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IRS Provides Guidance to LB&I Examiners on Requesting Participation in Appeals Conferences

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 4.10.8.12.6 (03-25-2021), Form 4665 is used to [...]

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Law360: A Look At Tax Code Section 199’s Last Stand

Andy Roberson, Kevin Spencer and Emily Mussio recently authored an article for Law360 entitled, “A Look At Tax Code Section 199’s Last Stand.” The article discusses the IRS’s contentious history in handling Code Section 199 and the taxpayers’ continued battle to claim the benefit – even after its recent repeal.

Access the full article.

Originally published in Law360, November 2018.




IRS Announces That CAP Will Continue

On August 27, 2018, the Internal Revenue Service (IRS) announced that the Compliance Assurance Process (CAP) program will continue, with some modifications.  As we previously discussed, the IRS began an assessment of the CAP program in August 2016 to determine if any recalibration was needed.

CAP is an IRS program that seeks to identify and resolve tax issues through open, cooperative, and transparent interaction between the IRS and Large Business and International (LB&I) taxpayers prior to the filing of a return.  The goal of CAP is greater certainty of the treatment of tax positions sooner and with less administrative burden than conventional post-file audits.  The program began in 2005, and became permanent in 2011.  Several notable taxpayers publically disclose their involvement in the CAP program. (more…)




IRS OVDP Ending | Time Is Now for Coming into US Tax Compliance – Especially for Those with Willfulness Issues

On March 13, 2018, the Internal Revenue Service (IRS) announced that it will begin ramping down the current Offshore Voluntary Disclosure Program (OVDP) and urged taxpayers with undisclosed foreign assets to apply for the program prior to its close on September 28, 2018. We have previously reported on developments in the OVDP.

Access the full article. 




Virtual IRS Appeals – A New Frontier?

The Internal Revenue Service Office of Appeals (IRS Appeals) recently announced that it will offer a new virtual “face-to-face” option in the form of web-based communication to taxpayers and representatives to resolve tax disputes. IRS Office of Appeals Pilots Virtual Service, IRS (July 24, 2017. This announcement comes on the heels of other changes at IRS Appeals that curtail the ability of taxpayers to have face-to-face hearings with IRS Appeals. The IRS cites the need for the new service because of IRS Appeals’ large (and growing) case load—more than 100,000 cases each year! For some our prior coverage on recent changes at IRS Appeals, see here, here, here and here.

Practice Point: In the wake of an ever-shrinking budget, resources and staff, the IRS really has no choice but to try new and arguably more efficient methods to move cases along. The backlog of cases at IRS Appeals is staggering, and our clients are experiencing long wait times until a case is even assigned to an IRS Appeals officer. Then when the case is assigned, it typically sits for months until real progress can be made. This is not the fault of the IRS or the individual Appeals’ officers, but really the reality of a resource-starved governmental agency. The virtual appeals conference is seemingly a good method to conduct an Appeals conference for simple cases. If a case is complex, however, a virtual conference may be no different (or no more effective) than a telephonic conference. In cases that require extensive explanation, it is hard to see how the IRS Appeals conference will be effectively conducted virtually. But “hope springs eternal.”




Fast Track Settlement Now For SB/SE Taxpayers

Today, the Internal Revenue Service (IRS) released Revenue Procedure 2017-25 extending the Fast Track Settlement (FTS) program to Small Business / Self Employed (SB/SE) taxpayers.  The IRS’s SB/SE group serves individuals filing Form 1040 (US Individual Income Tax Return), Schedules C, E, F or Form 2106 (Employee Business Expenses), and businesses with assets under $10 million.

FTS offers a customer-driven approach to resolving tax disputes at the earliest possible stage in the examination process. The program provides an independent IRS Appeals review of the dispute.  Under this approach, the IRS Appeals Officer acts as the mediator and has settlement authority.

The purpose of the program is to reduce the time to resolve cases and to provide the IRS Exam Team with the authority to settle cases based on hazards of litigation (which is generally reserved for IRS Appeals Officers).  FTS has been considered a great success by the IRS and many taxpayers.  The expansion of this successful alternative dispute resolution makes sense in light of the ever-shrinking resources of the IRS.




National Taxpayer Advocate 2016 Report – IRS Appeals and Alternative Dispute Resolution

In its annual report to the US Congress, the Taxpayer Advocate Service (TAS) had a lot to say about IRS Appeals and the (lack of) use of other alternative dispute resolution (ADR) techniques. In this post, we will highlight what the TAS had to say in this area.

IRS Appeals

Undoubtedly, one of the Internal Revenue Service’s (IRS) most successful dispute resolution techniques has been IRS Appeals. Briefly, after the IRS’s Examination Division proposes a tax adjustment, taxpayers have the statutory right to seek an “appeal” of the decision. IRS Appeals is a separate and seemingly independent division of the IRS where one or more appeals officers review the redeterminations and adjustments made by the Examination Division, and attempt to settle the dispute directly with the taxpayer based upon a “hazards of litigation” analysis, much in the same manner as a judge would rule. The TAS acknowledged the success and utility of the IRS Appeals program and mission, but requested that Congress expand the program, giving the IRS the resources it needs to manifest the full intent of the program.

The TAS reported that funding for IRS Appeals has diminished sharply—by about 11 percent from 2013 to 2016, with staff reduced during the same period by 24 percent. In response to shrinking resources, but hobbled by the same duties and similar case load, IRS Appeals has been forced to implement procedures and policies that hamper its long-term mission of providing a fair and impartial review of the Examination Division’s adjustments. The TAS pointed out that these policies have resulted in (1) creating an inhospitable Appeals environment; (2) limiting in-person Appeals conferences; (3) reducing the Appeals officer’s ability to perform a quality substantive review; and (4) failing to protect the rights of taxpayers when conducting collection Appeals hearings. The TAS noted that there has been a large increase of cases docketed in the US Tax Court before seeking an IRS appeal. The TAS believes that docketing a case before it goes to Appeals has added inefficiency and unnecessarily increased the case load of the Tax Court.

The TAS suggested the following solutions:

  1. Expand the locations in which Appeals Officers hear matters. Presently, there are numerous states in which there are no IRS appeals officers. As a result, taxpayers who seek an appeal and request an in-person conference are forced to travel to the states in which an IRS appeals officer is located.
  2. Hold more in-person appeals conferences. The TAS report argues that in-person conferences facilitate the efficient and expeditious settlement of matters.
  3. Revise procedures and policies to allow IRS appeals officers additional discretion and time to undertake factual development and provide more substantive review of matters.

Practice point: We have recently reported about many of the issues facing taxpayers seeking review by IRS Appeals. The TAS confirms our critiques of the system. IRS Appeals is a very good and useful technique that has a high probability of settling cases. Generally, appeals [...]

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‘Medtronic v. Commissioner’: A Taxpayer Win on Transfer Pricing, Commensurate with Income, and Section 367 Issues

On June 9, 2016, the US Tax Court released its opinion in Medtronic, Inc. and Consolidated Subsidiaries v. Commissioner. The Internal Revenue Service had taken issue with the transfer pricing of transactions between Medtronic, Inc. and its Puerto Rican manufacturing arm under §482 of the Internal Revenue Code. Finding the IRS’s application of the comparable profits method (CPM) to the transactions arbitrary and capricious, and taking issue as well with the taxpayer’s comparable uncontrolled transaction (CUT) methodology, the court ultimately made its own decision as to arm’s-length pricing, arriving at new allocations by making adjustments to the taxpayer’s original CUT approach.

Read the full Tax Management International Journal article.

© 2016 Tax Management Inc., a subsidiary of The Bureau of National Affairs, Inc.




More Changes to IRS Appeals Procedures

In a letter dated November 4, 2016, IRS Chief of Appeals Kirsten Wielobob provided some clarification regarding the authority of the Appeals Team Case Leaders (ATCLs) to settle cases, revisions to IRM section 8.6.1.4.4 permitting other IRS employees to attend conferences, clarifications to conference practices, and revisions to how Appeals handles section 9100 relief determinations. After a month of speculation, of interest to most taxpayers and practitioners is the news that, although settlement authority will remain with the ATCLs, Appeals will revise its procedures to make it clear that an Appeals Manager must review a case prior to an ATCL finalizing a settlement. In an apparent attempt to thread the proverbial needle, the letter indicates that the Appeals Manager “will not be accepting or rejecting settlements,” but if the ATCL and Appeals manager “disagree about a settlement,” the next higher level manager supervising ATCL Operations will resolve any disagreement. Although this procedure is contemplated in IRM section 8.7.11.3.1  (03-16-2015), the letter suggests that there will in fact be a procedural shift. It remains to be seen whether, as some have feared, this will lead to increased delays in resolving cases.




Tax Controversy Options

Knowing your options for a US Federal tax controversy is helpful in creating a sound and efficient strategy. The attached chart depicts the typical options involved in a US Federal tax controversy, from the IRS’s examination of the return, through administrative appeals, litigation in Tax Court, Circuit Court appeal, and to ultimate assessment of tax.




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