New Pennsylvania settlement reform process goes live

Effective for certain appeals filed on or after Jan. 27, 2025, Senate Bill 1051, signed by Pennsylvania Gov. Josh Shapiro on Oct. 29, 2024, reforms the process for resolving tax disputes. The new law extends the time for the Commonwealth’s Board of Finance and Revenue (BF&R) to consider late appeals of personal income taxes, withholding taxes and pass-through taxes while also creating a formal settlement process for all tax appeals. A brief description of the new law and relevant changes to the appeal process is explained below.

Pennsylvania tax appeals process

Generally, taxpayers with a dispute arising from a state tax assessment, refund request and certain other actions, file a petition to the Pennsylvania Board of Appeals (BOA), a board governed by the Pennsylvania Department of Revenue and charged with reviewing actions taken by the department. Taxpayers may appeal a decision of the BOA to the BF&R within 60 days of the BOA’s decision for most taxes. The BF&R is a three-member board consisting of two members appointed by the governor and confirmed by the senate, and one member appointed by the state treasurer. The BF&R is governed under the Pennsylvania Treasury Department and statutorily authorized to hear and resolve appeals from the department. Senate Bill 1051 modifies the time to appeal to the BF&R for certain taxes and provides authorization for a formal settlement process.

Senate Bill 1051

Senate Bill 1051 extends the BF&R petition filing deadline for appeals related to personal income taxes, employer withholding taxes and pass-through assessments from 60 days to 90 days from the mailing date of the BOA’s decision, with a possibility of an additional 30-day extension for good cause. The changes allow individual taxpayers and the BF&R additional time to resolve merit-based disputes without creating jurisdictional barriers due to late filings.

The bill also creates a formal settlement process for all taxpayers allowing for either party, the taxpayer or the department, to request a settlement conference. While not specifically authorized under statute, it had historically been policy of the BF&R to encourage settlements of tax disputes in the interest of saving time and the costs of litigation. As explained by the bill, the formal settlement process and conference is managed by a third-party contractor who will serve as the settlement officer. A settlement may be requested by either party within 30 days of the filing of a petition with the BF&R, however, the BF&R may extend this deadline for good cause. The BF&R during the time of settlement discussions may defer their decision on the appeal until a settlement is reached or settlement discussions have terminated. In the case that a settlement cannot be reached, or either party chooses to not participate in the settlement process, then BF&R will proceed with the normal procedures for issuing a decision. The BF&R has six months to issue a decision when settlement efforts are exhausted with no resolution.

Finally, the legislation authorizes the department to enter into a closing agreement with any taxpayer. The agreement will be considered final and conclusive once approved by the department, and cannot be reopened unless there is fraud or misrepresentation of a material fact. The department may reimpose any tax, penalties, interest or other additions to tax if the taxpayer fails to comply with the agreement.

Takeaways

Pennsylvania’s overhaul of procedures for reviewing petitions for tax reassessments should help encourage equitable, timely, and cost-effective paths to resolution. For appeals filed on or after Jan. 27, 2025, taxpayers disputing personal income tax assessments have an additional 30 days to file an appeal of a decision from the BOA to the BF&R. This additional time allows personal income taxpayers who may otherwise be disadvantaged by time constraints or other administrative issues to be heard. Additionally, the law grants the BF&R the ability to review late filed appeals and grant an additional 30-day extension for filing where good cause and the merits of the dispute justify review. This change serves to allow for both taxpayers and the department to resolve more disputes on their merit and eliminate what Pennsylvania lawmakers identified as barriers to resolving tax matters without the use of the Commonwealth Courts.

Taxpayers should also consider the formal settlement process for all tax types. Effective Jan. 27, 2025, Pennsylvania taxpayers may resolve appeals before BF&R through a settlement process, formalizing the ability to settle disputes at the BF&R, while providing for an independent reviewer. All appeals filed on or after Jan. 27 must use the BF&R’s new appeal portal. Taxpayers subject to an assessment or who are considering a refund in Pennsylvania should reach out to their state and local tax advisers.