Sheldon M. Kay Troy L. Olsen February 20, Current Update on IRS Appeals Division and Other Acronyms, Including AJAC, RAP, ADR and NII

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1 Sheldon M. Kay Troy L. Olsen February 20, 2014 Current Update on IRS Appeals Division and Other Acronyms, Including AJAC, RAP, ADR and NII

2 Polling Question How many times have you been before Appeals? A. More than 10 B C. Less than 5 D. What s Appeals?

3 Overview Appeals mission, structure and statistics Appeals Judicial Attitude and Culture (AJAC) Alternative Dispute Resolution (ADR) changes Rapid Appeals Process (RAP) New Information Initiative (NII) Practice tips

4 Appeals Mission 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 Internal Revenue Service.

5 Statistical Snapshot FY 2011 FY 2012 FY 2013 Total Staffing* 2,111 1,981 1,829 Total Receipts 148, , ,113 Receipts Mix % Collection % Exam 59% 42% 55% 45% 54% 46% Total Closures 142, , ,176 * Total On-Rolls at Year End

6 Appeals Receipts WORKSTREAM FY 2012 FY2013 Collection Due Process (CDP) 51,126 44,684 Offers-in-Compromise 9,496 9,695 Innocent Spouse 2,703 4,284 Penalty Appeals 11,507 10,336 Coordinated Industry Cases Industry Cases 2,276 2,153 Examination/TE/GE 42,454 38,306 Other 15,379 13,557

7 Office of Appeals Current State (Post-Realignment) Kirsten Wielobob Chief, Appeals Michael Julianelle Deputy Chief, Appeals Nikole Flax Special Assistant Scott Reisher Director, Field Ops, East De Lon Harris Director, Field Ops, West Jennifer Vozne Director, Specialty Ops VACANT Director, Campus Ops Susan Latham Director, Policy, Quality and Case Support Bryan Musselman Director, Strategy and Finance Area 1 Philadelphia Area 7 Oklahoma International Operations Area 5 Brookhaven Account & Processing Support Business Systems Planning Area 2 (Collection) Charlotte Area 8 San Francisco Domestic Operations Area 6 Memphis Technical Support Learning and Education Area 3 Nashville Area 9 Riverside ATCL Operations Area 10 Ogden TPP Exam, TE/GE & ADR Human Capital Programs Area 4 Philadelphia Area 11 (Collection) San Francisco Art Appraisal Services Area 12 Fresno TPP Collection & Processing Strategic Planning/ Measures Analysis Area 13 (Collection) Nashville AQMS Finance

8 Appeals Independence IRS Restructuring and Reform Act of 1998 (RRA 98), section 1001(a) requires the IRS to: Ensure an independent appeals function within the IRS, including the prohibition of ex parte communications between Appeals Officers and other IRS employees to the extent that such communications appear to compromise the independence of the Appeals Officers.

9 Appeals Independence (cont d) An ex parte communication is: A communication that takes place between any Appeals employee (e.g., Appeals Officers, Settlement Officers, Appeals Team Case Leaders, Appeals Tax Computation Specialists) and employees of other IRS functions, without taxpayer/representative being given an opportunity to participate in the communication. Administrative guidance: Rev. Proc (effective 5/15/12). What are your options if there has been a violation of the ex parte rules?

10 Polling Question What is the remedy for a breach of the ex parte communication rule? A. The ex parte breach tax credit B. The right to challenge interest accrued during the Appeals process C. Criminal charges against the offending IRS employees D. The right to transfer the case to another Appeals employee or office E. No specific remedy

11 Appeals Judicial Approach and Culture History Project initiated two years ago in response to concerns raised by internal and external stakeholders, including Appeals employees. Policy Changes December 2012: two Trust Fund Recovery related changes. July 2013: Interim Guidance issued on 12 policy changes (see AP at Implementation of remaining changes planned for FY 2014.

12 Appeals Judicial Approach and Culture (cont d) Overview Procedural changes are being implemented to improve efficiency and perceptions of Appeals independence. Returns Appeals to a quasi-judicial approach in case management so it can fulfill its mission of resolving disputes in an impartial manner without performing compliance roles. Appeals Officers are not investigators or examiners. Instead, Officers are tasked with weighing the merits of each parties positions and litigation prospects.

13 Appeals Judicial Approach and Culture (cont d) Interim Guidance (AP ) effective 7/18/13 Key Changes to Examination Cases Appeals will not raise new issues or reopen issues agreed to by taxpayer and Compliance (revised Policy Statement 8-2). New issues in docketed cases. New issues versus new arguments. Centralizes dissent procedures. Appeals will attempt to settle a case on hazards when case submitted by Compliance is not fully developed and taxpayer presents no new information or evidence. Clarifies that Appeals hearing officers should not assist Compliance with case development.

14 Appeals Judicial Approach and Culture (cont d) Interim Guidance (AP ) Key Changes to Collection Cases Appeals will accept any Collection Information Statement that Collection reviewed within 12 months. In Offer in Compromise (OIC) cases, Appeals will only consider assets documented by Collection or introduced by taxpayer. In OIC cases, Appeals will not value an asset in excess of value determined by Collection. Clarifies when Appeals can reject an OIC for reasons not considered or documented by Collection. Clarifies when Appeals can consider an alternative basis for an OIC. Clarifies Appeals authority to accept an OIC even if Counsel disagrees. In Collection Appeals Program (CAP) hearings, limits Appeals consideration to whether action was appropriate. In CAP hearings, limits decisions to sustaining Collection or directing Collection to take corrective action.

15 Appeals Judicial Approach and Culture (cont d) New Information Initiative Changes will cover various topics, including new procedures for handling certain new information provided to Appeals. Appeals will release jurisdiction or get Large Business and International s (LB&I) analysis when new information is received from taxpayer. Criteria for release may vary based on workstream and circumstances. On large cases not meeting the release criteria, LB&I will be given an opportunity to review and comment while the case remains in Appeals. Changes will help ensure Appeals employees are not performing investigative functions and taxpayers are afforded a true appeal.

16 Polling Question Which of the following Appeals programs have you participated in? (Answer all that apply) A. Traditional Appeals B. FTS C. FTM D. RAP E. Early Referral F. Arbitration G. Post Appeals Mediation

17 Rapid Appeals Process (RAP) Overview Uses mediation techniques to convert Appeals preconference into working meeting for Appeals, LB&I and taxpayer. Voluntary process. Traditional Appeals process used if either party objects. Appeals is decision maker for all disputed issues for IRS. Either party may withdraw at any time. Program Benefits Can significantly reduce time in Appeals. Uses best practices from Fast Track Settlement.

18 Alternative Dispute Resolution (ADR) Fast Track Settlement (FTS) Early referral Post-Appeals mediation Arbitration

19 ADR Update May 2013 Appeals detailed a team to implement ADR reforms recommended by several sources, including the Harvard Negotiation and Mediation Clinical Program. August 2013 SB/SE FTS expanded nationwide. January 2014 new ADR pages went live on including: New mediation self-help tool to explain to taxpayers and practitioners what mediation programs are available and how to apply. Toll-free hotline to help taxpayers and practitioners with questions about SB/SE FTS. Toll-free within the U.S. (855) Outside of the U.S. (not toll-free) (281) Messages will be returned within 1-2 business days.

20 Alternative Dispute Resolution (ADR) Receipts PROGRAM FY 2012 FY2013 Fast Track Settlement SB/SE Fast Track Settlement LB&I Fast Track Settlement TE/GE Post-Appeals Mediation (Non-Collection) Post-Appeals Mediation (OIC/TFRP)

21 Considerations when Preparing Protests Evaluate whether to make arguments or concede issues credibility consideration. Weigh benefits of filing a full protest versus a skeletal protest. Protest should only address specific issues raised by the Agent. Order of issues strongest to weakest. Schedule of issues.

22 Common Errors in Protests Personal, aggressive attacks on exam personnel. Protest does not address the core issue causing the disagreement or challenge the Agent s conclusions and authorities. Protest does not stand-alone. Statement of facts not developed to support taxpayer s position.

23 Best Practices for an IRS Appeal Be proactive Communicate early, often and openly. Agree to timeframes and meet them. Be prepared to discuss specifics at first meeting. Set reasonable expectations At conferences Be organized. Be thorough. Be open. Be prepared.

24 Questions? Sheldon M. "Shelly Kay Partner Atlanta Troy L. Olsen Counsel Washington, DC