How it works
Appeals is a division separate from examination and collection. Its officers resolve disputes by weighing the hazards of litigation for both sides, which means they can settle a case for less than the full proposed amount when the law or facts are uncertain. An auditor cannot do that. Most audit disputes, penalty denials, and collection actions can be appealed, usually within 30 days of the relevant letter, by written protest.
Why it matters
Appeals conferences are informal and confidential, and the majority of cases that reach Appeals settle there. Skipping Appeals and going straight to Tax Court gives up a settlement forum, though a petitioned case is usually sent to Appeals anyway.
Example
An examiner disallows a 40,000 dollar crypto theft loss. On appeal, the officer recognizes that the documentation supports a profit motive and the IRS’s own 2025 guidance, and settles the issue at 85 percent of the deduction.
Related: Letter 525, Collection Due Process hearing.
