Appeals

The Appeals function serves as the administrative forum for any taxpayer contesting an IRS compliance action [i.e., any examination or collection dispute]. It traces its origins to August 1, 1927, when the Commissioner established a Special Advisory Committee to provide an appeal for cases pending before the Board of Tax Appeals, the predecessor to the United States Tax Court. While the organizational structure and name of the Committee has changed over the years, Appeals mission--to expedite the settlement of tax disputes without formal trial--remains the same. From a function with less than 50 employees and an inventory of approximately 5,000 cases, Appeals has grown to over 1,900 employees, with an inventory of over 55,000 cases. Typically, Appeals reaches agreement with taxpayers on 85 percent of its cases.

Organization

Today, there is an Appeals Headquarters and two Operating Units -General Appeals Programs and Large Business & Specialty Programs (LBS). General Appeals Programs considers cases from IRS's Small Business/Self-Employed, Tax Exempt/Government Entities and Wage and Investment Operating Units, with campus teams to handle service center cases. Appeals LBS, which specifically focuses on cases originating in IRS's Large and Mid-Size Business Operating Unit, addresses the needs of taxpayers with assets over $10 Million.

Fast Track Mediation

Effective June 1, 2002, the Internal Revenue Service Small Business/Self-Employed Division (SB/SE) made available Fast Track Mediation, a new service to assist taxpayers in resolving disputes that arise from examination or collection actions. Fast Track Mediation was developed by SB/SE and the IRS Appeals Division. Fast Track Mediation can be offered to taxpayers with disputes not yet before a court. The program is designed to assist in resolving tax disputes arising from an examination, an offer in compromise, a Collection Due Process, or a trust fund recovery penalty.

Taxpayer May Choose Fast Track or Normal Appeals Process

The taxpayer can choose either fast track mediation or the normal appeals process. The taxpayer does not forgo any appeal rights during mediation and can withdraw from mediation. If a taxpayer withdraws from mediation, the dispute would follow the normal appeals process. Either the taxpayer or IRS can request mediation, but both must agree to mediate. On average, the mediation process should be started and completed within about 30-40 days. The normal appeals process can take months.

Specially Trained Mediator Conducts Mediation

A specially trained IRS mediator from the Appeals Division will conduct the mediation session at a mutually agreed upon site. The mediator will discuss the dispute with both sides and can request additional information from either side. The mediator will not decide anything regarding the dispute. The mediator cannot impose a resolution and will not have settlement authority. The mediator will work to resolve the dispute between the taxpayer and the IRS. The taxpayer and IRS must both agree to any proposed resolution.

Additional Information Available

For additional information about Fast Track Mediation, see IRS Publication 3605. News Release IR-2002-80 announces that "IRS Offers Faster Resolution of Tax Disputes" For information on how Appeals can assist you in resolving disputes and Alternative Dispute Resolution initiatives you may call toll free 1-877-457-5055.

Audit Reconsideration

Some reasons for an audit reconsideration request:

A. The taxpayer did not appear for the audit.

B. The taxpayer moved and did not receive the correspondence from the IRS.

C. The taxpayer has new documentation to present.

A taxpayer might request an audit reconsideration if:

A. Taxpayer disagrees with an assessment from an audit of their return and has additional information to be considered.

B. Taxpayer disagrees with an assessment created under the authority of Internal Revenue Code Section 6020(b).

C. Taxpayer has been denied tax credits such as EITC claimed, during prior examination. [ IRM 4.13.1.3 ]

Criteria for Reconsideration

In order to request an audit reconsideration:

A. The taxpayer must have filed a tax return.

B. The assessment remains unpaid or the Service has reversed tax credits that the taxpayer is disputing.

NOTE: If the taxpayer has paid the tax, they should file a formal claim to contest the tax deficiency assessment (Form 1040X).

C. The taxpayer must know which adjustments they are disputing.

D. Taxpayer must provide additional information not considered during the original examination. [ IRM 4.13.1.4 ]

Taxpayer Rights Partial Disallowance, Full Disallowance (No Abatement) Cases

The taxpayer may request a conference with the examiner's manager if there is a disagreement with the examiner's findings. The taxpayer may submit a written request for an Appeals hearing within 30 days of the date on the partial disallowance or the full disallowance letter.

A. The taxpayer must explain which issues he/she disagrees with and why.

B. The taxpayer will send the appeal request to the area examiner handling the reconsideration. [ IRM 4.13.4.7 ]

Getting Your Case Before the Appeals Division

a. When the case originates in Exam Division

When a case arises through the Examination Division, the usual "ticket" for entree is to write a Protest Letter in which such a request is made within 30 days of the date that the Revenue Agent issues the "30 Day letter", with an exception for cases involving less than $2,500 in tax - which may be requested orally. Nonetheless, a written request is always a good idea.

When the amount in dispute is more than $2,500, but less than $25,000, Form 12203 may be used to document the disagreements, the arguments upon which you are relying, and to make the request for a Conference with an Appeals Officer.

When the amount in dispute is at least $25,000, you must write a Formal Protest Letter to bring your examination case into Appeals. What must you do (procedurally) to have a valid Protest?

While there is no one 'correct' format, every valid Protest must contain the following information:

1. The name, address, Social Security number, and daytime phone number of the Taxpayer;

2. A statement the Taxpayer wishes to appeal the determinations of the Examination Division to the Appeals Office;

3. The date and symbols on the 30-day letter;

4. The tax periods or years involved (note: a single protest is sufficient to cover all years and matters if they are covered in one 30-day letter);

5. An itemized listing f the adjustments with which the taxpayer disagrees;

6. A statement of facts supporting the taxpayer's position in any contested factual issue;

7. A statement outlining the law or other authority on which the taxpayer relies; AND

8. A declaration under penalties of perjury that the statement of facts is true to the best knowledge of the Taxpayer. The following language is acceptable for this purpose: "Under penalties of perjury, I declare that the facts presented in my written protest, which are set out in the accompanying statement of facts, schedules and attached statements, are to the best of my knowledge and belief, true correct and complete."

As far as this Practitioner is concerned, the "Bible" on this topic of preparing for the Appeals Conference is Robert McKenzie's book entitled: "Representing the Audited Taxpayer Before the IRS", published by Thomson/West, 2010. Another fabulous resource is Arthur H. Boelter's book entitled: "Representation Before the Appeals Division of the IRS", published by Thomson/West, 2010.

The mission of Appeals is to reach a "fair and impartial" resolution, which considers the "hazards of litigation". Such an analysis involves consideration of how an issue would be resolved if litigated, and the making or seeking of concessions, taking into account the strength of the parties' positions. The Appeals Officer, therefore, will review the entire file to determine what a court might find, given the proof available and the effect of testimony. Additionally, the Appeals Officer will take into account judicial interpretation of relevant Code provisions in light of similar cases already decided.

Therefore, the Taxpayer who wishes to settle his case must show there is substantial uncertainty as to how the law would be applied to their case as a whole. Your failure to make this showing of substantial uncertainty prevents the Appeals Officer from considering the relative merits of the opposing positions and the attendant hazards that would face them if those positions were litigated.

In preparing for the Conference, then, you as the CPA representing the Taxpayer must realize that you will be dealing with the "best and the brightest" that the IRS has to offer. Appeals Officers are often attorneys or CPA's themselves.

General tips on preparing for an Appeals Conference:

1. Interview your client again, searching hard for all details. Facts revealed should be corroborated wherever possible, as complete reliance on the client is not advisable;

2. Obtain whatever records or other evidence the client has;

3. RESEARCH. After researching the relevant legal standards which may apply, the argument or arguments can be formulated. All the elements which the Taxpayer must prove should be outlined and the supporting documents and witnesses lined up;

4. Mr. McKenzie suggests that BOTH SIDES of the case should be prepared, so that surprise is not an element at the conference, and so that it can be determined if more evidence is needed;

5. The evidence and exhibits should then be organized for presentation and the file should be reviewed before the Conference;

6. You and your client should discuss settlement proposals and the client should give you specific settlement authority. As the professional here, it is our job to point out the merits and the weaknesses of the case and to encourage the client to be realistic.

Once the Conference begins, it is important that you, as the Taxpayer's Representative, first make your strongest arguments or your credibility will be lessened. Pointing out authority or facts that the examining Agent failed to disclose or consider is important. Only by presenting the strongest case for the Taxpayer, both factually and legally, will the relative merits of the parties' positions emerge. This is necessary as it will provide the Appeals Officer with a basis upon which to evaluate settlement offers. The Appeals Officer must justify his decision in writing, and YOU must give him the information with which to do so.

Mr. McKenzie has some brilliant advice on negotiation techniques which I refer to often:

1. Establish a reputation as a reasonable negotiator. Do not press beyond the merits of the case, but pursue a case to the bitter end if you are right. In this way you will earn respect;

2. Assume the Appeals Officer handling the case is capable;

3. Consider the governmental policy toward taxpayers and prepare a response to it;

4. Know the governmental procedures and alternatives;

5. Be completely prepared on the facts and the law, and know the strengths and weaknesses of the Taxpayer's as well as the government's cases;

6. Remember that almost everything can be negotiated. Be flexible and strive toward settlement, not winning;

7. Be open-minded. Do not go in with ultimatums and final offers;

8. Be persistent in negotiating toward a settlement, not in your position;

9. Recognize that opposing interests may be genuinely flet and do not insult your adversary or claim he is insincere;

10. It might be advisable to leave your client at home; and

11. Do not misrepresent

Remember: if a settlement is not reached, the taxpayer still has the right to litigate the matter before the Tax Court.

b. When the case originates in Collection Division

When a case arises through the Collection Division, your entree to Appeals is through the process of Collection Due Process ("CDP")

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