1-1.20 Since its inception, the Appeals has been known by various names and has had differing levels of authority delegated to it. Its main mission, however, has never changed. As stated by the itself, that mission is:

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

The mission, if you speak to an IRS employee at Appeals, is one they truly believe in. Aiding a client in his or her appeal of an audit may seem more simple than it actually is. While the Appeals route is often the most efficient and logical step, under certain circumstances it is not.

1-2.10 The national headquarters of the Appeals is located in Washington, D.C. and is supervised by the Director of Appeals who reports to the Commissioner's office. There are two operating units: Wage & Investment (W&I)-Small Business/Self-Employed - Tax Exempt/Government Entities (SB/SE-TE/GE) and Large & Mid-Size Business (LMSB).

W & I-SB/SE-TE/GE activities involve cases covering corporations with less than $10 million in assets, collection issues, estate and gift tax cases, self-employed cases, tax exempt entities, and government entities. This unit will also have responsibility for the current Records and Processing sections. Other program responsibilities include innocent spouse, Freedom of Information Act appeals, excise and employment tax, Alternative Dispute Resolution (ADR) of bankruptcy, dyed diesel fuel and tax exempt bond cases. Initially, all W&I appeal cases will be processed by the SB/SE-TE/GE Appeals organization until the W&I Operating Division is operational.

LMSB activities cover corporate and partnership cases with assets greater than $10 million with the most complex issues, particularly international issues. It will include such activities as the Industry Specialization Program, Large Case ADR, Joint Committee, international issues and competent authority.

Appeals provides taxpayers with an independent impartial review of their cases after an audit is completed or collection action is proposed. It is the last opportunity for the IRS and the taxpayer to agree before a case goes to court. Appeals plays a critical role in ensuring that taxpayers have an opportunity to resolve their dispute. Keys to the success of the Appeals function include three factors: its independence, impartiality and fairness.

1-2.20 This organizational structure gives the Appeals a great deal of independence. Often, Appeals, considering the "hazards of litigation" and the costs involved, is willing to offer a settlement extremely favorable to the taxpayer unless it is an issue which, from a policy standpoint, must be litigated. This willingness to settle on favorable terms leads many local Area offices to refer to it as the "gift shop." This derogatory reference derives from the belief of many agents and auditors that the Appeals is much too willing to settle cases with taxpayers. On the other hand, Appeals defends its position by stating they take the "hazards of litigation" into consideration, something the Area Manager cannot.

1-2.30 Appeals had set forth the following as its strategic priorities:

Address the changing and growing inventory.

· Reduce the length of the Appeals process.

· Improve quality of referrals to Appeals.

· Implement Appeals tax shelter resolution strategies

· Improve stakeholder and customer awareness of Appeal rights and processes.

· Promote employee productivity, engagement and satisfaction.

· Implement Appeals presence in campus environments.

It has been the experience of some practitioners that "gift shop" may indeed be a correct description of the willingness of Appeals to negotiate or settle favorably with your client. Because of this, it is often wise to protest an initial audit determination at Area, unless undiscovered issues remain that may be raised at Appeals.

1-3.10 The authority of Appeals to determine liability for most taxes in cases which originate in a Area located within a region is both exclusive and final. The authority is exclusive because it is delegated directly from the Commissioner of Internal Revenue, and final because there is no administrative appeal from Appeals decision. Again, the appeals function is independent of the examination process. This independence is necessary because Appeals is supposed to provide a fresh and unbiased perspective when reviewing the findings made on audit.

1-3.20 Types of Cases. The mission of Appeals is accomplished by considering taxpayer appeals, holding conferences and negotiating settlements in two broad categories of cases: docketed and non-docketed cases. Non-docketed cases are those in which the Taxpayer has filed a protest to a Area Office's proposed action [Exhibit 1] involving additional taxes, a refund disallowance [Reg § 601.106(a)(1)(ii), (d)(2)(ii)], or a rejection of an offer in compromise [Reg § 601.106(a)(1)(ii)]. Docketed cases are those which a taxpayer has filed a petition for a redetermination in the United States Tax Court. In addition to the foregoing, Appeals also considers claims for refund and over-assessment cases involving income taxes, estate and gift taxes, excise and employment taxes and 100% penalties [IRM 8511 (June 16, 1993)]. The appeal procedures for handling claim and over-assessment cases, including protest requirement and conferences, are similar to those followed in cases when the Service is seeking to assess and recur additional taxes from a taxpayer.

1-3.30 Jurisdictional Amount. There is no monetary limit on jurisdiction. However, over-assessments which exceed $1,000,000 are subject to review by the Chief Counsel and the Congressional Joint Committee on Taxation [IRC § 6405].

1-3.40 The types of pre-assessment cases over which Appeals Office may have jurisdiction involve:

Federal income, profits, estate, gift and miscellaneous excise tax (whether before or after a notice of deficiency has been issued);

Employment and certain excise tax liabilities; and

However, the only way the Appeals Office gains authority over a case is if the taxpayer has requested Appeals Office consideration and in most cases, has filed a written protest. The Appeals Office is authorized to hear the taxpayer's appeal in most cases when additional tax liabilities have been prepared, indirectly:

Federal income, estate, gift and generation-skipping transfer tax cases;

Cases involving liability under IRC Chapter 68 for additions to the tax, additional amounts and assorted penalties [Reg § 601.106(a)(1)(ii)].

1-3.60 Appeals also has jurisdiction over Tax Exempt/Government Entities (SB/SE-TE/GE) cases which involve initial or continuing tax exemption or foundation classification and initial or continuing employee plan qualification, unless the case is covered by a National Office ruling or Technical Advice where the organization or plan has either no appeal right or a limited National Office appeal right [Reg § 601.106(a)(1)(v)].

1-3.70 The Office may shift jurisdiction to the Area Manager if a statutory Notice of Deficiency (90-day letter) was issued by a Area Manager or the Director of Foreign Operations Area [See Exhibit 2]. But this waiver is only effective during the period for filing with the United States Tax Court.

1-3.80 Once a Tax Court petition is filed by the taxpayer, the Appeals Office retains jurisdiction to settle the case for a limited period of time. The interplay between the Area Counsel and the Appeals Office in these cases will be more fully discussed in the Appeals Procedure section of this material [See Section 1-6.70].

1-3.100 The taxpayer can choose either fast track mediation or the normal appeals process. The taxpayer does not forgo any appeal rights during mediation and can withdraw from mediation. If a taxpayer withdraws from mediation, the dispute would follow the normal appeals process. Either the taxpayer or IRS can request mediation, but both must agree to mediate. On average, the mediation process should be started and completed within about 30-40 days. The normal appeals process can take months.

1-3.110 A specially trained IRS mediator from the Appeals Division will conduct the mediation session at a mutually agreed upon site. The mediator will discuss the dispute with both sides and can request additional information from either side. The mediator will not decide anything regarding the dispute. The mediator cannot impose a resolution and will not have settlement authority. The mediator will work to resolve the dispute between the taxpayer and the IRS. The taxpayer and IRS must both agree to any proposed resolution.

1-3.120 For additional information about Fast Track Mediation, see IRS Publication 3605. News Release IR-2002-80 announces that "IRS Offers Faster Resolution of Tax Disputes" For information on how Appeals can assist you in resolving disputes and Alternative Dispute Resolution initiatives you may call toll free 1-877-457-5055.

1-4.10 While an appeal to Appeals may seem to be an attractive avenue for the client, the practitioner should be aware of the limits under which the Appeals Offices operate when considering pursuit of an administrative appeal.

1-4.20 Ruling Positions. The Appeals Office is bound to follow IRS Revenue Rulings. Therefore, if a settlement would conflict with a published Revenue Ruling, the probability of settlement is substantially reduced.

1-4.30 Joint Committee Cases. If a tax matter involves a refund or overpayment in excess of $1,000,000, a report must be made to the Joint Committee on Taxation of Congress before the refund or credit can be made [Reg § 601.106(g); IRC § 6405]. While the Joint Committee does not have explicit authority to overrule an administrative decision, as a practical matter the Service considers the Joint Committee to have that authority. (Remember that the IRS budget is determined each year by Congress and the Joint Committee.) Thus, no Appeals Office settlement will be effective until the Joint Committee has notified the Appeals Office that it has no objection to the proposed overpayment [IRC § 6405; Reg § 601.106(g)] or until the expiration of 30 days after the report is submitted [IRM 8910, MT 8-2]. It should also be noted that the Appeals Office (or a Area Counsel attorney, if the case is docketed) prepares a detailed Joint Committee report in these cases, which leads to a much more thorough review of them.

1-4.40 Whipsaw Cases. Appeals Officers are required to protect the interest of the government in "Whipsaw Cases." A whipsaw case (also referred to as an interrelated case) is one in which a settlement in one case could have a contrary tax effect in a different taxpayer's case. Alimony is a common example. Alimony is taxable to the receiving spouse and deductible by the payor spouse; but a property settlement can be neither. Commonly, one spouse claims an alimony deduction while the receiving spouse excludes it from income as a property settlement. A settlement in such a situation will have a detrimental effect on one of the taxpayers. The Service will typically attempt to use the closing agreement to resolve the conflict; if this is not possible, the Appeals will take an inconsistent position to push the taxpayers into court. Both parties could then petition the Tax Court for a redetermination of the matter.

1-4.50 Fraud Penalties. Appeals must secure the consent of the Area Counsel before it may concede or eliminate the fraud penalty for a year in which a recommendation had been made to criminally prosecute the taxpayer [Reg § 601.106(a)(2)(v)]. This is true even where the taxpayer has been acquitted of the crime. It makes more sense in this situation to docket the case immediately, since all settlement conferences in docketed cases are attended by a representative of Area Counsel.

1-4.60 Criminal Cases. The Appeals Office has no jurisdiction at all in a case where a recommendation of criminal prosecution is pending, unless the Area Counsel agrees to such jurisdiction [Reg § 601.106(a)(2)(vi)].

1-4.70 Appeals Coordinated Issues. Appeals Coordinated issues generally involve issues of particular importance to tax administration on which there have been no definitive judicial conclusions. When a matter pending before Appeals is also pending in another court, settlement possibilities may be affected by the stance of the Department of Justice or other branches of the Service in those judicial forums. With consistency as the goal, the proposed dispositions of these issues in Appeals are arrived at with the assistance of the Area Director of the coordinating. area. As a result, the taxpayer whose case is before Appeals may have to disclose his or her entire case to achieve a settlement which could subsequently be rejected for reasons other than the merits of the matter in litigation.

1-4.80 Docketed Cases. The settlement authority of Appeals Office does not extend to a docketed case if the Notice of Deficiency:

Was issued by Appeals;

Was issued by TE?GE after Appeals consideration of all petitioned issues; or

1-4.90 Certain Excise Taxes. Appeals Office authority does not extend to excise taxes that are predominantly regulatory in nature. Cases involving alcohol, tobacco and firearms excise taxes are therefore not appealable to Appeals.

1-4.100 Tax Protesters. Taxpayers whose reasons for refusing to comply with the tax laws are based solely on moral, religious, political, constitutional, conscientious or similar grounds will not be afforded an administrative appeal. These "tax protesters" are commonly fined thousands of dollars for pursuing their cases before the Tax Court. Appeals may also refuse to accept a non-docketed case if they determine it requires further consideration or development on the Area level.

1-4.110 An Appeals Office has jurisdiction over cases which arise in a Area Office. If a taxpayer moves outside of a region or wishes to have his case transferred to a different Appeals Office, a transfer will be allowed in the following circumstances, providing the taxpayer is not attempting to transfer the case for strategic reasons:

Docketed cases may be transferred to the region where the Tax Court case will be heard, if the taxpayer resides there and his books and records are located or can be made available there [Reg § 601.106(e)].

The requested Appeals Office is closer to his residence or place of business (i.e., to where his books and records are currently maintained); or

PRACTICE TIP

 

Favorable settlement possibilities may vary depending on which Appeals location hears the case. One practitioner keeps a detailed file on each Appeals Officer by location to help predict settlement potential and perhaps suggest a reason for requesting a transfer.

1-5.10 The beginning of any tax appeal process, whether administrative or judicial, is triggered by the onset of what is commonly known as a "30-day letter" [See Exhibit 1]. These letters are generated by the Examination of the IRS, usually after the taxpayer has failed to agree with an agent or auditor regarding a deficiency. The 30-day letter puts the taxpayer on notice of an Agent's determination of a deficiency or overassessment.

PRACTICE TIP

 

30-day letters can generally be extended for an additional 30 days to allow you time to prepare a response. As far in advance as possible before the expiration of the initial 30-day period, verbally secure an additional extension of time and follow up with a written confirmation.

 

1-5.20 After receipt of the 30-day letter, the taxpayer may do a number of things:

The taxpayer can bypass the Appeals process by paying the deficiency and subsequently contesting the determination in District Court or in the Claims Court;

1-5.30 Option (3) above is the one which the Service encourages and which underlies Appeals' mission. If the taxpayer elects to protest the 30-day letter or seeks Tax Court review following the issuance of a 90-day letter, he will have the ability to deal directly with Appeals. In the case of a protest, these dealings are the taxpayer's goal, and therefore are mandatory if he wants to proceed. In the event the taxpayer seeks Tax Court review, he will also have the option to deal with Appeals. Clients should be aware of the fact that administrative appeals are entirely optional. If a client does choose to file a Tax Court petition, Appeals will automatically obtain jurisdiction for a period of time. The taxpayer, however, is not required to deal with Appeals in this situation.

PRACTICE TIP

 

It is the experience of practitioners that it is usually extremely wise to deal with Appeals once the Tax Court petition is filed. Area Counsel typically will be less likely to settle on favorable terms in that they enjoy litigation and desire the opportunity to take the case to court. Also, once the case leaves Appeals and the litigation phase begins, professional fees that are generated can often exceed the deficiency at issue! This turn of events will probably not result in return business for you.

1-5.40 The main issue facing the client who has received a 30-day letter is whether to protest the 30-day letter and follow the protest procedure or bypass the protest procedure and file a Tax Court petition. As already mentioned, Appeals will retain jurisdiction even if the Tax Court petition is filed. However, a number of considerations may affect the decision to pursue an administrative appeal.

1-5.50 Factors in Favor of Filing Protest

PRACTICE TIP

 

It may not always be advisable to put off the payment of the deficiency because of the compounding of interest. This cost should always be discussed with your client.

PRACTICE TIP

 

Each case involves different factors and different considerations and all the foregoing considerations should be weighed carefully before proceeding with a course of action.

New issues and grounds are less likely to be raised if the taxpayer goes directly to Tax Court. Appeals Officers have more tax expertise then Revenue Agents, therefore the risk of new issues being raised by them upon their review is possible.

New issues raised by the Appeals Officer when the 90-day letter was issued by the Appeals Office (as opposed to the Area Office) places the burden of proof on the taxpayer to disprove these issues.

The taxpayer may wish to speed up the disposition of the case. Service procedures seem to encourage more expedited case hearings for docketed cases.

Where the Service is locked into a position on a particular matter which might preclude settlement, it might be more advantageous to fight the issue out in Tax Court if you believe the Service's position is incorrect.

1-5.70 In evaluating the clients case, all avenues should be examined, including not only the administrative and Tax Court routes, but also the alternative of pursuing a refund suit route in district court, the Court of Claims, or Bankruptcy Court. The following paragraphs will discuss factors that will affect which forum will be most advantageous to the client:

1-5.80 Ability to Pay Asserted Deficiency . As a practical matter, the taxpayer is restricted at the outset by his ability to pay the asserted deficiency. If he is unable to do so, he can't petition for a refund in the district court or the Claims Court where payment is required before suit can be instituted (except excise and employment tax cases).

1-5.90 Jurisdictional Factors. The type of tax involved also may limit the taxpayer's choice of forum. The Tax Court has no authority to decide cases involving certain excise taxes, employment taxes and certain penalties. The taxpayer must follow refund procedures in cases involving those taxes.

1-5-100 Interest Considerations. A taxpayer's ability to file in Tax Court without paying the deficiency does not stop the running of interest on the deficiency if the taxpayer is unsuccessful. In refund cases, this interest will not build as it does in Tax Court cases, since the principal, at least, must be paid before the suit is instituted. Taxpayers can stop the running of interest in Tax Court cases by remitting the deficiency after the 90-day letter is received or post a bond. If he remits the entire deficiency prior to that date, the Tax Court will lose jurisdiction over the case. The taxpayer may wish to make an advanced payment of interest to obtain a current deduction of that amount. Also, a recent Tax Court decision allowed a taxpayer to deduct advance payments designated entirely to interest without paying the underlying tax.

1-5.110 Forum Shopping. Only the Tax Court exclusively hears tax cases, so its expertise must be considered in choosing a forum. Technical issues will receive different treatment in the Tax Court than issues with equitable appeal, for example, because the Tax Court has no "equitable" jurisdiction.

PRACTICE TIP

 

For example, if your client is an elderly lady who has been claiming her cat as a dependent, you don't want to be in Tax Court.

1-5.120 The Golsen Rule. Taxpayers choosing between Tax Court, district court and Claims Court must take into account the Golsen Rule. This rule requires the Tax Court to follow the rule adopted by the Court of Appeals to which the taxpayer would appeal an adverse decision. In effect, the Tax Court follows the same Circuit Court as the district court does. But the Circuit Court follows its own decisions! As a result, practitioners must know the law of the Circuit which may affect their client's case. If the law in that Court of Appeals is against your client, perhaps it would be better to pay the deficiency and proceed to Claims Court instead.

1-5.130 Increased Deficiency. During the pendency of a Tax Court case, the statute of limitations on assessments is tolled, allowing the Commissioner to claim increased deficiencies so long as the Commissioner bears the burden of proof on these issues. This risk of this occurring is not insignificant.

1-5.140 Discovery Rules. Taxpayers may wish to avoid extensive discovery if they do not want the government to have equal knowledge of the facts and witnesses. They may also wish to avoid the expense of extensive discovery. If this is the case, taxpayers should avoid the district courts, where the Federal Rules of Civil Procedure govern and encourage extensive discovery. Discovery in the Claims Court, on the other hand, is somewhat more limited, while the Tax Court rules are the most restrictive and allow discovery through deposition only in very limited situations.

1-5.150 Jury Trial Considerations. Jury trials are not available in the Tax Court or Claims Court. Consequently, a taxpayer who feels his case presents an issue to which a jury may be sympathetic should file in district court. On the other hand, tax cases are often complex and may not present appealing jury issues. Furthermore, a wealthy client may have to face the possibility of unsympathetic jurors who are less wealthy, as the recent Leona Helmsley case shows!

1-5.160 Rules of Evidence. The Rules of Evidence are strict in jury trials, more relaxed in bench trials (United States District Court, Claims Court and Bankruptcy Court) and very relaxed in Tax Court. If your evidence is questionable, go to Tax Court. If the Government's evidence is hearsay, then get a trial by jury.

1-5.170 If the taxpayer desires to settle his case with the Appeals Office after receiving a 30-day letter, he is required to protest the Examination s determinations. Generally, this will be done in writing.

1-5.180 In the event the amount in dispute is less than $25,000, a formal protest is not necessary, but a brief statement of the disputed issues is required before the case can be forwarded to Appeals. A written protest conforming to IRS guidelines is required if:

The determination was the result of a field examination case; and

The total amount of the proposed additional tax (including penalties), proposed over-assessment or claimed refund is greater than $25,000 for any taxable period.

Practitioners recommend that a written protest be filed in all cases. This establishes a record that may be reviewed by Appeals and also indicates the taxpayer is serious about protesting the deficiency.

1-5.190 There is no strict form this written protest must take, however it must contain the following information.

The name and address of the taxpayer;

The date and symbols on the 30-day letter;

A statement the taxpayer wishes to appeal the determinations of the Examination Division to the Appeals Office;

A statement of fact supporting the taxpayer's position in any contested factual issue;

A statement outlining the law or other authority on which the taxpayer relies; and

1-5.200 If a representative of the taxpayer prepares or files the protest, a duly executed power of attorney must be attached to the protest, as well as a declaration indicating whether the representative prepared it and whether the representative knows of his own knowledge, that the information contained in the protest is true [See Exhibit 3].

1-5.210 Time Period for Filing; Number of Copies; Where to File. The protest must be filed in duplicate with the Area Manager within 30 days of the date of, NOT THE RECEIPT OF, the 30-day letter. Failure to file within 30 days without an extension referred to previously, will cause the matter to be processed for issuance of a statutory notice of deficiency, commonly called a "90-day letter" [See Exhibit 2]. As discussed previously, the taxpayer may request and will generally be allowed a 30-day extension for filing a protest initially. Further extensions are granted at the discretion of the Chief of the Quality Review Staff, who will generally require valid reasons for additional extensions. The probability of obtaining additional extensions is greater when complicated tax issues are involved.

1-5.220 The protest should be fact-oriented. Facts of the case should be developed and carefully presented, because they will form the foundation for the legal discussion of the issues.

1-5.230 Documents and affidavits in support of the stated facts should be attached to the protest. This may gain the taxpayer a psychological advantage by showing the Appeals Officer the taxpayer is ready for trial.

1-5.240 The presentation of facts and law should be aimed at showing the issue is either hazardous or inappropriate for the IRS to litigate. In effect, a wise approach is to show that the IRS stands a substantial chance of losing on the issue in court and/or that failure to settle might give other taxpayers the opportunity to obtain a windfall tax advantage. This can be done, for example, by showing that the Agent failed to consider or give appropriate weight to some fact or legal authority.

1-5.250 In preparing the protest, the preparer should be sensitive to defects and weaknesses in the examiner's report. Omissions of information on the examiner's report which are adverse to the government should be pointed out. The preparer should also highlight improperly framed issues and misstated facts.

1-5.260 All possible arguments in the taxpayer's favor should be made, regardless of whether the preparer feels the argument is important or dispositive. The Appeals Officer may feel that such arguments have a cumulative effect in favor of the taxpayer.

1-5.270 Since the taxpayer bears the burden of undercutting the determinations of the examination division, a "skeleton" protest which contains very few legal and factual arguments should probably be avoided. Such a protest may cause the Appeals Officer to dig in his heels on certain matters, particularly in light of the fact that a flimsy protest robs the Appeals Officer of the opportunity to be fully prepared for the settlement conference.

1-5.280 The preparer of the protest may need to obtain Technical Advice to clarify the legal issues involved. This advice can be obtained by the preparer by requesting that the Appeals Officer request it from the National Office of the IRS. Obtaining Technical Advice is a very serious maneuver. The Appeals Officer will follow the Technical Advice once issued. Therefore, it should only be requested if you know the Appeals Officer is dead wrong and will not admit it.

1-5.290 The filing of "skeleton" protests is not advisable since such a protest inhibits the expediency of settlement.

PRACTICE TIP

 

The format which the IRS follows in its supporting statements is the arrangement practitioners should follow in putting together their protest.

1-6.10 In an Appeals Office conference, the taxpayer may represent himself or may be represented by an attorney, CPA or an individual enrolled to practice before the IRS.

PRACTICE TIP

 

It is the experience of one practitioner that unless the issue relates to credibility of the client and the client is, in fact, credible, it is advisable not to have the client present during the Appeals Office conference. Often clients become too emotional and do more harm than good to their case. On the other hand, if credibility is at issue, having the client on hand may help.

1-6.20 The Area Manager's Office reviews the protest before it is forwarded to Appeals with the case file. If the reviewer feels more facts are needed, he may ask the examiner to obtain them.

1-6.30 The quality review staff of Appeals will review the file, the protest and any new facts, arguments or law contained in the protest within seven days of receiving it from the Area Office. This review is done with an eye toward determining if the case should be referred back to the Area Office. Appeals will return the protest to the taxpayer if it does not include the necessary information, and may return the case to the Area Office if further development is required to warrant appellate review [IRM 4433.3(1); IRM 4433.3(3)]. Additionally, if Appeals feels the case could probably have been disposed of without Appellate review, they will return it to the Area Office.

1-6.40 Return of Case to Area Office. Return of a non-docketed case to the Area Office by Appeals is relatively rare; however, some examples of the occurrence of a return are when:

There are significant unresolved factual differences between the examination report and the protest;

The protest is seriously deficient in some way, (i.e., it fails to establish the taxpayer's position or lacks sufficient substantive details);

The case re-opens a case previously closed;

The National Office has not completed its consideration of some aspect of the case;

The case includes claims for excise or employment tax abatement, or the "100% penalty"; or

The parties are waiting for Technical Advice from the National Office.

1-6.50 Appeals is also concerned about the statutory period of assessment expiring on the case. For this reason, Area Offices are requested to send the case to Appeals at least 120 days before the statute of limitations will expire. Appeals wants to ensure that there is enough time to negotiate toward a settlement. If it appears, therefore, that the time for appellate review is inadequate (usually, less than 60 days remaining), the taxpayer will be asked to consent to an extension of the statutory period on assessments. This is accomplished by Form 872-A, which extends the statutory period of assessment for an indefinite period of time and may restrict the extension only to assessments arising out of particular matters. Or signing Form 872 instead extends the period only for a specified time. Practitioners faced with the question of whether to consent to such an extension must analyze the pros and cons of such an extension on a case by case basis. Signing Form 872 or 872-A may be wise if a change in the Regulations is expected. Signing Form 872 may also facilitate a settlement.

1-6.60 Appeals may return the case to the Area Office to verify or comment on it if there is new information which would have a serious impact on an important issue in the case, or if verification by an Appeals Officer would be too time-consuming.

1-6.70 If a taxpayer does not file a protest to the 30-day letter, the Area Manager will issue a 90-day letter (statutory Notice of Deficiency). The taxpayer then has ninety days to file a Tax Court petition. If the taxpayer does file this petition, his case becomes "docketed," and will be sent to the Area Counsel. The taxpayer at this point, however, may still wish to attempt to settle his case with Appeals.

1-6.80 Procedural Guidelines. The IRS has established guidelines to encourage disposition of docketed Tax Court cases, using the administrative appeals process. Therefore, if the taxpayer does wish to investigate a potential settlement, his case will enter a stage in which jurisdiction over his case can shift back and forth between the Area Counsel's Office and Appeals flexibly, at the discretion of one or both of the Offices. The guidelines established by the IRS provide for the following:

Cases involving under $50,000. When the deficiency is less than $50,000, the case will be referred by Area Counsel to Appeals:

For six months;

Until 15 days before the call of the trial calendar if the case is classified as an "S case" by the Tax Court.

Once the above dates occur, the case will be returned to Area Counsel, unless both Appeals and Area Counsel agree Appeals consideration could continue.

1-7.10 Appeals conferences are informal. They are conducted in a conference room at Appeals and normally only the Appeals Officer and the taxpayer's representative attend, testimony is not taken under oath and discussions of the facts and law are not recorded by a stenographer. Facts which the taxpayer alleges, however, are generally required to be submitted in the form of an affidavit or declared to be true under penalties of perjury. It should be noted that the presentation of information at the Appeals Office which was withheld from the Area Office, or is newly discovered may cause the Appeals Officer to transfer the case back to the Area Office for reconsideration. Alternatively, the new information may be sent to the Area for verification.

PRACTICE TIP

 

Practitioners should be aware of the practical reality that the Appeals Officer, while more experienced and capable of analyzing tax matters, may not simply conduct an objective review of the taxpayer's case. He is, after all, a representative of the Service and will adhere to IRS policies in negotiating and considering settlement of the case. He will, of course, be arguing on behalf of the IRS. Do not be misled by his friendly and agreeable nature.

1-7.20 Request for Additional Information. The Appeals Officer may ask for additional information at the conference if it is needed. Complex cases may require more than one conference with Appeals, but at some point, settlement will be discussed if the Appeals Officer feels the case can be settled. Generally, the Appeals Officer will ask for a settlement offer from the taxpayer or his representative. If the Appeals Officer does not accept the taxpayer's offer, he will generally propose a settlement amount that he would consider. If the taxpayer and the Appeals Officer do reach a settlement agreement, the Appeals Officer prepares a report which sets out the settlement amount, the issues and evidence involved, and the reasons supporting the settlement. This report is then processed and the taxpayer is sent a bill for the agreed upon deficiency.

PRACTICE TIP

 

You should be very sure that you have authority to settle the case on behalf of your client before you get to the conference. If you are not able to agree to an offer on the spot, the Appeals Officer might change his mind. On the other hand, a common negotiation tactic is, "I have to clear that with the client."

1-7.30 Failure to Reach Agreement. If the parties cannot reach agreement, the Appeals Officer prepares a report (called an Action/Transmittal memorandum) which discusses the taxp ayer's settlement offer and sets out the settlement range the Appeals Officer considers acceptable. It is at this point that the report is processed and the Appeals Office requests issuance of a 90-day letter. This request is reviewed by the Area Counsel before issuance.

1-7.40 Presence of Area Manager or Area Counsel. When the case before Appeals is not docketed, a representative of the Area Manager may be present if both the Appeals Officer and the Area Manager feel his presence is advisable. Where the case involves a fraud penalty for which criminal prosecution has been recommended, the Area Counsel may be represented if he so desires.

1-7.50 Technical Advice is guidance from the National Office as to the meaning of the Internal Revenue laws, regulations or related statutes as applied to the facts of a particular case. The questions for which Technical Advice is sought may be procedural or technical. Both the taxpayer and Appeals (or the Area Office) may initiate a request for Technical Advice.

1-7.60 When Technical Advice Is Not Available. Technical Advice is not available when the case being considered by Appeals involves certain penalties or when the case was previously considered by Appeals.

1-7.70 Taxpayer Initiation of Technical Advice. The taxpayer may initiate a request for technical advice, though he may not directly request it himself, when he sees a lack of uniformity in the disposition of similar cases, or when the issue of the case is either so unusual or so complex as to require National Office consideration of the case. If Appeals refuses to make the request at the taxpayer's request, the taxpayer can ask the Area Director to review the Appeals Officer's denial of Technical Advice assistance. If the Area Director denies the taxpayer's Technical Advice request, that decision is final, unless the taxpayer petitions the National Office directly for a review of the Area Director's denial. The National Office, however, does not have to review the request, in which case the decision of the Area Director would be final.

1-7.80 Considerations in Initiating Technical Advice Requests. Strategically, it is good practice to initiate a request for Technical Advice if the Appeals Officer has totally hardened on an issue in the taxpayer's case. This is because Appeals is not bound by Technical Advice which is adverse to the taxpayer's position, even though Appeals is bound by Technical Advice adverse to its position. In other words, the taxpayer has nothing to lose if there is a deadlock in the case on a particular issue. Taxpayers, when initiating their request for Technical Advice, should also request a conference in the National Office, in the event the Technical Advice issued is adverse to their position. If this request is made, and a tax law specialist in the Technical Division in the National Office decides that advice adverse to the taxpayer's position should be given, a conference will be set up and held within 21 days. The taxpayer will be allowed only one National Office conference and it is usually held at the branch level in the Technical Division. Within 21 days following this conference, the taxpayer will have to forward to the National Office, in writing, any additional facts or legal arguments proposed, discussed or relied upon by the taxpayer orally at the conference to substantiate them and complete the file for the taxpayer.

1-7.90 Technical Advice Decision. The National Office will notify the taxpayer of its advice in a Technical Advice Memorandum which sets forth the issues, the facts, the law relied on by the National Office and the conclusion it reached on the matter. As mentioned, if the National Office's advice is in favor of the taxpayer's position, Appeals is bound by it. Additionally, the advice is applied retroactively. Advice adverse to the taxpayer, however, may be disregarded by Appeals, and the case can be settled under existing authority. Even if Appeals decides to apply the decision which is adverse to the taxpayer, the Associate Chief Counsel (Technical) may limit the retroactive effect of the holding. Finally, obtaining Technical Advice is a very slow and costly procedure, which the practitioner should only undertake after careful consideration.

1-8.10 The mission of Appeals is to reach a "fair and impartial" resolution of a controversy. What this means in practice is that Appeals will work toward an outcome which takes into account what would probably happen if the case were litigated judicially. Thus, Appeals considers what are known as the "hazards of litigation" when attempting to resolve a case before it. A "hazards of litigation" analysis involves consideration of how an issue (or issues) would be resolved if litigated, and the making or seeking of concessions, taking into account the strength of the parties' positions. More specifically, the Appeals Officer will review the entire file to determine what a court might find, given the proof available and the effect of testimony. Additionally, the Appeals Officer will take into account judicial interpretation of relevant Code provisions in light of similar cases already decided. As a result, the taxpayer who desires to settle his case must show there is substantial uncertainty as to how the law would be applied to their case as a whole. Failure to make this showing prevents Appeals from considering the relative merits of the opposing positions and the attendant hazards that would face them if those positions were litigated.

1-8.20 Judicial Attitude of Appeals Officer. The Taxpayer and his representative must be aware of the difference between the Appeals Officer's approach when he is evaluating a case for settlement and when he is hearing the taxpayer's appeal. He is not an impartial judge at the hearing; instead he is arguing the IRS' position. When evaluating for settlement purposes, on the other hand, the Appeals Officer engages in a more objective analysis and looks at the case the way a court might.

1-8.30 Evidential Considerations. The Appeals Officer will consider a number of factors to evaluate settlement possibilities. Considerations include:

how probative the evidence likely to be presented is;

whether the witnesses will be available;

how likely it is that the taxpayer will be able to prove his case;

whether conclusions of law are doubtful.

A great deal of weight will therefore be given to the evidence which would be available at a trial. Hearsay evidence which might be excluded at trial, however, might be more influential to the Appeals Officer who is not comfortable applying rules of evidence.

1-8.40 Role of Legal Authority. The Appeals Officer may exercise independent judgment when settling cases, and may conclude that a court would decide a case differently than the IRS under one of its Revenue Rulings. The decision of a Tax Court on a particular issue will probably lead to agreement on that issue; however, the Appeals Officer can refuse to concede an issue if the Service wishes to re-litigate that issue in court. The law of the Circuit Court to which the taxpayer would appeal has greater weight for the Appeals Officer because the Tax Court must follow those precedents. Overall, however, the Appeals Officer is not bound by legal precedent if the IRS does not consider itself bound and desires to re-litigate a particular issue or issues.

1-8.50 Practitioners who desire to settle their cases must make settlement offers which demonstrate a good faith effort to settle. Attempts to "bargain" with the Appeals Officer will be rejected. Therefore it will not be advantageous to point out the potential costs of litigation (also called the "nuisance value") in tendering a settlement offer. The starting point for any settlement offer must be based on the hazards of litigation. An offer which the Appeals Officer believes is made in good faith may be rejected by the Appeals Officer. If that is the case, Appeals will either state an acceptable settlement amount or be asked for one by the representative.

PRACTICE TIP

 

Representatives should initiate settlement proposals. Appeals Officers should accept such proposals if they are within the settlement range. Practitioners who fail to make a settlement offer will then have to work off the proposal made by the Appeals Officer and that proposal will normally be at the high end of the settlement range. As a result, a proposal at the low end of the settlement range, but made by the taxpayer, should be accepted and is to the taxpayer's benefit.

Representatives should put their past dealings with the IRS behind them when they deal with Appeals. Hostility will not facilitate settlement, and the Appeals Officers are there to settle. So be open minded and willing to work with the Appeals Officer.

1-8.60 The IRS and practitioners have identified a number of ways in which to resolve cases, which are explained in the following Sections.

1-8.70 Mutual Concession Settlements. Mutual Concession settlements are made when there is substantial uncertainty about how a court would interpret and apply the law or about what facts the court would find if the case were litigated. Thus, neither side will completely concede the issue and both make concessions to reach a settlement.

1-8.80 Split-Issue Settlements. Split-issue settlements are reached on issues that would result in a decision completely for one of the parties if the issue were litigated. This type of settlement, then, recognizes the relative merits of both parties' positions resulting in an intermediate solution which could not be reached in court [IRM 8633, MT 8-17].

1-8.90 Nuisance Value Settlements. Nuisance value settlements are concessions which are unrelated to the merits and issues of the case and are made only to eliminate the inconvenience or cost which would ensue if further negotiations or litigation were to take place.

1-9.10 Practitioners should not be lulled into "under-preparedness" by the informality of a conference. Most of the staff assigned to Appeals have been promoted from the local Area Offices and are paid more than front line Revenue Agents. Many of them have advanced degrees, a few are attorneys (especially in estate tax) and some are CPAs. Still, many representatives are unprepared at the initial conference. This is dangerous in light of the fact that the adversary (the Appeals Officer) is also, in effect, the judge, who has a psychological edge with no vocal client to satisfy or fee to earn. Neither is he concerned with the time and expense involved should no settlement be reached. Preparation can offset these advantages. The Appeals Officer has not personally prepared the case and the Revenue Agent who did is more an auditor than an investigator of facts. Thus, preparation by the taxpayer and his representative will result in a better grasp of the facts than the Appeals Officer has.

1-9.20 Organization of Evidence and Research. To prepare for the case, the practitioner should first interview his client, searching hard for all details. The facts revealed should then be checked out. Complete reliance on the client is not advisable. The practitioner should also obtain whatever records or other evidence the client has. After researching the relevant legal standards which may apply, the argument or arguments can be formulated. All the elements which the taxpayer must prove should be outlined and the supporting documents and witnesses lined up. It is advisable to prepare both sides of the case, so that surprise is not an element at the conference. The practitioner may also need to determine if more evidence is needed, for example, third party affidavits. The evidence and exhibits should then be organized for presentation at the conference, and the entire presentation and file should be reviewed before the conference. Finally, the client should be consulted about settlement proposals before the conference.

PRACTICE TIP

 

A basis for settlement on all the issues raised must be presented by the taxpayer. Once an issue has been raised, it cannot be ignored by the taxpayer, regardless of how unimportant or meritorious the taxpayer may feel it is.

1.9.30 Interacting With Client. A settlement conference may be useless if the client has not granted permission for you to settle the case. It is advisable, therefore, that the representative get specific settlement authority from his client prior to the conference. If the proposal of the Appeals Officer exceeds that settlement authority, the representative can defer acceptance of it until the client and the representative discuss the merits of the offer. Taxpayers may have very unrealistic views of the merits of their cases. One of the jobs of the representative during the preparation phase is to fully apprise the client of the strengths and weaknesses of his case. The client should also be fully apprised of the research which has been conducted with respect to the issues in the case. The only way a client may ever be satisfied that a settlement is in his best interest is if he participated in the decisions regarding that settlement. Don't badger the client. If the client is unrealistic in his assessment of the case, perhaps it is wisest to direct a letter to the client setting forth the representative's views and the risks inherent in trying the case. Even this may not satisfy the client, who may only be satisfied if the case is tried in court. Most cases, however, can be and are settled at Appeals.

1-9.40 At the conference, the parties will talk through the issues. Gradually, they will agree on some things and disagree on others. The representative will be asked to propose ways to dispose of unagreed issues. What will follow will either be settlement offers or arguments advancing the client's position.

1-9.50 Presentation of Strongest Arguments. The representative should only make his strongest arguments at the conference or his credibility will be lessened. Tangible evidence is important, and should be used as support for arguments. Pointing out authority or facts that the examining Agent failed to disclose or consider is important. Only by presenting the strongest case for the taxpayer, both factually and legally, will the relative merits of the parties' positions emerge. This is necessary as it will provide the Appeals Officer with a basis upon which to evaluate settlement offers. The Appeals Officer must justify his decision in writing, and the practitioner must give him the information with which to do so.

1-9.60 Guidelines for Preparing and Arguing Case. A number of things should be taken into account in preparing and arguing the client's case at the conference:

Legal authority on an issue is rarely dispositive and should therefore be emphasized in the protest, not at the conference; and

1-9.70 Settlement negotiations will in large part be influenced by the success with which the taxpayer's case was presented. The taxpayer's case must create some doubt as to the probable result if the case were presented in court or a settlement offer will not even be considered. A number of strategies will aid the practitioner in negotiating a favorable settlement for his client apart from a well-prepared case presentation. First, the practitioner should be aware of some of the situations in which reaching a settlement may be difficult, such as:

where the IRS wants a court decision on the issues for other cases (a "coordinated" issue);

where the Commissioner's policy conflicts with court law;

Barring the above difficulties, a practitioner will be able to negotiate effectively if he keeps in mind some of the tenets of successful negotiation:

Assume the Appeals Officer handling the case is capable;

Consider the governmental policy toward taxpayers and prepare a response to it;

Know the governmental procedures and alternatives;

Be completely prepared on the facts and the law, and know the strengths and weakness of the taxpayer's as well as the government's cases;

Be open-minded. Don't go in with ultimatums and final offers;

Be persistent in negotiating toward a settlement, not in your position;

Leave your client at home; and

Don't misrepresent.

1-10.10 Settlement of docketed Tax Court cases is reflected in a written stipulation of the parties, which then must be accepted by a Tax Court Judge. If it is signed and filed by the Judge, it becomes the judgment of the Tax Court. Non-docketed case settlements, however, must be reflected in one of two IRS forms which the taxpayer is asked to sign: Form 870 or 870-AD.

1-10.20 Form 870 is a waiver of restrictions on assessment. It is also used to accept over-assessments [See Exhibit 4]. The intended effect of Form 870 is to allow the taxpayer to pay the deficiency, stop the running of interest, and give up the right to go to Tax Court. It is not, by definition, a binding Closing Agreement. As a result, the IRS can assert further deficiencies and/or the taxpayer can file a refund suit even when Form 870 is used. The language of Form 870 permits reopening of issues, by either the taxpayer or the IRS. Therefore, if a taxpayer requests to sign a Form 870, the IRS is on notice that finality is not contemplated. Form 870 is intended to be an informal settlement and is rarely reversed. It is really a "gentleman's agreement" which lets the statute of limitations run out on refund claims or further deficiencies.

1-10.30 Form 870-AD is practically a closing agreement [See Exhibit 5]. The Regulations and Form 870-AD try to make settlement final by providing for the taxpayer's prompt payment of the deficiency, and an agreement not to file suit for a refund or to make an offer in compromise. Additionally, Form 870-AD omits any statement that the government can assert further deficiencies. And while the Form 870 becomes effective when it is received, Form 870-AD must be accepted by or on behalf of the Commissioner before it becomes effective. The 870-AD also says the taxpayer will sign a closing agreement (which is binding) if asked to, and that the IRS will not reopen the case unless there is fraud, misrepresentation of a material fact or malfeasance.

1-10-40 While it appears that the Form 870-AD is a final agreement., there is a split in the Courts on the matter. The Ninth Court in 1987 held that Form 870-AD is not a binding settlement agreement. The Third, Sixth, Seventh and Eighth Circuits, however, allow subsequent refund claims to be filed, even after Form 870-AD has been signed and accepted. The Second, Tenth and Federal Circuits take a different approach and only allow closing agreements for settlement of tax controversies.

1-11.10 Taxpayers seeking finality in their settlement agreements with the IRS should attempt to use a closing agreement. While both Form 870 and Form 870-AD are administrative devices, the closing agreement is expressly provided for by statute in IRC § 7121 [See Exhibits 6 and 7]. As such, closing agreements are the only agreements the Code recognizes as binding on the IRS, absent fraud or misrepresentation.

1-11.20 Basically, the closing agreement is a statutory agreement between the taxpayer (or a person acting for the taxpayer) and the IRS which fixes liability and prevents the re-opening of a settlement with respect to part or all of the liability in a particular matter. It is not governed by contract law. Even the parties themselves may not cancel or rescind it. Agreements on particular matters as to taxable years ending prior to or at the date of the closing agreement are not affected by subsequent retroactive legislation, if the legislation is silent as to the effect on closing agreements. The closing agreement only determines matters which are stated in it. For example, a closing agreement which only determines tax liability does not also by implication determine the taxpayer's stated gross income for the same taxable year.

1-11.30 Taxpayers who insist on the finality of a closing agreement need to persuade the Appeals Officer that the government will sustain no disadvantage if a closing agreement is used and must show good and sufficient reasons for the agreement. Closing agreements may be requested by the IRS or the taxpayer in a ruling situation. Alternatively, they may be used to clear up a tax matter where a non-tax consideration hinges on the tax consequence of it (for example, a taxpayer wants to complete a sale of stock). In the Appeals situation, a valid reason for entering into a closing agreement is simply the taxpayer's wish to conclusively clear up a controversy he or she has with the IRS.

1-11.40 There are three closing agreement forms: Form 866, Form 906, and the combined agreement [See Exhibits 6 and 7]. Either the taxpayer and his representative or the IRS will draft the closing agreement.

1-11.50 Form 866 is entitled "Agreement as to Final Determination of Tax Liability" [See Exhibit 6]. This form determines the tax and liability for each period and type of tax listed in the agreement.

1-11.60 Form 906 is entitled "Closing Agreement on Final Determination Covering Specific Matters" [See Exhibit 7]. This form would be used, for example, where the parties are unable to agree on an unqualified liability figure and may want to resort to a determination of taxable income only.

1-11.70 When the parties seek to set forth their agreement on both liability and specific matters, they do so in a combined agreement.

1-11.80 Every closing agreement must contain an identification of the parties, introductory clauses, the agreed determination, an ending clause and the signatures of the parties.

1-11.90 Any misrepresentation of material fact in a closing agreement will cause the IRS not to be bound to it, so care must be taken in drafting the agreement. The determination of tax should be clearly and unambiguously stated in statutory terms, if necessary. Closing agreements are always signed by or on behalf of the taxpayer first, since it represents an offer by the taxpayer. If the holder of a power of attorney will be signing the closing agreement for the taxpayer, the power of attorney instrument must expressly provide the authority to sign a closing agreement.

1-11.100 While in some cases the IRS encourages the use of closing agreements, the IRS discourages its use as a matter of practice. Because of the closing agreement's finality, a large volume of requests for them would be difficult to process and the IRS will carefully consider whether to enter into a closing agreement. The decision is truly theirs, because the Code permits, but does not require the IRS to enter into closing agreements. As a result, the decision is discretionary with the IRS. Additionally, the procedure for obtaining a closing agreement is burdensome and involves layers of approval, culminating in execution only by relatively high ranking IRS officials. Furthermore, the Internal Revenue Manual encourages Appeals Officers to persuade taxpayers seeking finality to utilize Form 870 or 870-AD [IRM 8815, MT 8-27].

1-12.20 Since February 12, 1996 the Internal Revenue Service has had a collection appeals program(CAP) which allows taxpayers to appeal the filing of a lien and other collection actions. This protection however is not statutory. If the IRS chooses not to follow its own procedures, there is no remedy available to the taxpayer.

1-12.30 §6320 provides statutory appeal rights to taxpayers who are subject to federal tax liens. The provision specifically provides for an impartial hearing officer (which may not have been the case in the past). In the past the Internal Revenue Service collection division engaged in substantial ex parte discussion with the Appeals Officer. Now there are specific statutory protections available to the taxpayer and specific guarantees of independence by the Appeals Officer. Because taxpayers will also have the right to seek judicial review of any determination of the appeals officer, the taxpayer is guaranteed to have better consideration at the appeals level. In the past, if an Appeals Officer ruled against you the matter was referred back to the collection division and it proceeded to file the lien without further rights to the taxpayer. As case law develops in this area, Appeals Officers will also have guidelines from the courts as to appropriate reasons for foregoing liens and releasing liens.

1-12.50 Subject to the exceptions noted below, no levy could occur within the 30-day period beginning with the mailing of the "Notice of Intent to Levy." During that 30-day period, the taxpayer may demand a pre-levy hearing before an appeals officer who generally has had no prior involvement with the taxpayer's case.

1-12.60 Pursuant to section 6330(a)(3), a pre-levy CDP Notice must include, in simple and nontechnical terms:

The amount of the unpaid tax.

Notification of the right to request a CDP hearing

The taxpayer's rights with respect to the levy action, including a brief statement that sets forth–

The statutory provisions relating to the levy and sale of property;

The procedures applicable to the levy and sale of property;

The alternatives available to taxpayers that could prevent levy on the property (including installment agreements); and

1-12.70 The taxpayer must make a request in writing for a CDP hearing. A written request in any form which requests a CDP hearing will be acceptable. The request must include the taxpayer's name, address, and daytime telephone number, and must be signed by the taxpayer or the taxpayer's authorized representative and dated. The CDP Notice should include, when appropriate, a Form 12153, Request for a Collection Due Process Hearing, that can be used by the taxpayer to request a CDP hearing.

The Form 12153 requests the following information:

The type of tax involved.

The tax period at issue.

A statement that the taxpayer requests a hearing with Appeals concerning the proposed collection activity.

Taxpayers are encouraged to use a Form 12153 in requesting a CDP hearing so that the request can be readily identified and forwarded to Appeals. Taxpayers may obtain a copy of Form 12153 by contacting the IRS office that issued the CDP Notice or by calling, toll-free, 1-800-829-3676.

The taxpayer may perfect any timely written request for a CDP hearing, which otherwise meets the requirements set forth above and which is made or alleged to have been made on the taxpayer's behalf by the taxpayer's spouse or any other representative, by filing, within a reasonable time of a request from Appeals, a signed written affirmation that the request was originally submitted on the taxpayer's behalf.

1-12.80 Set forth all defenses to levy

Offer in compromise

Amount of the liability

Spousal defenses

Penalties

Request for installment agreement

1-12.110 An exception to the general rule prohibiting levies during the 30-day period would apply in the case of state tax offset procedures, and in the case of jeopardy or termination assessments. However, the Commissioner will prescribe procedures to give the taxpayer notice of the right to, and the opportunity for, a CDP hearing with Appeals with respect to any such levy issued on or after January 19, 1999, within a reasonable time after the levy has occurred. The notification required to be given following a levy on a state tax refund is referred to as a post-levy CDP Notice.

1-12.120 Section 6330(f) does not require the Commissioner to provide the taxpayer with notification of the taxpayer's right to a CDP hearing prior to a levy when there has been a determination that collection of the tax is in jeopardy. However, the Commissioner will prescribe procedures to provide notice of the right to, and the opportunity for, a CDP hearing with Appeals to the taxpayer with respect to any such levy issued on or after January 19, 1999, within a reasonable time after the levy has occurred. The notification required to be given following a jeopardy levy also is referred to as post-levy CDP Notice.

Judicial Review

1-12.170 If a taxpayer exercises rights pursuant to the Collection Appeals process the Internal Revenue Service is precluded from taking levy or lien action during the pendency of the proceeding except in the event of a jeopardy or a levy upon a state tax refund.

1-13.10 Proposals to enter into installment agreements may result from letters, phone contacts, voice-mail, e-mail, or other communications between taxpayers and Service personnel. All taxpayers have the right to request installment agreements. Requests for installment agreements, including those on unassessed modules, must be noted in the case history, and must be identified on IDRS Codes are input in the computer system to prevent levy issuance. Taxpayers must provide specific information for installment agreement requests to be processed. If it is determined the agreement request was made to delay collection action, accounts will not be identified as in pending installment agreement status. To identify accounts as "pending" installment agreements taxpayers must:

Identify the tax liability to be covered by the agreement;

Propose a monthly or other periodic payment of a specific amount.

Requests that meet the criteria are identified as pending installment agreements even if taxpayers are not in compliance with:

estimated (ES) payment requirements; or,

federal tax deposit (FTD) requirements,

Acceptance or rejection of proposed agreements is based on analysis of Collection Information Statements.

EXCEPTION: (1) If installment agreement requests are made to delay collection action.

EXCEPTION: (2) Grant Streamlined, Guaranteed and In-Business Trust Fund Express installment agreements. [IRM 5.14.1.3 ]

EXAMPLE: (1) A taxpayer calls the IRS, provides her name, social security number (SSN), identifies the outstanding liability (or balances due), is in compliance with all filing requirements, fits streamlined installment agreement criteria and states she wants to pay $500 per month.

EXAMPLE: (2) A revenue officer (RO) and taxpayer discuss the taxpayer's financial statement (which has the taxpayer's name and SSN on the form) on the phone. The taxpayer is in compliance with all filing requirements. The bal dues are specifically identified. The RO says the taxpayer needs to pay $1500 per month. The taxpayer says he will think about it. The revenue officer mails the taxpayer a 433D. TP changes the amount on 433D and mails it back.

NOTE: Though in pending status, the agreement (and payment amount) must be approved, unless it is a Streamlined, Guaranteed or In-Business Trust Fund Express agreement.

EXAMPLE: (3) A taxpayer wants to make payments. RO completes Collection Information Statement (CIS) including the taxpayer's name and SSN and tells the taxpayer $500 per month is appropriate. The taxpayer is in compliance with filing requirements. The taxpayer verbally agrees to the payment amount.

EXAMPLE: (1) A revenue officer evaluates a taxpayer's collection information statement. The taxpayer's name, social security number and balances due are all known and/or identified. The revenue officer informs the taxpayer that a $1500 per month installment agreement is appropriate. There is no response from the taxpayer.

EXAMPLE: (2) A revenue officer mails a 433D to a taxpayer. The 433D provides a payment amount based on an analysis of the taxpayer's CIS. No response is received by phone, FAX, e-mail or other means of communication. The TP does not respond with a "No" .

EXAMPLE: (3) A taxpayer who knows he owes taxes tells his employer to send $500 per month of his paycheck to the IRS. The taxpayer does not communicate with the IRS. The taxpayer's employer sends $500 per month referencing the taxpayer's SSN. (Note: if $500 per month is being received, contact should be attempted prior to taking collection action.)

EXAMPLE: (4) A revenue officer begins a trust fund penalty (TFRP) investigation. Meanwhile, an officer of the corporation states he wants an installment agreement, identifies the trust fund portion of the corporation's liability (as the bal due account to be paid) and provides a specific payment amount (to be paid from his own funds and applied to the corporate liability - trust fund only.) However, no liability has been recommended for assessment and/or the officer has not signed Form 2751, indicating responsibility for the trust fund portion of the liability (i.e. there is no bal due account for payment application.) Therefore, the potentially responsible officer is informed there is no pending installment agreement and payments made are considered voluntary.

EXAMPLE: (5) A taxpayer wants to make payments on an installment agreement. The RO completes a Collection Information Statement (CIS) including the taxpayer's name and SSN. RO tells the taxpayer $500 per month appears to be an appropriate amount for an installment agreement but the taxpayer is not in compliance with filing his form 1040 for the last two years. The taxpayer states that his accountant is away, and that the returns, which are extremely complicated, will take some time to prepare. The revenue officer requests that the taxpayer submit original, signed, returns, and provides a date 60 days hence, by which the returns must be received, along with a $500 payment (based on the financial statement received.) In addition, the revenue officer requests that a payment of $500 be received on a date 30 days hence.

[IRM 5.14.1.3]

an in business trust fund taxpayer is involved (Exception: Express agreements; or,

the taxpayer defaulted on a previous installment agreement; or,

there is an extension of the statutory period for collection, regardless of the length of the agreement or the amount of tax at issue; or,

There is no dollar limit set for group manager approval of installment agreements. For UNPAID INDIVIDUAL INCOME TAX less than $10,000 managerial approval is not required unless the agreement requires a waiver of the CSED, in which case the waiver and the agreement require managerial approval. [IRM 5.14.9.2 ]

1-13.50 In accordance with Internal Revenue Code section 7122(d) taxpayers are entitled to independent administrative reviews of rejected requests for installment agreements. Contact employees (including revenue officers) and managers are required to document all actions relative to this review in case histories, including:

the date the case is sent to the independent reviewer;

the date the case is received from the independent reviewer, and,

the date the case is forwarded for second level review (if applicable.)

When a request for an installment agreement is proposed for rejection the IRS employee must :

Managers must review and concur with plans to reject installment agreement requests prior to independent administrative review.

If rejection is the next planned action, the installment agreement case file will be sent to the Independent Administrative Reviewer along with:

Form 12233, "Independent Review PRIOR to Rejection of Request of Installment Agreement" ;

a statement regarding the reason(s) for the proposed rejection;

any documentation submitted by the taxpayer in request of an installment agreement. [IRM 5.14.9.3 ]

Consider the case as a whole;

Review the analysis of the taxpayer's financial condition to determine whether the payment amount requested by the taxpayer is adequate, given the taxpayer's ability to pay;

Taxpayers must be in compliance with:

Filing tax returns

Paying current estimated taxes (if applicable)

Federal Tax Deposit requirements.

Determine whether positions expressed by the taxpayer were considered in the interview or review process; and