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. 22.214.171.124 (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 IRS is considering changes to ATCL’s settlement authority. He indicated that the review was initiated in response to a report filed by the Treasury Inspector General for Tax Administration that determined that in a sample of penalty Appeals cases, the case files did not always support Appeals’ decisions to abate penalties as required by Appeals criteria. See TIGTA Report Number: 2015-10-059 to the Internal Revenue Service Chief of Appeals (July 30, 2015). He cautioned, however, that the IRS had not made any final decisions.
Attendees at the conference, including former Appeals Officers and practitioners, expressed dismay at the proposed change because the LB&I Appeals process, which has worked well and instilled confidence in taxpayers, is not broken. This change may be a devastating blow to resolution at Appeals, and may cause a chilling effect on seeking redress at Appeals before heading to court. What is the use of spending a significant amount of time and effort to negotiate at Appeals if the decision maker is not even part of the negotiations?
What can we expect if the rumors ring true:
(1) Additional delays at Appeals;
(2) Unhappy ATCLs and ATMs;
(3) Unfair and unreasoned settlements;
(4) Increased assertion of penalties; and
(5) Taxpayers avoiding Appeals and an increase in tax litigation.
The new procedures were rumored to be effective October 1. We do not have confirmation of a change in policy, but once the rumors are confirmed, we will report back.