The evolving role of appeals: the real-world implications for the tax executive.

• Author: Canciello, Vincent S.

Editor's Note: This article is adapted from Mr. Canciello's presentation on April 19, 1996, to Tax Executives Institute's 1996 IRS Audit and Appeals Seminar, which was held in Baltimore.

Introduction

At this seminar, you have been focusing on strategies for success in dealing with the Internal Revenue Service on the tax issues of importance to your companies. Yesterday, you looked at preparing for an IRS audits as well as managing and closing the audit process. Today, the focus has shifted to Appeals -- because we all know that, no matter how well an audit has been managed, disputes and disagreements will arise in some cases. In my view, it is a "strategy for success" to use the administrative appeals process when you have a disagreement you cannot resolve with the examiner.

As TEI members, your professional interest is primarily the Coordinated Examination Program (CEP) cases. Last year in Appeals, we closed 249 CEP cases of which 218 were agreed; out of the total, 31, about 12 percent, were docketed in the Tax Court. Appeals resolved 21 of the 31 docketed cases before trial (68 percent).

Although we are able to resolve cases in docketed status, we must do so subject to the Tax Court's timetable and approval of the stipulations reflecting the settlement. Your coming to Appeals in nondocketed status by protesting the examiner's 30-day letter rather than petitioning the Tax Court avoids those constraints.

But, nondocketed or docketed, large or small dollars, it is always a "strategy for success" to come to Appeals. Year after year, we resolve about 85 percent of the thousands of income tax cases that come before us. (Last year, we closed just over 65,000 cases.)

Appeals has been around since 1927; our traditional way of operating is to meet with taxpayers and representatives for discussions on the issues in dispute. Today, our approach still depends on taxpayer conferences, but we have increased the ways we deliver dispute resolution services. We have designed our new programs around dispute resolution principles that are strategies for success beginning with:

1. An ounce of prevention is worth a pound of cure! Translation: We like pre-filing determination procedures that resolve issues in advance. Examples are the IRS's Advance Pricing Agreement Program and our recently-adopted procedure for a determination of value on artwork for estate and gift tax purposes and for a charitable contribution deduction.

2. Another strategy for success is based on the idea that the early bird catches the worm! Translation: Early resolution is best! The Appeals organization is coming to the dispute rather than always waiting for the dispute to come to us. Early referral to Appeals is now available for CEP cases and employment tax issues. Also, the IRS has recently expanded the authority of Examination to apply Appeals settlements or positions in CEP cases on some issues.

3. A third strategy for success is expressed in the saying: A bird in hand is worth two in the bush! Translation: Maximize control and minimize uncertainty. In terms of tax disputes, it means that...