Updates and guidance on key IRS practice developments.

• Author: Burke, Timothy

Practice & Procedures

Threats to Appeals' independence continue: Tips for representation

An Office of Appeals has been part of the IRS since 1927, when it was established administratively. It was addressed in the Internal Revenue Service Restructuring and Reform Act of 1998, RL. 105-206, but by adding Sec. 7803(e) to the Code in 2019, the Taxpayer First Act, RL. 116-25, reformed and more completely delineated its responsibilities as the Independent Office of Appeals (Appeals). Its purpose (Sec. 7803(e)(3)) is "to resolve Federal tax controversies without litigation" on a basis that:

(A) is fair and impartial to both the Government and the taxpayer,

(B) promotes a consistent application and interpretation of, and voluntary compliance with, the Federal tax laws, and

(C) enhances public confidence in the integrity and efficiency of the Internal Revenue Service.

For many years, Appeals was widely respected and considered an office where professionals could meet and resolve issues. While Appeals retains positive reviews from professionals, National Taxpayer Advocate Erin Collins's Annual Report to Congress for 2022 details numerous concerns with proceedings before it, which the report included as among the 10 most serious problems encountered by taxpayers overall (No. 9, "Staffing Challenges and Institutional Culture Remain Barriers to Quality Taxpayer Service Within the IRS Independent Office of Appeals").

For reasons both beyond Appeals' control and of its own creation, the current reality of a conference before Appeals differs significantly from its lofty goals. The most significant issues Collins identified in the report include Appeals' creation of a culture that prioritizes Appeals over taxpayers and its apparent lack of independence. These and other issues involving Appeals highlighted in Collins's and previous national taxpayer advocates' reports are discussed below.

Appeals' culture prioritizes the IRS over taxpayers

Under a heading of "Appeals Must Operate Independently of IRS Influence," the report states:

Just as important as a timely appeal, however, is an accessible forum in which taxpayers can obtain an even-handed outcome. Appeals must be independent, both in fact and in appearance. Its mission of achieving the maximum number of fair case resolutions requires that Appeals favor neither the IRS nor taxpayers. This unbiased outlook is essential to arrive at objective evaluations of IRS positions and to negotiate case settlements with taxpayers. [p. 146] The report adds insight into the challenges faced by taxpayers in securing a fair hearing. It states, "Congress's legislative efforts are based in the recognition that Appeals is in constant jeopardy of having its culture subsumed within the larger IRS culture. Appeals must guard against this gravitational pull if it is to fulfill its mission" (p. 147).

In-person meetings with Appeals

Beginning in 2017, taxpayer representatives voiced their concerns with Appeals' refusal to schedule in-person meetings. As stated in the report, "Taxpayers and their representatives have historically recognized the importance of the right to sit down across a table and discuss their case with an AO [Appeals officer] who can independently bring about its ultimate resolution" (id.).

The report noted a 2017 statement from AICPA member Chastity K. Wilson to the House Committee on Ways and Means: "For many taxpayers ... Appeals is the first opportunity they have to present their case and have a discussion about their particular situation" (id.).

Appeals recently determined that taxpayers are generally entitled to an in-person conference. The availability of an in-person conference, however, is limited by the availability of an Appeals office to accommodate the conference and a local Appeals officer with subject matter expertise, Collins reported. If the local office does not have the capacity to conduct the conference, a case transfer must be requested, and the taxpayer must travel to an available location. A request for an in-person meeting thus can carry with it a "steep price in terms of delay," she observed.

AJAC inhibits taxpayer rights

As Collins's report notes, the Service administratively initiated the Appeals Judicial Approach and Culture Project (AJAC) in 2014. An undoubted reason for the establishment of AJAC was to clean files from Appeals' inventory. Under AJAC, if a taxpayer provides new or additional evidence that merits additional analysis, the dispute generally must be returned to the Compliance division where the dispute originated. Internal Revenue Manual (IRM) Section 8.6.1.7.5 provides, "Additional analysis means categorizing, sorting, or reviewing large volumes of records, or requiring additional steps or reasoning to reach a conclusion." While the application of this provision can vary with the...