This article originally appeared in NYS Society of CPA’s Nassau Chapter Newsletter October 2017.
The Internal Revenue Service Office of Appeals (“Appeals”) is an independent organization within the IRS. It is intended to be fair, impartial, and objective. One goal of Appeals is to settle as many cases as possible without going to the United States Tax Court. According to the IRS, the issues of over 100,000 taxpayers are heard by Appeals each year.
Due to budget constraints, the IRS recently decided to cut back on face-to-face conferences with taxpayers at Appeals. There has been considerable pushback on this issue from tax professional groups. According to the National Taxpayer Advocate, limiting face-to-face meetings will increase rather than reduce costs overall for the IRS. In-person conferences are often influential in reaching a resolution. With fewer cases settled at Appeals, additional taxpayers will pursue litigation, at a higher expense to the taxpayer and the IRS. In September 2017, it was announced that in-person conferences will again be available for taxpayers upon request.
Tax practitioners should be aware of the opportunities and limitations of working with Appeals. It may be helpful to look at some of the current procedures.
Thirty-Day Letter: In the field examination context, when the auditor and the taxpayer disagree, the first step should be to request a conference with the auditor’s manager. If that is unsuccessful, the auditor may issue a Revenue Agent Report (RAR) with a cover letter allowing thirty days to file a formal written protest. Known informally as a “30-day letter,” it provides the taxpayer with the opportunity to challenge the auditor’s adjustments at Appeals. This is distinct from the subsequent “90-day letter” which is the Statutory Notice of Deficiency, providing the right to file a Petition in U. S. Tax Court.
There are certain required elements in the formal protest to Appeals, such as attaching the document with the proposed changes, listing the reasons for disagreement, and stating the facts and law to support the taxpayer’s position. The protest must be signed under penalties of perjury.
AJAC: The Appeals Judicial Approach and Culture (AJAC) Project has clarified Appeals policies. The role of Appeals is not to investigate, but to settle disputes. The Appeals Officer generally does not raise new issues or reopen issues where the taxpayer and the auditor have come to an agreement. If the taxpayer submits new information or evidence, the matter may be sent back to audit to be developed further.
Video Conference: In July, 2017, the IRS announced that it was starting a pilot program for virtual web-based video conferences for taxpayers and their representatives. It remains to be seen whether a video conference can achieve the same results as in-person attendance.
Early Referral and FTS: The Office of Appeals can assist in other ways. The Early Referral program allows a taxpayer to request a problematic issue to be heard at Appeals, while the rest of the audit continues with the auditor. Fast Track Settlement utilizes a specially trained Appeals Officer as a mediator between the auditor and the taxpayer, with a goal of an expedited settlement in sixty days. Although FTS is not a new program, recently it has become more widely available for Small Business/Self-Employed audits.
Conclusion: The right to an appeal in an independent forum is guaranteed by the Taxpayer Bill of Rights. As tax professionals, we need to know and understand administrative appeals, so we can take action when appropriate to do so on behalf of our clients.