Daily Tax Update - February 15, 2012: IRS Issues Rev. Proc. 2012-18 Regarding Ex Parte Communications between Appeals and Other IRS Employee

IRS ISSUES RE. PROC. 2012-18 REGARDING EX PARTE COMMUNICATIONS BETWEEN APPEALS AND OTHER IRS EMPLOYEES:  Today, the IRS issued Rev. Proc. 2012-18 addressing ex parte communications between Appeals and other IRS employees.  Ex parte communications refer to communications that take place without the taxpayer or taxpayer representative being given an opportunity to participate in the communication.  The procedures are designed to ensure the independence of the Appeals and preserve the role of Appeals as a flexible administrative settlement authority.  The IRS previously issued the revenue procedure in proposed form in Notice 2011-62.  Rev. Proc. 2012-18 updates and modifies Rev. Proc. 2000-43 and includes suggested changes received by the IRS following the issuance of Notice 2011-62.  Some of the notable changes include:

  • The section of the revenue procedure addressing remedies now states that the ex parte communication rules do not create substantive rights affecting the taxpayer’s tax liability or the IRS’ ability to determine that tax liability.  The section provides that upon a breach of the ex parte rules, Appeals shall notify the taxpayer of the breach and request taxpayer input regarding the appropriate remedy, with a second-level manager serving as the final agency decision maker regarding the remedy.
  • The revenue procedure clarifies that if an agreement cannot be reached with a taxpayer regarding a mutually acceptable date and time for a discussion or meeting, Appeals should (i) notify the taxpayer of the date and time of the discussion or meeting, (ii) share with the taxpayer the substance of the discussion or meeting after it occurs and (iii) provide the taxpayer a reasonable period of time to respond to the substance of the discussion.
  • The revenue procedure allows Appeals to work collaboratively with other IRS functions in developing settlement initiatives by providing input to the other functions in generic discussions of issues and transactions.
  • In keeping with the rule that the ex parte rules are not applicable to communications between Appeals and Counsel with respect to cases docketed in Tax Court, the section regarding remand memoranda in collection due process cases has removed the prohibition on including legal analysis or legal advice in such memoranda. 
  • The revenue procedure provides that Appeals will no longer participate on issue management teams , but can be briefed by such teams as long as the discussion remains generic rather than case-specific.
  • Additionally, the revenue procedure (i) provides guiding principles to aid in understanding the overall approach in applying the ex parte communication rules, (ii) clarifies the permissible content of transmittal memorandums and the administrative file and (iii) addresses application of the ex parte communication rules to collection due process cases and alternative dispute resolution proceedings. 
  • Rev. Proc. 2012-18 is effective for communications between Appeals employees and other IRS employees occurring after May 15, 2012. 
  • Additional information can be accessed here and here.
  • For additional information, contact: J. Walker Johnson  - wjohnson@steptoe.com, Matthew D. Lerner - mlerner@steptoe.comGregory N. Kidder - gkidder@steptoe.com, or Philip R. West - pwest@steptoe.com

TENTATIVE AGREEMENT REACHED ON PAYROLL TAX CUT:  House and Senate conferees have reached a tentative "framework" to extend the payroll tax cut, extend unemployment benefits, and fix Medicare doctors’ payments.  House Republicans backed away from requesting that the payroll tax bill be fully paid for.  The deal, according to sources, would extend the two-percentage point payroll tax cut through the end of 2012 without offsetting its roughly $100 billion cost.

  • House Majority Leader Eric Cantor said that there will not be any extenders included in the bill.
  • House Ways and Means Chairman Dave Camp said, "We still have some outstanding items, but ... we’re very close to completing them."
  • Senate Majority Leader Harry Reid said, "It’s pretty clear, at least to me, that the payroll tax is going to pass.  I’m hopeful and cautiously optimistic that the House will work with us so that the conference can be completed to include that."  Reid added, "So I’m not going to get into hypotheticals to what happens, but right now, we’re awaiting to see what we get from the House, and then we’ll decide what we have to do in the foreseeable future after that."
  • Today, House Speaker John Boehner said that if the agreement is finalized he expects a vote this week.  Congress is not in session next week for Presidents’ Day recess.  Boehner said, "If the agreement proceeds, I do expect the House to vote this week.  Conversations are ongoing, but I hope they'll be wrapped up today."

MISCELLANEOUS GUIDANCE RELEASED:

Revenue Procedure 2012-16 provides guidance with respect to the United States and area median gross income figures that are to be used by issuers of qualified mortgage bonds, as defined in § 143(a) of the Internal Revenue Code, and issuers of mortgage credit certificates, as defined in § 25(c), in computing the housing cost/income ratio described in § 143(f)(5).

TAX BILL INTRODUCED FEBRUARY 14TH:

H.R.4016: To amend the Internal Revenue Code of 1986 to provide for the proper tax treatment of personal service income earned in pass-thru entities.
Sponsor: Rep Levin, Sander M. [MI-12] (introduced 2/14/2012)      Cosponsors (1)
Latest Major Action: 2/14/2012 Referred to House committee. Status: Referred to the House Committee on Ways and Means.

INTERNAL REVENUE SERVICE - CIRCULAR 230 DISCLOSURE:
As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

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