We recently covered the Appeals Team Case Leader Conferencing Initiative: Summary of Findings and Next Steps (Appeals Summary) in relation to the participation of Large Business & International (LB&I) exam teams and Internal Revenue Service (IRS) Chief Counsel attorneys in conferences before the IRS Independent Office of Appeals (IRS Appeals). As discussed, the Appeals Summary concluded that IRS Appeals would be given discretion to invite exam teams and Chief Counsel attorneys to attend IRS Appeals conferences in the future. In determining whether such discretion should be exercised in a case, the Appeals Summary states that both the taxpayers’ and the exam teams’s views should be solicited and considered.
In a November 8, 2021, memorandum (LB&I Memorandum), the Acting Assistance Deputy Compliance Integration for the LB&I Division Theodore D. Setzer provided guidance to LB&I employees on requesting participation. The LB&I Memorandum reflects the LB&I Divisons’s view that participation in certain IRS Appeals conferences is important for fostering effective tax administration and assisting IRS Appeals in resolving tax controversy on a basis which is fair and impartial to taxpayers and the government. Thus, LB&I employees “should continue to request to be invited where LB&I participation would help improve understanding of factual and legal differences in a case.” The LB&I Memorandum directs LB&I employees to consider the following nonexclusive list of factors before making a request to attend an IRS Appeals conference:
- The case is factually complex;
- History has shown lack of meeting of the minds regarding the underlying facts or legal positions;
- The taxpayer’s characterization of LB&I’s position in the formal written protest is not accurately stated and participation by both the taxpayer and LB&I at the Appeals conference will assist Appeals in both bridging the lack of understanding and better understanding the case;
- The taxpayer has presented multiple legal arguments or authorities that it relies on to support its position;
- The case involves outside experts or expert opinions;
- The case involves an issue of importance to tax administration, such as a case of first impression; one involving the interpretation of a new statute or regulation when there are no reported opinions or when published guidance is pending or where precedent is otherwise absent or conflicting; one affecting large numbers of taxpayers or an industry; or one falling within an operating division’s major strategic goal;
- The case involves an issue in which the Government seeks to distinguish a position set forth in published guidance;
- The case involves an issue coordinated under strategic compliance/coordination initiative such as LB&I campaigns or
- A tax shelter case involving a “Listed Transaction” or substantially similar transaction within the meaning of Treas. Reg. 1.6001-4(b)(2), or a “Transaction of Interest” under Treas. Reg. 1.6011-4(b)(6).
The LB&I Memorandum states that a participation request must be made in one of two ways. The first is by indicating the request on Form 4665, Report Transmittal. According to Internal Revenue Manual Section 18.104.22.168.6 (03-25-2021), Form 4665 is used to transmit a case to IRS Appeals but must not contain any statements or comments intended to influence the IRS Appeals decision-making process (i.e., no recommendations should be made on what IRS Appeals should consider and how it should resolve the case). The second is by making the request in a rebuttal to a taxpayer’s formal written protest.
The factors to be considered in the LB&I Memorandum are broad and, undoubtedly, an LB&I employee can find that one or more of these factors are present in any case. For example, in most cases there is more than one legal argument being presented and several authorities are usually cited to support a position. Thus, this factor will be present in almost all cases.
Another key point relates to a taxpayer’s ability to fully understand why LB&I believes it should be allowed to participate in the conference. Taxpayers are generally not provided with a copy of Form 4665 but are provided with any rebuttal to their protest. Because the Appeals Summary states that IRS Appeals will consider the taxpayer’s view on whether it would be helpful to invite the exam team to the conference, IRS Appeals should provide a copy of the Form 4665 (or any other correspondence) setting forth LB&I’s request to participate before a final decision is made.
Our experience with the LB&I Divisions’s participation in an IRS Appeals conference has been mixed, but the majority of the time we have found that such participation does not facilitate resolution of the case. In fact, it is counterproductive. (In narrow situations, such as factual disputes, it may be helpful for both parties to discuss such disputes with IRS Appeals.) The purpose of IRS Appeals is to allow the taxpayer an independent forum after the completion of the examination process, and the continued participation of exam team personnel runs the risk of turning the conference into more of a mediation. Other programs, such as Fast Track Settlement, are more appropriate forums for this type of interaction.