Abstract The decision to appeal an IRS determination in the courts is well-suited for formal quantitative analysis techniques. Specifically, conditional probability analysis and net present value models can be combined to provide the taxpayer with a framework to analyze the appeal decision and compare expected results with other alternative uses of the funds necessary to appeal the issue. In addition, the framework can be quite useful in performing sensitivity analysis to determine the magnitude of changes in expected final settlements due to changes in certain variables. This article presents the development of decision models based upon this analysis and a specific application of the models to display their usefulness in helping to reduce the uncertainty associated with the appeal decision. Overall, the application of this framework to the taxpayer appeal decision appears to be very fruitful and enhances the taxpayer's decision-making ability.
Porcano et al. (Fri,) studied this question.