Strategies for Dealing with the IRS: The IRS Appeals Office
This video is the second in a four-part series on Jones Day's approach to dealing with the IRS. In it, partner Chuck Hodges discusses stage two – the IRS Office of Appeals. He describes the office as having one mission – to resolve taxpayer disputes without litigation and arrive at a fair resolution for the taxpayer and the examiner. He also describes other appeal options, including to the U.S. Tax Court.
Watch other videos in our Strategies for Dealing with the IRS series.
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Read the full transcript below:
Chuck Hodges:
The Jones Day approach to dealing with the IRS is four stages, and I like to consider them four acts of a play. The first act is the examination function, and that is more of the fact finding mission of the IRS. But if you go unagreed, then you've got to move on to act two of the play, and that's dealing with the IRS office of appeals. And that's where I'd like to talk now. When you're dealing with the IRS office of appeals, you need to understand, they have one mission, and their mission is to resolve tax controversies with taxpayers without litigation, and on a basis that is fair to both parties. Appeals is independent of exam. So this is someone who will look at your case and look at your facts and come up with a fair settlement for both parties.
How do they do that? They do it based upon a standard that I wish is defined, but it's not, and that is hazards of litigation for both parties. So that's the theme throughout dealing with the office of appeals. So what do they do? I consider appeals officer's administrative law judges. They look and they weigh the evidence and they analyze the law to try to come up with a fair split among the parties. And who are those parties? That's exam and it's the taxpayer. So the first thing that a lot of people ask is, "Well, wait a minute, it's IRS office of appeals, so aren't they just going to be talking to the examiner the whole time and getting their input and I'll never get a fair and impartial appeals process?"
The answer to that is no. Congress specifically came out with rules years ago that said that there could be no ex parte communications between the appeals officer and the examination function. So to the extent that you submit facts and legal analysis to the appeals officer, that appeals officer is generally prohibited from now taking that back to the examination function for further analysis. One of the misperceptions that are out there is that there's only one avenue to appeals, and that is I get through my examination, we're unagreed, And now I get a 30 day letter from exam, which will include their summary of the facts, their summary of the law. It's often referred to as a revenue agent's report. And I then have 30 days to prepare a protest, which will point out all of the places where I challenge the facts and I challenge the law, and then that protest goes up to appeals. The exam gets to rebut the analysis that I did.
Most people go that route. However, it is not the only option and this option has to be discussed, and that is at the end of the examination function, you look and you say, "Do we want to lock the IRS into the position that they have now and move on to court?" Because we do not waive our appeals rights just by not going to appeals or a protest. Here's how you do it. When you get to the end of the exam, you get the revenue agent's report, they say you have 30 days to write up a protest. You simply say, "We decline to go to appeals now. Please, exam, issue your statutory notice of deficiency." And that is the final document and the final formal position of the IRS as to what adjustments they're making to your tax return.
Once you get that, you have 90 days to file a petition in US tax court challenging that notice of deficiency. Well, once you've filed your petition and the IRS responds, you will get the opportunity to still meet with appeals because you haven't done so yet. Well, what's the difference between going to appeals through the protest route versus going to appeals after you file a petition in tax court? Well, there's a few things. A couple of them I want to talk about. One, is now the IRS has a lawyer involved. And as I mentioned before, the whole reason for appeals is to settle cases with taxpayers without litigation, but based up on this undefined standard of hazards of litigation. Who better to assist appeals in understanding what are really the hazards of litigation for the IRS, then the IRS lawyer who will one day have to go to court? So their assistance may help appeal see some of the true hazards of litigation.
The other reason is simply that you want to move on because you believe you can resolve this matter fairly quickly because of the strength of your case. The unfortunate part, appeals is very understaffed, very overworked, and I have had appeals cases outstanding for five, six, seven, eight years, because you still have to stay on the IRS timetable. Whereas once you file a petition in tax court, there is no more taxpayer timetable, there's no IRS timetable. There is the court's timetable. And once you file your petition, you could find yourself docketed and to be set for trial in a matter of six to nine months. And that forces the parties to come together to see, can we resolve this without litigation? So again, there are two avenues to go to appeals and you need to consider both whenever you're done with dealing with the IRS and they've issued the revenue agent's report.
