Tax Procedure Book Errata - IRS Adopts New Rules Restricting Availability of In-Person Appeals Conferences (10/17/16)

The first paragraph in Chapter 10, at Par. VI. Conferences, (Student Edition p 347; Practitioner Edition 487) is revised to read as follows (I provide the footnotes here for the benefit of Practitioners; remember that the footnote numbers are provisional and will be different in the next edition; students should generally not read the footnotes; I note in red the key changes to the text):

The taxpayer will have at least one conference with the Appeals Officer.  Historically, the conference was in person at the Appeals Officer’s office, by telephone, or sometimes by correspondence. n1597 In October 2016, however, the IRS adopted IRM procedures that appeals conferences are generally held by telephone and, where the taxpayer desires an in-person conference, to offer the taxpayer “a virtual conference as an alternative when the technology for a virtual conference is available.” n1598 The IRM recognizes that “[T]here may be situations in which an in-person conference, including circuit riding should be held to help reach resolution;” in those cases, an in-person conference may be available. n1599 These new procedures limiting the circumstances in which an in-person conference is available are controversial. n1600 It is too early to determine how they will affect the actuality and perception of the Appeals procedures.
   n1597 IRM 8.6.1.1  (06-25-2015), Introduction to Discussion on Conferences.  This IRM provision has now been replaced by IRM 8.6.1.1  (10-01-2016), Introduction to Discussion on Conferences, and 8.6.1.4.1  (10-01-2016), Conference Practice, which discuss the IRS’s move away from in-person conferences in many cases.  I discuss this move in the text.
   n1598 IRM 8.6.1.4.1.3  (10-01-2016), Conference Practice.
   n1599 IRM 8.6.1.4.1.4  (10-01-2016), Conference Practice.
   n1600 See Leslie Book, Technology and the Tax System: A Less Personal Appeals Office Coming Our Way (Procedurally Taxing Blog 10/13/16). [This blog entry is here.]

Are Appeals Officers Equipped and Trained to Assess Accurately the Litigating Hazards of a Case? (9/25/15)

Appeals' standard for settlement is to reflect the litigating hazards of the case.  See IRM 8.6.4.1  (10-26-2007), Fair and Impartial Settlements per Appeals Mission, here ("A fair and impartial resolution is one which reflects on an issue-by-issue basis the probable result in event of litigation"). One of the concerns expressed with that standard is that Appeals Officers are not litigators nor are most of them even lawyers.  How then do they assess the litigating hazards of a case?

Keith Fogg of Procedurally Taxing has this blog on the subject where he expresses concern:  Judging Litigation Hazards without Seeing or Following Litigation (Procedurally Taxing Blog 7/6/15), here.  Keith is a law professor now but formerly was with Chief Counsel and had considerable opportunity to observe Appeals Officers' application of the standard.  He expresses concern that Appeals may be paying less attention to insuring that Appeals Officers at least observe litigation to sharpen their skills at determining the litigation hazards.  And, of course, the Appeals Officers have difficulty assessing evidentiary and procedural problems and how they may affect the outcome of the case if it proceeds to trial.  Among the problems is credibility of witnesses.  Many cases (including the anecdote I present at the end of this blog entry) really turn on credibility, and the Appeals Officer has no way of factoring credibility into a settlement.  It is true that many revenue agents may view the witnesses as not credible, often without even interviewing them and the Appeals Officer will usually be aware of the revenue agent's assessment of credibility.  But, the Appeals Officer has no way of assessing the revenue agent's determination of credibility or, more directly,  making an independent determination of credibility to properly assess the litigating hazards.

Sheldon ("Shelly") Kay, currently with a law firm but previously with district counsel and thereafter with Appeals where he served as National Director of Appeals, does not agree with Keith.  He has written his views in a blog on Procedurally Taxing:  “Judging Litigating Hazards – Another View” (Procedurally Taxing 9/24/15), here.  Shelly makes a strong rebuttal.

I encourage tax procedure fans and particularly students in my class to read these blogs.  They are relatively short and discuss a core function of Appeals.  We will cover Appeals on October 1, and I have provided a link to this blog (with the links to the Procedurally Taxing Blogs).

Appeals Judicial Approach and Culture Project (AJAC) (9/10/13)

Stephen Olsen blogs on the Procedurally Taxing blog on IRS's appeals new initiative / approach, called Appeals Judicial Approach and Culture Project (AJAC).  See Stephen Olsen, AJAC is here! (Procedurally Taxing 9/9/13), here.  I highly recommend that blog entry to tax procedure afficionados.  (Note that one advantage is that the authors of the Procedurally Taxing Blog has appropriate materials from and references to the Saltzman and Book treatise which is the most cited treatise on tax procedure.)

I had recently blogged on AJAC's new issues approach, New Policy Statement That Appeals Is Not to Raise New Issues (Federal Tax Procedure Blog 7/23/13), here.

New Policy Statement That Appeals Is Not to Raise New Issues (7/23/13)

The IRS released a Memorandum for Appeals Employees, here, on the subject of Implementation of the Appeals Judicial Approach and Culture (AJAC) Project.  "The AJAC Project is returning Appeals to a quasi-judicial approach in the way it handles cases, with the goal of enhancing internal and external customer perceptions of a fair, impartial and independent Office of Appeals."  For purposes of this blog entry, the approach should limit Appeals to deciding the controversies that the parties put before it, rather than raise new issues not previously spotted by Exam or re-visit issues settled or dropped by Exam.  In furtherance of that objective, the Memorandum advises of a new IRS Policy Statement as follows:

Policy Statement 8-2 (Formerly P-8-49) 

(1) New issues not to be raised by Appeals. 

(2) Appeals will not raise new issues. Appeals also will not reopen an issue on which the taxpayer and the Service are in agreement.

The memorandum implements this policy with new IRM provisions in various contexts -- Collection Due Process, Offers in Compromise, Collection Appeals Program, and Examination Cases.  I focus here on Examination Cases.  The effect of the new approach on Examination cases is set forth in Attachment 5 to the Memorandum.  Key points in attachment 5 are:

• The prohibition on raising new issues also applies in Appeals consideration of docketed cases.  (IRM 8.4.1.15.3).
• Guidance is given when the taxpayer raises new issues.  Id.
• Guidance is given when an issue not before Appeals is identified; although the Appeals  Officer cannot raise it on appeal, if it is a systemic issue, a process for the issue to be reported is provided.  "A systemic issue is an issue that requires a change or modification to an established procedure, process or operation (e.g., training issues, computer program, campus procedure for processing claims). These are issues that potentially impact more than one taxpayer."  IRM 8.6.1.6(1).
• "Reopening a previously agreed issue or raising a new issue has the same implications, and is, for all practical purposes, one and the same. Therefore, for purposes of this section, treat reopening an agreed issue the same as raising a new issue."
• "A new issue is a matter not raised during Compliance's consideration. (3) A new theory or alternative argument is not a new issue."
• "(1) Appeals will not raise new issues and will focus dispute resolution efforts on resolving the points of disagreement identified by the parties. The Appeals process is not a continuation or an extension of the examination process."  IRM 8.6.1.6.2(1).  "In resolving disputes, Appeals may consider new theories and/or alternative legal arguments that support the parties' positions when evaluating the hazards of litigation in a case. However, the Appeals hearing officer will not develop evidence that is not in the case file to support the new theory or argument."
• "In docketed cases, the Appeals hearing officer will consider a new issue affirmatively raised by the government in pleadings and may consider any new evidence developed by Compliance or Counsel to support the government's position on the new issue. The Appeals hearing officer's consideration of a new issue in a docketed case will take into account that the government has the burden of proof."

 The old version (currently on the web as of 7/23/13), here, is:

1.2.17.1.2  (Approved 01-05-2007)
Policy Statement 8-2 (Formerly P–8–49) 

1. New issues not to be raised unless material 

2. An issue, on which the taxpayer and the Service are in agreement, should neither be reopened by Appeals nor should a new issue be raised, unless the ground for such action is a substantial one and the potential effect upon the tax liability is material. The existence of unreported income, deductions, credits, gains, losses, etc. stemming from a tax shelter which is a listed transaction constitutes such a substantial ground with a material effect upon the tax liability.

Appeals raising of new issues was extremely rare under this old rule.  I have been practicing for over 35 years and have never had a new issue raised on Appeal.  But it was a possibility and a risk.

At least in some cases, the old policy gave incentives to avoid an appeal at the conclusion of which is probably the most efficient timing from an administrative perspective.  Some taxpayers would get to appeals after filing the petition in the Tax Court, with the thought that the press of the expected docket call would limit the time Appeals would be substantively involved and likely to spot new issues.  Other taxpayers pursued their refund remedies with careful attention to timing so that, if new issues were raised, the statute of limitations would foreclose any adjustment other than by offset.

This is a welcome clarification of Appeals' role.

Of course, the fact that Appeals will not raise new issues does not mean that, should litigation ensue in the Tax Court or a refund forum, the Government will not be permitted to raise new issues.  Then, the ability of the Government to raise and pursue new issues will be governed by the respective court's control of its docket.