Appeals – Capital of Texas Enrolled Agents Seminar November 5, 2015 Office of Appeals Steve Lacey Appeals Team Manager Austin/San Antonio/New Mexico
Role of Appeals Office of Appeals Administrative forum for any taxpayer • contesting an IRS compliance action Resolve tax disputes, without litigation, on a • basis which is fair and impartial to both the Government and the taxpayer In a manner that will enhance public • confidence in the integrity & efficiency of the IRS Independence •
Appeals Independence Office of Appeals Appeals is independent within the IRS. • Ex parte communications rules • Legal advice from the Office of Chief Counsel • Independently evaluate the strengths & • weaknesses of the issues in the cases before them.
Appeals Independence Office of Appeals Appeals does not participate in the • development or review of audit techniques, Coordinated Issue Papers, or legal or technical interim or other administrative guidance for Compliance or Counsel. Nor does Appeals participate in the • identification or development of specific issues or specific cases in cross-functional settings.
Quasi-Judicial Approach Office of Appeals Objectively & independently assess the facts, • law, & litigating prospects & to develop fair & impartial settlements based on that evaluation. Appeals does not investigate or examine. • We exercise unbiased judgment with respect • to the factual and legal disagreements that come before us — taking into consideration the Internal Revenue Code, Treasury Regulations, administrative guidance, &judicial opinions.
SB/SE Mission Office of Appeals Help small business and self-employed • taxpayers understand and meet their tax obligations, while applying the tax law with integrity and fairness to all.
Appeals policy changes as a result of the AJAC project Office of Appeals Overview
Appeals Mission “To resolve tax controversies, without litigation, on a basis which is fair and impartial to both the Government and the taxpayer in a manner that will enhance voluntary compliance and public confidence in the integrity and O F F I C E O F A P P E A L S efficiency of the Service.” Independence is critical to meeting the Appeals Mission and is important to both taxpayer and IRS confidence in the appellate process. The AJAC project is one of many steps that have been taken to reinforce Appeals independence and refine our place in the tax administration process. Page 8
Overview of Project: Quasi-Judicial Approach Applying a “Quasi - Judicial” approach preserves the taxpayer’s true appeal rights, as it: • Appeals’ intended purpose is settling disputes not performing Compliance roles. O F F I C E O F A P P E A L S • Ensure real and perceived independence of Appeals. • Appeals’ employees not examiners. • Compliance’s purpose and mission is to work all issues – – cases should come to Appeals only when the government & the taxpayer have reached an impasse. • Appeals is neither a continuation nor a quality review of the Examination processes. Page 9
Policy Changes Background • Appeals AJAC Team was formed in early 2012. • Appeals collaborated with the Operating Divisions, the O F F I C E O F A P P E A L S Taxpayer Advocate Service, and the Office of the Chief Counsel to build consensus on policy changes. • Summer/Fall 2014: All changes have been implemented • Collection & Exam changes – Not discussing Collection changes for this presentation • Applies to non-docketed cases only Page 10
Phase 1 Examination Changes • Revised Policy Statement 8-2 -- Appeals will not raise new issues (except in the case of fraud or malfeasance). • Appeals will attempt to settle a case on factual hazards when the case submitted by Compliance is not fully O F F I C E O F A P P E A L S developed and the taxpayer has presented no new information or evidence. • Centralized the formal dissent process. Page 11
Phase 2 Examination Changes 1. Required time remaining on statute (IRM 8.2.1.4) – Require that most new case receipts in Appeals have at least one year remaining on the statute of O F F I C E O F A P P E A L S limitations. – Cases returned to Compliance when a taxpayer provides new information or evidence or raises a new issue (next slide) will require 210 days remaining. – Cases returned from Compliance must have 180 days remaining. Page 12
Phase 2 Examination Changes (cont.) 2. New issue raised or new information submitted. – If a taxpayer with a nondocketed case before Appeals raises a relevant new issue (IRM 8.6.1.6.4) or submits O F F I C E O F A P P E A L S new information (IRM 8.6.1.6.5) that merits investigation and/or requires additional analysis, Appeals will return the case to Compliance to examine the new issue or information (some exceptions apply). – Minor differences for LB&I work streams (details to follow). Page 13
Phase 2 Examination Changes (cont.) 3. New Theory or Alternative Legal Argument – IRM 8.6.1.6.6. provides that if a taxpayer raises a relevant new theory or legal argument on a O F F I C E O F A P P E A L S nondocketed case, Appeals will request review and comment from Compliance on the new theory or legal argument (some exceptions apply). – Only for LB&I and SB/SE Field Exam cases. – Still following ex parte communication requirements. Page 14
Phase 2 Examination Changes (cont.) 4. Appeals’ involvement in Part 3 docketed cases – IRM 8.4.1.15.4 indicates that Appeals will focus assistance provided to Counsel on cases in their O F F I C E O F A P P E A L S jurisdiction to strictly dispute resolution (assessing hazards of litigation). – Appeals will not provide assistance in the form of investigative action or additional analysis of records. – Effective date for this change is slightly delayed (on or after October 1, 2014). Page 15
Phase 2 Example 1 A Taxpayer with a case before Appeals raises a new issue, pointing out that he had $7,000 of medical expenses that he neglected to claim on Schedule A, Itemized Deductions . Should the case be returned to Compliance? O F F I C E O F A P P E A L S It depends. Sch. A Medical expenses are subject to a 7.5% of Adjusted Gross Income “floor” (10% starting in 2013). If the 2012 AGI was $100,000, the new issue would have no impact on the current tax matters (as it wouldn’t exceed the $7,500 required to have an effect). However, if the AGI was only $40,000, the new issue would have an $4,000 impact and the case should be returned to Compliance for examination of the new issue. Page 16
Phase 2 Example 2 A taxpayer provides new information to Appeals that merits investigation or analysis. However, when this occurs, there are only 200 days remaining on the statute of limitations and the taxpayer refuses to extend. What happens next? O F F I C E O F A P P E A L S The Appeals hearing officer will inform the taxpayer that he/she cannot consider the new information because the originating function has not had an opportunity to review. Appeals will proceed with normal consideration of the case and follow the procedures outlined in IRM 8.21.3.1.3.1 to protect the statute if a settlement cannot be reached. Page 17
Phase 2 Example 3 Compliance conducted an examination of a taxpayer for the inclusion of income in gross receipts for a cancellation of debt (COD). While in Appeals, the representative argued that, although the taxpayer never received a Form 1099-C, O F F I C E O F A P P E A L S (COD ) he would still not be required to pay tax on the COD due to being insolvent at the time. Evidence of insolvency was submitted with a copy of the taxpayer’s credit report. If the Appeals hearing officer determined that the new info merited investigation or additional analysis, jurisdiction would be released. Otherwise, the argument is a new theory in which Appeals would retain jurisdiction and provide SBSE Exam or LB&I the opportunity for review and comment. Page 18
Phase 2 Example 4 Compliance denied a mortgage interest deduction claimed by the taxpayer, who was unable to locate his Form 1098 due to a recent move. While in Appeals, the taxpayer provided a copy of the document secured from the O F F I C E O F A P P E A L S financial institution. The amount reported on the Form 1098 matches the amount deducted on the return; however a typographical error on the form explains why the document was not matched on the IRS system. In this case, the Form 1098 is self-evident and does not need further investigation or additional analysis. As such, it does not need to be returned to Compliance for such actions. The Appeals hearing officer will retain jurisdiction of the case and attempt to settle it. Page 19
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