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MSP #8: APPEALS

The Appeals Judicial Approach and Culture Project Is Reducing the Quality and Extent of Substantive Administrative Appeals Available to Taxpayers

TAS Recommendations and IRS Responses

1
1.

TAS RECOMMENDATION #8-1

Permanently discontinue the Letter 5262 series and preserve taxpayers’ rights to an appeal even in cases where all requested information is not provided to Compliance.

IRS RESPONSE TO RECOMMENDATION: On June 9, 2015, SB/SE suspended the use of Letter 5262, Examination Report Transmittal-Additional Information Due (Straight Deficiency) and similar letters. After further review, SB/SE decided to permanently discontinue the use of these letters and is in the process of:

  • Drafting interim guidance (IG) to communicate the permanent discontinuance of Letter 5262, and similar letters; and
  • Drafting talking points for managers to use in conjunction with the IG during group meetings to communicate the permanent discontinuance of Letter 5262 and similar letters.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The National Taxpayer Advocate is pleased that, as recommended, the Letter 5262 series is being permanently discontinued. TAS will monitor that the IRS completes the actions outlined above.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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2.

TAS RECOMMENDATION #8-2

Loosen AJAC restrictions to allow Hearing Officers to exercise more discretion regarding whether additional factual development or analysis within Appeals would materially assist case resolution.

IRS RESPONSE TO RECOMMENDATION: NTA Recommendation Not Adopted as Written, but IRS Actions Taken to Address Issues Raised by NTA.  Appeals hearing officers have discretion, as indicated in IRM 8.6.1.6.5, to determine whether additional factual development or analysis is needed. There is nothing in the IRM that restricts their judgment.  Appeals reviews a decision rendered by the Compliance function.  Additional factual development or investigation conducted in Appeals compromises objectivity and impartiality. 

CORRECTIVE ACTION: N/A

TAS RESPONSE: TAS does not agree that the IRS is taking actions to address this recommendation. Under AJAC policy and practice, Hearing Officers are provided with minimal discretion to determine when even modest factual investigation or verification can most efficiently be done in Appeals. TAS is aware of cases in which Hearing Officers, in conjunction with taxpayers, were willing to undertake limited factual investigation that would have led to a quick settlement. Nevertheless, AJAC, as currently applied, required the Hearing Officers to send the cases back to Compliance, causing unnecessary delay and expense for both taxpayers and the government.

In order to best facilitate administrative case resolution, Hearing Officers should not be subject to a rigid set of “one size fits all” requirements. They should have the flexibility and authority to determine when a reasonable degree of case development within Appeals would assist taxpayers and the IRS to achieve a time-efficient and resource-effective case settlement. This type of discretion, responsibly exercised, would increase, rather than decrease, perceptions of objectivity and fairness.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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3.

TAS RECOMMENDATION #8-3

Provide Hearing Officers with revised guidance and enhanced training emphasizing quality substantive review, rather than mere satisfaction of procedural requirements by expanding timeframes and retaining Appeals’ jurisdiction where appropriate, as the best means of providing taxpayers with the right to appeal an IRS decision in an independent forum.

IRS RESPONSE TO RECOMMENDATION: NTA Recommendation Not Adopted as Written, but IRS Actions Taken to Address Issues Raised by NTA. Appeals recently updated its Appeals Policy FAQs (formerly referred to as AJAC FAQs) to provide additional clarification. Appeals also maintains a SharePoint site where employees can review prior questions and answers and submit new questions.

In addition, Appeals conducted on-line training sessions for employees. Appeals hearing officers must use their judgment in determining when information or a case should be returned to Compliance – however, Appeals is not the first finder of fact and does not develop cases.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The National Taxpayer Advocate applauds Appeals’ efforts to update policies, enhance information accessibility, and provide Hearing Officers with additional training. In order for these efforts to be effective, however, guidance and communications must be redesigned to emphasize quality substantive review, not just compliance with procedural requirements. Moreover, the larger AJAC policies and practices generating an adversarial environment, incentivizing the unnecessary return of cases to Compliance, and resulting in a lack of quality substantive reviews must be revisited and revised. Only then will additional guidance and training for Hearing Officers be effective in furthering Appeals’ mission.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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4.

TAS RECOMMENDATION #8-4

Develop and implement an outreach plan aimed at practitioners to help them understand what is needed for a successful appeal and to provide Appeals with information about the difficulties experienced by taxpayers and practitioners under AJAC.

IRS RESPONSE TO RECOMMENDATION: NTA Recommendation Not Adopted as Written, but IRS Actions Taken to Address Issues Raised by NTA. Appeals is engaging in a number of external communication efforts. The publicly-available Appeals Policy FAQs have been revised and are posted on irs.gov. Publication 5 is being revised to reflect the policy changes. Also, on irs.gov/keyword: Appeals, there is a link titled “What Can You Expect from Appeals?” that explains our commitments, taxpayer responsibilities and general timeframes. Appeals is also planning two presentations for the 2016 Nationwide Tax Forums to help practitioners understand what is needed for a successful appeal.

CORRECTIVE ACTION: N/A

TAS RESPONSE: Appeals’ outbound communications to taxpayers and practitioners are good, although there is room for improvement. For example, Appeals can further expand outreach to attorneys, CPAs, and other taxpayer representatives in various venues ranging from the American Bar Association (ABA) Tax Section, to the American Institute of Certified Public Accountants (AICPA). Additionally, Appeals would benefit greatly from soliciting and heeding comments and suggestions from taxpayers and stakeholders, who have valuable insights to share regarding the very real difficulties they are experiencing under AJAC.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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