How To Represent A Taxpayer Before The IRS Office Of Appeals

Transcription

1 How To Represent A Taxpayer Before The IRS Office Of Appeals October 3, :00 PM 9:00 PM RSVP: Bergen Community College Ciarco Learning Center 355 Main Street Room, 102/103 Hackensack, NJ Speakers Include Frank Agostino Salvatore Benvenuti Les Kaplan Desa Lazar Topics Include Taxpayer Bill of Rights: #5, The Right to Appeal an IRS Decision in an Independent Forum Appeals Mediation Programs Appeals Online Self-Help Tools Appeals Judicial Approach and Culture Best Practices for Requesting an Appeal In Person & Virtual Face-To-Face Conferences

2 Table of Contents Timed Agenda 1 Speaker Biographies 2 Outline 8 Slides 79

3 Representation Before the Appeals Division of the IRS Moderator: Panelists: Frank Agostino Salvatore Benvenuti Desa Lazar & Leslie S. Kaplan John O'Dea Topic Primary Speaker Time (Minutes) Introduction Frank Agostino 10 Taxpayer Bill of Rights Frank Agostino 10 #4 The to Challenge the IRS's Position and Be Heard Frank Agostino 20 #5 Right to Appeal an IRS Decision in an Independent Forum Frank Agostino 25 Appeals Judicial Approach and Culture (AJAC) Project Desa Lazar John O Dea 25 BREAK 10 Best Practices for requesting an Appeal. Les Kaplan, John O'Dea 10 Appealing a Collection Decision Les Kaplan, John O'Dea 15 Appeals Mediation Programs Salvatore Benvenuti 15 Appeals Online Self-Help Tools Desa Lazar 15 BREAK 10 In Person & Virtual Face To Face Conferences Desa Lazar 15 Questions All Panelist 10 1

4 Frank Agostino, Esq. President 14 Washington Place Hackensack, NJ ext. 107 Profile Frank Agostino is the president of Agostino & Associates, P.C., a law firm in Hackensack, New Jersey specializing in civil and white collar criminal litigation, tax controversies and tax planning. Prior to entering private practice, Mr. Agostino was an attorney with the Internal Revenue Service s District Counsel in Springfield, Illinois and Newark, New Jersey. He also served as a Special Assistant United States Attorney, where he prosecuted primarily criminal tax cases. As an adjunct professor, Mr. Agostino taught tax controversy at Rutgers School of Law and served as the co-director of the Rutgers Federal Tax Law Clinic. Mr. Agostino is a frequent speaker and author on tax controversy and litigation matters. He serves on the Advisory Board of the Journal of Tax Practice and Procedure. Mr. Agostino is actively involved with the American Bar Association and the New York County Lawyers Association. Mr. Agostino is also the President of the Taxpayers Assistance Corp., which provides tax and legal advice to low income taxpayers in the NY/NJ area. Recent Publications Tax Practitioner s Guide to Identity Theft (CCH Inc., 2017, ISBN Recent Developments in FATCA Compliance, 93 TAXES 51 (July 2015) A 21st-Century Approach to Litigating Valuation Issues, 17 J. TAX PRAC. & PROC. 47 (Apr.-May 2015) Reviving Disallowed Charitable Conservation Easement Deductions, 146 TAX NOTES 449 (Apr. 27, 2015) Practice Areas Civil Tax Criminal Tax White Collar Defense Education LL.M., Taxation, New York University School of Law J.D., New York Law School B.A., City College of New York Awards & Recognition Recipient, ABA s 2012 Janet Spragens Pro Bono Award Recipient, NJ State Bar Association s 2015 Pro Bono Award Admitted In New York New Jersey Tax Court 2

5 Be Prepared: The IRS s Duty to Foster Voluntary Compliance Through Code Secs. 6014(a) and 6020(a), 17 J. TAX PRAC. & PROC. 5 (Feb.-Mar. 2014) Agostino & Associates Contact Information: Christoper Avila Cavila@agostinolaw.com Tel ext. 125 Philip Colasanto, Esq. Pcolasanto@agostinolaw.com Tel ext. 105 Jeffrey Dirmann, Esq. Jdirmann@agostinolaw.com Tel ext. 119 Nicholas R. Karp, EA Nkarp@agostinolaw.com Tel ext.118 Eugene Kirman, Esq. Ekirman@agostinolaw.com Tel ext. 142 Dolores Knuckles, Esq. Dknuckles@agostinolaw.com Tel ext. 109 Nache Patoir, Esq. Npatoir@agostinolaw.com Tel ext. 131 Michael Wallace, EA Mwallace@agostinolaw.com Tel ext. 143 Valerie Vlasenko, Esq. Vvlasenko@agostinolaw.com Tel ext. 142 Caren Zahn, EA Czahn@agostinolaw.com Tel ext. 103 Jeremy Klausner, Esq. Jklausner@agostinolaw.com Tel ext

6 Salvatore Benvenuti 37 Warren Street (973) Cell (973) Little Falls, New Jersey Professional 2007 Present -Self Employed Experience Enrolled Agent Tax controversy/mediation Representing taxpayers before the IRS at all levels including Appeals Co-Mediator for post Appeals Mediation. Executive Administrator for UNICO National a non-profit service organization. Consultant for national tax preparation firm Internal Revenue Service Appeals Division Appeals team Case Leader (Team Chief) Responsible for arriving at a final disposition of the largest corporate cases with full settlement authority on behalf of the government. Exercise authority in planning, evaluating, directing, coordinating and controlling the overall progress of the teams and individual member assignments. Interact with taxpayers and representatives to determine and meet customer expectations. Hold conferences and negotiate issues to resolve tax disputes. Prepare and update work plans including directing team members to insure the progression of the case and overseeing the team members during the settlement conferences and/or team meetings with the largest corporate taxpayers and their representatives. Member of Fast Track Settlement Process design team (ADR Process). Developed process, prepared Revenue Procedure , made numerous presentations both internally (IRS) and externally (AICPA, ABA,TEI). Conducted a significant number of successful Fast Track settlement and post appeals mediation cases. Taught mediation training for Appeals Officers Internal Revenue Service Appeals Division Appeals Officer Perform analysis and conduct conferences and negotiations for settlement of complex tax cases that involve interpretation and application of laws, policies, rules and regulations of Federal Income Tax. Salvatore Benvenuti 4

7 Conduct legal research and apply law to complex factual and legal cases in which taxpayers have appealed determinations made by Examination Division or filed petition with the U.S. Tax Court for redetermination of tax liability situations. Served two years ( ) working for the Director of Practice handling disbarment and suspension proceedings for violations of rules of practice under Circular 230. September 1995 recipient of the Appeals National Performance Award. Taught Appeals Officer Training and Valuation Training for Appeals Officers Internal Revenue Service Examination Division Field Agent Conducted examinations of corporations, partnerships, trusts and individual returns in order to determine correct tax liability Taught all phases of revenue training Education 1973 Montclair State University Bachelors of Science in Business Administration/Accounting 1982 Pace University Masters in Federal Taxation 5

8 Les Kaplan, Enrolled Agent 177 Phelps Avenue, Cresskill, NJ Experience: Appeals Officer, Internal Revenue Service Enrolled Agent Les Kaplan, Enrolled Agent March 2012 Present (3 years 8 months), Cresskill, N.J. Represents represent taxpayers before the IRS Group Memberships: The Official NAEA Group National Association of Tax Professionals (NATP) 6

9 Desa Lazar Attorney at the Taxpayers Assistance Corporation: The Public Service Division of Agostino & Associates Background/Experience Attorney, Taxpayers Assistance Corporation: The Public Service Division of Agostino & Associates May 2015 Present (6 months) Appeals Settlement Officer, Internal Revenue Service November 2001 December 2013 (12 years 2 months) Group Manager, Internal Revenue Service January 1998 November 2001 (3 years 11 months) Revenue Officer, Internal Revenue Service August 1987 December 1997 (10 years 5 months) Education Seton Hall University School of Law, Juris Doctor (J.D.) 7

10 Introduction of Panel & Overview of the Appeals Process Publication 4227 Taxpayer Bill of Rights At their core, taxpayer rights are human rights. They are about our inherent humanity. Particularly when an organization is large, as is the IRS, and has power, as does the IRS, these rights serve as a bulwark against the organization's tendency to arrange things in ways that are convenient for itself, but actually dehumanize us. Taxpayer rights, then, help ensure that taxpayers are treated in a humane manner. -NTA Nina E. Olson, 5/09/13. 1 The Taxpayer Bill of Rights (TBOR) clearly outlines the fundamental rights of every taxpayer. In 2014, the Internal Revenue Service adopted the TBOR as a cornerstone document to provide the nation's taxpayers with a better understanding of these rights. The IRS wants taxpayers to be aware of them when dealing with the agency. The IRS continues to highlight these 10 fundamental rights for taxpayers while also sharing them extensively with employees. Congress added these rights to the Internal Revenue Code (IRC) in late The IRC now requires the IRS Commissioner to ensure IRS employees are familiar with and act in accordance with the TBOR. 1) The Right to Challenge the IRS's Position and Be Heard 2) Taxpayers have the right to raise objections and provide additional documentation in response to formal IRS actions or proposed actions, to expect that the IRS will consider their timely objections and documentation promptly and fairly, and to receive a response if the IRS does not agree with their position 3) What you can expect: 4) If the IRS notifies you that your tax return has a mathematical or clerical error, you have 60 days to tell the IRS that you disagree. You should provide photocopies of any records that may help correct the error. In addition, you may call the number listed on your notice or bill for assistance. If the IRS upholds your position, we will make the necessary adjustment to your account and send you a corrected notice. 5) If the IRS does not adopt your position, it will issue you a notice proposing a tax adjustment (known as a statutory notice of deficiency). The statutory notice of deficiency provides you with a right to challenge the proposed adjustment in the United States Tax Court before paying it by filing a petition within 90 days of the date of the notice (150 days if the notice is addressed to you outside the United States). For more information about the United States Tax Court, see the Court s taxpayer information page. 1 Olson, N., A Brave New World: The Taxpayer Experience in a Post-Sequester IRS (originally delivered as a speech at the Laurence Neal Woodworth Memorial Lecture at the meeting of the American Bar Association Section of Taxation on May 9, 2013), available at TaxNotes_0603.pdf. 2 8

11 6) If you submit documentation or raise objections during a return examination (or audit), and the IRS does not agree with your position, it will issue you a statutory notice of deficiency explaining why it is increasing your tax, which gives you the right to petition the U.S. Tax Court prior to paying the tax. 7) Before the IRS takes enforcement action to collect a tax debt by levying, for example, your bank account, or immediately after the IRS files a notice of federal tax lien in the appropriate state filing location, the IRS must generally provide you with an opportunity for a hearing before an independent Office of Appeals. If you disagree with Appeals determination, you can petition the United States Tax Court. 8) The Taxpayers Right to Appeal an IRS Decision in an Independent Forum: 9) Taxpayers are entitled to a fair and impartial administrative appeal of most IRS decisions, including many penalties, and have the right to receive a written response regarding the Office of Appeals decision. Taxpayers generally have the right to take their cases to court. 10) Appeals Office Mission Statement - Publication 4227: 11) Appeals mission is to resolve controversies without litigation, on a basis which is fair and impartial to both the Government and the taxpayer, and in a manner which will enhance voluntary compliance and public confidence in the integrity and efficiency of the Service. 12) Today, alternative dispute resolution instead of litigation is widely valued and applied in many areas of our society. Customers expect more dispute resolution options, and Appeals has adapted its approach to keep up with the new methods and developments. Our vision is to promote an independent and innovative environment that drives quality and timely resolution of tax disputes by empowering a highly skilled, motivated and cohesive workforce. 13) Appeals is a separate function and independent of the IRS office that proposed the adjustment or collection action. Appeals will not engage in communication with employees of other IRS functions (commonly referred to as ex parte communication) to the extent such communication appears to compromise our independence Suggested Reading Publication 1 Overview of Appeals Process (Publication 4227) The Taxpayer's Appeal Rights (Topic 151) Appeals Judicial Approach and Culture (AJAC) Project (See Memorandum for Appeals Employees dated July 2, 2014). The Taxpayer's Appeal Rights and How to Prepare a Protest if the Taxpayer Don't Agree (Publication 5) Collection Due Process Hearing (Form 12153) Collection Appeal Rights Collection Appeal Request (Form 9423) Offer In Compromise Fast Track Mediation Tax Payer Advocate 2016 Annual Report to Congress 3 9

12 Introduce Chart of Letters Offering an Appeal Opportunity Letter 11 Final Notice of Intent to Levy and Notice of Your Right to a Hearing This letter is to notify the Taxpayer of your unpaid taxes and that the Service intends to levy to collect the amount owed. The letter and referenced publications explain how to request an appeal if the Taxpayer do not agree. the Taxpayer need to file a Form 12153, Request for A Collection Due Process Hearing and send it to the address shown on your levy notice within 30 days from the date of the letter in order to appeal the proposed action with the Office of Appeals. Letter 525 General 30 Day Letter You will get this letter with a computation report of proposed adjustments to your tax return. It outlines your options if the Taxpayer does not agree with the proposed adjustments. If the Taxpayer agrees with the adjustment, the Taxpayer sign and return the agreement form. If the Taxpayer does not agree, the Taxpayer can submit a request for appeal to the office/individual that sent the Taxpayer the letter. The letter contains information and lists IRS publications on how to file an appeal/protest. The Taxpayer need to file your protest within 30 days from the date of this letter in order to appeal the proposed adjustments with the Office of Appeals. Letter 531 Notice of Deficiency You will get this letter if the Taxpayer owes additional tax or other amounts for the tax year(s) listed in the letter. The letter explains how to dispute the adjustments if the Taxpayer does not agree. If the Taxpayer wants to dispute the adjustments without payment, the Taxpayer will have 90 days from the notice date to file a petition with the Tax Court. Letter 692 Request for Consideration of Additional Findings You will get this letter with a computation report of proposed adjustments to your tax return. It outlines your options if the Taxpayer does not agree with the proposed adjustments. If the Taxpayer agrees with the adjustment, the Taxpayer sign and return the agreement form. If the Taxpayer does not agree, the Taxpayer can submit a request for appeal to the office/individual that sent the Taxpayer the letter. The letter contains information and lists IRS publications on how to file an appeal/protest. The Taxpayer need to file your protest within 15 days from the date of this letter in order to appeal the proposed adjustments with the Office of Appeals. Letter 915 Letter to Transmit Examination Report This letter explains adjustments in amount of tax. The letter explains that if the Taxpayer agrees with the adjustment, the Taxpayer sign and return the agreement form. If the Taxpayer does not agree, the Taxpayer can submit a request for appeal/protest to the office/individual that sent the Taxpayer the letter. The letter or referenced publications explain how to file a protest. The Taxpayer need to file your protest within 30 days from the date of this letter in order to appeal the proposed adjustments with the Office of Appeals. Letter Day Letter Straight Deficiency or Over Assessment 4 10

13 This letter is used for un-agreed, straight deficiency, straight over assessment or mixed deficiency and over assessment cases. This letter may be used for various types of tax. If the Taxpayer agrees with the adjustment, the Taxpayer sign and return the agreement form. If the Taxpayer does not agree, the Taxpayer can submit a request for appeal to the office or individual that sent the Taxpayer the letter. The letter contains information and lists IRS publications on how to file a protest. The Taxpayer needs to file your protest within 30 days from the date of this letter in order to appeal the proposed adjustments with the Office of Appeals. Letter 1058 Final Notice Reply within 30 Days This letter is to notify the Taxpayer of your unpaid taxes and that the Service intends to levy to collect the amount owed. The letter and referenced publications explain how to request an appeal if the Taxpayer do not agree. the Taxpayer need to file a Form 12153, Request for A Collection Due Process Hearing and send it to the address shown on your levy notice within 30 days from the date of the letter in order to appeal the action with the Office of Appeals. Letter Day Letter Proposed 6020(b) Assessment This letter is to notify the Taxpayer of your unpaid taxes and that the Service intends to levy to collect the amount owed. The letter and referenced publications explain how to request an appeal if the Taxpayer do not agree. the Taxpayer need to file a Form 12153, Request for A Collection Due Process Hearing and send it to the address shown on your levy notice within 30 days from the date of the letter in order to appeal the action with the Office of Appeals. Letter 1153 Trust Funds Recovery Penalty Letter This letter explains that the IRS s efforts to collect the federal employment or excise taxes due from the business named on the letter have not resulted in full payment of the liability. Therefore, the IRS proposes to assess a penalty against you. If the Taxpayer agree with this penalty for each tax period shown, the Taxpayer are asked to sign Part 1 of the enclosed Form 2751 and return it to the person/office that sent the Taxpayer the letter. If the Taxpayer does not agree the Taxpayer can submit a request for appeal to the office/individual that sent the Taxpayer the letter. The letter contains information and lists IRS publications on how to file an appeal/protest. The Taxpayer needs to file your protest within 60 days from the date of the letter in order to appeal this decision with the Office of Appeals. Letter 3016 IRC Section 6015 Preliminary Determination Letter (30 Day) This is a preliminary letter giving the Taxpayer 30 days to appeal the determination for innocent spouse relief under IRC Section The letter explains that if the Taxpayer do not agree with the determination the Taxpayer can submit a request for appeal/protest to the office/individual that sent the Taxpayer the letter. The letter explains how the Taxpayer file a protest. the Taxpayer need to file your protest within 30 days from the date of this letter in order to appeal the proposed adjustments with the Office of Appeals. Letter Day Non-filer Letter 5 11

14 This letter advises the Taxpayer the IRS believes the Taxpayer are liable for filing tax returns for the periods identified in the letter. It includes a report giving the Taxpayer a computation of the proposed adjustments to your tax return and explains the adjustments. The letter explains that if the Taxpayer agrees with the adjustments, the Taxpayer sign and return the agreement form. If the Taxpayer does not agree, the Taxpayer can submit a request for appeal/protest to the office/individual that sent the Taxpayer the letter. The letter or referenced publications explain how to file a protest. The Taxpayer needs to file your protest within 30 days from the date of this letter in order to appeal the proposed adjustments with the Office of Appeals. Letter Day Letter Notifying Taxpayer No Change to Original Report Disallowing EIC Based on Failure to Meet Residency Test for Children Claimed This letter explains why the IRS will not allow your earned income credit (EIC). The letter explains that if the Taxpayer agrees with the adjustment, the Taxpayer sign and return the agreement form. If the Taxpayer does not agree, the Taxpayer can submit a request for appeal/protest to the office/individual that sent the Taxpayer the letter. The letter or referenced publication explains how to file a protest. The Taxpayer needs to file your protest within 30 days from the date of this letter in order to appeal the proposed adjustments with the Office of Appeals. Letter Day Letter Notifying Taxpayer No Change to Original Report Partially Disallowing EIC Based on Failure to Meet Residency Test for 1 Child This letter explains why the IRS can only give the Taxpayer part of your earned income credit (EIC). The letter explains that if the Taxpayer agrees with the adjustment, the Taxpayer sign and return the agreement form. If the Taxpayer does not agree, the Taxpayer can submit a request for appeal/protest to the office/individual that sent the Taxpayer the letter. The letter or referenced publication explains how to file a protest. The Taxpayer needs to file your protest within 30 days from the date of this letter in order to appeal the proposed adjustments with the Office of Appeals. Letter 3172 Notice of Federal Tax Lien Filing and Your Rights to a Hearing under IRC 6320 This letter is to notify the Taxpayer the IRS filed a notice of tax lien for the unpaid taxes. If the Taxpayer do not agree the Taxpayer can request appeals consideration within 30 days from the date of the letter. The letter and publications explain how to request a hearing from Appeals. The Taxpayer needs to file a Form 12153, Request for A Collection Due Process Hearing and send it to the address shown on your lien notice within 30 days from the date of the letter in order to appeal the action with the Office of Appeals. 6 12

15 Introduce Notices Offering an Appeal Opportunity CP 90 Final Notice of Intent to Levy CP 90 notifies the Taxpayer of your unpaid taxes and that the IRS intends to levy to collect the amount owed. This notice and referenced publications explain how to request an appeal if the Taxpayer do not agree. the Taxpayer need to file a Form 12153, Request for A Collection Due Process Hearing and send it to the address shown on your levy notice within 30 days from the date of the letter in order to appeal the action with the Office of Appeals. CP 92 Notice of Levy upon Your State Tax Refund CP 92 notifies the Taxpayer that the IRS levied your state tax refund to pay your unpaid federal taxes. This notice and referenced publications explain how to request an appeal if the Taxpayer do not agree. the Taxpayer need to file a Form 12153, Request for A Collection Due Process Hearing and send it to the address shown on your levy notice within 30 days from the date of the letter in order to appeal the action with the Office of Appeals. CP 242 Notice of Levy upon Your State Tax Refund CP 242 notifies the Taxpayer that the IRS levied your state tax refund to pay your unpaid federal tax. This notice and referenced publications explain how to request an appeal if the Taxpayer do not agree. the Taxpayer need to file a Form 12153, Request for A Collection Due Process Hearing and send it to the address shown on your levy notice within 30 days from the date of the letter in order to appeal the action with the Office of Appeals. CP 523 IMF Installment Agreement Default Notice CP 523 notifies the Taxpayer that the IRS intends to terminate your installment agreement in 30 days. The Taxpayer have the right to request an appeal if the Taxpayer do not agree by following the instructions in the notice. CP 2000 You receive this letter when the IRS receives income, deduction or credit information that does not match your return. The Taxpayer is provided a computation of the proposed adjustments to your tax return based upon this information. If the Taxpayer agrees, the Taxpayer sign and return the agreement forms. If the Taxpayer does not agree, the Taxpayer can submit a request for appeal/protest to the office/individual that sent the Taxpayer the letter. The letter explains how to file a protest. The Taxpayer needs to file your protest within 30 days from the date of this letter in order to appeal the proposed adjustments with the Office of Appeals. 7 13

16 Appeals Judicial Approach and Culture (AJAC) Project The Appeals Judicial Approach and Culture ("AJAC ) Project 1. Purpose: To reinforce Appeals quasi-judicial approach to handling cases, with the goal of enhancing the internal and external perception of fairness, impartiality and the independence of the Appeals office. 2. Clarifies distinction between role of Compliance and Appeals 3. Appeals hearing officers will focus their role on administrative dispute resolution, and not take investigative actions or perform analysis of new information or issues 4. Appeals will return cases to Examination for further development a. If new issues come up, Appeals will forward these new issues to the originating function for consideration 5. Appeals will not raise new issues, nor reopen issues, except in the case of fraud or malfeasance of a material fact 6. Appeals Referral Investigation 7. Appeals may refer the case to IRS Collections when a taxpayer s currently not collectible hardship cannot be determined without additional information; a. The taxpayer requests an in-business offer in compromise and it requires a TFRP calculation; or b. The taxpayer provides a financial statement that requires verification for the taxpayer to qualify for an installment agreement or currently not collectible status. 8. An Appeals Referral Investigation suspends the Collection Due Process ( CDP ) Hearing for purposes of determining the collection statute of limitations. 9. Offers in Compromise: Appeals has the authority to make a final determination on an offer in compromise. If the case is referred to IRS Collection and they reject the offer, Appeals will review the decision and make a final determination. 10. When Appeals receives an Offer in Compromise during a CDP Hearing, the offer must be forwarded to the IRS Centralized Offer in Compromise unit. 11. Doubt as to Liability cases are handled by Appeals in the same way that Appeals handles audit reconsideration requests. 8 14

17 Overview of Available Appeals 1. An Appeal can be requested following a disputed case resulting from: 2. A 30-day Letter following an audit of an individual, corporate, partnership, or other tax return; or 3. The issuance of a lien, levy, or seizure; or 4. The proposed issuance of a lien, levy, or seizure; or 5. The proposed rejection of an installment agreement or proposed termination of an installment agreement; or 6. The proposed rejection of an offer in compromise; or 7. The full or partial disallowance of a claim for refund pertaining to an issue not previously considered by the Appeals Office; or 8. The denial of an innocent spouse petition; or 9. A 60-day letter proposing the assessment of a trust fund recovery penalty; or 10. The denial of a penalty abatement; or 11. The filing of a tax court petition in cases where the Taxpayer did not have an opportunity for an Appeals conference ( ) Accomplishing the Appeals Mission 1. The Appeals Mission 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. 2. Appeals accomplishes this mission by considering protested cases, holding conferences, and negotiating settlements in a manner which ensures Appeals employees: a. Act in accord with the Taxpayer Bill of Rights (TBOR) in every interaction with taxpayers. IRC 7803(a)(3). See also Pub 5170, Taxpayer Bill of Rights. b. Provide a prompt conference and a prompt decision in each case. A prompt conference and decision enable the taxpayer to know with the least amount of delay, the final decision of the Service as to the amount of tax liability, or other issue in contention, and results in getting into the Treasury additional revenue involved at the earliest practicable date. c. Make a high-quality decision in each case. A decision of high quality is required in each case and should represent judicious application of Service policy and sound legal principles. d. Effect a satisfactory number of agreed settlements. It is a fundamental purpose of the Appeals function to effect settlement of contested cases - on a basis fair to both the Government and the taxpayer - to the end that the 9 15

18 greatest possible number of non-docketed cases is closed in non-docketed status and the greatest possible number of docketed cases is closed without trial. 3. Appeals holds conferences to provide a meaningful opportunity for taxpayers to present their position and to consider settlement proposals to resolve tax disputes; these conferences are usually held by telephone or correspondence. See IRM 8.6.1, Conference and Settlement Practices, Conference and Issue Resolution, and guidelines for specific work streams as outlined in their related IRM sections, for guidance on holding an in-person conference. For guidance on conducting a virtual face-to-face conference from a remote location, see Virtual Service Delivery (VSD), also in IRM Appeals provides multilingual services to taxpayers who speak limited English, especially Spanish, to resolve tax controversies in an effective and informative manner, in accordance with IRM ,Multilingual Initiatives, IRS Language Services. Generally, bilingual employees provide the services, either those on a bilingual position description or those who volunteer. 5. Generally, definitions of terms used in the manual are with the material where the term is discussed. See Exhibit For a list and the definitions of common terms used in Appeals. 6. In furtherance of the Appeals Mission, it is expected that Appeals personnel provide a unified Appeals position to taxpayers and/or practitioners in the settlement of an issue. This extends to all members of Appeals involved in the case. While there may be differing positions and/or opinions during the discussion of an issue, the ultimate resolution of the issue should be based upon the conclusions reached by the Appeals employee with ultimate responsibility for the case. 1 16

19 Examination Cases under Appeals Jurisdiction ( ) 1. The Internal Revenue Service is responsible for administering tax laws enacted by Congress. In carrying out this duty, Compliance examines selected tax returns in Field and Campus offices. 2. The following table shows a chronological listing of what happens once Compliance examines the taxpayer's return. If... Then... Compliance examines selected tax returns Usually, Compliance issues a preliminary (30 or 60 day) letter. Taxpayer does not agree with proposed adjustments by Compliance They may request an Appeals conference. Taxpayer does not agree with Compliance's proposed adjustments AND does not request an appeal Usually, Compliance issues a notice of deficiency (90 or 150 day letter) or other final notice or letter providing U.S. Tax Court rights. No petition is filed in response to the notice or letter Compliance makes a default assessment based upon the findings in the notice or letter. A petition is filed Compliance routes the case through Appeals to Area Counsel to file an answer in response to the petition. The petition is answered Counsel returns case to Appeals for settlement consideration. No settlement is reached Appeals returns case to Counsel for trial preparation. 3. Appeals also receives Exempt Organization cases where adverse action is proposed on an organization's exempt status or private foundation classification, and Employee Plans cases involving an employee plan's qualification. 1 17

20 4. Appeals jurisdiction includes, but is not limited to, cases subject to notice of deficiency procedures or cases involving a tax liability. 5. In most cases, Compliance issues a preliminary (30 or 60 day) letter to the taxpayer. 6. In general, taxpayers request an Appeals conference and, when required, file a protest against the proposed deficiency, over assessment, or determination. (See Pub 5, Your Appeal Rights and How To Prepare a Protest If You Don't Agree, for protest requirements, and IRM 8.6.1, Conference and Issue Resolution, for conference and issue resolution procedures ( ) Collection Cases under Appeals Jurisdiction 1. Collection Due Process - The IRS Restructuring and Reform Act of 1998 (RRA 98) gives taxpayers the right to a Collection Due Process (CDP) hearing with Appeals when they receive one of the following notices: a. Notice of Federal Tax Lien Filing and Your Right to A Hearing Under IRC 6320 b. Final Notice - Notice of Intent to Levy and Notice of Your Right To A Hearing c. Notice of Jeopardy Levy and Right of Appeal d. Notice of Levy on Your State Tax Refund - Notice of Your Right to a Hearing 2. IRC 6320 requires the taxpayer be given notice after the filing of a Notice of Federal Tax Lien (NFTL). IRC 6330 requires the taxpayer be given notice of a right to a hearing before taking levy action. The purpose of CDP hearings under IRC 6320 and IRC 6330 is to give the taxpayer an opportunity early in the collection process to work with an independent appeals officer to resolve the collection of the taxpayer's liability. After a CDP hearing and determination by Appeals, taxpayers have the right to challenge Appeals' determination in court. 3. Equivalent Hearing - If a taxpayer did not timely request a CDP hearing with Appeals, the taxpayer may request an "Equivalent Hearing" (EH) within a one year period beginning the day after the date of the CDP notice. The taxpayer must specifically request an EH by checking the EH box on Form 12153, verbal confirmation or a written request. In an EH, the taxpayer may raise and Appeals will consider all issues raised in CDP; however, the taxpayer does not have the right to seek judicial review of Appeals' decision. 4. Offer-in-Compromise - An Offer in Compromise (OIC) is an agreement between a taxpayer and the government to settle a tax liability in exchange for payment of less than the full amount owed. Appeals has jurisdiction to make decisions on OIC cases in the following circumstances: a. Offers appealed after being rejected by Collection. b. Offers based wholly or in part on doubt as to liability after being rejected by Examination, or if the liability was previously determined by Appeals. 1 18

21 c. Offers submitted directly to Appeals as an alternative to the proposed collection in a CDP or EH case. d. Offers being evaluated by Collection when a Notice of Federal Tax Lien is filed and the taxpayer requests a CDP hearing or Equivalent hearing. 5. Collection Appeal Program - Collection Appeal Program (CAP) is an administrative appeal for certain collection actions. A taxpayer, or a third party whose property is subject to a collection action, may appeal the following actions under CAP: a. Levy or seizure action that was or will be taken. b. Notice of Federal Tax Lien that was or will be filed. c. Filing of a Notice of Federal Tax Lien against an alter-ego or nominee's property. d. Denials to issue lien certificates; such as subordination, withdrawal, discharge or non-attachment. e. Rejected, proposed for termination or terminated installment agreements. f. Disallowance of taxpayer's request to return levied property under IRC 6343(d). g. Disallowance of property owner's claim to return property under IRC 6343(b). 6. CAP decisions by Appeals are binding on the taxpayers and the Collection functions. 7. Trust Fund Recovery Penalty - Trust Fund Recovery Penalty (TFRP) is a penalty against any responsible person who willfully fails to collect, account for, and pay over taxes held in trust. The TFRP is imposed for: a. Willful failure to collect tax. b. Willful failure to account for and pay over tax. c. Willful attempt in any manner to evade or defeat tax or the payment thereof. 8. TFRP under IRC 6672 is equal to the total amount of tax evaded, not collected, or not accounted and paid for. The Collection function is solely responsible for recommending assertion of the TFRP. Before assessing a TFRP, a 60-day notice of proposed assessment is sent or given to the taxpayers, along with their right to an Appeal. The taxpayer has 60 calendar days to file a timely protest (75 calendar days if the letter is addressed outside of the United States). When the taxpayer files a timely protest, the case is sent to Appeals. Appeals is responsible for determining if the party is willful and responsible for the TFRP. Only Appeals can make the final administrative determination with respect to the taxpayer's protest. 9. Trust Fund Recovery Penalty Claims - The IRS must provide for an appeal of a Form 843, Claim for Refund and Request for Abatement. When the IRS assesses the TFRP, the taxpayer has a right to pay the appropriate amount of the assessment and file a refund claim with the IRS. If Collection denies the taxpayer's claim, Collection sends the taxpayer a letter notifying them of the 30-day time period to file a timely administrative appeal. If a timely administrative appeal is received, the case is heard in Appeals. 1 19

22 Conference and Issue Resolution IRM Section The Appeals process is not a continuation or an extension of the examination process. Appeals will not raise new issues and will focus dispute resolution efforts on resolving the points of disagreement identified by the parties. Although Appeals may not raise new issues, it may consider alternative or new legal arguments that support the parties positions for purposes of The discussion of new or additional cases (or other authorities) that support a previously raised theory or argument does not constitute a new issue. Appeals may only use evidence within the case file to evaluate such theories. AJAC not preclude a taxpayer from raising new issues. IRM Section IRM Section Although Appeals is prohibited from raising new issues in docketed tax cases, provides that Appeals will consider new issues that the government raises in its formal pleadings 1 "Internal Revenue Manual Conference and Issue..." Sep < IRM , Appeals will direct the case back to the originating function if the taxpayer raises a new legal argument. Those collection cases involving CDP, however, must remain under Appeals jurisdiction since the statute contemplates that Appeals will make the determination and provides no role for the referring function. 2 "Internal Revenue Manual Conference and Issue..." Sep < 1 20

23 and may consider new evidence developed by Compliance or the Office of Chief Counsel to support the government s position. Additionally, if Counsel determines that Appeals may consider a new issue without formal amendment to the proceedings or the petitioner raises a new issue in a formal amendment to the proceedings, the Appeals officer may refer the issue to Compliance for review and to make a determination. IRM Section Appeals will not return cases to Exam for further development. The following circumstances are grounds for returning a case: 1. Missing protest, or a protest, when required, fails to set forth the taxpayer s position, lacks detail, or fails to meet the requirements of Publication 5; 2. Contrary to Service practice, the case is a reopening of a previously closed case as set forth in Rev. Proc ; 3. Some action must be taken or some event must occur before Appeals can adequately consider the case; 4. There is a failure to obtain timely consent to an extension of the statute of limitations; 5. The case involves claims for abatement of excise tax, employment tax, or TFRP which are not deemed meritorious by the Service; 6. Failure to comply with significant requirements of the IRM; 7. Technical advice was pending at the time of the referral; 8. Appeals discovers potential fraud, malfeasance or misrepresentation of a material fact; 9. The taxpayer provides new information or evidence; 10. The taxpayer raises new issues that the originating function has not considered 1 21

24 Collection Due Process and Equivalent Hearing Cases IRM Section Appeals is responsible for making a determination based upon the facts and the law known to it during the time of the hearing, as a judge would do in a court of law. Files sent to Appeals in CDP cases should contain sufficient documentation for Appeals to make a determination. If the file does not contain sufficient documentation, Appeals cannot return the case to Collection due to statutory requirements, and instead, the Appeals officer must decide whether to request relevant information from the taxpayer, issue appeals referral investigation for Collection to secure or verify information, or make a determination based on the available information. 1 22

25 Offers in Compromise IRM Section Directs Appeals in making a final determination on an OIC not to investigate to identify new assets but to consider only assets documented by Collection and to accept previously agreed upon values. Appeals cannot revise the value of an asset to an amount higher than determined by Collection, unless the taxpayer voluntarily provides new information to Appeals, and may only correct errors in determining reasonable collection potential that are strictly computational in nature. Appeals OIC case is not an extension of the Collection OIC process. The role and mission of Appeals are different from those of Collection and that the role of Appeals is not to rework the offer that Collection rejected. Appeals, however, will consider the items that were in dispute at the time of the rejection. IRM Section provides that appeals will not return a case as a premature referral where Collections did not fully develop the case. Instead, Appeals is directed to weigh Collection s development of the issue against the taxpayer s information and testimony to make a decision on the case. IRM Section provides that in OIC cases, Appeals may no longer attempt to identify additional taxpayer assets or revise any asset values from what Collection had previously determined. Collection Appeals Program IRM Section (9) Appeals will not consider alternatives to the issue under appeal, only the appropriateness of that issue. 1 23

26 Suggested reading Memorandum for Appeals Employees dated July 2, 2014 New IRS Appeals Procedures Complicate Tax Dispute Resolution

27 Best Practices for Requesting an appeal Topic Speaker IRS Publication IRM Section and Other IRS Guidance IRS Forms Protesting a Examination Decision to IRS Appeals Publication 5 Internal Revenue Appeals manual Form 12203, Request for Appeals Review Drafting the Protest/CDP Request and Handling the Appeals Conference a) Examination Division - Protest i) IRS Publication 5 ii) After a taxpayer receives a 30-day letter from the IRS, the taxpayer must specifically request that its case be considered by Appeals. iii) For any case where the total amount for any tax period is not more than $25,000, the taxpayer may file a small case request that is less formal and less detailed than a written protest. The taxpayer's small case request would indicate the unagreed adjustments and provide the reasons for the disagreement. IRS Form is used to file a small case request. iv) A written protest is required to obtain Appeals consideration if the total amount of any tax period is more than $25,000. v) Other Cases where a written protest needs to be filed: (1) All cases involving employee plans and exempt organizations without regard to the dollar amount at issue. (2) In all partnership and S corporation cases without regard to the dollar amount at issue. (3) Rejected Offer in Compromise (4) A proposed Trust Fund Recovery Penalty (5) A denied request to abate penalties (i.e. late payment, late filing or deposit penalties. vi) The written protest must include the following information: (1) Taxpayer's name, address and a daytime telephone number. (2) A statement that the Taxpayer wants to appeal the IRS findings to the Appeals Office. (3) A copy of the letter showing the proposed changed and findings you don=t agree with or the date and symbols from the letter. (4) The tax periods or years involved. (5) A list of the changes that Taxpayer does not agree with and why the Taxpayer does 11 25

28 not agree. (6) The facts supporting the Taxpayer s position on any issue on which the Taxpayer does not agree. (7) The law or authority on which the Taxpayer is relying. (8) A statement by the Taxpayer that the under penalty of perjury the facts in the protest are true. vii) If a representative signs the protest on a Taxpayer's behalf, the declaration must state: (1) That the representative submitted the protest (2) Whether the representative knows personally the facts stated in the protest and accompanying documents are true and correct b) CDP or Equivalent Hearing i) How to request a CDP or Equivalent Hearing (1) Complete the IRS Form and send to the address shown on the levy or lien notice. (2) If an Equivalent Hearing is being requested, then the appropriate box must be checked on line 7 of the form. (3) If a Taxpayer received both a levy and lien notice, both actions may be contested with the same Form (4) A Taxpayer MUST include the reasons for disagreeing with the Revenue Officer. Some reasons might include: (a) The Taxpayer's right to pursue collection alternatives, i.e. installment agreement or offer in compromise. (b) The subordination or discharge of a lien. (c) The withdrawal of the Notice of Federal Tax Lien (d) Appropriate spousal defenses. (e) If the Taxpayer did not receive a Statutory Notice of Deficiency or did not otherwise have an opportunity to dispute the tax liability, then a CDP is appropriate. (5) If the Taxpayer participated meaningfully at a prior hearing or proceeding, then the Taxpayer may not raise that issue again in Appeals. (6) To preserve the right to go to Tax Court, the Taxpayer must request a CDP hearing within the applicable time period. ii) Transcribed CDP hearings under 7521 (1) Taxpayers have a right to face-to-face hearing provided that their request does not include frivolous claims. Keene v. Commissioner, 121 T.C. No. 2 at 14 (203) (2) Having a transcript of 6330 hearing will allow us to perform better the review provided to taxpayer by 6330(d). Until now, in order to determine what issues taxpayers raised at 6330 hearing, the Court was faced with "he said-she sad" situations - needless "credibility contests" between taxpayer and the Appeals Officer. Keene 121.T.C. No 2 (2003)(J. Vasquez, concurring). iii) IRS Response to the Form (1) During the time period it takes the IRS to respond, the Taxpayer may still resolve the issue with the Collection office which sent the notice of lien or levy. (a) If the Taxpayer is able to resolve the issue with the Collection office, the Taxpayer may withdraw the CDP request. (2) If the Taxpayer is unable to resolve the issue with the Collection office, the case will be forwarded to Appeals

29 iv) Appeals will contact the Taxpayer to schedule a conference. (1) The conference will consist of an in-person or telephone conference and one or more written or oral communications. (2) Unless the IRS has reason to believe that a collection of the tax is in jeopardy, levy action is not permitted for the subject tax and periods for the 30 days after the levy notice AND during the timely requested CDP hearing. (3) Under normal circumstances, there will be no levy action during the period a Taxpayer has to request a hearing from a lien notice and during the CDP hearing. v) Preparing for a CDP hearing (1) Any issue not raised during CDP hearing is waived (a) Limitation: The taxpayer may not raise any issue that was previously raised and considered at any previous administrative or judicial proceeding if the taxpayer meaningfully participated in the hearing. (2) Review all information about taxpayer's case including IRS transcripts (a) Practitioner Priority Service ( , 7AM-7PM local time) (b) Request IRS' administrative file pursuant to Freedom of Information Act Request. (c) Conduct searches on taxpayer's assets and liabilities, and background via Google, credit reports, public record searches, lawsuits, liens, etc. (3) Statute of Limitations Considerations (a) If a Taxpayer files a timely CDP, the 10-year statute of limitations to collect the taxes is tolled until the date that the determination becomes final or the CDP request is withdrawn in writing. vi) At the conclusion of the CDP hearing, Appeals will issue a determination letter. vii) If the Taxpayer does not agree with the determination letter, the Taxpayer may seek a determination by the Tax Court. (1) The Taxpayer must request judicial review of the determination by petitioning the Tax Court on or before the 30 th day after the date of Appeals determination. viii) Appeals retains jurisdiction over its determination. (1) A Taxpayer may return to Appeals if the Taxpayer believes that the Collection office did not carry out Appeals= determination as it was stated or f there was a change in circumstances that affects the determination by Appeals. (a) However, the Taxpayer must first attempt to resolve the issue with the Collection office

30 Conduct of the Appeals Conference i) Generally, the practitioner should request a face-to-face meeting with the IRS Appeals officer. ii) Appeals officers are prohibited from having ex parte communications with other IRS employees to the extent those communications appear to compromise the independence of Appeals. (1) See Rev. Proc concerning guidance on what constitutes ex parte communications. See also, Gregory Drake v. Commission, 125 TC 201 (2005). iii) Appeals Officers use the hazards of litigation standard in attempting to arrive at a settlement. The factors that are considered for the hazards of litigation are as follows: (1) The credibility of the evidence; (2) Whether the facts alleged by the taxpayer can be proven; (3) Whether the law is ambiguous and, if so, the degree of ambiguity or uncertainty; (4) Whether the taxpayer has met the requirements to shift the burden of proof to the IRS and the impact of the shift of the burden of proof on the government's case; and, (5) The likelihood that the court would rule in favor of the taxpayer, given the facts and law

31 Types of Settlements 1) Mutual concession - A mutual concession settlement is entered into where the IRS and the taxpayer conclude there is substantial uncertainty as to how a court would interpret or apply either the facts or law. 2) Split-issue settlement - This is a mutual concession based on a flat percentage or a stipulated dollar amount. These types of settlements arise where a court would render an all-or- nothing decision. 3) Nuisance value settlement - This type of settlement is solely made to avoid the cost or inconvenience of litigation a matter. Generally, the IRS will not settle a case based on nuisance value. (1) ( ) Fair and Impartial Settlements per Appeals Mission (a) The Appeals mission 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. This is Appeals' general contribution towards achieving the Service mission. (See IRM 1.1.1, IRS Mission and Basic Organization and IRM , Service wide Policies and Authorities, Policy Statements for the Appeals Process.) In further support of the Service mission, Appeals may defer action on or decline to settle some cases, under Policy Statement 8 47 (described at IRM ), where: (b) required by other Headquarters Office-issued internal management documents, such as those suspending action on cases or those requiring coordination or control of identified matters with widespread impact; or (c) such action would produce a greater positive effect on voluntary compliance than would be derived from settlement or other action on the case. (2) A fair and impartial resolution is one which reflects on an issue-by-issue basis the probable result in event of litigation, or one which reflects mutual concessions for the purpose of settlement based on relative strength of the opposing positions where there is substantial uncertainty of the result in event of litigation. (3) It is the experience of Appeals that thorough, reasonable, and objective consideration of all elements of a controversy leads, in a large majority of cases, to resolution of the controversy on a basis agreeable to both the taxpayer and the Government. Agreement is not possible in all cases, however. A taxpayer may not agree with Appeals conclusion as to the probable result in event of litigation, or to the extent of mutual concessions required where there is substantial uncertainty of litigating result, or may prefer to litigate for other reasons. (4) See IRM , No Appeals Conference or Concession on Certain Arguments for certain arguments that are not given any weight in settlement. (5) See IRM 8.7.3, Domestic and International Operations Programs for settlement procedures in the Appeals Coordinated Issue (ACI) Program and the Appeals Industry Specialization Program (ISP). (6) ( ) Fair and Impartial Settlements per Appeals Mission 15 29

32 (a) The Appeals mission 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. This is Appeals' general contribution towards achieving the Service mission. (See IRM 1.1.1, IRS Mission and Basic Organization and IRM , Service wide Policies and Authorities, Policy Statements for the Appeals Process.) In further support of the Service mission, Appeals may defer action on or decline to settle some cases, under Policy Statement 8 47 (described at IRM ), where: (b) required by other Headquarters Office-issued internal management documents, such as those suspending action on cases or those requiring coordination or control of identified matters with widespread impact; or (c) such action would produce a greater positive effect on voluntary compliance than would be derived from settlement or other action on the case. (7) A fair and impartial resolution is one which reflects on an issue-by-issue basis the probable result in event of litigation, or one which reflects mutual concessions for the purpose of settlement based on relative strength of the opposing positions where there is substantial uncertainty of the result in event of litigation. (8) It is the experience of Appeals that thorough, reasonable, and objective consideration of all elements of a controversy leads, in a large majority of cases, to resolution of the controversy on a basis agreeable to both the taxpayer and the Government. Agreement is not possible in all cases, however. A taxpayer may not agree with Appeals conclusion as to the probable result in event of litigation, or to the extent of mutual concessions required where there is substantial uncertainty of litigating result, or may prefer to litigate for other reasons. (9) See IRM , No Appeals Conference or Concession on Certain Arguments for certain arguments that are not given any weight in settlement. (10) See IRM 8.7.3, Domestic and International Operations Programs for settlement procedures in the Appeals Coordinated Issue (ACI) Program and the Appeals Industry Specialization Program (ISP). 2) ( ): Mutual-Concession Settlements a) Case dispositions involving concessions by both the Government and the taxpayer for the purpose of settlement where there is substantial uncertainty in event of litigation as to how the courts would interpret and apply the law, or as to what facts the courts would find, are designated as mutual-concession settlements

33 b) Appeals is expressly authorized by Policy Statement 8 47 to enter into such settlements. In such a case there is substantial strength to the position of both parties, so that neither party, with justification, is willing to concede in full the unresolved area of disagreement. See IRM c) Resolution of the dispute involves concessions for the purpose of settlement by both parties based on the relative strength of the opposing positions. Form 870-AD, Offer to Waive Restrictions on Assessment and Collection of Tax Deficiency and to Accept Over assessment type of agreement is generally used in mutual-concession settlements. d) Do not use the term "overall settlement" in the discussion of an issue being settled unless there is a clear and precise discussion of the specific concessions being made by both parties 3) ( ): Split-Issue Settlements a) Policy Statement 8 48 states Appeals may enter into settlements based on a percentage or stipulated amount of the tax in controversy, but such settlement, identified as a "split-issue" settlement, is only used when no other method of settlement is appropriate. See IRM b) A split-issue settlement is a form of mutual-concession settlement of an issue which, if litigated, would result in a decision completely for the Government or the taxpayer. The distinguishing feature of a split-issue settlement is that the agreed result would not be reached, if tried. c) In deciding whether to make a split-issue settlement, consider whether it has some effect upon later years, particularly in a carryover or carryback situation, and in most gift tax cases. If so, it is preferable that the split-issue settlement be expressed in terms of an adjustment of taxable income rather than in a percentage or an amount of tax. d) It is important the taxpayer have a clear understanding of the effect of the split-issue settlement in terms of tax liability and taxable income. Either a closing agreement or a collateral agreement is advisable. 4) ( ): Mutual-Concession Settlements a) Case dispositions involving concessions by both the Government and the taxpayer for the purpose of settlement where there is substantial uncertainty in event of litigation as to how the courts would interpret and apply the law, or as to what facts the courts would find, are designated as mutualconcession settlements. b) Appeals is expressly authorized by Policy Statement 8 47 to enter into such settlements. In such a case there is substantial strength to the position of both parties, so that neither party, with justification, is willing to concede in full the unresolved area of disagreement. See IRM

34 c) Resolution of the dispute involves concessions for the purpose of settlement by both parties based on the relative strength of the opposing positions. Form 870-AD, Offer to Waive Restrictions on Assessment and Collection of Tax Deficiency and to Accept Overassessment type of agreement is generally used in mutual-concession settlements. d) Do not use the term "overall settlement" in the discussion of an issue being settled unless there is a clear and precise discussion of the specific concessions being made by both parties 5) ( ): Split-Issue Settlements a) Policy Statement 8 48 states Appeals may enter into settlements based on a percentage or stipulated amount of the tax in controversy, but such settlement, identified as a "split-issue" settlement, is only used when no other method of settlement is appropriate. See IRM b) A split-issue settlement is a form of mutual-concession settlement of an issue which, if litigated, would result in a decision completely for the Government or the taxpayer. The distinguishing feature of a split-issue settlement is that the agreed result would not be reached, if tried. c) In deciding whether to make a split-issue settlement, consider whether it has some effect upon later years, particularly in a carryover or carryback situation, and in most gift tax cases. If so, it is preferable that the split-issue settlement be expressed in terms of an adjustment of taxable income rather than in a percentage or an amount of tax. d) It is important the taxpayer have a clear understanding of the effect of the split-issue settlement in terms of tax liability and taxable income. Either a closing agreement or a collateral agreement is advisable. e) In all cases involving the "trading" of issues, the discussion of the hazards must clearly support the conclusion that relative values of the issues being traded are equal. Not all issues are traded. f) Penalty issues are not traded in Appeals. Penalties are settled, but the settlement is based on the merits and hazards surrounding each penalty issue standing alone. 4. ) ( ): Nuisance Value Settlements 1. Policy Statement 8 47 states no settlement will be made if it is based on nuisance value to either party. Nuisance value is any concession made solely to eliminate the inconvenience or cost of further negotiations or litigation and is unrelated to the merits of the issues. Appeals neither exacts a concession nor grants a concession solely to relieve either party of such inconvenience or cost. 5.) ( ): Judicial Attitude Towards Settlement 1. The judicial attitude is one which reasonably appraises the facts, law, and litigating prospects; uses sound judgment and ability to see both sides of a question; and is objective and impartial. Any approach which contemplates a maximum possible result in favor of the Government or a deficiency in every case is incompatible with a judicial attitude and the Appeals mission. 2. Do not take advantage of a taxpayer's lack of technical knowledge. Assist the pro se taxpayer in every way possible. In the absence of an agreement, ensure the taxpayers fully understand their appeal rights. 6.) ( ): Burden of Proof 1. The Internal Revenue Service Restructuring and Reform Act of 1998 ("RRA 98" ), which was signed into law on July 22, 1998, states under certain circumstances the Internal Revenue Service (" Service" ) has the burden of proof in any court proceeding with respect to a factual issue if the taxpayer introduces credible evidence to ascertain the taxpayer's income tax liability. Congress believed that placing the burden of proof on taxpayers created a disadvantage for them when they litigated against the Service, and that it should be the Government's responsibility to show that a taxpayer's determination of liability is not correct. Congress also felt it was not appropriate in all cases to make the taxpayer disprove unreported income when the Service determined income solely based upon statistical information from unrelated taxpayers. Furthermore, Congress believed 18 32

35 during court proceedings the Service cannot rest on the presumption of correctness if it does not provide any evidence relating to penalties. 2. The burden of proof provision, under IRC 7491, applies to income, estate, gift, and generation-skipping transfer taxes. (For purposes of this provision, self-employment taxes are treated as income taxes.) 3. The burden of proof provision applies to court proceedings arising in connection with examinations commencing after the date of enactment (July 22, 1998) of RRA 98. Where there is no examination, the burden of proof provision applies to court proceedings arising in connection with taxable periods or events beginning or occurring after the date of enactment of RRA An audit is not the only event considered an examination for purposes of the burden of proof provision. For example, matching an information return to an amount reported on an income tax return is an examination for purposes of this provision. Also, the review of a claim for refund prior to the issuance of the refund is an examination for purposes of this provision. 5. IRC 7491(a) places the burden of proof on the Service in any court proceeding where the taxpayer introduces credible evidence with respect to factual issues relevant to ascertaining the taxpayer's tax liability. To qualify, the taxpayer must: 1. Comply with all substantiation requirements of the Code and the regulations. 2. Maintain all the records required by the Code and the regulations. 3. Cooperate with the Service's reasonable requests for meetings, interviews, witnesses, information, and documents, including providing, within a reasonable period of time, access to and inspection of witnesses, information, or documents within the control of the taxpayer. 4. Cooperation also includes providing reasonable assistance to the Service in obtaining access to and inspection of witnesses, information, or documents not within the control of the taxpayer (including any witnesses, information, or documents located in foreign countries). 5. A necessary element of cooperating with the Service is that the taxpayer must exhaust all administrative remedies, including any appeal rights provided by the Service. 6. Meet certain net worth qualifications if they are a corporation, partnership or trust. These taxpayers, whose net worth exceeds $7 million, are not eligible for the benefits of these burden of proof provisions. 6. IRC 7491(b) places the burden of proof on the Service in any court proceeding where the Service reconstructs a taxpayer's income solely through the use of statistical information of unrelated taxpayers. This rule only applies to individual taxpayers. 7. IRC 7491(c) states the Service has the burden of production in a court proceeding relating to the appropriateness of applying any penalties, additions to tax and additional amounts imposed by the Internal Revenue Code to the taxpayer. This rule only applies to individual taxpayers

36 8. Note: 9. "Additional amounts" are amounts assessed by the Service which are not considered additions to tax or penalties. 10. The burden of proof encompasses both the burden of production (also known as the burden of going forward with the evidence) and the burden of persuasion. 11. The burden of production is met if the party who bears it comes forward with evidence supporting its position. The burden of production requires a party to demonstrate it has concrete and positive evidence, as opposed to a mere theoretical argument, that there is substance to their position. Once a party has established this threshold burden, the burden of production (going forward) shifts back to the other party. 12. In the past, the taxpayer bore the initial burden of production with respect to both the deficiencies and penalties. By requiring the taxpayer to produce credible evidence sufficient to base a decision if not rebutted, "RRA 98" leaves the burden of production on the taxpayer. However, under IRC 7491(c), the Service now bears the burden of production with respect to the determination that a penalty applies. Once the Service meets the burden of production, the taxpayer retains the burden of persuading the court that the penalty is not appropriate, by raising defenses to the penalty, such as reasonable cause. 13. To say that a party bears the burden of persuasion is to say the party must persuade the court that its position is correct. If the party fails to meet its burden, it loses the case. Stated another way, a party that meets the burden of persuasion persuades the Court that its evidence outweighs the evidence of the other party. 14. In the past, the taxpayer bore this burden and had to convince the Court the Service was wrong. Based on the legislative history of "RRA 98", the burden of persuasion shifts to the Government. Since the Government has the burden of persuasion, the Government only prevails if the preponderance of the evidence (more than 50%) favors the Government. 15. If the taxpayer complies with the statutory requirements, the Service must now assume the burden of showing to the satisfaction of the Court the tax liability as determined is correct, and the taxpayer no longer bears the burden of proof. 16. It is critical that examiners now document their workpapers to reflect the degree of taxpayer cooperation. In addition, the examiners must fully describe documents used to support audit conclusions and proposed tax adjustments. Examiners must also prepare documents which fully describe the steps taken and the analysis which supports audit conclusions. Similarly, in unagreed cases, Appeals personnel must address the degree of taxpayer cooperation in their Appeals Case Memos. This confirmation is needed by Counsel in addressing the burden of proof issues during preparation for trial. 17. Good auditing and good litigation practice, similar to most determinations in the past, ordinarily produce sufficient evidence to sustain the burden of proof. The Service and Chief Counsel have not, in the past, generally relied upon the taxpayer's failure of proof to sustain the asserted liability, but rather have affirmatively shown the proper liability. Continued adherence to these practices satisfies the new standard, but is now extremely important that a thorough examination and documentation of the liability be performed prior to the initiation of litigation. 18. The Service cannot take the following actions: 1. Rely on the taxpayer's failure to satisfy the burden of proof in court cases where the taxpayer has a reasonable factual dispute with the Service

37 2. Rely solely on statistical information such as Bureau of Labor Statistics (BLS) or Consumer Price Indexes (CPI) to determine unreported income. 3. Assert penalties arbitrarily and without a firm factual foundation. 19. The Service can take the following actions: 1. Emphasize its examination procedures to further stress good examination techniques. Gather and preserve evidence from the earliest stage of a case, documenting where the taxpayer has cooperated and the extent to which he or she did cooperate and produce information. Explore and document all requirements of the law with respect to the treatment of an item for tax purposes. Similarly, Counsel must emphasize good trial preparation and evidence production practice to satisfy the Government's evidentiary burden. 2. Use statistical data from unrelated taxpayers to determine a taxpayer's income as a component of its traditional indirect methods of establishing income. There is no reason to abandon the usage of statistical information; rather a thorough examination likely produces other circumstantial evidence to support the income determination. In these instances, the use of statistical information cannot be the sole means to determine income. 3. Note: 4. For clarification, in the past both the IRM and court decisions required the Service to supplement a BLS or CPI reconstruction with direct evidence of the amount and likely source of a taxpayer's income. 5. Objectively apply penalties and document workpapers to demonstrate the applicability of the penalties. Always ask taxpayers to provide an explanation of reasonable cause, if applicable, for a penalty, and document the response. 7.) ( ): Case Evaluation for Settlement Purposes 1. The settlement approach and elements of evaluation are not affected by the status of the case. An unacceptable settlement in non-docketed status does not become acceptable solely because it is reconsidered in docketed status; nor does it become more acceptable in a trial calendar period than it was in a prior period. This, of course, does not preclude recognition of changes in judicial interpretation of the law and changes in Service position. It is also recognized that in reconsideration of a case or trial preparation, additional facts may arise which could affect evaluation of the case. 2. If a trial cannot be recommended on an issue, concede the issue even though it may have some merit. 3. Do not make or accept minor concessions on the basis the outcome of litigation is never absolutely predictable. 4. Occasionally settlement is required for issues where the "Golsen Rule" is applicable. The "Golsen Rule" originated with the case of Jack E. Golsen, 54 T.C. 742, (1970). In this case, the Tax Court held it would follow the rule of law laid down by the Court of Appeals to which an appeal in the case before it would lie. 5. Problems arise when the rule of law laid down by the local circuit conflicts with a Revenue Ruling, Revenue Procedure, or other announcement of Service position in regard to the same issue(s). In cases where the "Golsen Rule" is applicable, consult with Counsel as promptly as possible to determine the amount of litigation activity in other circuits and other relevant information on the Service's posture on the issue(s) involved. 6. Exercise care in a case where a tentative agreement was reached with the taxpayer and a change in the position of an applicable authority occurs which affects the agreement in a substantive and material manner. If a tentative agreement was not finally reflected on Form 870-AD or Form 906 and signed by a Service official authorized by the Commissioner to approve negotiated settlements, the tentative agreement is subject to modification if the law or legal precedent relied upon to formulate the tentative agreement changes. If the change is substantive and material, the agreement is renegotiated. For purposes of this section, the word "substantive" means the change in law or legal precedent results in a meaningful change to Appeals' assessment of the 21 35

38 hazards of litigation. 7. Advise taxpayers that tentative agreements not finalized using Form 870 AD or Form 906 are subject to renegotiation in the circumstances described above. 8. When evaluating an issue which was the subject of litigation, it is imperative to check whether an "Action on Decision" ("Action" ) was published when the court ruled adverse to the Service's position. "Actions" represent the Service's "litigating posture" on controversial issues in a specific case and provide the legal basis for the Service's position on those issues. "Actions" are valuable guides for evaluating similar issues, so apply them in resolving cases. However, exercise caution in extending the application of the decision to a similar case unless the facts and circumstances are substantially the same, and consideration is given to the effect of new legislation, regulations, and revenue rulings as well as subsequent court decisions and actions. "Actions" are prepared by the Chief Counsel, and simultaneously made available to the public and Service personnel after litigation is completed. 8.) ( ): Partial Settlements 1. Aim negotiations toward resolution of all issues in a case. If this cannot be done, attempt to reach agreement with the taxpayer on all issues capable of resolution. 9.) ( ): Settlements That Affect Later Taxable Years 1. Issues such as reasonableness of salaries, capital gain v. ordinary income on recurring sales of property, hobby losses, etc., are resolved on the basis of the facts and circumstances applicable to each year separately. In such cases settlement has no effect on later years where a similar issue arises. Be sure the taxpayer understands this. 2. Where settlement involves issues such as basis of property, category of income, or amount of income from installment sales, it is desirable to incorporate the effect on later years into the settlement by use of a closing agreement or collateral agreement. See IRM , Processing Closing Agreements in Appeals. 1. When the disposition involves mutual concessions and the subsequent tax effect is material, a closing agreement is executed. When there are no mutual concessions or when the tax effect is not material, a closing agreement is not required, but it can be executed if in the judgment of Appeals it is desirable or the taxpayer requests it. 2. When a closing agreement is not required, obtain a collateral agreement since it expresses in writing the understanding of the parties as to the tax effect in later years. 10.) ( ): Settlement of Related Cases 1. The best overall use of Service resources and the avoidance of whipsaw situations are the primary considerations in deciding whether interrelated cases are assembled and considered concurrently. Interrelated cases are those in which a determination with respect to an issue in one case has a direct tax effect on another case. 2. A small related or interrelated case is ordinarily considered on the basis of the record and requests are not made for Compliance to develop further evidence or examine other returns. A fact determination inconsistent with action taken in another small case should not influence the appeals officer. See IRM Any further action in a related case is a function of Compliance. 3. Settlements in related cases should not be made whereby a party - clearly not liable under the facts - agrees to a deficiency of a related taxpayer. 4. See IRM 8.2.3, Related, Whipsaw and Inactive Cases for additional information on related cases. 11.) ( ): Settlement Procedure in Whipsaw Cases 1. A whipsaw situation develops when a settlement in one case can have a contrary tax effect in another case and one of the taxpayers may later, when the period of limitations applicable to the other case has expired or is about to expire, file a claim on a basis inconsistent with the prior closing. 2. Another whipsaw situation develops when a related party achieves a judicial determination inconsistent with a result already determined by the Service for another related party

39 3. Additional action may be necessary in order to protect the Government's interest in a whipsaw situation. 1. If a material amount of tax is involved and there are litigating uncertainties, the use of a closing agreement is ordinarily warranted. 2. In the absence of circumstances stated in (a) above, a collateral agreement is obtained if it is considered useful to express in writing the understanding of the parties. However, a collateral agreement does not have the legal effect of a closing agreement. 3. For use of closing agreements and collateral agreements in related cases, see IRM , Processing Closing Agreements in Appeals. 4. See IRM 8.2.3, Related, Whipsaw and Inactive Cases for additional information on whipsaw cases. 12.) ( ): Settlement of Non-Examined Years Affected by Appeals Settlements 1. In certain instances, resolution of a tax dispute may require incorporating an adjustment into a tax year not currently before Appeals in which a revenue agent's report (RAR) has not been issued. Examples of situations requiring such action include the disallowance or allowance of tax shelter losses and rollover adjustments resulting from a prior year. Once it is determined such an adjustment is appropriate, make an effort to determine whether any further action by Appeals is permissible. 2. In instances where an RAR was not issued with respect to a year affected by an Appeals settlement, determine if the tax return for the affected year is currently under examination. 1. If the affected year is not under examination, and the statute of limitations has not expired, notify the Compliance function (which ordinarily has jurisdiction over the related taxpayer) of the proposed action and allow them an opportunity to comment. See IRM 8.2.3, Related, Whipsaw and Inactive Cases. 2. Where there is no pending case on the related taxpayer (and none planned), prepare, for the benefit of Compliance, a Form 5402, Appeals Transmittal and Case Memo containing the appropriate adjustments for the affected year Under certain circumstances (when deemed appropriate by the appeals officer and agreed to by an appeals manager) proceed with a settlement of the affected year either by using Form 870 or a restricted Form 870-AD after first updating the taxpayer's affected year to the AIMS database. See IRM 8.20, Appeals Case Processing Manual, for guidance in following the procedures in changing the status of the taxpayer's taxable year. If Form 870 AD is used, the adjustments must be designated by specific restrictions. 4. If the affected year is currently under the jurisdiction of another IRS office, after contacting that office so that appropriate action can be taken by Appeals, the appeals officer may resolve the issue by having the taxpayer provide the appeals office with an amended return for the affected year based upon the adjustments to that year's tax liability. The appeals officer should immediately forward the amended return to the appropriate Campus and process any payments made by the taxpayer with such return. See IRM , Appeals Remittance Procedures. 5. In the event the statute of limitations has expired for the affected year prior to the filing of an amended return, the appeals officer may want to consult with area counsel before proceeding with a settlement of the case if offsetting adjustments are to be made involving the years in issue. 13.) ( ): Agreements Forms Secured in Appeals Cases 1. Use the general IRS agreement forms except in certain circumstances. Use the special Appeals agreement forms when material mutual concessions are made and in situations when taxpayers request greater finality

40 2. Special agreement forms include: 1. Income taxes and gift taxes Form 870-AD. 2. Estate taxes Form 890-AD. See IRM 8.7.4, Appeals Estate and Gift Tax Cases. 3. Excise and employment taxes Form 2504-AD. See IRM , Excise Tax Cases 4. and IRA Adjustments and IRM , Appeals Employment Tax Procedures. 5. Trust Fund Recovery Penalty Form 2751-AD. 3. The following are special agreement forms used for TEFRA cases: 1. Form 870-P (AD), Settlement Agreement For Partnership 2. Adjustments. 3. Form 870-L (AD), Settlement Agreement For Partnership 4. Adjustments and Affected items. 5. Form 870-PT (AD), Settlement Agreement For Partnership 6. Items and Partnership Level Determinations as to Penalties, Additions to 7. Tax, and Additional Amounts. 8. Form 870-LT (AD), Settlement Agreement For Partnership 9. Items and Partnership Level Determinations as to Penalties, Additions to 10. Tax, and Additional Amounts, and Agreement for Affected Items. 4. For information concerning TEFRA agreement forms, see IRM 8.19, Appeals Pass- Through Entity Handbook. Closing Agreements a) Statutory Authority I.R.M ( ) i) IRC 7121 states that the "Secretary" may enter into closing agreements. Treas. Reg defines the Commissioner s authority relating to closing agreements. Delegation Order 97, Closing Agreements Concerning Internal Revenue Tax Liability, contains the Commissioner s primary re-delegation of that authority to various offices within the IRS and the Office of Chief Counsel. ii) The following list of authorities is not intended to be an exclusive listing nor to limit the use of closing agreements in other appropriate situations. (1) Treas. Reg (b)(1)(iv) explains date of determination where a closing agreement, pursuant to IRC 547(c)(2), determines personal holding company tax. (2) Treas. Reg (a)-2 explains authority provided in IRC 1313(a)(2) for use of closing agreements as determinations in cases involving mitigation of effect of limitations. (3) Treas. Reg (j) states circumstances under which a closing agreement may be entered into with a domestic regulated public utility to determine the consequences of deferred intercompany transactions or matters related to or affected by such transactions. (4) Treas. Reg discusses the authority of a parent corporation to sign closing agreements covering members of affiliated groups. (5) The regulations pertaining to IRC 7121 are found at Treas. Reg iii) The statement of Procedural Rules, at Treas. Reg contains published procedural instructions with respect to closing agreements. iv) There have been court cases dealing with some of the aspects of closing agreements. A discussion of some of these aspects is covered later in this section. See IRM and IRM Technical advice, technical information, or technical assistance may be requested to help resolve these problems. See IRM and IRM

41 b) Matters of Form I.R.M ( ) i) Instructions are provided describing types of closing agreements and how to prepare and assemble the files. ii) There are two closing agreement forms: iii) Form 866, Agreement as to Final Determination of Liability iv) Form 906, Closing Agreement on Final Determination Covering Specific Matters v) In addition, this section discusses combined agreements that determine both tax liability and specific matters. vi) IRM 7.2.1, TE/GE Closing Agreements, provides additional information on closing agreements relating to employee plans and exempt organization matters. vii) Form 866 Agreement as to Final Determination of Liability I.R.M ( ) viii) Final determinations of tax liability pursuant to IRC 7121 are ordinarily reflected on Form 866, Agreement as to Final Determination of Tax Liability. In those cases where space on the form is insufficient to indicate all the periods, taxes, and liabilities covered by the agreement, insert "See Attachment" in that space and put the information on a separate sheet in the same format indicated on the form. Any separate sheets should be clearly identified at the top as: "Closing Agreement with (name of taxpayer)." See IRM ix) A determination of tax liability should reflect the total corrected tax liability for each period and the type of tax covered in the agreement, after application of credits reducing liability but before application of payments or prepayment credits. Special care should be taken when preparing closing agreements where earned income tax credits or other refundable credits are involved. See IRM (1) Where any matter in addition to tax liabilities is to be finally determined by the agreement, a combination agreement should be used. See IRM (2) Qualified liability determinations should be avoided whether determined on a Form 866 or in a combined agreement. (3) Generally, closing agreements determining self-employment tax liability should be avoided. A later disagreement between the IRS and the Social Security Administration on the incidence of self-employment tax may arise as a result of an application for Social Security benefits and may be referred to the Department of Justice for resolution. It is possible that a determination on self-employment tax liability by closing agreement may not be consistent with the final decision on the incidence of such tax and the resulting Social Security benefits. If the final disposition is inconsistent with the closing agreement, the taxpayer may have overpaid tax that cannot be refunded or may owe additional tax that cannot be collected. c) Closing Agreements i) General Characteristics of Closing Agreements I.R.M ( ) (1) A closing agreement under IRC 7121 is an agreement authorized under that statute. While exhibiting some of the attributes of a contract, it is not strictly subject to the law of contracts. For example, legal consideration is not required. Nevertheless, court decisions have held that closing agreements are interpreted using ordinary contract law principles. The greatest disparity between the ordinary contract and a closing agreement is the finality accorded the latter by the terms of the statute. See IRM (2) Treas. Reg (a) provides that: "A closing agreement may be entered into in any case in which there appears to be an advantage in having the case permanently and conclusively closed, or if good and sufficient reasons are shown by the taxpayer for desiring a closing agreement and it is determined by the Commissioner that the United States will sustain no disadvantage through consummation of such an agreement." Subject to the guidelines provided by the regulations, whether or not an agreement will be entered into is a matter within the Commissioner s discretion and therefore, within the discretion of those to whom the Commissioner has delegated the authority to enter into and approve such agreements. In practice, if the taxpayer shows good reasons for requesting the agreement and furnishes necessary facts and documentation, 25 39

42 and the government will sustain no disadvantage, a closing agreement will ordinarily be entered into so long as the content of the agreement can be agreed upon. (3) IRC 7121 states that such an agreement may be entered into with "any person," rather than "any taxpayer." There need be no tax liability with respect to the period to which the closing agreement relates. The words "in respect to any internal revenue tax" in the Code section requires some connection between the determination agreed upon and some tax liability, past or future, or, in appropriate cases, the lack of tax liability. The term "taxpayer" in this handbook will ordinarily have the same meaning as the word "person" in the Code section. (4) The term "tax liability" in the Code section requires that any adjustment to the taxpayer s liability be at least arguably consistent with the federal taxing statutes. Any closing agreement that results in an additional assessment of taxes but is based upon adjustments clearly contrary to the taxing statutes could be challenged as not being "in respect of any internal revenue tax." In Utah Power & Light Co. v. United States, 243 U.S. 389, 409 (1917), the United States Supreme Court stated, "[T]he United States is neither bound nor estopped by acts of its officers or agents in entering into an arrangement or agreement to do or cause to be done what the law does not sanction or permit." However, the statutory language does not require that the matter be clearly consistent with the applicable Code provision, since closing agreements are intended to dispose of debatable matters. Once a closing agreement is entered into determining a debatable matter, later inconsistent interpretative clarification of the applicable statute by the courts will not affect the matter determined. (5) Agreements with respect to taxable periods ended prior to the date of the agreement determine either total tax liability of the taxpayer with respect to one or more types of tax for such periods or one or more separate items affecting such liability or both. Agreements may be entered into with respect to specific matters related to such periods and affecting future periods. Agreements having the foregoing characteristics are the types that will be entered into under paragraphs 2 through 7 of Delegation Order 97, Closing Agreements Concerning Internal Revenue Tax Liability, as revised. Amplification of jurisdictional instructions are covered below. See IRM Closing agreements may be entered into by certain designated Service officials with respect to prospective transactions or completed transactions affecting returns to be filed. (6) There may be more than one closing agreement relating to the tax liability for a single period, although no such closing agreement may modify any matter previously determined by closing agreement, except as provided by statute. Such closing agreements may provide determinations under IRC 1313 or may be the vehicle for allowing a deficiency dividend deduction under IRC 547. See, however, IRC 547(c)(3), IRC 1313(a)(4) and related regulations for information as to other types of determinations for those cases. See IRM Also see IRM 8.7.1, Personal Holding Company - Deficiency Dividend. (7) A closing agreement with respect to a taxable period ending subsequent to the date of the agreement is subject to any change in or modification of the law enacted subsequent to the date of the agreement and applicable to such taxable period, and each such closing agreement determining specific matters should state this. A subsequent "change in the law" does not refer to a subsequent interpretation and clarification of the law by a court decision. Information with respect to the effect of later legislation is discussed later in this section. See IRM (8) A closing agreement may be entered into at any time before the tax period comes within the jurisdiction of an appropriate court and may thereafter be entered into in appropriate circumstances when authorized by the court (e.g., certain bankruptcy situations). A closing agreement must not determine the amount of tax liability (or deficiency or overpayment) for any taxable period over which the United States Tax Court has jurisdiction since the liability for such docketed years is determined by the Tax Court. (9) Closing agreements may arise from matters originating in the tax year in litigation. In these situations, these closing agreements are limited to "related specific items" affecting other non-docketed taxable periods. This type of closing agreement makes a determination for a year before the court, and that determination affects other years. Assuming it is proper to enter into this 26 40

43 type of closing agreement, it is important to use a stipulation of settled issues along with a closing agreement that includes a condition precedent. Generally, the condition precedent will provide that the determinations in the closing agreement do not become effective until the corresponding stipulation of settled issues is accepted by the court. Basically, an agreement for a year before the court is a stipulation of settled issues, but a court is not required to accept a stipulation of settled issues of the parties. Consequently, a closing agreement should not purport to determine a matter if the resolution of the matter cannot be final until accepted by a court. Generally, it is better to execute the closing agreement and the corresponding stipulation at the same time. Otherwise, the government could be at risk that a taxpayer could rescind the offer to enter into a closing agreement before it is signed by the Service. (10) Closing agreements may be reflected on Form 866, Agreement As to Final Determination of tax Liability; Form 906, Closing Agreement on Final Determination Covering Specific Matters ; or the agreement may be drafted electronically utilizing the pattern language of Form 866 or Form 906. In addition, a combined agreement may be drafted that determines both tax liability and specific matters. See IRM (11) Treas. Reg (d)(2) provides that a deficiency or overpayment determined pursuant to a closing agreement shall be assessed and collected or credited and refunded in accordance with applicable provisions of the law. A discussion of interest and waivers is covered later in this section. See IRM See IRM ii) Examples of Closing Agreements I.R.M ( ) (1) Tax liability closing agreements may be entered into when it is advantageous to have the matter permanently and conclusively closed, or when a taxpayer can show that there are good reasons for an agreement and that making the agreement will not prejudice the interests of the government. The following represent examples of acceptable reasons for entering into a determination of tax liability by closing agreement: (a) The taxpayer wishes to definitely establish its tax liability in order that a transaction may be facilitated, such as a sale of its stock. (b) The fiduciary of an estate desires a closing agreement so he or she can be discharged by the court. (c) The fiduciary of a trust or a receivership desires a final determination before a distribution is made. (d) A corporation in the process of liquidation or dissolution desires a closing agreement in order to wind up its affairs. (e) A taxpayer wishes to fulfill creditors demands for authentic evidence of the status of its tax liability. (f) Where proposed assessments are contested on the theory that the years are barred and the taxpayer wishes to agree to some portion or all of the assessments. See IRM (g) A taxpayer wants to be assured that a controversy between it and the Service is disposed of with finality. As an alternative, a taxpayer may be satisfied that the reopening of his or her case is unlikely if the practice of the Service not to reopen cases is explained (see Rev. Proc , C.B. 1206, Policy Statements P-4-3 and P-8-3 (formerly P-8-50), and IRM , New Issues and Reopening Closed Issues). Use of special agreement forms in Appeals cases may also be satisfactory to the taxpayer. (h) To determine personal holding company tax in order to permit deficiency dividends under IRC 547. (i) To reflect a competent authority determination. (2) At the request of the taxpayer or the government, a determination of one or more specific matters may be accomplished by entering into a closing agreement for good reasons. However, a closing agreement should not be entered into where there is a disadvantage to the government. A few examples of circumstances that may merit entering into such closing agreements follow: 27 41

44 issues. (a) Determine cost, fair market value, or adjusted basis as of a given date. For example, it may be desirable to have both an estate and its legatees or devisees (or both donors and donees) sign such agreements. See Exhibit (b) Dispose of certain IRC 482 cases pursuant to Rev. Proc , C.B (c) Ensure finality and consistency in disposing of cases involving divisions of community property between spouse incident to divorce. (d) Dispose of change of accounting method issues in Appeals cases involving principles similar to those applied in Rev. Proc.97-27, C.B. 680, as modified by Rev. Proc , C.B See Exhibit (e) Determine a fraud penalty reflecting complete or partial concession in cases where the statute of limitations is otherwise barred. See IRM , Processing Fraud Penalty Cases. (f) Determine the amount of net operating loss, tax credit, or capital loss. (g) Provide determinations for disposition of cases involving mitigation ( IRC 1311 to IRC 1314). (h) Determine an alternative method of adjusting basis as a result of receipt of income from cancellation of indebtedness under IRC 108(a). (i) Prevent loss of revenue from "whipsaw" situations. A closing agreement will prevent a related taxpayer from contesting an issue previously settled with another taxpayer by filing a claim to seek further tax benefits after the statutory period of limitations has expired with respect to the settling party. Once the Service resolves the dispute between the taxpayer and a related party, a closing agreement will bar the related party from attempting to create inconsistency in tax treatment for the matter(s) addressed in the closing agreement. (j) Provide finality to those agreed upon issues involving mutual concessions in Appeals cases where partial settlements are effected. (k) Determine the consequences of deferred intercompany transactions of domestic consolidated groups. (l) Determine gross income, the amount of income from a transaction, the amounts of deductions for losses, depreciation, depletion, etc., or the year of includability or deductibility. (m) Establish the effect on future years when an issue is disposed of on an intermediate basis and the issue is recurring (providing later tax treatment will not depend on factual circumstances of later years). (n) Close cases involving failure to withhold income tax on payments such as taxable reimbursements of moving expenses. (o) Resolve cases involving the settlement of employment tax controversies. See Exhibit (p) Resolve issues involving qualification of employee retirement plans. See IRM Part 7, Rulings and Agreements, on determinations relating to employee retirement plans. (q) Reflect competent authority determinations under Rev. Proc , C.B (r) Resolve an issue in Coordinated Industry Cases (CIC) and Industry Cases (IC) audits under Rev. Proc , C.B (s) Finalize an agreement for an early referral issue under Rev. Proc , C.B (t) To address a mass error that affects a higher volume of information returns but involves a de minimums amount of understated reported income for select information returns. iii) A practitioner should come to the conference with a settlement offer that disposes of all iv) A qualified offer that is subsequently rejected by the IRS may result in an award of 28 42

45 attorney's fees and costs if the IRS obtains a subsequent court judgment in an amount equal or less than the offer. The award of attorney's fees does not apply to settlements at the Appeals level. Alternative Dispute Resolution in Appeals 2 a) Fast Track Settlement: i) In General: Fast Track Settlement ( FTS ) is a jointly administered program offered by the Service s Small Business/Self-Employed Unit ( SBSE ) and Appeals to expedite case resolution at the earliest opportunity. I.R.M., pt (Aug. 6, 2015). ii) Purposes of FTS: FTS is intended to enable taxpayers and the Service to work together in resolving disputed issues while the case remains in SBSE jurisdiction. Id. FTS is designed to streamline the settlement process of cases because the taxpayer, the taxpayer s representative, the examiner, the manager, and an Appeals mediator actively participate in the outcome. Id. iii) How it Works: The Appeals officer, acting as a mediator, effectively leads and conducts the session as a mediator would. Id. iv) Time of Completion: The FTS is estimated to be complete within 60 days. FTS is a relatively new option, available nationally beginning on July 1, I.R.M., pt (Oct. 1, 2012). v) How to Request: A request for FTS should be made by submitting a package to an Appeals Team Manager (ATM) that includes the following information: (1) Signed Form 14017, Application for Fast Track Settlement; (2) A summary of issues; (3) The taxpayer's written position and response to the examiner; and (4) In the case of a family limited partnership valuation issue, Form 6180A, Form 886- A, the taxpayer's appraisal, and the Service's appraisal. See I.R.M., pts (Oct. 1, 2012). vi) When Available: FTS is generally available for all non-docketed SBSE cases with no regard to dollar amount. However, the following cases are specifically excluded from FTS: (1) Docketed cases; (2) Cases with numerous issues, whether simple or complex, which will require longer than 60 days to resolve; (3) Cases where SBSE or the taxpayer are unable to meet during the 60-day time frame; (4) High profile, sensitive taxpayers or issues; (5) Cases where the taxpayers have failed to respond to Service communications and no documentation has been previously submitted for consideration (a/k/a no-show cases ); (6) Non-filer cases; (7) Frivolous filers; and (8) Whipsaw issues (i.e., issues for which resolution as to one party might result in inconsistent tax treatment in the absence of another party s participation). vii) Termination of FTS: A taxpayer s request to participate in the FTS process can be terminated or withdrawn at any time. I.R.M., pt (Oct. 1, 2012). viii) Cases That Settle in FTS: If the parties resolve the issue(s) raised in the FTS process and the examiner s group manager or territory manager agrees with the settlement, Appeals will prepare and execute the appropriate agreement form and a brief Appeals Case Memorandum. I.R.M., pt (Oct. 1, 2012). Once the disputed issues are resolved or the decision is made that a resolution cannot be reached, the Appeals Official solicits signatures of the taxpayer and SBSE representative on a report (known as the Fast Track Session Report ). Id. The Fast Track Session Report lists the issues in dispute as well as the resolution of the issues. Id. Both parties are given a copy of this report and are also notified the settlement is not final until the necessary closing documents or waivers are signed. Id. 2 Note that IRS Appeals Early Arbitration program was recently terminated (See Rev. Proc , IRB 1)

46 ix) Cases That Do Not Settle in FTS: If the parties are unable to resolve an issue, the taxpayer will retain all standard appeal rights and the examiner will close the case as Unagreed. When Appeals receives an unagreed case after an FTS session, Appeals assigns it to a different Appeals Officer (assuming of course that a 90-day letter is not issued first). I.R.M., pt (Oct. 1, 2012)

47 b) Fast Track Mediation i) In General: Fast Track Mediation ( FTM ) is a program designed by the Service to expedite case resolution and expand the range of dispute resolution options available to taxpayers. I.R.M., pt (Dec. 5, 2014). Obviously, because of the dollar limitations that apply to FTM, many valuation cases are not particularly well-suited for FTM ii) How it Works: Appeals officers assigned to FTM cases are trained in mediation resolution. The mediator does not have settlement authority and cannot render a decision regarding any issue in dispute. Id. iii) Time of Completion: FTM is designed to be completed within an average of 30 to 40 days. Id. iv) How to Request: A request for FTM should be made by submitting an package to an Appeals Team Manager that includes the following information: (1) Form 13369,Agreement to Mediate (If the Form 13369, is signed by a person pursuant to a Power of Attorney executed by the taxpayer, a copy of Form 2848, Power of the Attorney and Declaration of Representative, must be attached to the agreement); (2) The examiner's summary of the issues and tentative tax computation (e.g., Form 886A and Form 1273); and (3) The taxpayer s written position. See I.R.M., pt (Dec. 5, 2014). v) Cases Excluded: As relevant to non-frivolous tax disputes, the following cases are excluded from FTM: (1) Cases over $100,000. Due to the possibility of complex issues in cases over $100,000, further review is required by the Service to determine whether such cases are eligible for mediation; (2) Docketed issues where resolution depends on an assessment of the hazards of litigation (i.e., cases pending before a court of law in which the issue is presently before the court); (3) Compliance Coordinated Issues (CCI) and Appeals Coordinated Issue Program cases; and (4) Cases in which there is an absence of legal precedents and/or conflicts. See, e.g., I.R.M., pt (Dec. 5, 2014). vi) Differences Between FTS and FTM: As compared with FTM, FTS differs from FTM in that the Appeals officer has the authority to settle an FTS case, including the use of hazards of litigation. Id. Also, as noted, there are no dollar limitation restrictions on cases that can be brought under FTS. Id

48 c) Early Referral to Appeals i) The Early Referral program was established by Rev. Proc in response to the Restructuring and Reform Act of 1998, which added IRC 7123, requiring the IRS to prescribe procedures by which a taxpayer can request early referral. ii) Taxpayers can request the transfer of a developed but unresolved issue from Examination or Collection to Appeals. iii) Issues appropriate for early referral are limited to those that: (1) If resolved, can reasonably be expected to result in a quicker resolution of the entire case; (2) Both the taxpayer and the District agree should be referred to Appeals early; (3) Are fully developed; and (4) Are part of a case where the remaining issues are not expected to be completed before Appeals could resolve the early referral issue. iv) Issues excluded from Early Referral consideration: (1) Any issue on which a 30-day letter has been issued. (2) Any issue that is not fully developed. (3) When the remaining issues in the case are likely to be completed before Appeals could resolve the early referral issue. (4) An issue that is designated for litigation. (5) An issue for which the taxpayer has requested Competent Authority Assistance. (6) Whipsaw issues v) Procedure: (1) A request for early referral must be submitted in writing. The request must: (a) identify the taxpayer and the issues for which early referral is requested (b) Describe the taxpayer s position with regard to those issues, including a brief recitation of the relevant law and facts. (c) The Early Referral request must be accompanied by a perjury statement, and must be signed by the taxpayer or the taxpayer s representative. (2) The Case Manager will notify the taxpayer of its decision to accept or reject within 14 days of receiving the request. (a) Although there is no formal appeal of a denial of an Early Referral request, the taxpayer can request a conference with the Case Manager s supervisor. (3) If approved, the Case Manager will complete Form (4) The taxpayer must respond to the Form 5701: (a) Response is due within 30 days of receipt of Form. (b) Must outline the facts and law relied upon by the taxpayer. (5) Appeals will then take jurisdiction over only those issues accepted for Early Referral. (6) If an agreement is reached, the Parties will sign Form 906. (7) If an agreement is not reached: (a) The taxpayer may then request mediation, or (b) The issue returns to its original jurisdiction. (8) NOTE: APPEALS WILL NOT CONSIDER AN UNAGREED EARLY REFERALL ISSUE IF THE ENTIRE CASE IS LATER PROTESTED TO APPEALS, UNLESS A SUBSTANTIAL CHANGE HAS OCCURRED. vi) References (1) Rev. Proc (2) IRM

49 d) Post Appeals Mediation i) In General: Post-Appeals Mediation ( PAM ) is a formal mediation procedure for cases in the Appeals administrative process that is conducted by third parties. I.R.M., pt (Aug. 27, 2015). PAM is a nonbinding process that uses the service of a mediator or mediators, as neutral third parties, to help Appeals and the taxpayer reach a negotiated settlement. Id. ii) How it Works: Generally, an Appeals officer serves as a mediator and Appeals pays for all expenses associated with the use of the mediator. Rev. Proc , 9.01, I.R.B superseding Rev. Proc , I.R.B Additionally, the taxpayer may (at his or her own expense) elect to use a co-mediator who is not employed by the Service. (1) Conference: The Appeals Team Manager will confer with the Appeals Officer of Tax Policy and Procedure before deciding to approve or deny a mediation request. Rev. Proc , 7.02(3). (2) Time of Response: The Appeals Team Manager will generally respond within two weeks after receiving the mediation request. (3) Written Agreement Required: Assuming the request is approved, the taxpayer and Appeals will enter into a written agreement to mediate substantially in the form attached as Exhibit 2 to Rev. Proc See Rev. Proc , iii) How to Request: To invoke the PAM procedures, the taxpayer should send a written request to the appropriate Appeals Team Manager and a copy to the appropriate Appeals Area Director (these individuals are listed in Exhibit 1 of the revenue procedure). Rev. Proc , 7.02(1). The mediation request should include the following: (1) The taxpayer s name, taxpayer identification number, and address (and, if applicable, the name, title, address, and telephone number of a different contact person, such as an authorized representative); (2) The name of the Team Case Leader, Appeals Officer, and/or Settlement Officer; (3) The taxable period(s) involved; (4) A description of the issue for which mediation is requested, including the dollar amount of the adjustment or, if applicable, the offer in compromise amount in dispute; and (5) A representation that the issue is not an excluded issue under the revenue procedure. See Rev. Proc , 7.02(2). iv) Availability of PAM: The availability of PAM is defined in Rev. Proc , I.R.B. 1014, superseding Rev. Proc , I.R.B Rev. Proc instructs that [m]ediation may be used to resolve issues in cases that qualify under this revenue procedure while they are under consideration by Appeals. This procedure may be used only after Appeals settlement discussions are unsuccessful and, generally, when all other issues are resolved but for the issue(s) which mediation is being requested. Rev. Proc , Mediation is available under the revenue procedure for the following types of cases: (1) Legal issues; (2) Factual issues; (3) Compliance Coordinated Issues or Appeals Coordinated Issues, which are published online at (4) Early referral issues when an agreement is not reached, provided that the early referral issue meets the requirements for mediation; (5) Issues for which a request for competent authority assistance has not yet been filed; (6) Unsuccessful attempts to enter into a closing agreement under I.R.C. 7121; (7) Offer in compromise issues (as defined in the revenue procedure); and (8) Trust fund recovery penalty issues (as defined in the revenue procedure). See Rev. Proc , v) Unavailability of PAM: Mediation is not available under the revenue procedure for the following types of cases: 33 47

50 (1) Cases in which mediation is improper under 5 U.S.C. 572 or 575, which generally provide the authority and guidelines for use of alternative dispute resolution in the administrative process; (2) Issues designated for litigation; (3) Issues docketed in any court; (4) Collection cases, except for certain offer in compromise and trust fund recovery penalty cases as detailed in the revenue procedure; (5) Issues for which mediation would not be consistent with sound tax administration, including but not limited to issues governed by closing agreements, res judicata, or controlling Supreme Court precedent; (6) Frivolous issues; (7) Whipsaw issues, or issues for which resolution with respect to one party might result in inconsistent treatment in the absence of participation of another party, such as, but not limited to, issues on a joint return where both spouses do not agree to participate in the same mediation proceeding or where one spouse is claiming innocent spouse treatment under I.R.C. 6015; (8) Cases in which the taxpayer did not act in good faith during settlement negotiations, such as, but not limited to, cases in which the taxpayer failed to timely respond to document requests or offers to settle, or failed to address arguments and precedents raised by Appeals; (9) Cases that were previously mediated through a different alternative dispute resolution program within Appeals, such as FTS or FTM; and (10) Issues that have been otherwise identified in subsequent guidance issued by the IRS as excluded from the mediation program. See Rev. Proc , e) Generally excluded issues: (1) Collection Issues (2) Those not consistent with sound tax administration (3) Frivolous arguments (4) Unresolved disputes as the result of bad faith negotiations ii) References: (1) Rev. Proc (2) Announcement (3) IRM

51 Appeals Mediation Programs Topic IRS Publication IRM Section & Other IRS Guidance IRS Forms Appeals Mediation Programs Publication dividuals/appeals- Mediation-Self-Help- Tool Fast Track Mediation Publication 3605, Fast Track Mediation: A Process for Prompt Resolution of Tax Issues Revenue Procedure Form 13369, Agreement to Mediate, and A written statement detailing your position on the disputed issue(s). Fast Track Settlement Publication 4539, Post-Appeals Mediation Fast Track Settlement: A Process for Prompt Resolution of Large Business and International Tax Issues Rev. Proc Form 14017, Revenue Procedure Application for Fast Track Settlement, and A written statement detailing your position on the disputed issue(s) 35 49

52 Overview of IRS Alternative Dispute Resolution (ADR) Type of Taxpayer Stage of IRS Process Pre-Filing Examination Collection Appeals Large Business and International Compliance Assurance Process Fast Track Settlement Early Referral Small Business/Self- Employed Fast Track Settlement Early Referral Fast Track Mediation Post Appeals Mediation Tax Exempt/Governm ent Entities Fast Track Settlement Early Referral 36 50

53 How to Appeal an IRS Penalty 1. Introduction and Penalty Relief 2. Internal Revenue Manual < 3. Reasonable cause 4. This is a facts-and-circumstances test in which the taxpayer demonstrates that he or she exercised ordinary business care and prudence in determining the tax obligation, but nevertheless failed to comply. 5. Depending on the penalty, the taxpayer must also prove that he or she acted in good faith or that his or her failure to comply with the law was not due to willful neglect. 6. The IRS determines reasonable cause abatement on a case-by-case basis, treating each tax form and year separately. 7. The IRS often abates penalties based on reasonable cause because of circumstances beyond the taxpayer s control, such as illness, natural disasters, or destruction of taxpayer records. 8. Statutory exceptions 9. The IRS waives or abates penalties because of specific exceptions. 10. For example, Sec. 6654(e) provides exceptions to the estimated tax penalty when the tax is less than $1,000, when there is no tax liability in the preceding year, or when the taxpayer is newly retired or disabled. 11. Another example is Sec. 7508, which prohibits penalty assessments on taxpayers in combat zones. 12. IRC Section 6751(b) No penalty under this title shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination or such higher level official as the Secretary may designate

54 13. Correction of an IRS error 14. The IRS waives penalties when it makes an error. 15. For example, if the IRS incorrectly posted an extension to file, resulting in a failure-to-file penalty, the IRS would waive the penalty. 16. This category can also include erroneous written or oral advice from the IRS that the taxpayer relied on using ordinary business care and prudence. 17. Appeals non-assertion or relief due to hazards of litigation 18. The IRS Office of Appeals can waive penalties to settle a case based on hazards of litigation, which is the probability that the IRS determination will not be upheld in court. 19. For example, an IRS Appeals officer may waive penalties in an appeals hearing to reach an agreement with the taxpayer. 20. This is used primarily for accuracy-related penalties in Appeals proceedings involving audits. 21. Administrative waiver 22. The IRS may formally interpret or clarify a provision to provide administrative relief from a penalty it would otherwise assess. 23. The IRS may address an administrative waiver in either a policy statement, news release, or other formal communication stating that the policy of the IRS is to provide relief from a penalty under specific conditions. 24. The IRS provided relief for the failure-to-pay penalty for taxpayers with financial hardship (see IR ). 25. First-time penalty abatement (FTA) for taxpayers with a clean compliance history 26. IRM ( ) 27. This type of penalty relief allows abatement of certain penalties for a single tax period (one tax year for individual and business income taxes, and one quarter for payroll taxes). 28. For individuals: 29. FTA applies to the failure-to-file and failure-to-pay penalties. Estate and gift tax returns do not qualify for FTA waivers. 30. For businesses and payroll clients: 31. FTA applies to the failure-to-file, failure-to-pay, and/or the failure-to-deposit penalties. S corporation and partnership late-filing penalties also qualify under FTA. 32. For individual and business clients, FTA does not apply to the estimated tax and accuracy-related penalties. The assertion of an accuracy-related penalty is based on the facts-and-circumstances of each taxpayer and each tax year. 33. To qualify for FTA, the Taxpayer must meet the clean compliance criteria rules: 34. Clean three-year penalty history

55 35. The Taxpayer cannot have penalties of a significant amount assessed in the prior three years on the same type of tax return. 36. IRS procedures do not publicly define significant amount, but in practice, the IRS has used any penalty amount as significant in its application of the FTA qualification. 37. Practitioners should remind the IRS of the significant amount qualification if the IRS rejects the request because of a small penalty amount assessed in the past three years. 38. The estimated tax penalty is an exception and would not disqualify the Taxpayer from receiving FTA. 39. Required returns filed. 40. The Taxpayer must have filed all tax returns for the past three years, as required. 41. Keep in mind that there is an unpublished ceiling on the penalty amount that the IRS will abate under FTA by phone. 42. If the Taxpayer s penalties are substantial, the Taxpayer can request FTA in writing. 43. If the Taxpayer request abatement in writing, provide other relevant penalty relief arguments, including any reasonable cause arguments. This will increase the Taxpayer s chances of penalty abatement. Employee Classification Issues a) Introduction i) IRC 7436 of allows businesses to review employment tax determinations involving: (1) Classification of taxpayer s workers as employees (2) Entitlement to Section 530 relief (3) The proper amount of employment tax due (FICA, FUTA, income tax, taxes due under Railroad Retirement Tax Act) 3 ii) Before filing Section 7436 claim, taxpayer may seek review in IRS Appeals: (1) IRS will first issue Letter 950-C, Employment Tax 30 Day Letter-WC, (the 30-day letter ) advising the service consumers of adjustments to their employment tax liabilities, related to worker misclassification issues. (2) Letter 950-C may also include an IRS Form 13683, Statement of Disputed Issues for cases where the amount in dispute does not exceed $25,000 for each tax period. (3) Taxpayer may file a protest letter with IRS appeals. (4) IRS examiner will prepare a rebuttal letter and give the taxpayer a chance to meet with the examiner s manager before referring the entire case to IRS Appeals. (5) If no protest letter is filed within 30 days, or if the taxpayer fails to settle the case in IRS Appeals, the IRS will issue a Letter 3523, Notice of Determination of Worker Classification (NDWC), via certified mail, indicating all the workers that it has determined are misclassified and the taxes due (a) Taxpayer may petition Tax Court under 7436 before the 91st day following the postmarked dated of the NDWC. IRC 7436(b)(2) b) Employer Relief Under Section 530 i) Available to employers whose misclassification was done in good faith under 530 of the Revenue Act of ii) Components: (1) Safe harbor from retroactive taxes and penalties due from reclassification 3 NOTE: Only the individual or business receiving the service can petition the Tax Court under 7436; workers that disagree with an IRS determination resulting from a Form SS-8 filing, for instance, cannot

56 (2) Burden on employer to establish prima facie case (3) Reasonable Basis for treating workers as independent contractors (a) Employer reasonably relied on a relevant court case about federal taxes, or an IRS ruling (b) Other federal and state decisions may constitute reasonable basis if they use the same common law rules. (i) However, a Private Letter Ruling or Technical Advice will not qualify. (ii) Memorandum issued to an entity s predecessor does not qualify. (c) Factors in favor: (i) Employer treated the workers as independent contractors based on knowledge that was how a significant segment of the industry treated similar workers; or (ii) Employer relied on some other reasonable basis, such as the advice of a business lawyer or accountant familiar with the facts of the employer s business (if the employer reasonably believed in the professional s qualifications, and the advice was rendered when the employment classification decision was made). 1. Reasonable basis is construed liberally in favor of the taxpayer. (4) Substantive consistency: Employer must have treated all workers holding substantially similar positions as independent contractors. (a) Note that for test proctors, 'substantive consistency does not apply with respect to services performed after December 31, 2006,unless the individual (i) is performing services for a tax-exempt organization, and (ii) is not otherwise treated as an employee of such organization for purposes of employment taxes. (b) Substantially similar positions (i) Degree of supervision and control (ii) Managerial responsibilities (iii) Reporting requirements (iv) Job duties (v) Contractual relationship (vi) Employee benefits (5) Reporting consistency: Employer must have filed all required federal tax returns (including IRS Form 1099-MISC for workers treated as independent contractors and paid at least $600), consistent with treating workers as non-employees. iii) Employers qualifying under Section 530 relief can continue to avoid paying employment taxes, but such workers are not considered independent contractors for income tax purposes, merely non-employees, for employment tax purposes. iv) Section 530 does not apply to the hiring of certain technical workers, such as engineers, designers, drafters, computer programmers, systems analysts, or other similar workers. See Tax Reform Act of 1986, Pub. L. No , 1706("), 100 Stat (1986).The common-law employee/independent contractor tests are determinative here v) Section 530 claims can be filed with IRS Appeals or in U.S. Tax Court, or via the IRS Classification Settlement Program (CSP). vi) Other materials: Refer to Employee Classification outlines, available at for more detailed information on classification issues at the federal and state level

57 Valuation Issues and Appeals Rights a) Definition of Valuation: Establishing the value of something for federal tax purposes by an expert. That something can be: real property, an interest in real property (e.g., fractional interests or easements), intellectual property (e.g., patents, copyrights, trademarks), personal property (e.g., artwork, a sports memorabilia collection, or a rare automobile), a business, investments, financial instruments, or even a person s image and likeness. b) Background i) IRC 170 governs charitable contributions and the concurrent deductions ii) IRC 170 mandates a written appraisal if amount claimed as a charitable deduction exceeds $5,000 for any single item iii) The 30-Day Letter (1) In General: Once an audit focusing on valuation has run its course and there are unagreed changes to a proposed deficiency, depending upon the time before the expiration of the statute of limitations, taxpayers will normally be afforded the opportunity to have Appeals review those unagreed issues. The vast majority of cases, especially those in which valuation are at issue, will be resolved with Appeals. iv) Tax Court s Views on Settling Valuation Cases: The Tax Court is clear that it wants parties to settle valuation cases. See, e.g., Messing v. Commissioner, 48 T.C. 502, 512 (1967) ( Too often in valuation disputes the parties have convinced themselves of unalterable correctness of their positions and have consequently failed successfully to conclude settlement negotiations - a process clearly more conducive to the proper disposition of disputes such as this. The result is an overzealous effort, during the course of the ensuing litigation, to infuse a talismanic precision into an issue which should frankly be recognized as inherently imprecise and capable of resolution only by a Solomon-like pronouncement. ); see also Buffalo Tool & Die Mfg. Co. v. Commissioner, 74 T.C. 441, (1980) ( As the Court repeatedly admonished counsel at trial, the issue is more properly suited for the give and take of the settlement process than adjudication. The existing record reeks of stubbornness rather than flexibility on the part of both parties. We are convinced that the valuation issue is capable of resolution by the parties themselves through an agreement which will reflect a compromise Solomon-like adjustment, thereby saving the expenditure of time, effort, and money by the parties and the Court-a process not likely to produce a better result. Indeed, each of the parties should keep in mind that, in the final analysis, the Court may find the evidence of valuation by one of the parties sufficiently more convincing than that of the other party, so that the final result will produce a significant financial defeat for one or the other, rather than a middle-ofthe-road compromise which we suspect each of the parties expects the Court to reach. If the parties insist on our valuing any or all of the assets, we will. We do not intend to avoid our responsibilities but instead seek to administer to them more efficiently-a factor which has become increasingly important in light of the constantly expanding workload of the Court. ). v) Service s Commitment to Settling Valuation Cases: The Service, in turn, has counseled its Appeals officers to always strive to settle valuation cases in view of the judicial distaste for such issues. See Dep t of the Treasury, Internal Revenue Service, Valuation Training for Appeals Officers, Training (Rev. May 1997), available at vi) Trials Generally Disfavored: Trials are a vital part of tax controversy. Though sometimes necessary, they usually result from a failure of imagination and are rarely in the client s best interest. Alternative dispute resolution is a legitimate alternative to a trial that is advisable with respect to almost all valuation cases. In connection with full or partially unagreed cases, there are many alternatives to trial offered (1) by the Service vii) Other materials: Refer to Valuation in Tax: What Non-Attorneys Should Know About Litigating Valuation Cases, available at for more detailed information on Appeals 41 55

58 role in valuation cases. Trust Fund Recovery Penalty c) Introduction i) The IRC imposes a penalty against any responsible person who is required to collect and pay any tax but willfully fails to do so, or who willfully attempts to evade or defeat the tax. See IRC (1) Responsible persons include: (a) An officer or an employee of a corporation, (b) A member or employee of a partnership, (c) A corporate director or shareholder, (d) A member of a board of trustees of a nonprofit organization, (e) Another person with authority and control over funds to direct their disbursement, (f) Another corporation or third party payer, (g) Payroll Service Providers (PSP) or responsible parties within a PSP (h) Professional Employer Organizations (PEO) or responsible parties within a PEO, or (i) Responsible parties within the common law employer (client of PSP/PEO). (2) For willfulness to exist, the responsible person: (a) Must have been, or should have been, aware of the outstanding taxes and (b) Either intentionally disregarded the law or was plainly indifferent to its requirements (no evil intent or bad motive is required). 4 (3) Both requirements must be met during the quarter for a person to be liable. ii) The most common fact pattern occurs when an employer fails to collect and pay over income tax withheld from the employees and the employee s share of social security taxes. These taxes are commonly referred to as trust fund taxes. d) If the IRS decides that a person is liable for the penalty, it will send a notice of proposed assessment. (i.e., Letter 1153 (DO)). e) The person can agree to the proposed assessment or appeal the proposed assessment within 60 days of the date of the notice by requesting an Appeals conference. The penalty will be assessed if the taxpayer fails to timely appeal the proposed assessment and the IRS has not received a signed agreement from the taxpayer agreeing to the assessment. See Rev. Proc i) If the proposed penalty assessment for any tax period is $25,000 or less, the taxpayer can appeal the proposed assessment by submitting a small case appeal request. See Rev. Proc ii) If the proposed penalty for any tax period is more than $25000, the taxpayer appeals the proposed assessment by submitting a formal written protest that includes a statement of facts, and an explanation of any law or other supporting authorities the taxpayer is relying upon. See Rev. Proc f) Defenses to the proposed assessment involve a quarter-by-quarter analysis that the person was not responsible and/or willful, the expiration of the statute of limitations or lack of collection potential. g) Trust fund penalty cases are eligible for the fast track mediation program. (IRM ) h) Settlement Tactics for Trust Fund Recovery Cases i) Practitioner must include the following information in their settlement offer: (1) Whether taxpayer was required to collect and pay over trust funds 4 See Recovery-Penalty-TFRP 42 56

59 (2) Whether a responsible person willfully failed to collect and pay over trust funds to the government, or willfully attempted to evade or defeat the payment of such tax (3) Whether taxpayer sufficiently designated a payment of the trust fund portion of the unpaid tax (4) Whether the taxpayer provided sufficient corporate payroll records to prove that a corporate tax deposit was in the amount required under Treas. Reg and therefore was considered a designated payment to be applied to both trust fund and non-trust fund portions of the employment taxes associated with that specific payroll. ii) Prepare a formal written protest if the total amount for any one tax period is greater than $50,000. (Small case request if under $50,000 for any one tax period). (1) To prepare a formal written request for Appeals you must: (a) Send a letter requesting Appeals consideration to the contact at the address shown on the letter (Letter 1153). (b) Include your name, address, social security number, and daytime telephone number. (c) Enclose a copy of the Letter (d) Indicate the tax periods involved. (e) Indicate the amount and the reason you don t agree. (f) Include a clear explanation of your duties and responsibilities. (g) Cite the law or authority, if any, on which you are relying. (h) Sign the written protest under the penalties of perjury

60 Hyperlinks to Relevant Forms Offer in Compromise, Form 656-B Claim for Refund and Request for Abatement, Form 843 Qualifying Children Residency Statement, Form 8836 Collection Appeal Request, Form 9423 Request for Appeals Review, Form Request for a Collection Due Process Hearing, Form Statement of Disagreement, Form Agreement as to Final Determination of Tax Liability Form 866 Explanation of Items Form 886-A Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment Form 870 Closing Agreement on Final Determination Covering Specific Matters Form 906 Appeals Transmittal and Case Memo Form 5402 Notice of Proposed Adjustment Form 5701 Form 9333 Agreement to Mediate Form Statement of Disputed Issues Form Application for Fast Track Settlement Form Judgment Fund Transmittal FMS Form 194 Your Rights As a Taxpayer, Publication 1 A Form 656-B is used to make an offer to compromise your liability for payment of less than the full amount owed. A Form 843 is submitted to claim a refund (or abatement) of certain overpaid (or over-assessed) taxes, interest, penalties, and additions to tax. A Form 8836 is filed with the IRS to show that you and your qualifying child meet the residency test for the earned income credit (EIC). A Form 9423 is used to appeal a collection action. Using this form, you may request an appeal of the following actions: notice of federal tax lien, levy, seizure, or termination of an installment agreement. This form can be used to request an Appeals review of a proposed IRS adjustment of $25,000 or less per tax year or period. A Form is used to request a collection due process hearing under IRC 6320 and IRC You can use this form to explain why you disagree with the Internal Revenue Service (IRS) Determination concerning relief from joint and several liability for a joint return under Internal Revenue Code sections 6013(e), 6015(b), 6015(c), or 6015(f) in the letter you received with this form. Final determinations of tax liability pursuant to IRC 7121 are ordinarily reflected on Form 866 Used to explain adjustments made to a taxpayer s return. Taxpayer waives the restriction on the Assessment and collection of tax. The Form 870 does not prevent the taxpayer from bringing a subsequent refund suit. It is not as final as a closing agreement. Internal Revenue Code section 7121 authorizes the Internal Revenue Service and taxpayers to enter into closing agreements. While a closing agreement exhibits some of the attributes of a contract, it is not strictly subject to the law of contracts. Closing agreements are legally binding. Used for proposed adjustments to a return. Used to request mediation. Used for disputing issued of less than $25,000 per period. Application to use Fast Track Settlement. Used to transmit a request to certify an administrative or litigative award against the United States for payment from the Judgment Fund Explains your rights as a taxpayer and includes information on the examination and collection processes

61 Overview of the Appeals Process Brochure, Publication 4227 Appeals - Introduction to Alternative Dispute Resolution, Publication 4167 Your Appeal Rights and How to Prepare a Protest If You Don't Agree, Publication 5 Collection Appeal Rights, Publication 1660 What You Should Know About The IRS Collection Process, Publication 594 The Examination Process, Publication 3498 and 3498A Explains the mission, overview, and expectations of the appeal process to the taxpayers. Describes the Fast Track Mediation, Fast Track Settlement and Post-Appeals Mediation programs. Explains your appeal rights and offers information on how to protest an Internal Revenue Agent's examination report. Explains your appeal rights related to the Collection Due Process & Collection Appeal Program. It also explains collection issues that can be appealed and how to appeal them. Explains what steps the IRS may take to collect overdue taxes. It includes a summary of your rights and responsibilities for paying federal taxes. These publications explain the audit process from the initiation of the examination through the overview of the collection process, including appeals options

62 Protests A formal written protest is required in all cases to request an Appeals conference, unless you qualify for the Small Case Request procedure discussed below or another special appeal procedure. Note: If you disagree with a lien, levy, seizure, or denial or termination of an installment agreement, see Publication 1660, Collection Appeal Rights, for information on filing your protest. A Protest must include all of the following: How to file a Formal Written Protest Publication 5 1. The Taxpayer's name, address, and a daytime telephone number. 2. A statement that the Taxpayer wants to appeal the IRS findings to the Office of Appeals. 3. A copy of the letter the Taxpayer received that shows the proposed change(s). 4. The tax period(s) or year(s) involved. 5. A list of each proposed item with which the Taxpayer disagree. 6. The reason(s) the Taxpayer disagree with each item. 7. The facts that support The Taxpayer's position on each item. 8. The law or authority, if any, that supports The Taxpayer's position on each item. 9. The penalties of perjury statement as follows: Under the penalties of perjury, I declare that the facts stated in this protest and any accompanying documents are true, correct, and complete to the best of my knowledge and belief. 10. The Taxpayer's signature under the penalties of perjury statement. If The Taxpayer's representative prepares and signs the protest, he or she must substitute a declaration for the penalties of perjury statement that includes: 1. That he or she submitted the protest and any accompanying documents, and 2. Whether he or she knows personally that the facts stated in the protest and any accompanying documents are true and correct. The Taxpayer must send the formal written protest within the time limit specified in the letter that offers the Taxpayer the right to appeal the proposed changes. Generally, the time limit is 30 days from the date of the letter

63 How to file a Small Case Request Form The Taxpayer may submit a Small Case Request if the entire amount of additional tax and penalty proposed for each tax period is $25,000 or less. For an Offer-in-Compromise, the entire amount for each tax period includes total unpaid tax, penalty and interest due. Note: Employee plan, exempt organizations, S corporations and partnerships are not eligible for Small Case Requests. 1. Follow the instructions in the letter the Taxpayer received. 2. Use Form 12203, Request for Appeals Review, or the form referenced in the letter to file The Taxpayer's appeal, or prepare a brief written statement. List the disagreed item(s) and the reason(s) the Taxpayer disagree 47 61

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66 APPEALS ONLINE SELF-HELP TOOLS Frank Agostino [TOPICS & QUESTIONS - 10 MINUTES] Introduction These tools are aids to help customers understand their appeal rights, what can be appealed, and what to expect in Appeals. These tools deal with some of the most frequently encountered problems - the rejection of a request for innocent spouse relief; the denial of a request for abatement of certain delinquency penalties, and the rejection of an Offer in Compromise. They are simple interactive screens (decision trees) to provide assistance to customers who are not represented by tax professionals. These tools are designed to help customers focus in on their area of dispute and help them determine if they will benefit from filing an appeal. These tools are aids to help customers prepare an appeal that is appropriate and complete. Officer In compromise If your Offer in Compromise has been rejected, then use this tool to determine if you should request an Appeals conference or hearing. This online self-help tool is designed to assist you in deciding whether to request an appeal for a rejected OIC. Before you begin... This tool is for you if the following statements apply: You received a 30-day letter rejecting an OIC, You are a W-2 wage earner, You do not own rental property, and You are not self-employed. If this tool does not fit your needs, consult the requesting an OIC appeal overview, to learn more about Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, the IET and AET worksheets required attachments and financial standards. Refer to Preparing a Request for Appeal if you only need information on how to submit a request for an appeal. Telephone Assistance 50 64

67 Toll-free customer service: for TTY/TDD Contact the person listed on your 30-day letter Have the following documentation handy when using this tool: The 30-day letter rejecting the OIC. Worksheets (If you did not receive the worksheets with the rejection letter, contact the person whose name is on the letter for a copy.) o Income/Expense Table (IET) o Asset/Equity Table (AET) Form 656, Offer in Compromise. (Don't have your copy? Use this blank Form 656-B while you go through the tool.) Form 433-A, Collection Income Statement for Wage Earners and Self-Employed Individuals that you submitted to the IRS with your Form 656, Offer in Compromise. (Don't have your copy? Use this blank Form 433-A while you go through the tool.) Note: Throughout the self-help tool, where a Form 433-A or 433-B is mentioned, the Form 433-A (OIC) and 433-B (OIC) may also be used. Remember you have 30 days from the date of the rejection letter to file your request for an appeal. If you request an appeal and are not able to reach an agreement with the Officer of Appeals, you may be eligible for consideration of post-appeals mediation under Rev. Proc Innocent Spouse If your request for Innocent Spouse Relief was rejected, then use this tool to determine if you should request an Appeals conference or hearing. There are several types of relief available for Innocent Spouse but only if you meet certain qualifications Before you begin... This tool may be helpful to you if the following statements apply to you. You filed a Form 8857, Request for Innocent Spouse Relief. Your request for relief was not fully allowed. Your request concerns taxes owed when you filed your return but have not been paid. This tool does not cover cases where the IRS finds you owe additional taxes. However, some of the information found in this tool still may be helpful to you. You should know that there are several types of relief available for Innocent Spouse but only if you meet certain qualifications. You need to know that the IRS uses special terms to identify the taxpayers involved in an Innocent Spouse case. Requesting Spouse: The person filing the request - the Form 8857 Non-Requesting Spouse: The other spouse for years that relief is requested. This party may participate in the Innocent Spouse determination

68 Penalty If your request to remove a penalty was rejected, then use this tool to help you decide if you should request an Appeals conference or hearing Before you begin... This tool may be helpful if the following statements apply to you. You received a letter that a failure to file or failure to pay penalty(s) was assessed to your individual or business tax account You sent a written request to the Service Center asking the IRS to remove the penalty The Service denied your request to remove the penalty (penalty abatement). You received a Notice of Disallowance, which gives you your appeal rights. For more information, refer to Penalties at a Glance. Appeals may remove (abate) your penalty(s) for any of the following reasons: Reasonable Cause: This is relief that is generally granted when a taxpayer exercises ordinary business care and prudence in determining their tax obligation, but is unable to comply with those obligations due to circumstance beyond their control. Statutory Exceptions: The tax law provides for specific exceptions. Administrative Waiver: This may occur as result of a formal government directive providing penalty relief because of a natural disaster or catastrophic event

69 Mediation Programs If you disagree with IRS's decision or action, this self-help tool explains our different mediation programs and aims to help you understand when to discuss mediation with the IRS person assigned to your case. I disagree with IRS s decision or action. Should I consider mediation? If so, which mediation program best fits my situation? This self-help tool explains our different mediation programs and aims to help you understand when to discuss mediation with the IRS person assigned to your case. Before you begin You must note that mediation does not bypass or replace the standard audit or collection processes. This tool is for you if all the following statements apply: You wish to resolve your tax dispute at the earliest opportunity Your case is still under consideration with no letter received from IRS offering appeal rights There are a limited number of disputed issues You have provided IRS with the information to support your position 53 67

70 In Person & Virtual Face-To-Face Conferences (Speaker) [TOPICS & QUESTIONS - () MINUTES] Conference Practice 1. Make multiple attempts to initiate a personal contact with the taxpayer or representative by telephone or by correspondence. During personal contact, discuss whether an alternative conferencing method (other than telephone) is necessary based on the unique facts and circumstances of the case. 2. Except as set forth below, hold conferences by telephone. Hold conferences on dates that are reasonably convenient for taxpayers and representatives and the ATE. 3. Offer a taxpayer requesting an in-person conference a virtual conference as an alternative when the technology for a virtual conference is available (see Virtual Service Delivery (VSD), discussed below). If the taxpayer declines the opportunity for a VSD conference: A. Document the taxpayer s decision in the Case Activity Record (CAR) B. Input code "VSDX" in the LOC7 field. 4. There may be situations in which an in-person conference, including circuit riding should be held to help reach resolution. The decision to hold an in-person conference can be made upon the request of the taxpayer or at the suggestion of the ATE. The ATM must concur with the decision. Appeals will consider the following facts and circumstances in making the decision to hold an in-person conference: A. There are substantial books and records to review that cannot be easily referenced with page numbers or indices B. The ATE cannot judge the credibility of the taxpayer s oral testimony without an in-person conference C. The taxpayer has special needs (e.g. disability, hearing impairment) that can only be accommodated with an in-person conference D. There are numerous conference participants (e.g., witnesses) that create a risk of an unauthorized disclosure or breach of confidentiality E. An alternative conference procedure (e.g., Post Appeals Mediation (PAM) or Rapid Appeals Process (RAP)) involving separate caucuses will be used F. Another IRM section specific to the workstream calls for an in-person conference. The ATE will communicate the decision regarding the in-person conference to the taxpayer and/or representative. IN PERSON CONFERENCES Request for In-Person Conference (1) If the petitioner or counsel of record requests an in-person conference, follow the procedures in: a) IRM , Conference Practice b) IRM , Virtual Service Delivery (VSD) 54 68

71 In-Person Conferences: Case Assistance 1. The assigned ATE will request case assistance from an assisting ATE who will participate in the in-person conference when the assigned ATE s Post of Duty (POD): A. Does not accommodate in-person conferences, or B. Is not reasonably convenient for the taxpayer or representative, or C. Does not conduct circuit riding 2. The assigned ATE s ATM will access the Appeals Case Support Intake SharePoint to submit a case assistance request. APS will route the request to an ATM with ATEs in the assisting POD. The ATM will identify the assisting ATE, and notify the assigned ATE s ATM. 3. The assigned ATE will: A. Contact the assisting ATE to arrange a mutually convenient date and time for the conference B. Schedule the conference C. Provide any documents the assisting ATE may need to review prior to the conference D. Lead the conference by telephone and remain responsible for settlement recommendations and case closing 4. The assisting ATE will be present at the in-person conference. The ATEs will confer and share observations regarding the case after the conference (or during the conference in a separate conversation, if necessary). 5. If on the day of the conference, the taxpayer submits documents that need to be processed (e.g., payment, original delinquent return, etc.), the assisting ATE will process/forward the information to the appropriate office and provide a copy to the assigned ATE. If new information is presented, follow the procedures in IRM , Taxpayer Provides New Information. 6. The assisting ATE will charge time to Case Related Assistance

72 In-Person Conferences: Circuit Riding 1. If the assigned ATE is in a POD that conducts circuit riding, the ATM will allow circuit riding to a mutually convenient location when the address of the taxpayer, representative, or business (for business entities) is more than: A. 100 miles from a customer-facing VSD site, or B. 150 miles from the nearest Appeals Office (Area Directors have the discretion to deviate from these mileage limitations). 2. The ATM will allow circuit riding if the nearest Appeals Office cannot take the case due to high inventories or lack of technical expertise, or if there is no convenient alternative. 3. ATEs will circuit ride at least quarterly to meet the needs of taxpayers. 4. In the states where Appeals no longer has a presence or has a small presence, the designated circuit riding location is shown below: State with Small or No Appeals Presence Alaska Arkansas Idaho Kansas Montana North Dakota Rhode Island South Dakota Vermont Wyoming Designated Circuit Riding Location Anchorage Little Rock Boise Wichita Helena Fargo Providence Aberdeen Burlington Cheyenne 56 70

73 Change of Appeals Technical Employee (ATE) After Initial Contact 1. Generally, a taxpayer does not have the right to a conference with an ATE other than the one assigned to his or her case. In Collection Due Process (CDP) cases, however, where the ATE has had prior involvement, the case must be reassigned. See IRM , No Prior Involvement. 2. In cases where the prior involvement rule does not require transfer, the ATM or the Area Director may authorize a change in assignment where the circumstances warrant. 3. The ATE will refer a taxpayer directly to the ATM to discuss (i) any concern raised by the taxpayer about the ATE, including the ATE's perceived impartiality and/or (ii) a request to have the case reassigned. The request will ordinarily be considered only before the ATE has begun to substantively consider the case. If the taxpayer requests that the case be transferred during the conference/hearing process, refer the request to the ATM. 4. The ATM will evaluate the taxpayer's request and/or concerns and determine whether the case should be transferred to another ATE. The ATM will communicate the decision directly to the taxpayer/representative. Right of Consultation with Representative 1. If a case is in Appeals jurisdiction and a valid Form 2848, Power of Attorney and Declaration of Representative, is on file for the period(s) and the type of liability, contact the representative. When sending correspondence, send the original to the taxpayer and also send a copy of all correspondence to the representative. The ATE should document the Case Activity Record (CAR). See IRM , Representatives Qualified to Practice Before Appeals. 2. IRC 7521(b)(2) requires an officer or employee of the Internal Revenue Service to stop the interview whenever a taxpayer wishes to consult with a representative qualified to represent the taxpayer before the Internal Revenue Service. 3. A taxpayer's involvement with Appeals is voluntary, so the need to "bypass an authorized representative" should be highly unlikely. In those rare occasions where an ATE determines that it is appropriate to "bypass a representative," the employee should follow procedures shown in IRM , Bypass of a Representative. Taxpayer Consultation with Representative 1) If a taxpayer indicates during a conference, that he or she wishes to consult with a qualified representative or otherwise seek advice, the conference must be suspended. If necessary, the conference should then be rescheduled. The ATE will allow the taxpayer a reasonable amount of time to complete this right of consultation. The ATE should document the CAR accordingly

74 Bypass of a Representative 1) Where a recognized representative has unreasonably delayed or hindered the appeal process by failing to furnish, after repeated requests, non-privileged information necessary for Appeals consideration, the ATE may request permission from his/her ATM to contact the taxpayer directly for such information. With the ATM s consent, the ATE may notify the taxpayer that he/she has determined that the representative is responsible for unreasonable delay or hindrance of the appeals process. The ATE will document the CAR with sufficient facts to show how the appeal process was being delayed or hindered. 2) The ATE will prepare a written notice of such permission, briefly stating the reason why it was granted. Such notice will be given to both the recognized representative and the taxpayer together with a request to the taxpayer to supply such non-privileged information. See IRC 7521(c) and the regulations thereunder. 3) The authority for bypass procedures is found in Statement of Procedural Rules (b). A bypass permits an ATE to contact a taxpayer directly to request information necessary to complete Appeals consideration. The representative still continues to represent the taxpayer and is provided copies of all correspondence provided to the taxpayer. 4) The ATE does not have the authority to bypass a "Counsel of Record" (COR), so these procedures don't apply to a COR. See IRM , Attorney of Record in Docketed Cases, for detailed information about the COR. Participation in Conferences by IRS Employees 1. 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. 2. See other IRM Part 8 sections for participation by IRS employees in cases under the Alternative Dispute Resolution (ADR) Program. This includes IRM , Participants, that reflects Appeals' discretion to have Counsel, the originating function, or both participate in a Post-Appeals Mediation proceeding for a Non-Collection Case

75 Virtual Service Delivery (VSD) 1) Virtual Service Delivery (VSD) employs teleconferencing technology that permits parties to conduct virtual face-to-face conferences from remote locations. VSD technology is installed in a number of IRS locations known as VSD support sites, including all six Appeals Campus locations, which Campus ATEs can use to conduct VSD conferences. VSD technology is also installed in a number of customerfacing sites, where taxpayers and representatives can go to conduct VSD conferences. Customerfacing VSD sites include: a) Some IRS posts of duty, b) Partner sites, and c) Two Low Income Taxpayer Clinics (LITCs), for taxpayers represented by these LITCs. 2) ATEs will follow these procedures with respect to VSD: a) These conditions must be met for a VSD conference: b) The ATE is co-located with VSD equipment i) The taxpayer or representative is located within 100 miles of a VSD customer-facing location, (see Exhibit ) (1) Note: (a) The ATE has discretion to inform a taxpayer or representative who resides more than 100 miles of a VSD customer- facing location about the VSD program. In the event the taxpayer or representative wants to travel to that VSD location, the ATE should proceed with scheduling the VSD conference. c) The taxpayer is not raising frivolous issues listed in Notice (or its successor notice), and i) The taxpayer is not raising frivolous issues reflecting a desire to delay or impede the administration of Federal Tax Laws for a CDP hearing request. (1) Reminder: (a) If the ATE offers and the taxpayer declines the opportunity for a VSD conference, document the taxpayer s decision in the CAR and input code VSDX in the LOC7 field. d) Schedule an agreed-upon date and time (keeping in mind the impact of different time zones on both parties). 3) The ATE will: a) Document the taxpayer s decision in the CAR, b) Input code VSDA in the LOC7 field, i) Reserve the VSD equipment at his/her location for the agreed-upon date and time, using local procedures, and ii) Reserve the customer-facing equipment for the agreed-upon date and time using the Outlook 59 73

76 Reservation System. (Does not apply to LITC cases). iii) Note: (1) In scheduling the amount of time for the VSD conference to take place, consider scheduling some additional time to account for the taxpayer s unfamiliarity with the location and/or equipment. c) The ATE will provide the following information to the taxpayer: i) Address and room number of the customer-facing equipment (Does not apply to LITC cases), ii) Any local contact information the taxpayer will need at the site to gain access to the equipment or instructions for its use (Does not apply to LITC cases), and iii) Instructions on how to make last minute contact with the ATE if the taxpayer will be late or encounters difficulties with access or use of the VSD equipment. 4) The ATE will advise the taxpayer to submit copies of relevant documents (by mail or FAX) so that they are received at least 10 business days in advance of the scheduled conference. i) Note: (1) While new information may be visually presented to the ATE at the conference, it is recognized that ATEs need time to review and consider such information before making final decisions that affect the resolution of a case. As such, expectations a taxpayer or representative may have for immediate decisions in such situations are unwarranted. ii) Note: (1) Refer to IRM , Taxpayer Raises New Issue, for situations where a taxpayer raises a new issue and IRM , Taxpayer Provides New Information, when a taxpayer provides new information. 5) If the conference is delayed or canceled due to technical problems, the ATE will document the reason for the delay or cancellation in the CAR, and either: a) Reschedule an additional virtual conference if the taxpayer requests it, or b) Reschedule a telephone conference 6) ATEs may take their laptop computers with them as they conduct VSD conferences to avail themselves of the use of the laptops in the same manner they are used during phone conferences and daily work. The VSD equipment in the support site offices is located near a network connection. i) Note: (1) After agreeing to participate in the VSD process, if at any point, the taxpayer changes his/her mind and no longer wants a VSD conference, the ATE will delete code VSDA in the LOC7 field, replace it with code VSDW. 7) In general, ATEs willl follow the above procedures when taxpayers who are represented by an LITC clinic with VSD technology request a VSD conference

77 8) Prohibition Against Recommending Representation - IRS personnel are prohibited from making recommendations to taxpayers with respect to securing assistance from any specific individual, firm, or group, including LITCs. Do not recommend that the taxpayer seek assistance from any specific LITC. The taxpayer can obtain information about LITCs in Pub 4134, Low Income Taxpayer Clinic List. 9) Additional information is available on the VSD SharePoint site to further assist the ATEs with their VSD responsibilities. Visit Appeals Campus Operations Virtual Service Delivery Employee Resources on Appeals' Campus Operations SharePoint site for detailed instructions

78 Appeals Virtual Conferences - WebEx Software The IRS Office of Appeals ( Appeals ) is piloting the use of WebEx software to test its viability for virtual conferencing. Appeals will offer WebEx conferences to select taxpayers and/or representatives who have individual or business cases pending with Appeals. The goal of these conferences is to provide a virtual face-to-face option, improving communication between the parties and assisting in resolution of the tax matters at issue. 1. What will you need to participate in a virtual conference? You will need a computer, tablet, or other mobile device with an internet connection; video camera capabilities are preferred. You will also need WebEx software installed on your device for optimal performance, although there is an option to run a temporary application to join the meeting. If you do not have a video camera, you can still participate in a WebEx conference for audio and the visual sharing of documents. 2. What is WebEx Software? WebEx is free commercial software, made by Cisco, which provides meeting participants the ability to share computer screens, video, and audio. It has been approved for use by the IRS, for purposes of visually sharing Personally Identifiable Information (PII) and Sensitive but Unclassified (SBU) information. Using this service allows all parties to participate in an interactive conference to discuss all the facts and/or legal positions. For an overview of WebEx, please view this YouTube video.( 3. Who is eligible for a virtual conference? Not all cases before Appeals will be included in the WebEx pilot, as only certain Appeals Officers (AOs) who volunteer for the pilot will be involved. These AOs will provide you the option of conducting a WebEx conference in their initial contact with you. You will need to meet the equipment and software requirements as stated in paragraph 1. Appeals will not conduct a WebEx conference unless you agree to it. 4. How do I get and install WebEx software? When you agree to a WebEx conference, the AO will you a link to attend the conference. This will include information on obtaining and installing the WebEx software, and information on how to optimize the audio portion of the conference. 5. Is the WebEx virtual conference secure? Yes. The WebEx conference is hosted on an internal IRS WebEx server and has the same level of security and privacy as a telephone call. Appeals will not record WebEx meetings and, although documents can be shared onscreen no actual file transfer will take place. 6. What are the benefits of the initiative? A WebEx conference (1) provides a virtual face-to-face opportunity to meet, ensuring engagement and facilitating communication, (2) reduces the time an effort associated with taxpayer travel to an Appeals office, and (3) allows visual presentation of information in real time

79 7. Are there any limitations with having a WebEx conference? As with many such applications, technical difficulties may arise. Audio and video efficiency may be affected by internet connectivity, bandwidth, and the equipment and operating systems being used by each party to the conference. While it is the desire of Appeals to have each WebEx conference run smoothly, we recognize that technical difficulties may impact the success of each meeting. It is for this reason that Appeals is conducting the pilot: to determine the viability of using WebEx technology for virtual conferences, to identify limitations, and to overcome them in future efforts. 8. How will WebEx be used in conferences? WebEx has many features, but Appeals is not piloting all of them. The Appeals pilot will use the videoconference, document viewing, and chat features of WebEx. Appeals is not using the WebEx features for recording a conference or for the electronic transfer of files

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81 HOW TO REPRESENT A TAXPAYER BEFORE THE IRS OFFICE OF APPEALS: Speakers: Frank Agostino Sal Benvenuti Les Kaplan Desa Lazar John O Dea Introduction and Bios 79

82 Sal Benvenuti 2007 Present -Self Employed Internal Revenue Service Appeals Division Appeals team Case Leader (Team Chief) Internal Revenue Service Appeals Division Appeals Officer Internal Revenue Service Examination Division Field Agent Les Kaplan 2012 Present, Enrolled Agent Representing taxpayers before the IRS Pre-2012, Internal Revenue Service Appeals Officer 80

83 Desa Lazar 2015 Present, Taxpayers Assistance Corporation, The Public Service Division of Agostino & Associates , Internal Revenue Service Appeals Settlement Officer , Internal Revenue Service Group Manager , Internal Revenue Service Revenue Officer, Instructor John O Dea Appeals Team Manager for Collection sourced cases throughout New York State and Southern Connecticut. The Settlement Officers in Manhattan, Hempstead, Albany, and New Haven report to John. Established career in Collection, including positions in Manhattan, New Jersey, and Brooklyn Districts, the Regional Office and the National Office. Appeals Manager of the Year, Previous Collection Analyst of the Year. Frequent speaker to stakeholder groups on Appeals Collection related issues. 81

84 The Taxpayer Bill of Rights 10 fundamental rights within the tax code which applies to ALL Taxpayer s I their dealings with the IRS TBOR Outline p2 FA Tax Payer Bill of Rights: Appeals The Right to Challenge the IRS s Position and be Heard The Right to Appeal an IRS Decision in an Independent Forum. TBOR Outline p2 FA 82

85 The Right To Challenge the IRS s Position and Be Heard Taxpayers have the right to raise objections and provide additional documentation in response to formal IRS actions or proposed actions, to expect that the IRS will consider their timely objections and documentation promptly and fairly, and to receive a response if the IRS does not agree with their position. TBOR Outline p2 FA The Right to Appeal an IRS Decision in an Independent Forum Taxpayers are entitled to a fair and impartial administrative appeal of most IRS decisions, including many penalties, and have the right to receive a written response regarding the Office of Appeals decision. Taxpayers generally have the right to take their cases to court. TBOR Outline p3 FA 83

86 Introduction to Appeals FA Panel Appeals Independent Forum 26 U.S. Code 7803(a)(3)(E) The Right to Appeal a Decision of the IRS in an Independent Forum Appeals are separate and independent Prohibits Ex Parte Communication TBOR Outline p3 FA 84

87 Publication 4227: Appeals Mission Appeals mission is to resolve controversies without litigation, on a basis which is fair and impartial to both the Government and the taxpayer, and in a manner which will enhance voluntary compliance and public confidence in the integrity and efficiency of the Service TBOR Outline p3 FA How Does Appeals Accomplish its Mission? Conferences, and negotiating settlements Prompt conference & a prompt decision High-quality decision TBOR Outline p3 FA 85

88 Appeals Vision Independent and innovative environment Quality & timely resolution of tax disputes TBOR Outline p3 FA Appeals Current Climate ADR is valued above litigation More ADR options New ADR methods and developments. TBOR Outline p9 FA 86

89 Appeals Goal Appeals Officers &Taxpayers Work together for a Resolution TBOR Outline p4 FA What You Can Expect From Appeals Fair and impartial Courteous and professional Listen to your concerns TBOR Outline p4 FA 87

90 What You Can Expect From Appeals Explanation of rights and process Responsive Reasonable time to respond TBOR Outline p4 FA Taxpayer s Responsibility Follow Appeals Process Submit a statement Include Facts & Reasoning State Desired Ruling Attend meetings & conferences Promptly respond to document request TBOR Outline p4 FA 88

91 Appeals Process If Taxpayer disagrees with the proposed adjustment or action can appeal case to the Office of Appeals. An appeals officer or settlement officer will review the strengths and weaknesses of the Taxpayer s respective positions. TBOR Outline p4 FA Appeals Process (Cont) Reviews are conducted in an informally by correspondence, telephone or at a personal meeting. Informal reviews avoid expensive and time-consuming court proceedings. TBOR Outline p4 FA 89

92 Appeals Process (Cont) Appeals will consider Taxpayers reasons for disagreeing with the IRS, except those based on moral, religious, political, constitutional, conscientious objection, or similar grounds. TBOR Outline p4 FA Appeals Process Appeals will consider Taxpayers reasons for disagreeing with the IRS, except those based on moral, religious, political, constitutional, conscientious objection, or similar grounds. TBOR Outline p4 FA 90

93 Appeals Process: Representation Taxpayer may work directly with Appeals Must submit Form 2848, Power of Attorney and Declaration of Representative, signed by both you and your representative, or a copy of the previously submitted Form 2848 TBOR Outline p4 FA Appeals Process: Representation bring a person with you to support your position. Person must be an attorney, a certified public accountant, or an enrolled agent authorized to practice before the IRS. TBOR Outline p4 FA 91

94 Appeals Judicial Approach and Culture (AJAC) Desa Lazar John O Dea Introduction of New Information Significant new information on a major issue to Appeals Referring IRS examiner will review the new information and provide an analysis and opinion in writing. The Opinion will be shared with you and you will have an opportunity to provide your feedback. If further clarification is need Appeals will contact Taxpayer or invite taxpayer to participate in a conference call or a meeting TBOR Outline p4 DL,JO 92

95 Appeals Judicial Approach and Culture (AJAC) Clarifies the distinction between role of Compliance and Appeals Emphasizes quasi-judicial approach for fair and impartial decision-making Result of internal Appeals reps and external stakeholders expressing concern TBOR Outline p10 DL,JO AJAC (cont) Appeals will return cases to Exam for further development Appeals hearing officers will focus on their role of administrative dispute resolution Appeals will not take investigative actions or perform analysis of new information or issues TBOR Outline p10 DL,JO 93

96 AJAC (cont) New issues will be forwarded to originating function for consideration Appeals will not raise new issues or reopen issues except in the case of fraud or malfeasance of a material fact Taxpayers should only come to Appeals w/ impasse with Compliance TBOR Outline p11 DL,JO Question For Panel Why did the IRS Need AJAC? DL,JO 94

97 Question for Panel Will Appeals Do any Fact Finding Post- AJAC? TBOR Outline p2 DL,JO Jurisdiction DL,JO 95

98 Appeals Jurisdiction Pursuant to Reg , this Administrative Branch of the IRS generally has final power and authority of the IRS to determine audit liabilities of taxpayers. Non-docketed cases Docketed cases TBOR Outline p13 DL,JO Examination Cases Under Appeals Jurisdiction If Compliance examines selected tax returns Taxpayer does not agree with proposed adjustments by Compliance Taxpayer does not agree with Compliance's proposed adjustments AND does not request an appeal No petition is filed in response to the notice or letter A petition is filed The petition is answered No settlement is reached TBOR Outline p12 Then usually a preliminary (30 or 60 day) letter is issued. he/she may request an Appeals conference. generally a notice of deficiency (90 or 150 day letter) or other final notice or letter providing U.S. Tax Court rights is issued. Compliance makes a default assessment based upon the findings in the notice or letter. the case is routed from Compliance through Appeals to Area Counsel to file an answer in response to the petition. Counsel returns case to Appeals for settlement consideration. Appeals returns case to Counsel for trial preparation. DL,JO 96

99 What Can Trigger an IRS Appeal? DL TBOR Outline p2 Appeals Triggers An Appeal can be requested following an unagreed case resulting from: 30-day Letter following Audit of individual, corporation, partnership, or other tax return; or Issuance of lien, levy, or seizure; or Proposed issuance of lien, levy or seizure; or TBOR Outline p8 DL 97

100 Appeals Triggers (cont) Proposed rejection or termination of Installment Agreement; or Proposed rejection of Offer in Compromise; or Full or Partial disallowance of claim for refund pertaining to issue not previously considered by the Appeals office; or TBOR Outline p8 DL Appeals Triggers (cont) 60-day letter proposing assessment of a Trust Fund Recovery Penalty; or Denial of Penalty Abatement; or TBOR Outline p8 DL 98

101 Appeals Triggers (cont) Filing of a Tax Court Petition where Taxpayer did not have an opportunity for an Appeals conference; or Denial of innocent spouse petition. TBOR Outline p8 DL Appeals Online Self-Help Tools DL,SB,LK 99

102 Online self Help Tools Offer in Compromise (OIC) If your Offer in Compromise has been rejected, then use this tool to determine if you should request an Appeals conference or hearing. TBOR Outline p43 DL 100

103 Offer in Compromise (OIC) Appeal If your Offer in Compromise has been rejected, then use this tool to determine if you should request an Appeals conference or hearing. This online self-help tool is designed to assist you in deciding whether to request an appeal for a rejected OIC. Before you begin... This tool is for you if the following statements apply: You received a 30-day letter rejecting an OIC, You are a W-2 wage earner, You do not own rental property, and You are not self-employed. TBOR Outline p43 DL OIC Appeal (cont) If this tool does not fit your needs, consult the requesting an OIC appeal overview, to learn more about Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, the IET and AET worksheets required attachments and financial standards. Refer to Preparing a Request for Appeal if you only need information on how to submit a request for an appeal. Telephone Assistance Toll-free customer service: for TTY/TDD Contact the person listed on your 30-day letter TBOR Outline p44 DL 101

104 OIC Appeal Required Documents 30-day letter Worksheets Form 656, Offer in Compromise. May Use this blank Form 656-B Form 433-A, Collection Income Statement Use this blank Form 433-A while you go through the tool.) TBOR Outline p44 DL 102

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106 Online Self Help Tools: Innocent Spouse Innocent Spouse If your request for Innocent Spouse Relief was rejected, then use this tool to determine if you should request an Appeals conference or hearing. There are several types of relief available for Innocent Spouse but only if you meet certain qualifications. TBOR Outline p44 SB 104

107 Innocent Spouse (cont) Before you begin... This tool may be helpful to you if the following statements apply to you. You filed a Form 8857, Request for Innocent Spouse Relief. Your request for relief was not fully allowed. Your request concerns taxes owed when you filed your return but have not been paid. TBOR Outline p44 SB Innocent Spouse (cont) Requesting Spouse: The person filing the request Non-Requesting Spouse: The other spouse TBOR Outline p45 SB 105

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110 Online Self Help: Penalty Penalty If your request to remove a penalty was rejected, then use this tool to help you decide if you should request an Appeals conference or hearing. TBOR Outline p46 LK 108

111 Penalty (cont) Before you begin... This tool may be helpful if the following statements apply to you. You received a letter that a failure to file or failure to pay penalty(s) was assessed to your individual or business tax account You sent a written request to the Service Center asking the IRS to remove the penalty The Service denied your request to remove the penalty (penalty abatement). You received a Notice of Disallowance, which gives you your appeal rights. For more information, refer to Penalties at a Glance TBOR Outline p46 LK 109

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114 Penalty (Cont) Appeals may remove (abate) your penalty's) for any of the following reasons: Reasonable Cause: This is relief that is generally granted when a taxpayer exercises ordinary business care and prudence in determining their tax obligation, but is unable to comply with those obligations due to circumstance beyond their control. Statutory Exceptions: The tax law provides for specific exceptions. Administrative Waiver: This may occur as result of a formal government directive providing penalty relief because of a natural disaster or catastrophic event TBOR Outline p45 LK How to Appeal an IRS Penalty LK 112

115 First-time penalty abatement (FTA) Individuals; Applies to the failure-to-file and failure-to-pay penalties Businesses and payroll clients; Applies to the failure-to-file, failure-to-pay, and/or the failure-to-deposit penalties. S corporation and partnership late-filing penalties also qualify under FTA. LK Reasonable Cause Facts-and-circumstances test; Taxpayer demonstrates that he or she exercised ordinary business care and prudence in determining the tax obligation, but nevertheless failed to comply TBOR Outline p45 LK 113

116 Reasonable Cause Depending on the penalty, the taxpayer must also prove that he or she acted in good faith or that his or her failure to comply with the law was not due to willful neglect. TBOR Outline p45 LK Non-Assertion or Relief Hazards of Litigation Appeals can waive penalties to settle a case based on hazards of litigation probability that the IRS determination will not be upheld in court. Appeals officer may waive penalties in an appeals hearing to reach an agreement with the taxpayer; Primarily for accuracy-related penalties in Appeals proceedings involving audits. LK 114

117 Administrative waiver Formally interpret or clarify a provision to provide administrative relief from a penalty it would otherwise assess; Policy statement, news release, or other formal communication stating that the policy of the IRS is to provide relief from a penalty under specific conditions; Financial hardship. LK Clean three-year penalty history Cannot have penalties of a significant amount assessed in the prior three years on the same type of tax return; No defined amount, but in practice, the IRS has used any penalty amount as significant in its application of the FTA qualification; Practitioners should remind the IRS of the significant amount qualification if the IRS rejects the request because of a small penalty amount assessed in the past three years. Estimated tax penalty is an exception and would not disqualify the Taxpayer from receiving FTA. LK 115

118 Online Self Help Tools Mediation Online Self Help Tools: Mediation Mediation If you disagree with IRS's decision or action, this self-help tool explains our different mediation programs and aims to help you understand when to discuss mediation with the IRS person assigned to your case. TBOR Outline p46 SB 116

119 Mediation (cont) Before you begin You must note that mediation does not bypass or replace the standard audit or collection processes. This tool is for you if all the following statements apply: You wish to resolve your tax dispute at the earliest opportunity Your case is still under consideration with no letter received from IRS offering appeal rights There are a limited number of disputed issues You have provided IRS with the information to support your position TBOR Outline p46 SB Appeals Mediation SB 117

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122 Collection Mediation SB 120

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125 Appeals Mediation Programs SB Fast Track Settlement (Large & Midsize Division) Initiated after IRS issues Form 5701, Notice of Proposed Adjustment, before 30-day letter Goal is to complete within 120 days IRS Appeals Officer is neutral party Communications confidential TBOR Outline p40 SB 123

126 Fast Track Settlement (Small Business & Self-employed) Offers a way to resolve audit issues during examination in less than 60 days. Formalized by Rev. Proc During pilot, 90% settled within 1 day. TBOR Outline p40 SB Fast Track Mediation (Small Business & Self-employed) Gives IRS and Small Business/Selfemployed (SB/SE) opportunity to mediate An IRS Appeal Officer, specially trained in mediation, serves as neutral mediator Most disputes resolved within 40 days TBOR Outline p40 SB 124

127 New Issues on Appeals Appeals Officer cannot raise new issues or reopen case where Revenue Agent missed. If Government raised new issue in docketed case, burden on Government. IRM Non-docketed, taxpayer may raise new issues, but Appeals Officer should remand for Exams for reconsideration of new issues. IRM TBOR Outline p40 SB Early Referral Returns are under jurisdiction of Exams or Collection may request transfer of developed, but unagreed issue to Appeals. (Rev. Proc 99-28, IRM ) Can be requested w/ issues regarding Involuntary change in method of accounting Employment tax Employee plans Exempt organizations TBOR Outline p40 SB 125

128 Early Referral (cont) Request must be in writing Must identify taxpayer, describe positions, perjury statement Response within 14 days whether accepted into Program TBOR Outline p2 SB Early Referral (cont) If approved, Form 5701 Response to Form 5701 due within 30 days of receipt If agreement is reached, parties sign Form 906. TBOR Outline p2 SB 126

129 Questions - SB When are cases suitable for mediation? When should a tax professional request mediation? SB BREAK 127

130 Best Practices for Requesting an Appeal LK Traditional Appeal Taxpayer must specifically request that its case be considered by Appeals Taxpayer would submit a written protest or small case request TBOR Outline p21 LK 128

131 Small Case Request $25,000 or less per tax period Less formal Less detailed than written protest Must indicate unagreed adjustments and reasons for disagreement Form Request for Appeals Review TBOR Outline p21 LK Small Case Request (cont) LK 129

132 What Makes a Good Protest? FB,SB,LK,DL,JO Written Protest Required if total amount of any tax period > $25,000. Also required with: Cases involving employee plans and exempt organizations All Partnership and S Corporation cases TBOR Outline p21 LK 130

133 Written Protest (cont) Rejected Offer in Compromise Proposed Trust Fund Recovery Penalty Denied Penalty Abatement TBOR Outline p21 LK Written Protest (cont) Must be filed within 30 days of the date of the 30-day letter Fact-oriented TBOR Outline p21 131

134 Written Protest (cont) Documents and affidavits in support should be attached Should appear to be ready for trial TBOR Outline p21 LK Burden of Proof Taxpayer bears the burden of proof TBOR Outline p30 LK 132

135 Written Protest (cont) No strict form, but must include: 1.The name, address and telephone number of the taxpayer; 2.Statement that you want to appeal IRS findings to the Office of Appeals; 3.A copy of the letter received showing proposed change(s); TBOR Outline p22 LK Written Protest (cont) 4. The tax period(s) or year(s) involved; 5. List of each proposed item which taxpayer disagrees; 6. Reason(s) for disagreement; TBOR Outline p22 LK 133

136 Written Protest (cont) 7. Facts that support position on each item; 8. The law or authority, if any, that supports position on each item; TBOR Outline p22 LK Written Protest (cont) 9. The penalties of perjury statement as follows: Under the penalties of perjury, I declare that the facts stated in this protest and accompanying documents are true, correct, and complete to the best of my knowledge and belief. 10.Taxpayer or Representative s signature under the penalties of perjury statement TBOR Outline p22 LK 134

137 Written Protest (cont) Should include the following in or with the protest: Point-by-point responses to the examiner s positions or unagreed terms Copies of supporting documentation Affidavits Appraisals Computations TBOR Outline p22 LK Questions for the Panel? What Tips Do You Have for the Tax Professional? Do you Bring the Taxpayer to the Hearing? 135

138 Break 10 Minutes The Appeals Conference LK,JO 136

139 Preparation Representation Pro Se, by an Attorney, CPA, or EA Generally, practitioner should request a face-to-face meeting with IRS Appeals Officer Documentary evidence not already provided should, to the extent practical, be made available to the Appeals Officer prior to the conference. Witnesses, such as an appraiser, should be made known to the Appeals Officer well in advance of the Conference. TBOR Outline p25 LK,JO Appeals Conference Appeals Conferences are informal Testimony not taken under oath No stenographer TBOR Outline p47 LK,JO 137

140 Appeals Conference (cont) Facts required in form of affidavit or declared true under penalties of law Additional info sometimes requested More than one conference may be required TBOR Outline p47 LK,JO Appeals Conference (cont) Should the parties fail to reach an agreement: Appeals Officer prepares an Action/Transmittal memorandum, which discusses settlement offer, and what settlement range Appeals Officer considers acceptable. Issues 90-day letter signaling the termination of efforts to resolve dispute administratively TBOR Outline p2 LK,JO 138

141 Appeals Conference Practice conferencing methods: A taxpayer may request an in-person conference or, A virtual conference as an alternative when the technology for a virtual conference is available (see Virtual Service Delivery (VSD) TBOR Outline p47 LK,JO In Person Conference The Assigned Tax Examiner (ATE) will request case assistance from an assisting ATE who will participate in the in-person conference when the assigned ATE s Post of Duty (POD): Does not accommodate in-person conferences, or Is not reasonably convenient for the taxpayer or representative, or Does not conduct circuit riding TBOR Outline p70 LK,JO 139

142 In Person Conference Continued The assigned ATE will:. Contact the assisting ATE to arrange a mutually convenient date and time for the conference Schedule the conference Provide any documents the assisting ATE may need to review prior to the conference Lead the conference by telephone and remain responsible for settlement recommendations and case closing TBOR Outline p71 LK,JO In Person Conference Cont. The assisting ATE will be present at the in-person conference. The ATEs will confer and share observations regarding the case after the conference (or during the conference in a separate conversation, if necessary). If on the day of the conference, the taxpayer submits documents that need to be processed (e.g., payment, original delinquent return, etc.), the assisting ATE will process/forward the information to the appropriate office and provide a copy to the assigned ATE. If new information is presented, follow the procedures in IRM , Taxpayer Provides New Information. The assisting ATE will charge time to Case Related Assistance TBOR Outline p71 LK,JO 140

143 Settlements LK,JO Settlements Practitioner should come to conference w/ settlement offer Qualified offer rejected by IRS may result in an award of attorney s fees and costs if IRS obtains subsequent Court judgment equal or less than the offer. Attorney s fee award does not apply to settlements at Appeals level. TBOR Outline p26 LK,JO 141

144 Types of Settlements Mutual Concession Settlement Split-Issue Settlement Nuisance Value Settlement TBOR Outline p26 LK,JO Mutual Concession Settlement Substantial uncertainty about how a court would interpret or apply the law, or what facts the court would find if the case were litigated. Neither side completely concedes the issues, and both make concessions to reach settlement (See IRM ) Form 870-AD or Form 890-AD TBOR Outline p28 LK,JO 142

145 Split-Issue Settlements Mutual concession based on a flat percentage or stipulated dollar amount Usually reached on issues that would result in a decision completely for one of the parties if it were litigated (See IRM ) TBOR Outline p28 LK,JO Hazards of Litigation Standard Used by Appeal Officers Factors include: Credibility of evidence; Whether facts can be proven; TBOR Outline p2 LK,JO 143

146 Hazards of Litigation Standard (cont) Whether law is ambiguous, and degree of ambiguity or uncertainty; Whether taxpayer met requirements to shift burden of proof to IRS; Likelihood the Court would rule in favor of taxpayer, given facts and law. TBOR Outline p2 LK,JO Nuisance Value Settlement Solely made to eliminate the cost or inconvenience of litigating a matter Is unrelated to the merits of the issues. Generally IRS will not settle a case based on nuisance value (See IRM ) TBOR Outline p29 LK,JO 144

147 Settlement Agreements Docketed cases Have more finality than non-docketed Written stipulation of parties in Tax Court Non-Docketed cases Form 870; or 870-AD TBOR Outline p36 LK,JO Closing Agreements IRC 7121, IRM Only agreement the Code recognizes as binding on the IRS Statutory Agreement between taxpayer and IRS TBOR Outline p36 LK,JO 145

148 Closing Agreements (cont) Prevent re-opening of settlement May be requested by IRS or taxpayer TBOR Outline p36 LK,JO Closing Agreements (cont) Form 866 Agreement as to the Final Determination Covering Specific Matters Form 906 Closing Agreement on Final Determination Covering Specific Matters Combined Agreement TBOR Outline p37 LK,JO 146

149 Questions Questions? 14 Washington Place Hackensack, NJ (201)

150 Follow Us! Website: Seminar and Newsletter information: narmaterials/home Join our mailing list: UNITED STATES TAX COURT CALENDAR CALLS: All Calendar Calls are Held at: Jacob K. Javits Federal Building 26 Federal Plaza Rooms 206, 208 New York, NY October 23, 2017 November 13, 2017 November 27, 2017 December 4, 2017 Contact Jeffrey Dirmann, Esq. at (201) , Ext 119 to volunteer. 148

151 Join our U.S. Tax Court Online Forum The group is intended to provide a forum for those taking the Agostino & Associates 2017/2018 seminar series and the 2016 US Tax Court Exam. It also provides a forum for the Taxpayer Assistance Corporation volunteers to discuss our pro bono outreach. To join please Frank Agostino at fagostino@agostinolaw.com with your full name & address. 149