Whether from the IRS or state taxing authorities, auditors have little discretion and flexibility on anything that is unclear, and will typically resolve ambiguities against the taxpayer. IRS appeals officers and state administrative judges, however, have greater discretion and will take into account the hazards of a court battle. As such, many tax disputes can be resolved at the administrative level.
However, to successfully win an administrative appeal, taxpayers must be informed and willing to act. Taxpayers generally appeal a tax ruling after completing a tax audit in which the ruling was unfavorable to them. With the assistance of a professional, these taxpayers can appeal the decision by submitting a protest letter proposing an adjustment. The protest letter should demonstrate why litigating the issue would be costly to government resources by detailing the facts and legal arguments of the case. If sufficiently persuasive, the issue can be resolved at the administrative level, thereby saving the taxpayer and the government valuable resources