Overview
Recent changes within the IRS Office of Appeals (Appeals) have resulted in clarifications and modifications to IRS Appeals policy. Other proposed changes could cause delays and make the process more difficult for taxpayers. This article examines these changes and their potential impact on the resolution of taxpayer cases.
The IRS has made several changes to the Internal Revenue Manual (IRM) regarding Appeals conference procedures, IRM 8.6.1. These changes became effective at the beginning of this month. Under one of these new procedures, most Appeals conferences will be conducted telephonically as opposed to in person, as was common previously. A taxpayer may still request an in-person conference, but the request must be approved by the Appeals team manager. The IRM provides that in-person conferences should be limited to certain situations, such as when there are substantial books and records to be reviewed that cannot be referenced easily. The apparent purpose of the change was to address concerns that requests for in-person conferences sometimes were intended to get the case reassigned to a field employee who may be less-skilled or more taxpayer-favorable. As a result, however, what was once an important and standard part of the Appeals process will be relegated to a phone call. Rob Kovacev, a partner in Steptoe’s Washington office commented: “the success of the Appeals process in resolving many controversies rested on the fact that a taxpayer could have a face-to-face discussion with the decision maker to explain its position and negotiate a settlement. These proposed changes weaken those advantages and may well force taxpayers to litigate cases that could have been resolved under the old Appeals rules.”
In addition, the updates to IRM 8.6.1.4.4 now allow Appeals to invite IRS Chief Counsel and/or Compliance (which includes Examination, Collections, and Accounts Management) to the Appeals conference. Appeals is intended as a review of the assessment of Compliance, and allowing Compliance to be present during the Appeals conference could upset the dynamic of the discussion between the taxpayer and Appeals. The IRM does note that even if Compliance and IRS Chief Counsel may be present for the conference, the prohibition against ex parte communications must not be violated. Thus, Appeals still may not communicate with IRS Chief Counsel or Compliance without the taxpayer also being present.
IRS Appeals announced that it reorganized its structure to rebalance after decreases in staffing. Appeals’ staffing decreased nearly 21% between fiscal years 2012 and 2015. The two geographic field operations – one specialty operation and one campus operation – have been replaced with three newly created functions: one for collection, one for examination, and one for specialized examination programs and referrals. The Collection Appeals function resolves cases involving collection due process, offer in compromise, trust fund recovery penalties, jeopardy levies, and Collection Appeals Program (CAP) cases. The Examination Appeals function resolves general docketed and non-docketed cases generated from the IRS examination functions. The Specialized Examination Programs and Referrals function resolves a variety of specialized programs such as international issues, tax computations, innocent spouse, the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), and penalty appeals. A fourth function, Case and Operations Support Function, covers all support operations.
As another update, the IRS clarified appeals policies relating to docketed cases. In recent years, Appeals has initiated independence projects to ensure that its policies and practices are consistent with its mission. The Appeals Judicial Approach and Culture (AJAC) project began in 2012 and resulted in a series of policy clarifications primarily for non-docketed cases. The latest policy changes result from the Docketed Examination Assistance (DEA) project, which was initiated to ensure that Examination cases docketed in the US Tax Court receive consistent treatment. The fact sheet states that these changes are to clarify that IRS Compliance functions are the finders of fact and Appeals does not take investigative actions. For example, Appeals will retain jurisdiction of docketed cases when a taxpayer submits new information or raises a new issue that merits investigation but will request fact-finding assistance from Examination. If Examination does not provide assistance, Appeals will attempt to settle cases based on factual hazards.
While these changes may alter the dynamics of the Appeals process, in potentially problematic ways for taxpayers, the IRS appears to still be considering a further change that could have even worse impacts on the Appeals process. Recently, the IRS has been widely reported to be considering a change to IRS Appeals’ settlement procedure to shift authority to settle cases away from Appeals Team Case Leaders (ATCLs) to their managers. This move was suggested in response to a report issued last year by the Treasury Inspector General for Tax Administration suggesting that some penalty appeals settlements did not comply with Appeals’ criteria. While this move is aimed at ensuring that Appeals’ decisions are adequately supported, it seems misguided given that there are often multiple Appeals officers handling a case, thus making it unlikely that one officer will make an unsubstantiated decision. In addition, it would take decision-making ability away from the person most familiar with the facts of the case. Finally, the move to require all settlements to be decided by one of about a half-dozen Appeals managers nationwide could create a backlog and divert taxpayers out of the Appeals process and into litigation. At this time, IRS Appeals is still considering whether to implement this change to settlement authority.
