The IRS has proposed rules that would implement changes to operations of the Independent Office of Appeals, as enacted in the Taxpayer First Act of 2019.
Independent Office of Appeals.
The Taxpayer First Act of 2019 (TFA; PL 116-25) established the IRS Independent Office of Appeals (IOA). The IOA’s mission is to resolve federal tax controversies without litigation in a way that “promotes a consistent application and interpretation of, and voluntary compliance with, the Federal tax laws.” (Code Sec. 7803(e)(3)(B))
To facilitate the resolution process, Appeals uses a variety of resolution methods including conferences, correspondence, and certain Appeals-provided alternative-dispute resolution services (i.e., fast-track settlement, fast-track mediation, post-Appeals mediation, Rapid Appeals Process, or early referral of issues to Appeals).
Generally, the IOA “resolution process” is available to all taxpayers. (Code Sec. 7803(e)(4)) However, the TFA did not require the IOA to consider every taxpayer dispute over federal tax controversy. The IRS is allowed to limit access to the IOA resolution process and the IRS must follow special notification procedures if a taxpayer asks the IRS to refer their federal tax controversy to IOA for review and the IRS denies that request. (Code Sec. 7803(e)(5))
Note. The most frequent type of federal tax controversy involves a taxpayer disputing a tax liability that is subject to deficiency procedures. In many of these cases the taxpayer requests an “Appeals” conference after the IRS has decided the taxpayer’s liability and has sent a 30-day letter to the taxpayer. Sometimes, the taxpayer has filed a Tax Court petition after receiving a notice of deficiency. In these cases, the docketed case may be forwarded to Appeals for possible resolution.
The proposed regs would, among other things, provide rules the IRS must follow when denying a taxpayer’s request to have their federal tax controversy referred to the IOA.
The proposed regs would require the IOA to resolve federal tax controversies on a basis that is:
- fair and impartial to both the government and the taxpayer,
- promotes a consistent application and interpretation of, and voluntary compliance with, the federal tax laws, and
- enhances public confidence in the integrity and efficiency of the IRS. (Prop Reg §301.7803-2(a))
The proposed regs would also extend IOA resolution to disputes over IRS administrative determinations that are not covered by the definition of “federal tax controversy” in Prop Reg §301.7803-2(b)(2), but that are controversies that Appeals handled before the TFA. The proposed rule would also allow the IOA to add new categories of administrative determinations made by the IRS when appropriate to fulfill the IOA’s function. (Prop Reg §301.7803-2(b)(3)).
Note. Basically, the proposed rule allows the IOA to consider administrative determinations made by the IRS that Appeals has historically considered and attempted to resolve without litigation.
Prop Reg §301.7803-2(c) lists the administrative determinations (i.e., exceptions from the general rule) that IOA cannot consider. Generally, these are the same IRS determinations Appeals could not consider before the TFA.
The IRS is requesting comments on the scope and rationale for the exceptions described in Prop Reg §301.7803-2(c). To the extent any of the proposed exceptions differ from prior Appeals practice, comments are requested on the effects of such differences and whether the objectives of such exceptions could be accomplished by alternative means while still allowing Appeals to function in accordance with Code Sec. 7803(e)(3). Comments are also requested on whether any additional exceptions to Appeals consideration are warranted.
The IRS must receive electronic comments and outlines of topics to be discussed at the public hearing (scheduled for November 29, 2022) by November 14, 2022. If no topic outlines are received by November 14, 2022, the public hearing will be canceled.
For more information about the Independent Appeals Office, see Checkpoint’s Federal Tax Coordinator ¶T-1700.
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