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Kostelanetz News Brief: TIGTA Provides Recommendations On Improving The IRS Appeals Process

The Treasury Inspector General for Tax Administration (TIGTA) recently released a report that provided several recommendations for improving the IRS Appeals process for taxpayers. TIGTA’s report, released Feb. 10, 2023, evaluated how well the IRS Independent Office of Appeals (IRS Appeals) has implemented and complied with Section 1001 of the Taxpayer First Act.

Although IRS Appeals was established in 1927, it was not until Congress enacted Section 1001 of the 2019 Taxpayer First Act as IRC § 7803(e), that IRS Appeals’ core work and values were formally codified. To underscore IRS Appeals’ independence from other IRS functions, IRC § 7803(e)(1) formally “established in the Internal Revenue Service an office to be known as the ‘Internal Revenue Service Independent Office of Appeals.’” The new IRC provision confirms IRS Appeals’ mission as being “to resolve Federal tax controversies without litigation” in a way that is “fair and impartial to both the Government and the taxpayer,”; “promotes a consistent application and interpretation of, and voluntary compliance with, the Federal tax laws”; and “enhances public confidence in the integrity and efficiency of the Internal Revenue Service.” IRC § 7803(e)(3)(A)-(C). This resolution process is “generally available to all taxpayers.” IRC § 7803(e)(4).

Section 7803(e)(7) of the Internal Revenue Code requires IRS Appeals to provide “specified taxpayers,” i.e., those eligible for IRS Appeals review (an individual taxpayer with no more than $400,000 of income in the year at issue, or any other taxpayer with less than $5 million in income, IRC 7803(e)(7)(C)) with access to the nonprivileged portions of their case files at least 10 calendar days prior to the taxpayer’s conference with IRS Appeals. Through its internal Appeals Centralized Database System (“ACDS”), IRS Appeals is tasked with documenting the following:

  • Whether a taxpayer meets the IRC’s case file access rights criteria,
  • Confirmation that the taxpayer was informed of their case file access rights,
  • How the taxpayer requested to receive their case file, and
  • Confirmation that the case file was provided to the taxpayer at least 10 calendar days prior to their appeals conference or that the taxpayer waived this right.

TIGTA determined that, although IRS Appeals updated more than 150 forms, publications, and letters sent to taxpayers to reflect its name change, there are at least 31 documents and websites where the name has not been changed. TIGTA recommended that IRS Appeals establish a process to identify, track, and edit forms, letters, publications, and websites that still need to reflect the Office’s updated name.

More significantly, after TIGTA selected a statistically stratified random sample of Appeals cases from FY 2021, it determined that more than half (52 percent) of cases contained either improper case history documentation or improper case coding in ACDS. TIGTA also estimated that in 17 percent of cases where a specified taxpayer requested access to their case files, the files were provided to the taxpayer less than 10 calendar days prior to the appeals conference. To address these concerns, TIGTA recommended that IRS Appeals work to ensure that personnel 1) input proper ACDS coding and documentation related to case file access rights and 2) comply with the requirement to provide taxpayers access to their files 10 calendar days before the date of their appeals conferences.

IRC § 7803(e)(5) stipulates that the IRS must provide a written notice to any taxpayer who requests referral of their case to IRS Appeals after receiving a notice of deficiency under IRC § 6212, but whose request is denied, and that the IRS must submit an annual report to Congress which details the number of requests denied along with the reasons for denial. While TIGTA found that the IRS has developed appropriate procedures to satisfy the written notice and reporting requirements for cases where referral to IRS Appeals is denied because the cases are designated for litigation, it noted that procedures still need to be developed for cases where appeals are denied for reasons other than being designated for litigation. Accordingly, TIGTA offered the following recommendation: “The Chief Counsel should coordinate with the [Business Operating Divisions] Commissioners on cases other than those the IRS has designated for litigation to develop and implement: 1) guidance that clearly defines matters for which Appeals consideration has been denied and [Appeals] is required to follow I.R.C. § 7803(e)(5), 2) a process for obtaining approval to deny a taxpayer’s appeal under I.R.C. § 7803(e)(5) as well as a mechanism to track these types of cases, and 3) procedures to respond to a taxpayer’s protest of a denied appeal under I.R.C. § 7803(e)(5).”

IRC § 7803(e)(6)(b) provides that, to the extent practicable, legal assistance and advice provided by the IRS Office of Chief Counsel on appeals cases should come from Chief Counsel staff who have had no current or prior involvement in the case. In its report, TIGTA noted that deficiencies in the two systems Chief Counsel uses to track collection and non-collection cases rendered it impossible for them to determine whether cases complied with this requirement. TIGTA recommended that IRS management develop a process for tracking and documenting requests for legal assistance on appeals cases that incorporates information on whether the attorneys assigned had any prior involvement in preparing the case and to clearly document the reason for the attorneys’ involvement in the Appeals cases when applicable. TIGTA also encouraged the Office of Chief Counsel to update its internal guidance to address how it plans to comply with IRC § 7803(e)(6)(B).

Read TIGTA’s full report on IRS Appeals’ implementation of the Taxpayer First Act (Report No. 2023-15-010) here.