or other guidance in the Internal Revenue Bulletin.

A list of the areas eligible for assistance under the

Disaster Relief and Emergency Assistance Act is

available at the Federal Emergency Management

Agency (FEMA) website at www.fema.gov and at the IRS

website at www.irs.gov.

TIP

Nonfilers can get refund of overpayments paid within

3-year period. The Tax Court can consider taxes paid

during the 3-year period preceding the date of a notice of

deficiency for determining any refund due to a nonfiler.

This means that if you do not file your return, and you receive a notice of deficiency in the third year after the due

date (with extensions) of your return and file suit with the

Tax Court to contest the notice of deficiency, you may be

able to receive a refund of excessive amounts paid within

the 3-year period preceding the date of the notice of deficiency.

The IRS may postpone for up to 1 year certain tax

deadlines, including the time for filing claims for

refund, for taxpayers who are affected by a terro­

rist attack occurring after September 10, 2001. For more

information, see Publication 3920.

TIP

Claim for refund by estates electing the installment

method of payment. In certain cases where an estate

has elected to make tax payments through the installment

method, the executor can file a suit for refund with a U.S.

District Court or the U.S. Court of Federal Claims before

all the installment payments have been made. However,

all the following must be true before a suit can be filed:

If a notice of deficiency was issued to the estate regarding its liability for estate tax, the time for petitioning the Tax Court has passed.

No proceeding is pending for a declaratory judgment

by the Tax Court on whether the estate is eligible to

pay tax in installments.

The executor has not included any previously litigated

issues in the current suit for refund.

The executor does not discontinue making installment

payments timely, while the court considers the suit for

refund.

If in its final decision on the suit for refund the

court redetermines the estate's tax liability, the

IRS must refund any part of the estate tax amount

that is disallowed. This includes any part of the disallowed

amount previously collected by the IRS.

TIP

Protective claim for refund. If your right to a refund is

contingent on future events and may not be determinable

until after the time period for filing a claim for refund expires, you can file a protective claim for refund. A protective claim can be either a formal claim or an amended return for credit or refund. Protective claims are often based

on current litigation or expected changes in the tax law,

other legislation, or regulations. A protective claim preserves your right to claim a refund when the contingency

is resolved. A protective claim does not have to state a

particular dollar amount or demand an immediate refund.

However, to be valid, a protective claim must:

Be in writing and be signed,

Include your name, address, social security number or

individual taxpayer identification number, and other

contact information,

Identify and describe the contingencies affecting the

claim,

Clearly alert the IRS to the essential nature of the

claim, and

Identify the specific year(s) for which a refund is

sought.

Generally, the IRS will delay action on the protective

claim until the contingency is resolved. Once the contingency is resolved, the IRS may obtain additional information necessary to process the claim and then either allow

or disallow the claim.

Mail your protective claim for refund to the address listed in the instructions for Form 1040X, under Where To

File.

The estate consists largely of an interest in a

closely-held business.

Exceptions

All installment payments due on or before the date the

suit is filed have been made.

The limits on your claim for refund can be affected by the

type of item that forms the basis of your claim.

No accelerated installment payments have been

made.

Special refunds. If you file a claim for refund based on

one of the items listed below, the limits discussed earlier

No Tax Court case is pending with respect to any estate tax liability.

Page 14

Publication 556 (September 2013)

under Time for Filing a Claim for Refund may not apply.

These special items are:

A bad debt,

A worthless security,

A payment or accrual of foreign tax,

A net operating loss carryback, and

A carryback of certain tax credits.

The limits discussed earlier also may not apply if you

have signed an agreement to extend the period of assessment of tax.

TIP

For information on special rules on filing claims

for an individual affected by a terrorist attack, see

Publication 3920.

Periods of financial disability. If you are an individual

(not a corporation or other taxpaying entity), the period of

limitations on credits and refunds can be suspended during periods when you cannot manage your financial affairs

because of physical or mental impairment that is medically determinable and either:

Has lasted or can be expected to last continuously for

at least 12 months, or

Can be expected to result in death.

The period for filing a claim for refund will not be

suspended for any time that someone else, such

CAUTION

as your spouse or guardian, was authorized to

act for you in financial matters.

!

To claim financial disability, you generally must submit

the following statements with your claim for credit or refund:

1. A written statement signed by a physician, qualified to

make the determination, that sets forth:

a. The name and a description of your physical or

mental impairment,

b. The physician's medical opinion that your physical

or mental impairment prevented you from managing your financial affairs,

c. The physician's medical opinion that your physical

or mental impairment was or can be expected to

result in death, or that it has lasted (or can be expected to last) for a continuous period of not less

than 12 months, and

person was authorized to act on your behalf in financial matters during any part of the period described in

that paragraph, the beginning and ending dates of the

period of time the person was so authorized.

!

CAUTION

The period of limitations will not be suspended on

any claim for refund that (without regard to this

provision) was barred as of July 22, 1998.

Limit on Amount of Refund

If you file your claim within 3 years after filing your return,

the credit or refund cannot be more than the part of the tax

paid within the 3 years (plus the length of any extension of

time granted for filing your return) before you filed the

claim.

Example 1. You made estimated tax payments of

$1,000 and got an automatic extension of time from April

15, 2003, to August 15, 2003, to file your 2002 income tax

return. When you filed your return on that date, you paid

an additional $200 tax. Three years later, on August 15,

2006, you file an amended return and claim a refund of

$700. Because you filed within 3 years after filing your return, you could get a refund of any tax paid after April 15,

2003.

Example 2. The situation is the same as in Example 1,

except that you filed your return on October 31, 2003, 2

months after the extension period ended. You paid an additional $200 on that date. Three years later, on October

27, 2006, you file an amended return and claim a refund

of $700. Although you filed your claim within 3 years from

the date you filed your original return, the refund is limited

to $200. The estimated tax of $1,000 was paid before the

3 years plus the 4-month extension period.

Claim filed after the 3-year period. If you file a claim after the 3-year period, but within 2 years from the time you

paid the tax, the credit or refund cannot be more than the

tax you paid within the 2 years immediately before you

filed the claim.

Example. You filed your 2002 tax return on April 15,

2003. You paid $500 in tax. On November 2, 2004, after

an examination of your 2002 return, you had to pay $200

in additional tax. On May 2, 2006, you file a claim for a refund of $300. Your refund will be limited to the $200 you

paid during the 2 years immediately before you filed your

claim.

Processing Claims for Refund

d. To the best of the physician's knowledge, the specific time period during which you were prevented

by such physical or mental impairment from managing your financial affairs, and

Claims are usually processed shortly after they are filed.

Your claim may be denied, accepted as filed, or it may be

examined. If a claim is examined, the procedures are almost the same as in the examination of a tax return.

2. A written statement by the person signing the claim

for credit or refund that no person, including your

spouse, was authorized to act on your behalf in financial matters during the period described in paragraph

(1)(d) of the physician's statement. Alternatively, if a

However, if you are filing a claim for credit or refund

based only on contested income tax or on estate tax or

gift tax issues considered in previously examined returns

and you do not want to appeal within the IRS, you should

request in writing that the claim be immediately rejected. A

Publication 556 (September 2013)

Page 15

notice of claim disallowance will then be promptly sent to

you. You have 2 years from the date of mailing of the notice of disallowance to file a refund suit in a United States

District Court or in the United States Court of Federal

Claims.

Explanation of Any Claim

for Refund Disallowance

The IRS must explain to you the specific reasons why

your claim for refund is disallowed or partially disallowed.

Claims for refund are disallowed based on a preliminary

review or on further examination. Some of the reasons

your claim may be disallowed include the following:

It was filed late.

It was based solely on the unconstitutionality of the

revenue acts.

It was waived as part of a settlement.

It covered a tax year or issues which were part of a

closing agreement or an offer in compromise.

It was related to a return closed by a final court order.

If your claim is disallowed for these reasons, or any other

reason, the IRS must send you an explanation.

Reduced Refund

Past-due, legally enforceable state income tax obligation. This is an obligation (debt):

Established by a court decision or administrative hearing and no longer subject to judicial review, or

That is assessed, uncollected, can no longer be redetermined, and is less than 10 years overdue.

Offset priorities. Overpayments are offset in the following order:

1. Federal income tax owed.

2. Past-due child support.

3. Past-due, legally enforceable debt owed to a federal

agency.

4. Past-due, legally enforceable state income tax debt.

5. Future federal income tax liability.

Note. If more than one state agency requests an offset

for separate debts, the offsets apply against your overpayment in the order in which the debts accrued. In addition,

state income tax includes any local income tax administered by the chief tax administration agency of a state.

Note. The Tax Court cannot decide the validity or merits of the credits or offsets (for example, collection of delinquent child support or student loan payments) made that

reduce or eliminate a refund to which you were otherwise

entitled.

Your refund may be reduced by an additional tax liability.

Also, your refund may be reduced by amounts you owe

for past-due child support, debts you owe to another federal agency, or past-due legally enforceable state income

tax obligations. You will be notified if this happens. For

those reductions, you cannot use the appeal and refund

procedures discussed in this publication. However, you

may be able to take action against the other agency.

Injured spouse exception. When a joint return is filed

and the refund is used to pay one spouse's past-due child

support, spousal support, or a federal debt, the other

spouse can be considered an injured spouse. An injured

spouse can get a refund for his or her share of the overpayment that would otherwise be used to pay the

past-due amount.

You are considered an injured spouse if:

Offset of past-due state income tax obligations

against overpayments. Federal tax overpayments can

be used to offset past-due, legally enforceable state income tax obligations. For the offset procedure to apply,

your federal income tax return must show an address in

the state that requests the offset. In addition, the state

must first:

1. You are not legally obligated to pay the past-due

amount and

Notify you by certified mail with return receipt that the

state plans to ask for an offset against your federal income tax overpayment,

Give you at least 60 days to show that some or all of

the state income tax is not past due or not legally enforceable,

Consider any evidence from you in determining that

income tax is past due and legally enforceable,

Satisfy any other requirements to ensure that there is

a valid past-due, legally enforceable state income tax

obligation, and

Show that all reasonable efforts to obtain payment

have been made before requesting the offset.

Page 16

2. You meet any of the following conditions:

a. You made and reported tax payments (such as

federal income tax withheld from wages or estimated tax payments).

b. You had earned income (such as wages, salaries,

or self-employment income) and claimed the

earned income credit or the additional child tax

credit.

c. You claimed a refundable credit, such as the

health coverage tax credit.

Note. If your residence was in a community property

state at any time during the year, you can file Form 8379

even if only item (1) above applies.

If you are an injured spouse, you can obtain your portion of the joint refund by completing Form 8379. Follow

the instructions on the form.

Publication 556 (September 2013)

Relief from joint and several liability on a joint return.

Generally, joint and several liability applies to all joint returns. This means that both you and your spouse (or former spouse) are liable for any tax shown on a joint return

plus any understatement of tax that may become due

later. This is true even if a divorce decree states that a former spouse will be responsible for any amounts due on

previously filed joint returns.

In some cases, a spouse will be relieved of the tax, interest, and penalties on a joint tax return. Three types of

relief are available.

Innocent spouse relief.

Separation of liability.

Equitable relief.

Form 8857. Each kind of relief is different and has different requirements. You must file Form 8857, Request for

Innocent Spouse Relief, to request relief. See the instructions for Form 8857 and Publication 971 for more information on these kinds of relief and who may qualify for them.

How To Get Tax Help

Go online, use a smart phone, call or walk in to an office

near you. Whether it's help with a tax issue, preparing

your tax return or picking up a free publication or form, get

the help you need the way you want it.

Free help with your tax return. Free help in preparing

your return is available nationwide from IRS-certified volunteers. The Volunteer Income Tax Assistance (VITA)

program is designed to help low-to-moderate income, elderly, persons with disabilities, and limited English proficient taxpayers. The Tax Counseling for the Elderly (TCE)

program is designed to assist taxpayers age 60 and older

with their tax returns. Most VITA and TCE sites offer free

electronic filing and all volunteers will let you know about

credits and deductions you may be entitled to claim.

Some VITA and TCE sites provide taxpayers the opportunity to prepare their return with the assistance of an

IRS-certified volunteer. To find the nearest VITA or TCE

site, visit IRS.gov or call 1-800-906-9887.

As part of the TCE program, AARP offers the Tax-Aide

counseling program. To find the nearest AARP Tax-Aide

site, visit AARP's website at www.aarp.org/money/taxaide

or call 1-888-227-7669.

For more information on these programs, go to IRS.gov

and enter “VITA” in the search box.

Internet. IRS.gov and IRS2Go are ready when

you are — every day, every night, 24 hours a day,

7 days a week.

Apply for an Employer Identification Number (EIN). Go

to IRS.gov and enter Apply for an EIN in the search

box.

Request an Electronic Filing PIN by going to IRS.gov

and entering Electronic Filing PIN in the search box.

Publication 556 (September 2013)

Check the status of your 2013 refund with Where's My

Refund? Go to IRS.gov or the IRS2Go app, and click

on Where's My Refund? You'll get a personalized refund date as soon as the IRS processes your tax return and approves your refund. If you e­file, your refund status is usually available within 24 hours after

the IRS receives your tax return or 4 weeks after

you've mailed a paper return.

Check the status of your amended return. Go to

IRS.gov and enter Where's My Amended Return? in

the search box.

Download forms, instructions, and publications, including some accessible versions.

Order free transcripts of your tax returns or tax account using the Order a Transcript tool on IRS.gov or

IRS2Go. Tax return and tax account transcripts are

generally available for the current year and past three

years.

Figure your income tax withholding with the IRS

Withholding Calculator on IRS.gov. Use it if you've

had too much or too little withheld, your personal situation has changed, you're starting a new job or you

just want to see if you're having the right amount withheld.

Determine if you might be subject to the Alternative

Minimum Tax by using the Alternative Minimum Tax

Assistant on IRS.gov.

Locate the nearest Taxpayer Assistance Center using

the Office Locator tool on IRS.gov or IRS2Go. Stop by

most business days for face-to-face tax help, no appointment necessary — just walk in. An employee can

explain IRS letters, request adjustments to your tax

account or help you set up a payment plan. Before

you visit, check the Office Locator for the address,

phone number, hours of operation and the services

provided. If you have an ongoing tax account problem

or a special need, such as a disability, you can request an appointment. Call the local number listed in

the Office Locator, or look in the phone book under

United States Government, Internal Revenue Service.

Locate the nearest volunteer help site with the VITA

Locator Tool on IRS.gov. Low-to-moderate income,

elderly, persons with disabilities, and limited English

proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. The Tax Counseling for the

Elderly (TCE) program helps taxpayers 60 and older

with their tax returns. Most VITA and TCE sites offer

free electronic filing and some provide IRS-certified

volunteers who can help prepare your tax return.

AARP offers the Tax-Aide counseling program as part

of the TCE program. Visit AARP's website to find the

nearest Tax-Aide location.

Research your tax questions.

Search publications and instructions by topic or keyword.

Page 17

Read the Internal Revenue Code, regulations, or other

official guidance.

Identification Number, date of birth, street address

and ZIP code.

Read Internal Revenue Bulletins.

Call for TeleTax topics, 1-800-829-4477, to listen to

pre-recorded messages covering various tax topics.

Sign up to receive local and national tax news by

email.

Phone.You can call the IRS, or you can carry it in

your pocket with the IRS2Go app on your smart

phone or tablet.

Download the free IRS2Go mobile app from the

iTunes app store or from Google Play. Use it to watch

the IRS YouTube channel, get IRS news as soon as

it's released to the public, order transcripts of your tax

returns or tax account, check your refund status, subscribe to filing season updates or daily tax tips, and

follow the IRS Twitter news feed, @IRSnews, to get

the latest federal tax news, including information

about tax law changes and important IRS programs.

Call to locate the nearest volunteer help site,

1-800-906-9887. Low-to-moderate income, elderly,

persons with disabilities, and limited English proficient

taxpayers can get free help with their tax return from

the nationwide Volunteer Income Tax Assistance

(VITA) program. The Tax Counseling for the Elderly

(TCE) program helps taxpayers 60 and older with their

tax returns. Most VITA and TCE sites offer free electronic filing. Some VITA and TCE sites provide

IRS-certified volunteers who can help prepare your

tax return. Through the TCE program, AARP offers the

Tax-Aide counseling program; call 1-888-227-7669 to

find the nearest Tax-Aide location.

Call to check the status of your 2013 refund,

1-800-829-1954 or 1-800-829-4477. The automated

Where's My Refund? information is available 24 hours

a day, 7 days a week. If you e­file, your refund status

is usually available within 24 hours after the IRS receives your tax return or 4 weeks after you've mailed a

paper return. Before you call, have your 2013 tax return handy so you can provide your social security

number, your filing status, and the exact whole dollar

amount of your refund. Where's My Refund? can give

you a personalized refund date as soon as the IRS

processes your tax return and approves your refund.

Where's My Refund? includes information for the most

recent return filed in the current year and does not include information about amended returns.

Call the Amended Return Hotline, 1-866-464-2050, to

check the status of your amended return.

Call to order forms, instructions and publications,

1-800-TAX-FORM (1-800-829-3676) to order current-year forms, instructions and publications, and

prior-year forms and instructions (limited to 5 years).

You should receive your order within 10 business

days.

Call to order transcripts of your tax returns or tax ac­

count, 1-800-908-9946. Follow the prompts to provide

your Social Security Number or Individual Taxpayer

Page 18

Call to ask tax questions, 1-800-829-1040.

Call using TTY/TDD equipment, 1-800-829-4059 to

ask tax questions or order forms and publications. The

TTY/TDD telephone number is for people who are

deaf, hard of hearing, or have a speech disability.

These individuals can also contact the IRS through relay services such as the Federal Relay Service available at www.gsa.gov/fedrelay.

Walk-in. You can find a selection of forms, publications and services — in-person, face-to-face.

Products. You can walk in to some post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Some IRS offices, libraries,

and city and county government offices have a collection of products available to photocopy from reproducible proofs.

Services. You can walk in to your local TAC (Taxpayer

Assistance Center) most business days for personal,

face-to-face tax help. An employee can explain IRS

letters, request adjustments to your tax account, or

help you set up a payment plan. If you need to resolve

a tax problem, have questions about how the tax law

applies to your individual tax return, or you are more

comfortable talking with someone in person, visit your

local TAC where you can talk with an IRS representative face-to-face. No appointment is necessary—just

walk in. Before visiting, check www.irs.gov/

localcontacts for hours of operation and services provided.

Mail. You can send your order for forms, instructions, and publications to the address below. You

should receive a response within 10 business

days after your request is received.

Internal Revenue Service

1201 N. Mitsubishi Motorway

Bloomington, IL 61705-6613

The Taxpayer Advocate Service Is Here to Help You.

The Taxpayer Advocate Service (TAS) is your voice at the

IRS. Our job is to ensure that every taxpayer is treated

fairly and that you know and understand your rights.

What can TAS do for you? We can offer you free help

with IRS problems that you can't resolve on your own. We

know this process can be confusing, but the worst thing

you can do is nothing at all! TAS can help if you can't resolve your tax problem and:

Your problem is causing financial difficulties for you,

your family, or your business.

Publication 556 (September 2013)

You face (or your business is facing) an immediate

threat of adverse action.

rectory and at www.irs.gov/advocate, or call us toll-free at

1-877-777-4778.

You've tried repeatedly to contact the IRS but no one

has responded, or the IRS hasn't responded by the

date promised.

How else does TAS help taxpayers? TAS also works

to resolve large-scale, systemic problems that affect many

taxpayers. If you know of one of these broad issues,

please report it to us through our Systemic Advocacy

Management System at www.irs.gov/sams.

If you qualify for our help, you'll be assigned to one advocate who'll be with you at every turn and will do everything possible to resolve your problem. Here's why we can

help:

TAS is an independent organization within the IRS.

Our advocates know how to work with the IRS.

Our services are free and tailored to meet your needs.

We have offices in every state, the District of Columbia, and Puerto Rico.

How can you reach us? If you think TAS can help you,

call your local advocate, whose number is in your local di-

Publication 556 (September 2013)

Low Income Taxpayer Clinics. Low Income Taxpayer

Clinics (LITCs) serve individuals whose income is below a

certain level and need to resolve tax problems such as audits, appeals, and tax collection disputes. Some clinics

can provide information about taxpayer rights and responsibilities in different languages for individuals who speak

English

as

a

second

language.

Visit

www.TaxpayerAdvocate.irs.gov or see IRS Publication

4134, Low Income Taxpayer Clinic List.

Page 19

Index

To help us develop a more useful index, please let us know if you have ideas for index entries.

See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.

A

Abatement of interest (See Interest,

abatement)

Appeal rights 8, 9, 12

(See also Tax Court)

Assistance (See Tax help)

Authorization, third party 3

B

Burden of proof 9

C

Civil action (See Waivers, tax suits,

civil action)

Claim for refund 13

Disallowance 16

Estates on installment method 14

Periods of financial disability 15

Comments on publication 2

Communications, privileged 3, 9

Confidentiality 3, 9

D

Disability (See Financial disability,

periods of)

Disaster areas, abatement of

interest 8

E

Employment status, Tax Court

review of 11

Estates:

Claim for refund 14

Examination of returns 2

F

Fast track mediation 4

Financial disability, periods of:

Claim for refund 15

Form:

8379 16

8857 17

Free tax services 17

Page 20

H

Help (See Tax help)

I

Injured spouse 16

Innocent spouse relief 11, 17

Installment agreement 6

Installment method:

Estates, claim for refund by 14

Interest:

Abatement:

Disaster areas 8

Error or delay by IRS 7

Terrorist attacks 8

Netting, overlapping

underpayments and

overpayments 6

Suspended 5

J

Joint and several liability, relief

from 11, 17

L

Losses:

Disaster area 13

Low Income Taxpayer Clinics 19

M

Mediation, fast track 4

More information 2

N

Notice of deficiency:

Timely mailing 5

Notices:

Third party contacts 3

O

Offer in compromise 8

Overpayments:

Offsets against state tax 16

P

Penalties, suspended 5

Practitioners, federally authorized:

Confidential communications 3, 9

Presidentially declared disaster 14

Publications (See Tax help)

R

Refund 13, 15, 16

Reduced 16

Refund deadline postponement 14

Refund or credit before court

decision 13

Rights:

Communications, privileged 3, 9

Requests to waive 9

S

Suggestions for publication 2

T

Tax Court 9, 12

Employment status, review of 11

Innocent spouse relief, review of

request for 11

Refund or credit before decision 13

Tax help 17

Taxpayer Advocate 3

Taxpayer Advocate Service 3

Terrorist attacks, abatement of

interest 8

Third party authorization 3

TTY/TDD information 17

W

Waivers:

Tax suits, civil action 9

Z

Zero rate, overlapping periods of

interest (See Interest, netting)

Publication 556 (September 2013)