IRS Disputes: IRS Appeals (Explained)

Published Categorized as IRS & State Audits, Tax Relief
IRS appeal, Austin Tax Attorney

If you have an IRS dispute brewing and you have not been able to resolve the matter with the IRS, you are probably going to have to ask the IRS Office of Appeals to consider the case. The IRS Office of Appeals is the administrative forum for resolving tax disputes. It provides taxpayers with an opportunity to have their disputes considered by another IRS employee whose job is to be impartial and to try to settle cases. Here is what you need to know about the IRS Office of Appeals.

About the IRS Office of Appeals

Appeals was formed in 1927. Its authority is delegated to it by the IRS Commissioner. In reaction to perceived IRS abuses, Congress ordered the IRS to ensure that Appeals is independent even though it is part of the IRS. See Revenue Restructuring and Reform Act of 1998, Sec. 1001(a).

The mission of Appeals is to resolve tax controversies, without litigation, on a basis that is fair and impartial to both the Government and the taxpayer and in a manner that will enhance voluntary compliance and public confidence in the integrity and efficiency of the Service.

Given this mission, Appeals has developed policies that dictate how it handles cases. These policies relate to having limited contact with the IRS exam or audit function and how cases are to be settled. These policies have changed over time. For example, the IRS recently Appeals confirmed that its role is to decide disputes and not audit tax returns. This policy means that Appeals will refer cases back to the IRS exam or audit or collection functions for development if the case is not fully developed prior to arriving in Appeals.

The IRS Appeals Process

The appeals process generally does not begin until the IRS makes an adverse determination. The taxpayer then has to file a protest or petition the U.S. Tax Court before Appeals can obtain jurisdiction over the dispute.

Once Appeals has jurisdiction, it will contact the taxpayer or their representative to schedule time for a conference. The conference may be in person or on the phone. The conference is informal. The appeals officer will have reviewed the IRS’s administrative file and may have conducted some legal research prior to having the conference. The focus is on finding ways to dispose of or settle cases.

The Taxpayer’s View of IRS Appeals

Appeals handles over 100,000 cases a year. These cases include disputes as to liability (including penalty and innocent spouse disputes), collection actions, and other administrative decisions made by the IRS. From the taxpayer’s perspective, there are two different functions within Appeals.

The Appeals Collection Function

The Appeals collection function considers collection cases. This includes Collection Due Process, Offer in Compromise, Trust Fund Recovery Penalties, Jeopardy Levies, and Collection Appeals Program (CAP) cases.

Appeals personnel who consider these cases are referred to as “settlement officers.” Settlement officers usually have some IRS collections background, but little or no substantive tax experience and have little knowledge of our substantive tax laws.

The Appeals collection function focuses on disposing of cases. The settlement officers that hear these cases are usually all or nothing. Or they may end in negotiating payment terms.

The Appeals Exam Function

The Appeals exam function considers cases generated from the IRS examination or audit functions. This includes disputes as to IRS correspondence, office, and field audits.

Appeals personnel who consider these cases are referred to as “appeals officers.” Appeals officers usually have some IRS audit background and are knowledgeable about our tax laws.

The Appeals exam function generally settles tax cases based on its analysis of the hazards of litigation for the case. The term “hazards of litigation” is difficult to define, but is a term that is well understood by appeals officers and those who work with Appeals. One definition might be a percentage range that is determined by analyzing the facts and law and making an informed and impartial guess as to how a court would decide a case if it was litigated.

For example, the appeals officer might decide that the hazards are 50-60% and that the taxpayer would prevail in court. The hazards of litigation would be 50-60%. Having made this determination, the appeals officer is tasked with negotiating with the taxpayer or their representative to settle the case for 50-60% of the amount proposed by the IRS. The appeals conference or subsequent conversations with the appeals officer are to see if the taxpayer is willing to settle the case within this range.

Cases Not Settled in Appeals

The appeals process represents the last step in the IRS’s administrative process. Most cases are settled in Appeals. The cases that are not settled in Appeals can usually still be challenged in court.