Tax Law Sec. 535 Chapter 8 (Starting a business)

Your terminology and understanding of that terminology appears to be flawed. Correct terminology and correct interpretation is extremely important and vital when dealing with things in a text based communications media such as this forum. So please indulge me while I clarify so that hopefully, I can provide you useful feedback.

"Those expenses are amortized (they depreciate over the years). "

That's a contradictory statement. Assets are capitalized and depreciated over time. Start-up expenses are amortized and deducted over time.

An amortized expense is deducted, permanently and forever.

A capitalized asset is depreciated over time, and that depreciation is recaptured and taxed in the year you sell or otherwise dispose of that physical asset.

Generally an expense incurred prior to being "open for business" is amortized and deducted. This expense is generally for a non-physical item that you can't see, touch or hold. For example, if you paid $500 for a business license to operate legally in your locale, you had to pay that fee before you could officially "open for business". That $500 fee just made you legal to open. You don't have anything physical that you received in exchange for that fee. This is referred to as an "intangible asset", and this type of expense if incurred prior to opening the business, is a start-up expense that get's amortized and deducted over time.

Now, if you had to go out and pay rent for a building to operating your business out of, you are paying for a physical asset - the building. But lets say you paid the first months rent on Apr 1 for that month of April. Then you were officially "open for business" on May 1st which is when you paid the may rent. In this scenario, all rents paid would be deductible in the business expenses section as rents paid; provided of course your business was officially open in the same tax year you started paying that rent on the building.

Then lets say you paid money for a "build out" in the building you rented. You had a contractor come and put up walls in this building you are renting and don't own, so that you could have your own separate private office in the building. Whatever you paid for those walls is capitalized and depreciated over time, because you paid for a physical asset that you can physically see and touch. In this particular scenario your build-out cost would be classified as a leasehold asset and the cost of it would be depreciated over 15 years.

"do I have grounds to file a formal appeal disputing the IRS audit findings/additional tax bill?"

Nope, not if you did "in fact" amortize an expense that should have been capitalized, or vice-versa.

As the others have stated, your statement is vague as to the type of expenses and the reasons why they were disallowed. 

Was this a correspondence audit?   Face to face audit?

Why were the expenses disallowed....should have been capitalized and amortized?   Lack of substantiation (receipts, records, etc.)?  Expenses more personal in nature than business?

Whether it was a correspondence audit or face to face (but especially face to face), there should have been reasons/explanations given for each category of expense(s) that was disallowed.   When I was auditing for IRS, that was a specific requirement that I had to do; and I did so in detail.

For the people in this forum to give advice, there needs to be more details.