Appeals Capital of Texas Enrolled Agents Seminar November 5, 2015 - - PowerPoint PPT Presentation

Office of Appeals

Appeals – Capital of Texas Enrolled Agents Seminar November 5, 2015

Steve Lacey Appeals Team Manager Austin/San Antonio/New Mexico

Office of Appeals

Role 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

Office of Appeals

Appeals Independence

• 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.

Office of Appeals

Appeals Independence

• 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.

Office of Appeals

Quasi-Judicial Approach

• 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.

Office of Appeals

SB/SE Mission

• Help small business and self-employed

taxpayers understand and meet their tax

• bligations, while applying the tax law with

integrity and fairness to all.

Office of Appeals

Appeals policy changes as a result of the AJAC project

Overview

O F F I C E O F A P P E A L S

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 efficiency of the Service.”

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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.

O F F I C E O F A P P E A L S

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.

• 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.

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O F F I C E O F A P P E A L S

Policy Changes

Background

• Appeals AJAC Team was formed in early 2012.
• Appeals collaborated with the Operating Divisions, the

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

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O F F I C E O F A P P E A L S

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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 developed and the taxpayer has presented no new information or evidence.

• Centralized the formal dissent process.

O F F I C E O F A P P E A L S

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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 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.

O F F I C E O F A P P E A L S

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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 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).

O F F I C E O F A P P E A L S

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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 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.

O F F I C E O F A P P E A L S

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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 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).

O F F I C E O F A P P E A L S

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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?

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

• n 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.

O F F I C E O F A P P E A L S

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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?

The Appeals hearing officer will inform the taxpayer that he/she cannot consider the new information because the

• riginating 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.

O F F I C E O F A P P E A L S

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Phase 2 Example 3

Compliance conducted an examination of a taxpayer for the inclusion of income in gross receipts for a cancellation

• f debt (COD). While in Appeals, the representative argued

that, although the taxpayer never received a Form 1099-C, (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.

O F F I C E O F A P P E A L S

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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 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.

O F F I C E O F A P P E A L S

Appeals/LB&I New Information Matrix

Type of Information Received Action to be Taken

• 1. Taxpayer provides Appeals with

information that LB&I previously requested during the examination. Appeals will release jurisdiction of the case to LB&I.

• 2. Taxpayer, on its own initiative, provides

Appeals with information not previously shared with LB&I during the examination. Appeals will release jurisdiction of the case to LB&I

• 3. Taxpayer provides information in

response to a question or request from Appeals to clarify or corroborate information contained or referenced in the RAR, Protest

• r Rebuttal.

Appeals will provide LB&I with an opportunity to review and comment on the information within a specified time frame (generally 45 days)

• 4. Taxpayer makes a new argument (not

including new information). Appeals will provide LB&I with an opportunity to review and comment on the new argument within a specified time frame (generally 45 days).

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O F F I C E O F A P P E A L S

Single Issue Matrix Example 1

The taxpayer wants to deduct software expenses that were erroneously capitalized, and files an informal claim during the examination. The taxpayer is requested to provide a listing of the expenses by project and year. He provides a listing of the expenses by year, and states that they cannot be separated by project. The examiner disallows all expenses, and the case is forwarded to Appeals. While in Appeals, the taxpayer provides the detail of expenses by project and year. The Appeals hearing officer decides that the information is new.

• Appeals would release jurisdiction of the case to LB&I.

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O F F I C E O F A P P E A L S

Single Issue Matrix Example 2

The taxpayer reported a large non-cash charitable contribution for donated land. The examination team requested appraisals and other documentation to substantiate the non-cash contribution. The taxpayer provided an appraisal that did not fully support the FMV attributed to the land. Therefore, the charitable contribution was not allowed. During the Appeals conference, the taxpayer presents a new third-party appraisal for consideration.

• In this instance, Appeals would release jurisdiction of the case

to LB&I as the appraisal is new information.

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O F F I C E O F A P P E A L S

Single Issue Matrix Examples 3 & 4

The Appeals hearing officer requests that the taxpayer respond to an item in the examiner’s rebuttal to the protest. The taxpayer submits their response in writing.

• Appeals would provide LB&I with an opportunity to review and

comment on the information within a specified time frame.

A new court case came out during the course of Appeals

• consideration. The taxpayer provides its legal position on

the court case, and the taxpayer does so in writing.

• Appeals would provide LB&I with an opportunity to review and

comment on the information within a specified time frame.

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O F F I C E O F A P P E A L S

New Information in Multiple Issue Cases (Field Appeals Officer Provisions)

New Appeals cases or no settlement on any issue

• Primarily, for cases where no issues are yet settled (agreed in

principle by Appeals and the taxpayer) at the time new information is received, the Appeals officer will return the case to LB&I jurisdiction for consideration

Appeals cases in process or settlement reached on an issue(s)

• Primarily, for cases involving unsettled (no agreement in principle

between Appeals and the taxpayer) and settled issues at the time new information is received, the Appeals officer will secure closing or partial agreement forms on the agreed issues. Appeals will then release jurisdiction to LB&I to address the new information or issue and make a determination.

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O F F I C E O F A P P E A L S

Multiple Issue Example

• LB&I completes its examination of X Corp. (taxpayer) and

issues a 30-day letter.

• Taxpayer timely submits a Protest and requests Appeals

consideration of three issues: A and B and C.

• Appeals holds the LB&I pre-conference and invites the

taxpayer to attend pursuant to the ex parte rules.

• After the LB&I presentation is complete, the opening

conference with taxpayer and Appeals begins.

– Issue C was discussed. Appeals and the taxpayer reach an agreement. – Issue B was discussed. Both parties wish to conduct additional research and resume negotiations in one month.

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O F F I C E O F A P P E A L S

Multiple Issue Example (cont.)

• Before the follow-up conference for Issue B takes place,

the Taxpayer determines it has additional information that it believes will strengthen its case with respect to Issue A and provides it to Appeals.

• The AO determines the information is not clarifying or

corroborating information and was not previously requested by LB&I.

– Issue A: Due to the new information provided, Appeals will do no further work on the issue. – Issue B: Even though progress is being made on Issue B, the issue will be returned to LB&I jurisdiction. – Issue C: A settled issue in principle.

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O F F I C E O F A P P E A L S

Multiple Issue Example (cont.)

What happens if Issue C results in a deficiency?

1. If the Issue C settlement results in a deficiency, the AO would secure the proper agreement forms to process a partial agreement and then return the case to LB&I. 2. LB&I examines the new information with respect to Issue A and concludes that the 30-day letter position is correct. LB&I adds new arguments to its position in response to the new information and shares it with the taxpayer. Issues A and B will be returned to Appeals jurisdiction for consideration. 3. If Appeals is unsuccessful in settling one or both issues, Appeals will be responsible for the preparation and issuance of the Statutory Notice of Deficiency (SND).

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O F F I C E O F A P P E A L S

Multiple Issue Example (cont.)

Same facts as before with different settlement outcome:

– Issue A: New information provided, Appeals will do no further work on the issue. – Issue B: A settlement could not be reached with taxpayer. – Issue C: A settlement could not be reached with taxpayer.

Appeals releases jurisdiction to LB&I. LB&I examines the new information with respect to Issue A and concludes that taxpayer’s return position for that issue is correct (i.e., no change with respect to that issue). The case would not be returned to Appeals. LB&I would be responsible for the preparation of the Statutory Notice of Deficiency (SND). The taxpayer will not receive another Appeals hearing on Issues B or C.

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O F F I C E O F A P P E A L S

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Docketed Cases

• Similar changes in process for

docketed cases

• To be implemented in the future