4-1 Journal CostBenefit Analysis and Factors Influencing an Appeal

Running Head: APPEAL 1

APPEAL 2

While making the decision to appeal a proposed tax adjustment made by the Internal

Revenue Service (IRS), it is necessary to carry out a thorough cost-benefit analysis. A diverse

range of factors have to be taken into consideration so that the appeal can be justified.

Role of materiality and CPA/ legal fees

Two chief elements that must be taken into consideration while deciding to appeal the

decision of the IRS include materiality and fees that are charged by Certified Professional

Accountants or legal professionals (Brackney, 2019). The fee amount may be extremely high

if they charge the client on an hourly basis. There are some professionals who charge

15,000 and the firm’s revenue is $ 50,000, it might be regarded as material, whereas if the

amount is $ 15,000 and the firm’s revenue is $ 500,000, it might be regarded as immaterial.

Impact of cost benefit analysis on decision to appeal

A rigorous cost-benefit analysis should be carried out while deciding whether an

appeal has to be filed or not. A taxpayer may decide to appeal without taking the assistance of

a tax professional as it would not give rise to any cost. However, a tax professional has a

thorough understanding of the Internal Revenue Service and how taxation rules work. Hence

by seeking professional help, there is a better chance to determine whether appealing the

decision of the IRS is a viable and feasible option or not. It is advisable for a taxpayer to have

a representative. For instance, a professional can use his knowledge and expertise in the area

APPEAL 3

Most important factor

From the perspective of a tax practitioner, the most important factor while appealing

supported by any existing laws, regulations, etc, then a tax professional should not take the

case forward for appeal purpose. Similarly, from the perspective of a client or taxpayer, the

most important factor is performing a cost-benefit analysis. If the adjustment value, penalty,

and interest together are lower than the fee of the appeal, it is more financially feasible for the

taxpayer to make the payment instead of hiring a tax professional for making the appeal. It is

(Taxpayer Advocate Service – IRS, 2023). It implies that if the Appeals officer believes that

the hazards of litigation is more than 80 %, the issue should be concealed. The taxpayer has the

option to file a petition in the U.S. Tax Court is the Appeals officer is unable to reach a

settlement. However, the taxpayer has to show in the court of law the erroneous aspect of the

assessment. The Appeals officers are given training not to lose in legal matters. In case the

Appeals officer wishes to settle for a value that is lower than 50 %, then the case of the

taxpayer is strong. If the client’s case is stronger than the IRS, the client can be advised to

proceed with the appeal. a

Impact of changing circumstances

The circumstances may change, which may impact the factor which is considered to be

APPEAL 4

Service while making the adjustment assessment, then the legal fee may not be the most

critical factor for the taxpayer. In this case, the taxpayer should not make an appeal to make

unnecessary delay to make payment of the deficiency. The payment plan by IRS can be used

in order to make payments by the taxpayer to clear the deficiency. Form 9465, which is an

Instalment Agreement Request has to be filed by an individual taxpayer (Internal Revenue

Service, n.d.). If payment is over $ 50,000 then the taxpayer must complete Form 9465,

whereas if payment is below $ 50,000, it can be paid online.

Reference