1. The Beginning: an Audit
The Internal Revenue Service must assess a tax before it can proceed to collect the tax. Usually, before proposing a deficiency, the IRS conducts an audit. 

2. The 30-Day Letter
If the IRS auditor determines that additional tax is due, a 30-day letter will be issued. The 30-day letter informs the taxpayer of the amount and basis of the proposed deficiency. The taxpayer has 30 days from the date of the letter to request a conference with an appeals officer of the IRS Appeals Division.

The 30-day letter contains the instructions on how to appeal. Unfortunately, this step is often overlooked or not properly followed.

3. The Appeals Process
The major function of the Appeals Division is to determine whether there is a basis for settlement of a tax dispute. This is the place where most cases are settled. Our experience is that the appeals officers are highly knowledgeable in the applicable area. More than 90% of tax disputes are settled at appeals, which is why it is a very important step in your tax controversy.
The Appeals Division has authority to determine tax liabilities and associated penalties for income, estate, and gift taxes, along with several others, including those that are and are not subject to the statutory notice of deficiency procedures.

If an appeals conference is requested and the taxpayer fails to agree to a proposed deficiency determined by the appeals officer, then the Appeals Division will issue the 90-day letter. 
Also, if the taxpayer fails to request an appeals conference, a 90-day letter is issued.

4. The 90-Day Letter
Although the procedures described above are not mandatory, the 90-day letter is. The IRS can simply determine a deficiency and send a 90-day letter without first sending a 30-day letter or offering a conference with appeals.

After failing to reach a settlement at appeals, or failing to respond to a 30-day letter, a 90-day letter is issued. In essence, the 90-day letter, also known as a Statutory Deficiency Notice, advises that you must petition the tax court or bring an action in the appropriate district court. 
If you do not appropriately respond to a 90-day letter, you will have defaulted and the tax year in question will be forwarded to collections. You now owe the amount disputed shown on the 90-day letter.

5. Collections
Failure to respond to the 90-day letter will result in your tax matter being handed over to collections. Basically, you now owe the tax due on the deficiency notice. To make matters worse, by the time the matter is handed over to collections, a large amount in penalties and interest will also be owed. 
Oftentimes, a taxpayer responds to IRS notices by writing to the incorrect agency. We recall an incident where a taxpayer's accountant responded to a 90-day letter by writing to the original appeals officer. Not only was this fruitless, but the matter was handed over to collections.
Once a matter is in collections, the tax year must be reopened. If a tax year is already in collections, you should contact a tax professional.

6. District Counsel: Attorneys for the Government
District Counsel represent the Government at tax court. Once a 90-day letter is properly responded to, by petitioning the Tax Court, your case is docketed and assigned to District Counsel.

Many cases settle with District Counsel. Oftentimes, District Counsel will bring in an Appeals Officer to try to settle the case.

As at the Appeals Division, cases are seldom settled on nuisance value, or for raw dollar amounts. Instead, cases are settled on the expected trial outcome based on factual issues. 

7. Tax Court

After receiving the 90-day letter, the taxpayer can petition the Tax Court to decide the matter. Unfortunately, many accountants and lawyers are not familiar with tax controversy procedure and do not respond in the correct manner to the 90-day letter. When this occurs, your file is placed in collections.

Another common misconception is that the assessed tax has to be paid in full in order to petition the Tax Court. A taxpayer never has to pay any portion of the tax liability before petitioning the Tax Court!

8. Should I Hire an Attorney or an Accountant?

It is important to hire a competent representative in light of the situation. In this case, a tax lawyer admitted to the U.S. Tax Court is the only realistic choice. The procedures are complex and only a person proficient in this area should be retained. The most important thing is to get legal advice immediately if you suspect trouble.