Inside IRS Appeals: How to Resolve Tax Disputes Without Going to Court
By Luke Ryan | January 2026
The IRS Independent Office of Appeals is the administrative forum where most federal tax disputes are ultimately resolved. While Tax Court litigation often commands public attention, the reality is that approximately 80 percent of tax cases settle before trial—and most of those settlements occur at Appeals. Understanding how the Appeals process works, what Appeals Officers can and cannot do, and how to present a case effectively can mean the difference between a protracted legal battle and a reasonable, negotiated resolution. For taxpayers and their advisors, Appeals represents both a second chance to resolve a dispute administratively and, often, the last opportunity to settle before committing to the time, expense, and uncertainty of litigation.
I. What Is IRS Appeals?
The IRS Independent Office of Appeals (commonly called "Appeals" or "IRS Appeals") is a separate administrative function within the IRS with the mission to resolve tax controversies without litigation. Established in 1927, Appeals has long been the only level of administrative appeal within the IRS, positioned between the Examination or Collection functions and the federal courts.
Congress formalized Appeals' independent status in the Taxpayer First Act of 2019, which codified Appeals' role and reinforced its independence from IRS enforcement functions. Appeals now operates under IRC § 7803(e), which establishes its mission: to resolve federal tax controversies without litigation on a basis that is fair and impartial to both the government and the taxpayer, promotes voluntary compliance with the tax laws, and enhances public confidence in the integrity and efficiency of the IRS.
On January 15, 2025, the Treasury Department issued final regulations under § 7803 providing further guidance on the resolution of federal tax controversies by Appeals. These regulations clarify the scope of Appeals' authority, the procedural requirements for requesting Appeals consideration, and certain exceptions where Appeals does not have jurisdiction.
Appeals employs approximately 1,240 personnel, most of whom are Appeals Officers and Settlement Officers. Appeals Officers typically handle audit-related disputes such as proposed deficiencies, penalties, and adjustments to tax liabilities. Settlement Officers handle collection matters, including challenges to liens, levies, and Collection Due Process determinations.
II. How Appeals Differs from Examination and Collection
a. Independence
Appeals is organizationally and functionally separate from the IRS examination and collection divisions. Appeals Officers do not report to examination managers or revenue agents, and they are prohibited from engaging in ex parte communications with IRS enforcement personnel that could compromise their independence. This separation is critical to Appeals' role as a neutral arbiter evaluating the strengths and weaknesses of both the taxpayer's and the IRS's positions.
b. Settlement Authority
Unlike revenue agents or revenue officers, who are tasked with determining the correct amount of tax or collecting assessed liabilities, Appeals Officers have settlement authority. This means they can compromise disputed issues based on the "hazards of litigation"—the risk that the IRS would not prevail if the case went to court. Settlement authority allows Appeals to resolve cases where there is substantial uncertainty about the facts, the law, or both, rather than insisting on the IRS's original determination.
c. Evaluating Hazards of Litigation
When evaluating a case, Appeals Officers consider the likelihood that the IRS would win if the case proceeded to trial. This evaluation accounts for factual disputes (would a judge believe the taxpayer's testimony over the revenue agent's characterization?), legal uncertainties (is there conflicting case law in different circuits?), and evidentiary gaps (does the IRS have all the documents necessary to prove its case?). Based on this analysis, Appeals can agree to settle for a percentage of the proposed adjustments, concede certain issues entirely, or sustain the IRS's original position if the case is strong.
III. When Do You Go to Appeals?
a. After an Examination (Audit)
The most common path to Appeals is following an IRS audit that results in proposed adjustments to a taxpayer's return. At the conclusion of an examination, if the taxpayer and the revenue agent do not reach an agreement, the IRS will issue a "30-day letter" (formally called a Letter 950 or similar correspondence) proposing the adjustments and offering the taxpayer an opportunity to appeal.
The taxpayer has 30 days from the date of the letter to request an Appeals conference. To do so, the taxpayer must file either a small case request (for disputes involving $25,000 or less per tax period) or a formal written protest (for larger cases). The protest must include a statement of the disputed issues, the taxpayer's position, the facts supporting that position, and the law or legal authority on which the taxpayer relies.
b. Collection Due Process Cases
Taxpayers also have the right to request Appeals review in Collection Due Process (CDP) cases. When the IRS proposes to levy on a taxpayer's property or file a Notice of Federal Tax Lien, the taxpayer receives a notice of the proposed action and the right to request a CDP hearing. If the taxpayer requests a hearing, a Settlement Officer within Appeals will conduct the hearing and issue a Notice of Determination. If the taxpayer disagrees with the determination, the taxpayer can petition the Tax Court for review within 30 days.
c. After Filing a Tax Court Petition
Even after a taxpayer files a petition with the Tax Court, the case is typically referred to Appeals for settlement discussions before proceeding to trial. This is often referred to as a "docketed case" because the Tax Court has formally docketed the petition. Appeals Officers assigned to docketed cases have the same settlement authority as in pre-litigation cases, and the vast majority of Tax Court cases settle at this stage.
d. Other Situations
Appeals also has jurisdiction over certain other disputes, including innocent spouse relief determinations, certain penalty assessments, Offer in Compromise rejections, and disputes involving Partnership Representative matters under the centralized partnership audit regime.
IV. The Appeals Process: Step by Step
a. Filing the Protest or Request
To initiate Appeals consideration, the taxpayer must timely file a protest or small case request in response to the IRS's 30-day letter. The protest should be clear, concise, and well-organized. It should state the facts accurately, identify the disputed issues, and cite relevant legal authority. While the protest does not need to be as formal as a Tax Court petition, it sets the tone for the Appeals conference and provides the Appeals Officer with the taxpayer's position and arguments.
b. Case Assignment
Once the protest is filed, the case is assigned to an Appeals Officer (or Settlement Officer, for collection cases). The assignment typically occurs within 30 to 60 days, though resource constraints at Appeals can sometimes result in longer delays. The Appeals Officer receives the administrative case file from the examination or collection function, which includes the revenue agent's report, workpapers, the taxpayer's protest, and any supporting documents submitted during the examination.
c. Initial Contact and Scheduling
The Appeals Officer will contact the taxpayer or the taxpayer's representative to schedule an Appeals conference. This contact is usually by letter, though Appeals has recently begun making initial telephone contact in certain cases, particularly those arising from correspondence examinations or automated underreporter notices. The Appeals Officer will work with the taxpayer to schedule a conference at a mutually convenient time.
d. The Appeals Conference
The Appeals conference is typically conducted by telephone, videoconference, or in person, depending on the complexity of the case and the preferences of the parties. The conference is informal—there are no sworn witnesses, no cross-examination, and no formal rules of evidence. The Appeals Officer will listen to the taxpayer's position, review the documents, and discuss the strengths and weaknesses of both sides.
The taxpayer should come prepared to present the facts clearly, explain any documents, and address the IRS's concerns. The taxpayer should also be prepared to discuss settlement options. Appeals conferences are not adversarial proceedings; they are collaborative discussions aimed at finding common ground.
e. Providing Additional Information
During or after the conference, the Appeals Officer may request additional documents or information to evaluate the case. It is critical that taxpayers provide this information promptly. However, if the taxpayer presents new information that was not provided to the revenue agent during the examination, Appeals may return the case to Examination for further consideration. This is known as a "referral back," and it can significantly delay resolution.
f. Settlement Negotiations
If the case involves factual or legal uncertainties, the Appeals Officer will evaluate the hazards of litigation and discuss potential settlement options with the taxpayer. Settlement negotiations may involve conceding certain issues, agreeing to split disputed adjustments, or compromising on the amount of penalties. The goal is to reach a resolution that both parties can accept based on the relative strengths of their positions.
Settlement authority is broad, but it is not unlimited. Appeals Officers cannot settle cases based solely on the taxpayer's inability to pay, and they cannot compromise cases where there is no genuine legal or factual uncertainty (often called "nuisance settlements"). Appeals also cannot settle contrary to published guidance or Technical Advice Memoranda that are favorable to the taxpayer.
g. Closing the Case
If the parties reach a settlement, the Appeals Officer will prepare a closing agreement or stipulated decision (if the case is docketed in Tax Court). The taxpayer signs the agreement, and the case is closed. If no settlement is reached, the case proceeds—either to issuance of a statutory Notice of Deficiency (if not yet issued) or to trial in Tax Court (if already docketed).
V. Presenting Your Case at Appeals
a. Be Prepared
Preparation is critical. Taxpayers should review the administrative file before the conference, identify the key disputed issues, and organize documents that support their position. Presenting a well-organized, fact-based case significantly improves the chances of a favorable settlement.
b. Focus on Facts and Law
Appeals Officers are interested in the facts and the law, not emotional arguments or complaints about the revenue agent. Taxpayers should focus on what they can prove, what the law requires, and where the IRS's position is weak. Appeals Officers respect taxpayers who present credible evidence and reasonable legal arguments.
c. Be Realistic About Hazards
Taxpayers should objectively assess the strengths and weaknesses of their case. If the IRS has strong evidence and clear legal authority, insisting on full concession is unlikely to succeed. Conversely, if the taxpayer has strong documentation and the law is unsettled, Appeals may be willing to make significant concessions. Understanding the hazards of litigation helps frame realistic settlement proposals.
d. Consider the Cost of Litigation
Even if a taxpayer believes they would ultimately prevail in court, litigation is expensive, time-consuming, and uncertain. Appeals settlements allow taxpayers to resolve disputes with certainty and avoid the costs of trial. In many cases, accepting a reasonable settlement at Appeals is the most prudent business decision.
e. Use Representation Wisely
While taxpayers can represent themselves at Appeals, complex cases often benefit from professional representation. Tax attorneys, CPAs, and enrolled agents who regularly practice before Appeals understand how Appeals Officers think, what arguments are persuasive, and how to negotiate effectively. Representation can significantly improve settlement outcomes.
VI. Alternative Dispute Resolution at Appeals
In addition to traditional Appeals conferences, the IRS offers several alternative dispute resolution (ADR) programs designed to expedite settlement:
a. Fast Track Settlement
Fast Track Settlement (FTS) is available for certain examination cases still under the jurisdiction of Examination. FTS allows taxpayers to request mediation by an Appeals Officer while the case is still being worked by the revenue agent, potentially resolving disputes more quickly than waiting for the standard Appeals process.
b. Post-Appeals Mediation
If settlement discussions at Appeals reach an impasse, taxpayers can request post-Appeals mediation. A neutral mediator (often an Appeals Officer not involved in the case) facilitates further settlement discussions. Mediation is non-binding, and either party can withdraw at any time.
c. Arbitration
For certain factual disputes, the IRS offers binding arbitration. Arbitration is rare and typically used only for narrow, well-defined factual issues where both parties agree to be bound by the arbitrator's decision.
VII. What Appeals Cannot Do
While Appeals has broad settlement authority, there are important limitations:
Appeals cannot accept Offers in Compromise solely on the basis of doubt as to liability. Those offers must be handled by Examination or Collection, not Appeals.
Appeals cannot settle cases contrary to published IRS guidance or contrary to Technical Advice Memoranda that favor the taxpayer.
Appeals cannot compromise cases where there is no genuine dispute about the facts or the law. Taxpayers cannot settle simply because they cannot afford to pay.
Appeals cannot consider arguments based on constitutional, moral, religious, or political objections to the tax laws. Such arguments are not valid grounds for settlement.
Appeals generally will not consider new issues that were not raised during the examination unless there is a legal basis for doing so.
VIII. Statistics and Outcomes
According to the National Taxpayer Advocate's 2024 Annual Report to Congress, approximately 80 percent of Tax Court cases are resolved through settlement, and only 1 to 2 percent proceed to trial. The majority of these settlements occur at Appeals. In fiscal year 2024, Appeals handled over 130,000 cases, with approximately 41 percent resolved in favor of taxpayers either fully or partially.
These statistics underscore the importance of Appeals as the primary settlement forum for tax disputes. Taxpayers who engage meaningfully with the Appeals process have a strong likelihood of achieving a negotiated resolution that avoids the time, cost, and risk of litigation.
IX. Recent Developments and Changes
a. Final Regulations (January 2025)
The final regulations issued on January 15, 2025, clarify several important aspects of Appeals jurisdiction and procedures. Among other things, the regulations confirm that Appeals consideration is generally available to all taxpayers, but they also identify certain exceptions—such as cases involving frivolous positions or cases where the taxpayer has not met prerequisite procedural requirements.
b. Expansion of Video Conferencing
Appeals has significantly expanded access to video conferencing for Appeals conferences, making it easier for taxpayers and representatives to participate remotely. This has been particularly beneficial for taxpayers in rural areas or those with scheduling constraints.
c. Emphasis on Timeliness
Appeals has placed increased emphasis on timely resolution of cases. While Appeals Officers strive to contact taxpayers within 30 days of receiving a case, resource constraints have led to some delays. Taxpayers should follow up if an unreasonable amount of time has passed without contact from Appeals.
X. Conclusion
The IRS Independent Office of Appeals is the linchpin of the federal tax dispute resolution system. It provides taxpayers with an opportunity to resolve controversies through reasoned negotiation and compromise, avoiding the expense, delay, and uncertainty of litigation. Understanding how Appeals works—its independence, its settlement authority, its evaluation of hazards of litigation—is essential for anyone navigating a tax dispute.
For taxpayers, the key to success at Appeals is preparation, credibility, and realism. Present the facts clearly, support your position with documentation, acknowledge weaknesses where they exist, and be open to reasonable compromise. For most taxpayers, a well-prepared case at Appeals offers the best chance of achieving a fair resolution without the need for a courtroom battle.
Appeals is not a rubber stamp for the IRS's original determination, nor is it a forum for taxpayers to avoid legitimate tax liabilities. It is, instead, a place where both sides can step back, evaluate the merits objectively, and find common ground. When approached thoughtfully and strategically, Appeals can transform a contentious dispute into a negotiated settlement that both parties can accept.
