Administrative Appeals
The Internal Revenue Service has an
administrative appeals function that enables taxpayers to have their IRS Audit
or Collection cases reviewed by Appeals Officers or Settlement Officers who are
independent of the Examination and Collection functions. Historically, over 80%
of the cases considered by Appeals are resolved, most often for less than the
deficiency proposed by the Area Office.
Appeals employees are among the most technically
proficient of all the IRS functions. To be successful in getting your case
resolved for the lowest possible amount, it is my opinion that you need a
representative who not only is technically proficient in tax law, but is very
familiar with the Appeals Division's processes and procedures.
As the former Associate Chief of Appeals for the Los
Angeles Appeals Office, I managed groups of Appeals Officers. In that capacity,
I reviewed each of my Appeals Officer's proposed settlement or recommendation
for litigation for each of their cases. I either approved or rejected their
proposals based upon my analysis of the facts in the case, the law, and when
applicable, the hazards of litigation. Hazards of litigation for settlement
purposes are ONLY considered in Appeals. That authority is not given to Revenue
Agents or Tax Compliance Officers.
You may be asking yourself just what are the hazards
of litigation. To illustrate the process, the Appeals Officer first reviews
and evaluates the facts in the case, and the applicable statutes and legal
precedents. After considering all these aspects, he or she will evaluate the
"hazards" the government (IRS) will face in litigating the case in the
appropriate court. If the Appeals Officer believes that the IRS may have a 40%
chance of losing the case in trial, then he or she may entertain a settlement
proposal whereby the taxpayer concedes 60% of the issue in the case.
If there are multiple issues involved in the case,
then each issue will likely have its own hazard of litigation. For example, the
facts for one issue may be better developed than for another. There may be more
(or less) case law that pertains to one issue or another. As you can imagine,
determining the hazards both the IRS and the taxpayer will face in litigation is
a very subjective determination. Having a representative who is knowledgeable
of the process Appeals Officers use in formulating and applying a hazards of
litigation settlement is critically important to achieving a favorable
resolution of a case in Appeals.
The process of actually filing an appeal is time
sensitive and can vary depending upon the type of case. Generally, the notice
issued to the taxpayer for either a collection or audit matter will contain
information concerning appeal rights. There should also be a deadline listed by
which the appeal must be filed. If a taxpayer is late with their request for an
Appeal’s hearing, they can lose a valuable opportunity to resolve their case
without the time and expense of pursuing relief through litigation in the
Courts.
Currently, the majority of cases in Appeals are the
result of collection actions or threatened collection actions. However, with the
extensive new hiring, a significant increase in tax audits is expected – and
with that, an increase in the volume of Appeals’ cases.
Finally, the decision to file an appeal (especially
for a proposed audit deficiency) may not be easily determined. The alternative
to filing an appeal for an audit determination is to wait for the IRS to issue a
Notice of Deficiency (otherwise known as a “90-day letter”). There are pros and
cons to such an action that are beyond the scope of this article. I recommend to
any taxpayer who is going through an audit to seek professional advice and
perhaps representation if an appeal to the proposed audit report is being
contemplated.
Updated: 5/10/24