How to Conduct the Perfect Administrative Tax Appeal

Introduction

I have been fortunate to work on administrative tax appeals for almost 40 years.  Whether the tax is state, federal, or local, the approach will be the same.  I say “I” in this document, but every decision is made by the client.  I could have written “we” instead of “I”; but we all know, most of our clients follow our advice.

Step 1.  Conduct an exemplary exam.  This means responding timely and completely to all inquiries.  

Step 2. What’s your approach to issue development, Notices of Proposed Adjustment (NOPAs), and the Agreement on Facts (AOF) Information Document Request (IDR)?  You have to develop an approach.  Your approach may be flexible.  Mine is not; although there’s always an exception to every rule.  I work with the Revenue Agent to develop the issues.  I timely respond to IDRs.  I do not provide analysis of the authorities in writing.  I only respond to the requests made.  I only provide responses to document requests by providing documents.  Rarely do I provide any discussion in writing that goes beyond, “Attached as Exhibit A are documents responsive to IDR 1-1.  Attached as Exhibit B are documents responsive to IDR 1-2,” and so forth.  

As I work with the agent there comes a point in the exam timeline where I recognize that the client is not going to be able to resolve the issue with the Revenue Agent.  While I may have previously provided a short discussion of the application of authorities (one of those exceptions to every rule), at this point I make the decision that I will not provide any written (or any further written) discussion of the application of the law to the facts until I file the written Protest to Appeals.

Step 3.  The AOF IDR.  I respond by stating that the AOF IDR is not an enforceable document request and that I will provide the client’s statement of facts in the written protest.  I’ve had some Revenue Agents push back a little.  Some practitioners have concerns about appearing uncooperative if they don’t respond to the AOF IDR.  I submit that practitioners should consider the legal effect of submitting a statement of facts under penalties of perjury multiple times.  The whole point of the AOF IDR was to prohibit the client from introducing additional facts at Appeals or at trial.  I don’t want to have to explain to my client why the client cannot submit additional information at a subsequent trial because I submitted a response to an unenforceable document request.  Or explain the impact on a case when facts develop post-exam, but I said something different in an AOF IDR.  I think the government is on dangerous grounds if they suggest that protecting my clients’ rights to not submit facts under penalties of perjury multiple times is uncooperative.  Facts develop all the time including up to the date of a prospective trial.  The fact that the client is willing to go to Appeals suggests that the client is willing to go to trial.  I caution against committing to a set of facts multiple times.

By responding to the AOF IDR other than as I do, taxpayers submit their arguments prematurely to the government.  Your client’s case is unresolved because the issue is grey.  By providing the IRS with a detailed analysis in the AOF IDR response, the Revenue Agent can now send this response to Exam technical experts, Chief Counsel, Treasury thought leaders.  If you’re responding to an AOF IDR, you’re moving on!  Why give the IRS two bites at the apple?  One when you respond to the AOF IDR and one when you file your Appeals Protest.  

I also don’t want to increase the cost of the dispute to my client.  While yes, if I were to respond to the AOF IDR, my subsequent Appeals Protest would largely be a block and copy job, the drafting and filing of an Appeals Protest is not simply block and copy.  There will be additional costs to the client, and they can easily rise to the thousands of dollars.  Revenue Agents and their technical supporters like to respond to the AOF IDR response, so now I have to review the IRS’s response and adjust my Appeals Protest accordingly.

Step 4.  The Protest.  What’s your approach?  Slap something together that meets the Revenue Procedure and go argue?  Or draft the equivalent of a trial brief and win the issue through outstanding but expensive persuasive writing?  I always choose the latter and never choose the former.  I can do the former, but my hope with a client that wants to save costs on the Appeals Protest is to convince the client to file a most robust Protest with what I know:  The written Protest is the most important document in the Appeals file.  Appeals Officers consider themselves as Special Trial Judges.  Judges rely on the written briefs.  So do Appeals Officers.  I strongly recommend that your written Appeals Protest look like a trial brief.  It should be thorough and comprehensive.

Conduct a meeting to discuss the process, assign roles, refine plans.  One-half hour should do.  Lay-out the plan to have a call two weeks before the Appeals conference, and another call two to three days before the conference.  Also, plan to submit a written document to the Appeals Officer that will be short (2 pages) and will summarize and update the previously filed protest and hopefully identify new facts or a new argument.  This written document will be supplied to the Appeals Officer 1 to 2 weeks prior to the date of the Appeals conference.

Now we know of the IRS rule that “Taxpayers cannot raise new facts at Appeals; that if new facts are presented, the Appeals Officer MUST send the case back to the Exam function.”  I submit that a best practice REQUIRES the discussion of new facts; otherwise, why would Appeals resolve the case any differently from the Exam function?  The new facts should not be so significant such as to trigger the return of the case to IRS Exam; but I submit you must raise new facts.  For example, in a dispute that involves a valuation or interest rate, provide updated facts that impact the valuation or the interest rate.  These facts may have developed after the date that you filed the Appeals Protest.  I have had an experience where I provided volumes of documents to the Appeals Officer that had not been provided to the Exam function and the Appeals Officer resolved the case.  He did not send the case back to the Exam function. 

Step 6.  Two Weeks before the Appeals Conference  Schedule a meeting for an hour.  Try to keep the meeting to a half hour.  But take as much time as necessary to make sure that all involved are very comfortable with the process and expectations.  Discuss and finalize roles, expectations, and the written submission soon to be filed with the Appeals Officer.  Schedule a meeting for two or three days before the Appeals conference.

Step 7. Two to Three Days before the Appeals Conference   Conduct a half-hour meeting to review the plan one more time and give everyone an opportunity to discuss any items.  Try to instill confidence in your attendees.  The Appeals conference is a unique experience where you can see the tax system at work; an opportunity to debate with the IRS.  Enjoy the process.  Provide a cell phone number for all involved to call at any time with any questions or concerns.

Step 8.  Day of the Appeals Conference  Meet one hour before the conference in an office or coffee shop or lobby…somewhere where you can have a discussion that reviews the plan and allows time for attendees to ask last minute questions; try to get calm and gain confidence.

Step 9.  The Appeals Conference   Be courteous.  No extraneous discussions.  As the leader of the conference for the client, you must orchestrate the conference in a way that does not infringe on the Appeals Officer’s leadership, and make sure that all of your points are made by the professionals who were pre-determined to make the points.  Thank the Appeal Officer and her colleagues for their time and consideration.  Be prepared to respond to additional information requests from the Appeals Officer.  

Step 10.  Respond timely to the Appeals Officer’s information requests.  Call the Appeals Officer shortly after sending the requests to discuss them.  Whenever I call the Appeals Officer, I always have a 30-60 second message that says, “The taxpayer acted correctly; the taxpayer should not have to suffer any further.  You have ability to provide relief to the taxpayer.”

Step 11.  Generally, 30 days after your last submission you WILL reach an agreement with the IRS Appeals Officer.  

And if you follow the steps outlined above, I think that you will like the results.

January 22, 2025

By: Frances L. Wallace, CPA - Tax Practice & Procedures Committee |[email protected]

A Form 911 Request for Taxpayer Advocate Service (TAS) Assistance may be your client’s savior!

Try TAS when the IRS Service Center gives you the runaround with your client’s problem. 

To get help from TAS, you may be required to complete a Form 911 Request for Taxpayer Advocate Service Assistance. You can find the Form 911 with instructions at https://www.taxpayeradvocate.irs.gov/can-tas-help-me-with-my-tax-issue/

The quickest method is to fax your request to your local Taxpayer Advocate. The fax number can be found in your local telephone directory or the Taxpayer Advocate web site.

I have sought TAS assistance in the following cases:

(1) Taxpayer was a British athlete who had played a few matches in the US and was due a large refund for the 2016 year. Not having a Social Security number, he filed a W-7 for an Individual Taxpayer Identification Number (ITIN). In 2021 the IRS still had not issued his refund.

In addition, TAS offers experienced IRS personnel and that may compensate for less experienced IRS staff who may be unsure of their authority or plain unwilling to extend a helping hand to a taxpayer.

(1) A client owed the IRS almost $100,000. She was willing to full pay by refinancing her home under a special program from her lender. But the lender’s program was about to end, and the client needed to expedite the processing of her paper income tax filing to satisfy the lender’s requirements.  TAS was able to get the return processed so the taxpayer could satisfy the lender and get the funds. The practitioner attributed this TAS intervention to the interest of the IRS lining up with that of the client’s, in other words a win for both parties.  

So, there you have it. TAS can be helpful in solving thorny taxpayer issues when you just can’t seem to get the IRS to do what makes sense for all concerned.