The IRS Independent Office of Appeals ("IRS Appeals") was established to provide an "independent" IRS function that is separate and independent from the IRS's compliance functions that maintain responsibility for collecting and assessing taxes. By statute, its function is to resolve tax controversies without litigation on a basis that: (1) is fair and impartial to both the IRS and the taxpayer; (2) promotes a consistent application and interpretation of, and voluntary compliance with, federal tax laws; and (3) enhances public confidence in the integrity and efficiency of IRS.
IRS Appeals has been around—by one name or another—for almost a century. Section 1001 of the 2019 Taxpayer First Act renamed the IRS Office of Appeals to the IRS Independent Office of Appeals. But most of its operations remained the same.
IRS Appeals plays an important role in the IRS's overall structure. Indeed, it resolves more than 100,000 tax cases every year. Perhaps the two most common avenues for such resolutions are Collection Due Process Hearings and appeals pursuant to the Collection Appeals Program.
The Origins of the Current IRS Appeals
The IRS appeals function traces back to the 1920s, when it was technically an offshoot of the predecessor to the Tax Court. Over time, it took on new organizational structures — taking on the monikers of the Technical Staff and Appellate Division, and even becoming a division of Counsel — but always played a pivotal role addressing tax disputes in the "gray."
The Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105–206, 112 Stat. 685 (RRA), required that the Commissioner develop and implement a plan to reorganize the IRS. The RRA specifically directed the Commissioner to "ensure an independent appeals function within the Internal Revenue Service, including the prohibition . . . of ex parte communications between appeals officers and other Internal Revenue Service employees to the extent that such communications appear to compromise the independence of the appeals officers."
Prohibition on Ex parte Communications
Appeals fosters its independence through a policy that prohibits certain ex parte communications with the IRS Collection office or other IRS offices. Independence is one of Appeals' most important core values; the RRA therefore prohibits ex parte communications "to the extent that such communications appear to compromise the independence of the appeals officers."
An "ex parte communication" is a communication that takes place between any Appeals employee (e.g., Appeals Officers, Settlement Officers, Appeals Team Case Leaders, Appeals Tax Computation Specialists) and employees of other IRS functions without the taxpayer/representative being given an opportunity to participate in the communication. The term includes all forms of communication, oral or written.
Collection Due Process Hearings
Collection Due Process (CDP) hearings are among the most common proceedings in IRS appeals. A CDP hearing is available where a taxpayer receives one of the following notices:
- Notice of Federal Tax Lien Filing and Your Right to a Hearing under IRC 6320
- Final Notice – Notice of Intent to Levy and Notice of Your Right to a Hearing
- Notice of Jeopardy Levy and Right of Appeal
- Notice of Levy on Your State Tax Refund – Notice of Your Right to a Hearing
- Post Levy Collection Due Process (CDP) Notice
By law, a taxpayer has the right to a CDP hearing when they receive a notice advising of this right and they timely file a request for a hearing to the address indicated on the Notice. Taxpayers are, however, limited to one hearing under section 6320 (Notice and opportunity for hearing upon filing of notice of lien) and 6330 (Notice and opportunity for hearing before levy) for each tax assessment within a tax period.
CDP determinations may be challenged in the United States Tax Court.
Taxpayers who do not satisfy the 30-day time period to file a timely CDP hearing request may nonetheless be entitled to an "equivalent" hearing.
The Collection Appeals Program ("CAP")
A taxpayer who disagrees with a lien, levy, seizure or a denial, modification or termination of an installment agreement may be entitled to a so-called "CAP" appeal with IRS Appeals.
The Collection Appeals Program (CAP) is available for the following IRS actions:
- Before or after the IRS files a Notice of Federal Tax Lien
- Before or after the IRS levies or seizes your property
- Termination, or proposed termination, of an installment agreement " Rejection of an installment agreement
- Modification, or proposed modification, of an installment agreement
A CAP appeal is typically quicker, resulting in a faster Appeals decision, and is available for a broader range of collection actions than a CDP hearing. However, a CAP appeal does not provide the right to challenge the outcome in court.
Types of IRS Appeals Cases
IRS Appeals handles a variety of cases. The primary categories are listed below:
- Collection Due Process (CDP) is a case where a taxpayer requests a hearing with an independent Appeals Settlement Officer in response to a notice of Federal tax lien or notice of intent to levy.
- An Offer in Compromise (OIC) is an agreement between a taxpayer and the federal government that settles a tax liability for payment of less than the full amount owed. If the IRS rejected a taxpayer's offer, the taxpayer may request that Appeals review and decide whether the offer should be accepted.
- An Innocent Spouse (INNSP) case in Appeals is one in which the taxpayer requested and was denied innocent spouse relief by the IRS or when the non-requesting spouse disagrees with IRS determination to grant innocent spouse relief to the spouse requesting relief. An Innocent Spouse is a taxpayer who filed a joint return with a spouse or ex-spouse and may apply for relief of tax, interest and penalties if he/she meets specific requirements.
- A Penalty Appeals (PENAP) case is one in which the taxpayer requests abatement of a civil penalty that was assessed before the taxpayer was given an opportunity to dispute the penalty. The taxpayer may submit a written request for abatement of the penalty, and if the request is denied, the taxpayer may appeal.
- A Coordinated Industry Case (CIC) designation may be assigned to a large corporate taxpayer based on factors such as the taxpayer's gross assets, gross receipts, operating entities, industries and/or foreign assets. A CIC taxpayer may appeal the findings of an examination conducted by the IRS.
- An Industry Case (IC) is any type of large corporate taxpayer, Large Business & International, case that is not designated as a Coordinated Industry Case (CIC). An Industry Case taxpayer may appeal the findings of an examination conducted by the IRS.
- An Examination (EXAM) case in Appeals involves issues in dispute by the taxpayer relating to income tax, employment tax, excise tax, estate tax, gift tax or tax-exempt status. The cases generally involve appeals by individuals or small business of a determination by the IRS.
- Cases Docketed with the U.S. Tax Court.
- Other category — Includes cases considered by Appeals involving issues related to Abatement of Interest, Collection Appeals Program, Office of Professional Responsibility, Freedom of Information Act, Trust Fund Recovery Penalty, Collection Due Process Timeliness Determination and other miscellaneous penalties.
Taxpayers and professionals preparing for hearings before IRS Appeals may find the following resources useful:
- CDP Proceedings—Is the Time Limit in Section 6330(d)(1) a Jurisdictional Requirement for Tax Court Petitions?
- A Summary of the New IRS Appeals Procedures under the Centralized Partnership Audit Regime
- You Received an IRS LT11 Notice (or Letter 1058), Now What?
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.