IRS Appeals New Faces, New Challenges

Transcription

1 TEI s 68 th Midyear Conference IRS Appeals New Faces, New Challenges Brian Kaufman, Capital One Financial Corporation (moderator) Patti Burquest, RSM US LLP Alex Sadler, Morgan, Lewis & Bockius LLP Susan Seabrook, Eversheds Sutherland LLP

2 Resolving Disputes in Appeals Begins with Exam s submission of the taxpayer s protest of the RAR and Exam s rebuttal to the protest Consideration independent of Exam o The mission of Appeals is to resolve tax controversies, without litigation, on a basis which is fair and impartial to both the Government and the taxpayer and in a manner that will enhance voluntary compliance and public confidence in the integrity and efficiency of the Service. o Ex parte communications between Appeals officers and other IRS employees prohibited to the extent that such communications appear to compromise the independence of the Appeals officers Unlike Exam, Appeals is authorized to consider litigating hazards Has historically demonstrated willingness to materially reduce Exam adjustments on certain issues 2

3 Appeals Organizational Chart 3

4 Appeals Judicial Approach and Culture Project (AJAC) Aimed to return Appeals to a more quasi-judicial approach in handling cases o See IRM and Appeals Policy Statements 8-2 & 8-3 Appeals will not raise new issues not considered by Exam or reopen previously agreed issues o Taxpayer-friendly principle; negates risk that taxpayer could end up worse off in Appeals than with Exam o But principle does not prevent Appeals from considering new legal theories or alternative arguments in support of an existing position 4

5 Appeals Judicial Approach and Culture Project (AJAC) (Cont d) Appeals will no longer return underdeveloped cases to Exam but will instead attempt to settle them based on factual hazards But Appeals will return a case to Exam if the taxpayer raises a new issue or provides new information o A new issue is a matter not raised during Compliance's consideration Effectively laid the groundwork for the Acknowledgement of Facts IDR 5

6 Recent Realignment of Appeals Recently, Appeals has undergone numerous practice changes that, in the opinion of some, frustrate Appeals historic purpose of settling tax controversies administratively. The changes include changes to: Appeals team cases conferencing initiative; Conference practices; Compliance and Counsel participation in settlement conferences; Informal issue coordination in Appeals; Appeals Team Case Leader (ATCL) settlement authority; and Appeals jurisdiction in docketed cases. 6

7 Recent Realignment of Appeals (Cont d) Numerous organizations have weighed on the recent changes. The Taxpayer Advocate Service s 2016 Annual Report to Congress stated that changes were impacting taxpayer rights to: o Challenge the IRS s position and be heard; o Appeal an IRS decision in an independent forum; o Privacy; and o A fair and just tax system. The ABA Section of Taxation provided comments and similarly expressed concern that several changes may decrease taxpayer access to settlement conferences and case resolution. 7

8 Appeals Team Cases Conferencing Initiative Expectations call with taxpayer and representatives, Exam, and Appeals o Sets vision for conference, addresses administrative matters, and expectations for conduct of conference o Conveyed that resolution expected at first conference Followed by expectations letter o New arguments and facts to be provided to Appeals and shared with other side at least 45 days in advance o Responses to any questions by Appeals must be answered within 2 weeks of the conference Exam is invited and expected to stay through the taxpayer s presentation up to the point when settlement discussions end o If the taxpayer agrees, Exam may stay longer and Appeals will use mediation techniques 8

9 Participation in Appeals Conferences by IRS Employees Appeals has the discretion to invite Counsel and/or Compliance to the conference. The prohibition against ex parte communications must not be violated. See Rev. Proc Appeals may also request that other experts attend conferences. IRM ( ) Perceived benefits o Ensures that Appeals understands Exam s position o Allows Appeals to test Exam s credibility o Everyone in the same room Perceived downsides o Potential for disruption and interference o Hinders settlement process o Slows down the conference o Increases cost 9

10 Face-to-Face Conferences IRM updated in October 2016 to default to telephone conferences and offer virtual delivery services (VDS) conference if available o IRM ( ) ( Except as set forth below, hold conferences by telephone. ) IRS rationale: resources, costs, faster resolution, consistency Significant objections: impeded right to fair and impartial hearing 10

11 Face-to-Face Conferences Recent developments o In September 2017, the IRS announced moving back to in-person Appeals conferences o In October 2017, the IRS issued a memo for Appeals employees stating that for field cases, if a taxpayer requests an in-person conference, Appeals will use its best efforts to schedule an in-person conference on a date and at a location that is reasonably convenient for the taxpayer and Appeals. Can still be limited by resource constraints Campus cases can t currently accommodate in-person conferences more expected soon on this issue o Appeals currently piloting virtual conferences 11

12 Informal Issue Coordination Taxpayers and practitioners have encountered Appeals officers and ATCLs attempting to be consistent on certain issues o Not done pursuant to any formal guidance o Rather appears coordination occurring at management level Consequences o Increased consistency among similarly situated taxpayers o But removes discretion from Appeals officers and ATCLs o Material differences between taxpayers may be disregarded o No transparency concerning the coordination 12

13 ATCL Settlement Authority There was concern that ATCL settlement authority provided the ATCL job description in IRM ( ) would be limited or removed However, these concerns did not bear out; settlement authority remains with the ATCLs o However, Appeals has revised its procedures to make clear that a manager must review a case and approve the settlement prior to finalizing the settlement. Interim Guidance Control No.: AP (Jan. 12, 2017) o Creates potential for consistency but also delays and frustrated settlements Other required coordination Appeals settlements, including by an ATCL, are subject to review and concurrence by the Technical Specialist if the settlement includes Appeals Coordinated Issues. Informally, there are Subject Matter Experts, and it appears to be the policy that they be consulted. 13

14 Appeals Jurisdiction in Docketed Cases Rev. Proc updates Appeals procedures for cases docketed in Tax Court o Generally, there is an automatic referral to Appeals if case not previously considered and taxpayer agrees When a docketed case is forwarded to Appeals, Appeals has sole authority to resolve the case until it is returned to Counsel o However, IRS Counsel has discretion to retain case Appeals may be denied for cases designated for litigation there are procedures to avoid such designation New provision: Appeals may be denied in cases where not in interest of sound tax administration some concern this may be applied to deny access to Appeals more frequently 14

15 Taxpayer-Adverse Guidance in Appeals Generally, if an IRS position (i.e., revenue ruling, TAM, etc.) is adverse to the taxpayer, Appeals may nevertheless concede the issue based on litigating hazards. IRM (2). o However, Appeals will not settle cases contrary to a National Office ruling on an issue that a court reviews under an abuse-of-discretion standard (e.g., a taxpayer s application for an advance (non-automatic) consent change in accounting method). IRM (2) and o Appeals also will not settle cases contrary to a National Office adverse ruling in response to a taxpayer s request for extension of time to request section 9100 relief. IRM Appeals must coordinate with the National Office when a full concession of an issue is recommended and contrary to the IRS position. Taxpayers perspectives: potential for expansive scope, contrary to Appeals purpose, and undercuts Appeals independence 15

16 What About Penalty Appeals? Delinquency penalties First Time Abate or Reasonable Cause? FTA phone Reasonable Cause respond to penalty notice in writing with request for abatement If denied, appeal to the Penalty Appeals Coordinator (PAC) and add a request for a transfer to Appeals if the PAC does not abate Request face-to-face Appeals conference For assessed penalties other than under section 6651, 6654 or 6655, request documentation of manager approval of the assessment. Chai v. Comm r, 851 F.3d 190 (2d Cir 2017) aff g in part, rev g in part T.C. Memo and Graev v. Comm r, 149 T.C. No. 23 (2017). Accuracy-related penalties Include in written protest highlighting authority supporting return position Consider ADR approaches 16

17 Alternatives to Traditional Appeals Early referral (Rev. Proc ) o Appeals takes jurisdiction; other issues remain in Exam o Available once an issue is fully developed (i.e., NOPA issued) Fast-Track Settlement (Rev. Proc ) o Exam retains jurisdiction o Occurs between issuance of NOPA and 30-day letter o Appeals role is to facilitate discussion and negotiations o Litigating hazards may be taken into account Rapid Appeals Process (IRM ) o Appeals jurisdiction o Uses Fast-Track Settlement techniques for matters already in Appeals Post-Appeals Mediation (Rev. Proc ) o Appeals mediator + private mediator at taxpayer s expense o Appeals officer defends position; steps into shoes of Exam o Last gasp before litigation 17

18 Thank You! We would be happy to answer any questions. 18