As an IRS examination (Exam) draws to a close, a taxpayer may not feel satisfied with the results. The taxpayer will need to decide whether to agree with the Exam’s proposed adjustments or seek to have the issues resolved outside of the examination process. The IRS Independent Office of Appeals (Appeals) offers taxpayers an opportunity to settle without incurring the expense of litigation.
Appeals is a separate division within the IRS, not directly related to the Exam. Appeals officers are more experienced than most examiners (many have an examination background) and are trained in settlement resolution. Approximately 90 percent of all issues referred to Appeals are settled in a manner that is fair to both the taxpayer and the government.
To have a case considered in Appeals, the taxpayer must complete the IRS Exam and receive a 30-day letter from the revenue agent which outlines their position on any proposed adjustments. Upon receipt, the taxpayer has 30 days to file a protest and request Appeals’ consideration.
Once the protest is filed, the case will be moved from Exam to Appeals. The case will be assigned to an Appeals officer who will contact the taxpayer to set up an opening conference. The opening conference is the taxpayer’s opportunity to present its case on the proper treatment of the items at issue. In some instances, the Exam team may participate in the opening conference by making a preliminary presentation of the issues.
After the opening conference, the Appeals officer will work with the taxpayer to resolve the issues. Appeals officers have wide latitude to settle cases on terms that are fair to both the taxpayer and the government. Unlike examiners, Appeals officers can take into account the “hazards of litigation”—the likelihood of both parties’ chances should the case go to court. Reaching a settlement in Appeals is often an iterative process; both sides may probe issues and exchange settlement offers before the final settlement is reached.
Some important points to consider before going to Appeals:
Documentation: Before going to Appeals, it is critical that all documents and information favorable to the taxpayer are provided to the examiner. Appeals will not let taxpayers introduce new material at Appeals and may refer the case back to Exam to consider any new information.
Ex parte communications: After Exam has passed the case to Appeals, ex parte communications rules apply to limit any communications between the Appeals officer and the Exam team. Under these rules, the Appeals officer is not allowed to have any additional contact with Exam unless approved by the taxpayer.
Closing agreements: Because of Appeals’ wide latitude to settle cases, recurring issues that may affect future tax returns can be settled with Appeals. For recurring issues, the taxpayer and Appeals can go into a closing agreement on the treatment of an item going forward to resolve future examinations.
Moving a case from Exam to Appeals may be the best strategy for resolving difficult tax issues. Appeals will consider the case independently from Exam, and the ex-parte rules prevent exam from influencing the Appeals officer. Appeals have a high success rate in resolving issues, thus avoiding litigation. Recurring issues may be settled for the last time by entering into a closing agreement. Appeals are a good option for resolving contentious tax issues on a fair and independent basis.
