A client opens an envelope from the IRS and finds a 30-day letter proposing $42,000 in additional tax. She has three paths: pay, sign and concede, or file a written protest with the Independent Office of Appeals. Pick the wrong path and the next envelope is a 90-day letter, the statutory notice of deficiency, with a hard deadline and no extensions.
Due process requires the IRS to disclose proposed adjustments in writing so the taxpayer can challenge them on the same record the agency built. That is why every examination ends with a formal report rather than a verbal demand. After an examination, the Revenue Agent (RA) issues a Revenue Agent's Report (RAR) on Form 4549 detailing proposed adjustments. The agent then sends a 30-day letter (Letter 525 for individuals, Letter 950 for businesses), which transmits the RAR and offers three choices:
- Agree by signing Form 870 (Waiver of Restrictions on Assessment and Collection of Deficiency)
- Pay the proposed deficiency
Common mistakes
- Treating the 90-day deadline as flexible. The 90/150-day petition window is jurisdictional. Tax Court cannot extend it for illness, postal delay, or representative error. Trap answer: "request a 30-day extension to file the Tax Court petition."
- Filing the protest directly with Appeals. Protests go to the issuing office (Examination), which then forwards to Appeals. Filing with Appeals directly delays processing. Trap answer: "mail the protest to the Independent Office of Appeals."
- Using Form 12203 above the $25,000 threshold. Small case request is for $25,000 or less per tax period. A $30,000 dispute requires a formal written protest with all Pub 5 elements. Trap answer: "Form 12203 works for any amount under $50,000."
Bottom line
- 30-day letter (Letter 525/950): transmits the Revenue Agent's Report; taxpayer has 30 days to agree, pay, or request Appeals
- Formal written protest required if disputed amount per tax period exceeds $25,000; small case request (Form 12203) if $25,000 or less
- Formal protest must include name/address, Appeals request, copy of the 30-day letter, tax periods, list of changes, facts, law, and a penalties-of-perjury declaration
- Appeals is independent of Examination; settles on hazards-of-litigation basis, an authority the Revenue Agent lacks
Exam shortcut
$25,000 line. Above the line, formal protest with all 8 elements. At or below, Form 12203 small case request. 30 / 90 / 150. 30 days to request Appeals from a 30-day letter. 90 days to petition Tax Court (150 if the notice is addressed outside the US). All counted from the date on the letter, not the date received. 870 vs. 870-AD.
The full lesson (about 3,168 words, 21 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- 4
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