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'New' IRS Independent Office of Appeals: What Does it Mean?

'New' IRS Independent Office of Appeals: What Does it Mean?

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Wednesday, 15 January 2020 04:02 PM Current | Bio | Archive

The Taxpayer First Act was signed into law by President Trump last summer. It is touted as “historic” legislation that “will modernize the IRS and rightfully prioritize taxpayers.” This according to the news release issued by the House Ways and Means Committee when the bill was passed out of Committee.

Whether this legislation is “historic” or not remains to be seen. The reality is that it does not come close to the level of IRS reform and creation of taxpayer rights swept in by the 1998 IRS Restructuring and Reform Act. In addition to numerous minor changes to taxpayer rights and IRS procedures, there were several major reforms that had a powerful and lasting impact on taxpayer rights. Chief among these were the creation of Collection Due Process Appeal rights and reforms to the innocent spouse statute, code §6015.

The Restructuring Act also moved the Office of the Taxpayer Advocate out of the chain of command from the IRS’ enforcement functions, such as Examination and Collection. It was transformed into a separate office under the sole command of the IRS Commissioner. In this way, the Taxpayer Advocate became free of oversight from the enforcement officers whose actions it was supposed to check or control. The Taxpayer Advocate Service has functioned fairly well in carrying out its duties as a result of this independence.

The Taxpayer First Act purports to do exactly the same thing with the IRS’ Office of Appeals.

What is the Office of Appeals?

The Office of Appeals is a critical element of tax administration. It serves as the agency’s quasi-judicial board of review. The Taxpayer Bill of Rights guarantees every taxpayer the right to “challenge the position of the Internal Revenue Service and be heard,” along with the right to “appeal a decision of the Internal Revenue Service in an independent forum.” See: Code §7803(a)(3). The Appeals Office is charged with carrying out these duties.

Indeed, the Appeals Office has for some time been set up in the IRS’ organizational structure much like the Office of the Taxpayer Advocate. See the IRS’ organizational chart on page 75 of the IRS’ 2018 IRS Data Book (Publication 55B). That is to say, the Chief of Appeals was already answerable directly to the Commissioner of the IRS. She was not within the chain of command, whether under or over, any IRS enforcement office. For example, the Examination function did not evaluate the performance of Appeals Officers in reviewing adjustments made in audit cases. If that were the case, it would seem plausible (if not likely) that Appeals Officers would simply rubber stamp those decisions.

Likewise with the Collection function. Code §6330(b) guarantees every citizen the “right to a fair hearing” in the context of a Collection Due Process appeal. This applies to both levy appeal hearings under §6330 and lien appeal hearings under §6320. Those sections were added to the code by the IRS Restructuring Act in 1998. If Appeals Officers fell under the authority of Collection, how could one reasonably expect to get a “fair hearing” as required by law?

And even if all performance review criteria for Appeals Officers had nothing to do with the extent to which they modified or overturned decisions of tax auditors and collectors, the fact that their managers were directly connected with the Appeals function would taint the process with an insurmountable appearance of impropriety.

The Appeals Office 'Call to Action'

Treasury Regulation §601.106(f) sets forth the rules of procedure for the Office of Appeals. Rule 1 states:

  • An exaction by the U.S. Government, which is not based upon law, statutory or otherwise, is a taking of property without due process of law, in violation of the Fifth Amendment to the U.S. Constitution. Accordingly, an Appeals representative in his or her conclusions of fact or application of the law, shall hew to the law and the recognized standards of legal construction. It shall be his or her duty to determine the correct amount of the tax, with strict impartiality as between the taxpayer and the Government, and without favoritism or discrimination as between taxpayers.

This regulation was last amended in October 1987.

Part 8 of the Internal Revenue Manual (IRM), Appeals, articulates the mission of Appeals in the very its first section. Section 8.1.1.1(1) reads as follows:

  • The Appeals Mission is to resolve tax controversies, without litigation, on a basis which 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.

This IRM language was in effect as of October 1, 2016. At that time, the IRS publicly repeated the claim that Appeals is wholly independent from IRS enforcement functions. In the Fact Sheet entitled “IRS Clarifies Office of Appeals Policies,” October 1, 2016, the agency stated:

  • Appeals’ role is to settle disputes on a fair and impartial basis that favors neither the government nor the taxpayer. Appeals should not perform compliance actions. Rather, we attempt to settle a case after IRS compliance functions (Accounts Management, Collection, and Examination) have made a determination with which the taxpayer disagrees.
  • Our recent policy changes help to preserve the opportunity for an impartial appeal for taxpayers by ensuring Appeals is reviewing a final determination made by a compliance function.
  • Although there will be a period of transition as these policies are implemented, we are confident that they will improve the appeals process by supporting Appeals’ mission and strengthening a taxpayer's right to an independent appeal.

The March 2016 edition of IRS Publication 4227, Appeals, provides in part as follows:

  • Appeals is a separate function and independent of the IRS office that proposed the adjustment or collection action. Appeals will not engage in communication with employees of other IRS functions (commonly referred to as ex parte communications) to the extent such communication appears to compromise our independence.

The Office of Appeals was formed in 1927. And though there were changes over the years, its stated mission, expressed in the IRM provision cited above, has always been the same.

Along Comes the Taxpayer First Act

Against this historical and legal backdrop we welcome the Taxpayer First Act, the jewel of which is Act §1001. Section 1001 amends code §7803 by adding a new subsection (e). Section 7803(e)(1) reads:

  • There is established in the Internal Revenue Service an office to be known as the “Internal Revenue Service Independent Office of Appeals.”

Section 7803(e)(2) states:

  • The Internal Revenue Service Independent Office of Appeals shall be under the supervision and direction of an official to be known as the “Chief of Appeals”. The Chief of Appeals shall report directly to the Commissioner of Internal Revenue….

I might be missing something, but the organizational chart mentioned above shows that there already is an Office of Appeals, and that it is currently under the direction of an official known as the “Chief of Appeals,” and what’s more, that the Chief of Appeals already reports directly to the Commissioner.

So excuse me for asking, but what has this accomplished? From an organizational standpoint, the answer is “nothing.”

From an operational standpoint, there may be some benefit to the law. It is a fact that the IRM is not law. The various federal courts have stated repeatedly that the IRM does not confer any rights on taxpayers, and the various manual provisions do not necessarily create affirmative duties that the IRS is bound to follow. In this sense, one might say that IRS’s flowery mission statement in IRM Part 8.1, regarding the function of Appeals, is, well, not worth the paper it’s written on.

And in the strictest sense, such a person would be entirely correct. Thus, for example, if a taxpayer found himself before an Appeals Officer who was somehow not “fair and impartial,” he would have no standing to point to IRM Part 8 and claim that the conduct constituted a violation of his rights. Of course, that assumes that the Taxpayer Bill of Rights was not law.

To this point, the Taxpayer First Act effectively codified the IRS’s mission statement. New Code §7803(e)(3) reads as follows:

It shall be the function of the Internal Revenue Service Independent Office of Appeals to resolve Federal tax controversies without litigation on a basis which:

  1. is fair and impartial to both the Government and the taxpayer;
  2. promotes a consistent application and interpretation of, and voluntary compliance with, the Federal tax laws; and
  3. enhances public confidence in the integrity and efficiency of the Internal Revenue Service.

As you can see, this is word-for-word the Appeals mission statement from IRM Part 8.

Unfortunately, like so much of what Congress does when it comes to IRS reform, much of the Taxpayer First Act is more window dressing than substantive change in favor of taxpayer rights.

Dan Pilla is a tax litigation specialist with more than 40 years of experience helping people solve their IRS problems. He’s written 15 books, dozens of research reports and more than 1,100 articles on taxpayers’ rights issues, tax policy and administration, and IRS problems resolution. For more information, see: www.danpillabooks.com, and www.taxhelponline.com

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DanPilla
Unfortunately, like so much of what Congress does when it comes to IRS reform, much of the Taxpayer First Act is more window dressing than substantive change in favor of taxpayer rights.
irs, office, appeals
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2020-02-15
Wednesday, 15 January 2020 04:02 PM
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