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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...

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BEWARE: Whistleblowers Can “Out” You to the IRS!

Not only should companies worry about the Internal Revenue Service (IRS) auditing their returns, but they also have to be aware of a potential assault from within. Indeed, current and former employees have an incentive to air all of your tax issues with the hope of being rewarded for the information. Section 7623(b) was added to the Internal Revenue Code (IRC) in 2005, and pays potentially large monetary rewards for so-called tax whistleblowers. To qualify for remuneration, a whistleblower must meet several conditions to qualify for the Section 7623(b) award program: (1) submit the confidential information under penalties of perjury to the IRS’s Whistleblower Office; (2) the information must relate to a tax issue for which the taxpayer (if the IRS found out) would be liable for tax, penalties and/or interest of more than $2 million; and (3) involve a taxpayer whose gross income exceeds $200,000 the tax year at issue. If the information substantially...

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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...

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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...

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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...

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IRS and Treasury Release Update to 2016-2017 Priority Guidance Plan

The US Department of the Treasury and Internal Revenue Service (IRS) issue Priority Guidance Plans each year to identify and prioritize the tax issues they believe should be addressed through regulations, revenue rulings, revenue procedures, notices and other published administrative guidance.  On October 31, 2016, the IRS and Treasury released the first quarter update to the 2016-2017 Priority Guidance Plan originally released on August 15, 2016. The original plan identified 281 guidance projects as priorities, and the first quarter update includes an additional six guidance projects.  The additional projects include: Guidance regarding the removal of the no-rule positions for certain legal issues concerning device and business purpose under section 355 (PUBLISHED 09/12/16 in IRB 2016-37 as REV. PROC. 2016-45 (RELEASED 08/26/16)). Revenue procedure providing a self-certification procedure for waivers of the 60-day rollover requirement under §§402(c)(3) and...

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IRS Appeals – Changes Afoot?

IRS Appeals cases within the Large Business and International (LB&I) division that involve a significant number of issues, a significant amount of money, or highly complex issues are typically assigned to a “team” of IRS Appeals officers. The Appeals Team Case Leader (ATCL), however, has “complete control” of the case, is “independent” from the IRS Examination Team and, except for certain coordinated issues, has settlement authority for all work assigned to the Appeals team. See I.R.M. 8.7.11.2 (09-25-2013). Currently there are 35 ATCLs. Rumors are rampant, however, that the IRS may soon eliminate the ATCL’s settlement authority and require review and approval of settlements by an Appeals Team Manager (ATM), of which there are only a handful. On September 22, 2016, at an annual conference sponsored by the Internal Revenue Service and the New York Chapter of the Tax Executives Institute, Reinhard Schmuck, an ATCL for Area 9 in New York, confirmed that the...

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IRS Updates Rules Regarding Appeals Conferences

The Internal Revenue Service (IRS) has revised the Internal Revenue Manual (IRM) regarding Appeals Conferences.  Below is a summary of material changes to IRM 8.6.1, effective October 1, 2016: The IRM was revised to reflect that most conferences in Appeals will be conducted by telephone.  The revision also provides guidance for when in-person conferences are appropriate (e.g., when there are substantial books and records to review that cannot be easily referenced with page numbers or indices, or when there are numerous conference participants that create a risk of an unauthorized disclosure or breach of confidentiality). IRM 8.6.1.4.1.2, In-Person Conferences: Circuit Riding was added.  If the assigned Appeals employee is in a post of duty that conducts circuit riding, circuit riding will be permitted when the address of the taxpayer, representative or business (for business entities) is more than 100 miles from a customer-facing virtual conference site or...

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Sixth Circuit Defines ‘Corporation’ for Purposes of Overpayment Interest

The US Court of Appeals for the Sixth Circuit recently held in U.S. v. Detroit Medical Center that a nonprofit entity incorporated under state law falls within the definition of a ‘corporation’ for purposes of determining the interest rate applicable to tax refunds. The case is worth reading for its plain meaning analysis as well as its reliance on prior case law dating back hundreds of years. In Detroit Medical, a not-for-profit corporation overpaid its taxes, entitling it to a refund plus interest. Under the Internal Revenue Code (Code), ‘corporations’ receive lower interest rates on refund than other taxpayers. The taxpayer claimed that, as a not-for-profit corporation, it should not be treated as a ‘corporation’ and thus was eligible for the higher interest rate resulting in an extra $9.1 million in refunds. The Sixth Circuit found nothing in the relevant statute that excludes a not-for-profit corporation from the definition of “corporation.” In reaching...

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IRS Updates Appeals Procedures for Tax Court Cases

On March 23, 2016, the Internal Revenue Service (IRS) issued Rev. Proc. 2016-22, 2016-15 IRB 1, which clarifies and describes the practices for the administrative appeals process in cases docketed in the Tax Court.  The stated purpose of the revenue procedure is to facilitate effective utilization of appeals and to achieve earlier development and resolution of Tax Court cases. Previously, the procedures for the appeals process of Tax Court cases was contained in Rev. Proc. 87-24, 1987-1 C.B. 720.  In October 2015, the IRS released a proposed revenue procedure updating the rules and requesting public comments.  Three substantive comments were received and considered by the IRS, resulting in changes to the proposed revenue procedure.  Rev. Proc. 2016-22 states that some of the suggestions that were not adopted may be addressed in other IRS guidance materials. The general rule followed by the IRS is that all cases docketed in the Tax Court that have not...

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