Protecting Taxpayer Rights in the IRS Administrative Appeals Process

The ability to pursue an administrative appeal within the Internal Revenue Service (IRS) before engaging in litigation is an important right in the United States tax system.  The mission of the Appeals Office is to resolve tax disputes, without litigation, on a basis that is fair and impartial to both the government and the taxpayer and in a manner that will enhance voluntary compliance and public confidence in the integrity and efficiency of the IRS.  Historically, the Appeals Office has been highly effective, resolving around 90 percent of the tens of thousands of tax disputes that come before it each year.

Despite its success, the Appeals Office currently faces many challenges.  There have been deep funding cuts in recent years and the number of Appeals Officers has steadily declined due to retirements (without replacement), resulting in increased workloads and longer resolution times.  Additionally, there have been several changes to the Appeals process which negatively impact various taxpayer rights, including: (1) The Right to Challenge the IRS’s Position and Be Heard; (2) The Right to Appeal an IRS Decision in an Independent Forum; and (3) The Right to a Fair and Just Tax System.

The traditional Appeals process involves filing a formal written protest letter disputing the findings made by the tax examiner (either through a field audit or a correspondence audit).  The tax examiner presents first and then the taxpayer presents.  Historically, the tax examiner would not be present during the taxpayer’s presentation.  The taxpayer and the Appeals Office would then attempt to negotiate a settlement based on views on hazards of litigation.

One of the challenges facing taxpayers, mainly low-income taxpayers, is the Appeals Office’s position on in-person conferences.  In-person conferences are provided in field audit cases, but are not offered for correspondence audits.  Correspondence audits typically involve low-income taxpayers and can involve issues for which explanations and credibility are vital.  Conducting the conference remotely put a taxpayer at a disadvantage; for example, the taxpayer cannot see how the Appeals Officer is reacting to a position and it may be difficult for the parties to engage in productive discussions on matters involving complex factual or legal issues.

Another problem stems from the recent decision to allow the tax examiner to participate in the taxpayer’s portion of the Appeals conference.  As noted above, historically the tax examiner presented and then left the room.  Under the new changes, the tax examiner may be present during the taxpayer’s presentation and oftentimes is asked for additional input.  Many tax practitioners have opposed this approach, noting that the examiner’s continued participation may jeopardize the Appeals Officer’s impartiality and independence and be harmful to the negotiation process.  And the expanded role of the examiner and IRS counsel may result in fewer resolved cases and more litigation.

The right to appeal a tax examiner’s findings is crucial to the protection of taxpayer rights.  The IRS needs to ensure that its administrative appeal process remains fair and impartial and protects those rights.