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You have a case before the IRS and are going to meet with the IRS to attempt to settle the case. The main concept that you have to understand when arguing a case before the IRS is that your position has to be supported by substantial legal authority. Your friendly tax guide that you paid money for will not satisfy this requirement. Moreover, the tax guide that your tax professional used to prepare your tax return will not satisfy this requirement either. You will have to use the IRS Code, Treasury Regulations, Case Law, and IRS pronouncements (although not considered legal authority, just the IRS's interpretation of legal authority) to substantiate your tax position. You can go online to the IRS's web site or utilize some of the links on my homepage to find sources where you can access this information for free. The higher you go up the IRS administrative ladder, the more knowledgeable the IRS employees are going to be and the better your chances of success. I would definitely utilize the IRS appeals process to settle your case if you do not believe your encounter with the revenue agent was within the guidelines of the law. If you owe under $50,000, you may even want to go to Tax Court under the small case program, where the courtroom rules have been relaxed to benefit taxpayers desiring to challenge the IRS in court.
You should be aware that once you have received the statutory notice of deficiency officially notifying you of the tax assessment, you have only 90 days to file the petition in tax court. Once the tax court petition is filed, and if you have not argued the assessment before the IRS Office of Appeals, your case will automatically be assigned to Appeals before continuing to tax court for trial. This is a little known secret that allows you to settle your case before Appeals without an attorney. Additionally, the Appeals officer must consider the hazards and costs of litigation when making their decision.
I, therefore, believe that you have a much better chance of settling your case
with the IRS in this matter. File the tax court petition under the small case program and worry about going to court later. You may even be able to represent yourself in Court, because the courtroom procedures have been relaxed somewhat.
Nota Bene: Read this IRS Notice before filing a tax court petition, basing your case on frivolous legal arguments.
See Notice 2007-30