Fast Track Mediation for Collection

In Rev. Proc. 2016-57 the IRS announced a new fast track mediation specifically designed for collection cases (FTMC).  The program will allow taxpayers with issues in offer in compromise (OIC) cases and trust fund recovery penalty (TFRP) cases to go to a mediator in Appeals to try to resolve an issue in their case which could provide the basis for overall resolution if the parties could reach agreement on that issue.  I do not know how much demand exists for this type of mediation, but the effort to provide mediation in these fact intensive situations seems like an idea worth trying.

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The Rev. Proc. points out that fast track mediation for SBSE cases has existed as a possibility since 2000 and the program included collection cases; however, mediation occurred in only a small number of collection cases.  In 2011 the IRS introduced fast track settlement for examination cases but that initiative did not include collection cases.  The idea for use of Appeals in FTMC does not include giving the Appeals employee settlement authority but rather to have them serve as a mediator acting as a neutral party to assist the taxpayer and the collection function in reaching agreement on a point of dispute.

Collection and Appeals will jointly administer the FTMC program.  Because SBSE handles all of the collection cases for the IRS, taxpayers falling into any of the stovepipes into which the IRS divided itself in 2000 can use FTMC.  The IRS envisions that FTMC will take place “when all other collection issues are resolved but for the issue(s) for which FTMC is being requested.  The issue(s) to be mediated must be fully developed with clearly defined positions by both parties so the unagreed issues can be resolved quickly.”  To use FTMC, both the IRS and the taxpayer must agree.  Neither party can force the procedure on the other.

The Rev. Proc. provides a list of issues in OIC and TFRP cases for which it contemplates FTMC use.  It does not state whether the list provides the exclusive opportunities for use of FTMC but the manner in which the Rev. Proc. is written makes me believe that engaging in FTMC for issues not on this list will rarely, if ever, occur.  For OIC the list includes the following issues:

  • Valuing the taxpayer’s assets, including those held by third parties;
  • Determining the amount of dissipated assets that the IRS should include in the reasonable collection potential (RCP) calculation;
  • Deciding whether the facts warrant a deviation from the national or local expense standards;
  • Determining the taxpayer’s proportionate interest in jointly held property;
  • Projecting the amount of future income based on projections other than current income;
  • Calculating the taxpayer’s future ability to pay when the taxpayer lives with and shares expenses with a non-liable person;
  • Evaluating doubt as to liability cases worked by Collection, e.g., a case involving TFRP; and
  • A catch-all provision that uses as an example whether a taxpayer’s contributions to a retirement savings account are discretionary or mandatory.

The TFRP list includes the following issues:

  • Whether the person meets the test as a “responsible person” of the business that failed to pay over the trust fund taxes;
  • Whether the person willfully failed to pay over the collected taxes or willfully attempted to evade or defeat the payment; and
  • Whether the taxpayer properly designated a payment.

The Rev. Proc. explains when FTMC will not apply:

  • To determine hazards of litigation or use the Appeals Officer’s settlement authority;
  • For cases referred to the Department of Justice (remember that once a case is referred to the Department of Justice settlement authority resides with the DOJ and while DOJ case refer a matter back to the IRS to obtain the views of the IRS, DOJ has total control of the outcome of the case);
  • For cases worked at an SB/SE Campus site (because almost all OIC cases are worked at campus sites in Brookhaven and Memphis, I assume that this statement in the Rev. Proc. does not apply to the OIC units but the Rev. Proc. does not make this 100% clear. To my knowledge TFRP cases are worked by Revenue Officers assigned to field units and this restriction would not have much impact on TFRP cases.  So, I am having trouble understanding what this restriction covers)
  • To cases in the Collection Appeals Program (OIC cases should not use the CAP program and TFRP cases would only get to the CAP program after the assessment of the TFRP and not before the determination of the liability exists. So, this exclusion would not seem to have much impact);
  • To Collection Due Process cases (this restriction could have a significant impact in the OIC context because many practitioners submit offers during the CDP process. I prefer to submit offers during a CDP case over submitting them outside of CDP.  It is not clear to me why the IRS would exclude offers submitted during a CDP case unless it assumes that the Appeals employee assigned to the CDP case could or would serve this function.  My experience is that the Appeals employee plays a relatively tradition role in CDP cases and does not get involved during the consideration of the offer by the offer unit.  To the extent that having a mediator provides a useful function, it seems that the mediator could assist in an offer arising during a CDP case just as the mediator could assist in other offers);
  • To cases in which the IRS determines the taxpayer has put forward a frivolous issue whether or not the issue makes the list in Rev. Proc. 2016-2 (this makes sense given that either party can nix the use of a mediator and the IRS position here just puts down a marker that it will not go to mediation on something it considers frivolous);
  • To cases in which the taxpayer has failed to respond to IRS communications or to submit documentation (the IRS does not want to use FTMC to allow the taxpayer to stall);
  • To OIC cases involving Effective Tax Administration offers except in limited circumstances, to cases in which the taxpayer refuses to amend the offer yet provides no specific disagreement, to cases in which the IRS has explicit guidance and to cases in which Delegation Order 5-1 requires a level of approval higher than a group manager (almost all of these exceptions involving reasons for which the IRS would not agree to FTMC on an individual case basis and just set out markers so the taxpayer would know in advance);
  • To cases where FTMC use would not be consistent with sound tax administration; and
  • To issues otherwise excluded in subsequent guidance.

A taxpayer can request FTMC after full development of an issue and before Collection makes its final determination.  The IRS has created Form 13369 for use in requesting this process.  Both the taxpayer and the IRS must sign the firm in order to invoke the procedure.  In addition to the form the taxpayer submits a written summary of their position with respect to the disputed issues and the IRS will submit a written summary as well.  Once the parties have prepared the form and the statements, Collection sends the package to the appropriate Appeals office.  The Appeals office decides whether to accept the case for FTMC.  The taxpayer must consent to disclosure of their tax information to participants in the mediation and does this in signing the Form 13369.

The Rev. Proc. goes on to describe the manner of the mediation as well as the post-mediation process.  If the mediation succeeds, it should allow the OIC or the TFRP case to move forward to resolution by removing a roadblock to agreement.  If it does not succeed, the taxpayer still retains the right to appeal the denial of the OIC or to appeal the proposed determination of the TFRP.  In this regard, the mediation seems to have little downside for the taxpayer except to the extent the denial of the mediation is perceived to have solidified the view of Appeals and keep the taxpayer from having a productive Appeals conference at a later stage.    Because I have never used mediation, I have no basis for forming an opinion of the likely success of this new process.  Perhaps those who have used it in the Examination context can comment on how it might work in these two specific collection situations.  I suspect that training of IRS employees to spot situations in which it might assist and to have open minds about using the process will have a high impact on its success.  If the employees considering OICs or TFRP assessments would prefer to move the case to Appeals in a more traditional manner than to have a mediator from Appeals intervene in their cases, the program will not succeed.

 

Technology and the Tax System: A Less Personal Appeals Office Coming Our Way

In the last month, Appeals has announced plans to shift away from in-person conferences and institute a default rule that sets conferences for telephone and possible virtual conferences.  I will describe the changes and highlight some of the challenges facing the tax system as Appeals and other IRS functions shift even further away from in-person meetings.

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Technology is rapidly changing how the IRS intersects with taxpayers. For example, in 2000, only 28% of individual income tax returns were e-filed. In 2005 for the first time more people e-filed than paper, and last filing season over 86% of individual income tax returns were e-filed. We are also seeing an uptick in self-prepared returns, especially among lower-income filers, reflecting perhaps a growing comfort level that many Americans seem to have for DIY and software.

We have discussed the IRS’s big plans for its Future State initiative which is at it describes its overall efforts to “take advantage of the latest technology to move the entire taxpayer experience to a new level.” At the recent ABA Tax Section meeting, the National Taxpayer Advocate announced that its end of year annual report will include its ideas of the future, informed by its public forums.

Appeals also has been thinking about how technology would alter the Appeals experience. It recently revised the Appeals section of the Internal Revenue Manual, and those changes reflect the decreasing use of in-person conferences to resolve Appeals cases. The new default method for Appeals’ conferences is by telephone.

IRM 8.6.1.4.1 now provides that if a taxpayer requests an in person conference, the taxpayer instead should be offered a virtual service delivery (VSD) conference, if the technology is available (generally defined as within 100 miles of the taxpayer’s address) (for background on VSD, I wrote about it a couple of years ago in Technology and Tax Administration: The Appeals Virtual Service Delivery Program and the National Taxpayer Advocate in a section of the 2014 annual report offered suggestions on ways IRS could better use this technology).

What if a taxpayer within 100 miles does not want to use VSD technology? The new IRM provisions states that taxpayers will get an in-person conference only if the Appeals team manager (ATM) agrees either following a taxpayer or Appeals employee request. The provision then goes on to list factors that the ATM should consider in evaluating the request:

  • There are substantial books and records to review that cannot be easily referenced with page numbers or indices
  • The Appeals Team Employee  cannot judge the credibility of the taxpayer’s oral testimony without an in-person conference
  • The taxpayer has special needs (e.g. disability, hearing impairment) that can only be accommodated with an in-person conference
  • There are numerous conference participants (e.g., witnesses) that create a risk of an unauthorized disclosure or breach of confidentiality
  • An alternative conference procedure (e.g., Post Appeals Mediation (PAM) or Rapid Appeals Process (RAP)) involving separate caucuses will be used
  • Another IRM section specific to the workstream calls for an in-person conference

IRS is also working out the kinks in rules that will generally prevent taxpayers from getting an Appeals case reassigned from a campus to the field. That change would be consistent with the IRM changes already in place relating to initial requests.

Some Observations

I understand the allure of creating efficiency gains through technology and limiting personal contacts, especially as technology improves and Congress continues to squeeze IRS budgets.  I recently oversaw our Graduate Tax Program’s development of an online program. In that program we have created a curriculum that relies on interactive exercises and a real-time (synchronous) weekly session that allows for discussion and a robust give and take with students. I was skeptical of our ability to deliver a high quality experience. I no longer am. The technology is robust.  I am not a technology expert, but I know that it is not easy to teach in a distance platform. For each class we launch we spent hundreds of hours developing the class ahead of time, working with instructional designers who knew nothing about tax or law but who understood education and technology.

The IRS task is much more difficult than ours was in Villanova’s tax program. Our students are self-selecting. We train students in the technology before they start class. IRS generally and Appeals has a much more challenging task in front of it. This is especially true when many taxpayers who interact with IRS do so without the benefit of a representative.

There is substantial push back on these proposed Appeals changes, and especially the default rule setting conferences for telephone conferences and the somewhat narrow circumstances justifying transfer to an in-person meeting. For example in a letter released this past week the American College of Tax Counsel suggested that the Manual should be revised to allow for lower level Appeals employees to allow a transfer and reflect additional considerations for a transfer decision, including the complexity of the case, whether penalties are involved, the taxpayer’s compliance history, and the amount at issue relative to the taxpayer’s income. (For the ACTC letter see here.)

I am not enmeshed in Appeals’ cases these days so I do not know the precise impact of the changes. Nor do I know how flexible Appeals will be when taxpayers request to opt out of the default telephone conference. It does seem, however, that before implementing these rules Appeals would have been well-served to solicit greater input from stakeholders. That likely would generate better substantive rules as well as greater acceptance of the rules.

A good contrast for this is the NTA public forum approach with Future State. By discussing the findings and observations in the next annual report, the NTA ensures that there will be an IRS engagement with the concerns that the forums have raised. Assuming IRS engages with those findings in a serious way, that generates a transparency and discussion that in my view likely leads to better outcomes, and greater confidence and trust in the tax system.

 

 

When Does a Settlement Become Binding on a Party in the Tax Court (Part 3)

In prior two posts, the focus was on process and on settlements that were determined to bind the parties.  There are a number of decisions in which the court has decided not to bind the parties and I will end this three-part post with a discussion of those cases.  In general, the earlier the settlement is broken off, the less likely it will bind the parties.  Where all of the discussions about settlement take place outside the presence of the courtroom and the Court is not inconvenienced by the breaking of the settlement, the Court is unlikely to find it a binding agreement.

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Cases Where Court Declines to Enforce the Settlement

Estate of Halder v. Commissioner – Petitioner sought to hold an agreement binding regarding the value of the estate’s interest in a partnership on the date of death.  The Appeals Officer spoke with a representative of the estate and stated that he had calculated a value of $1.2 million.  The Appeals Officer offered to fax the basis for the calculation and did so.  The fax mistakenly left off the final page of six which caused the impression that the Appeals Officer determined that the value was $1M and not $1.2M.  Petitioner’s representatives noticed the discrepancy but did not bring it to the AO’s attention.  The representatives then faxed an agreement to the $1M settlement proposal.  The parties never executed any agreement nor did they report to the Court a basis had been reached.  Petitioner then filed a motion to enforce the settlement based on the lower amount.

The court noted that settlement agreements could be reached through correspondence in the absence of a formal agreement citing Manko v. Commissioner.  “A prerequisite to the formation of an agreement is an objective manifestation of mutual assent to its essential terms” i.e., a meeting of the minds.  The court stated that if it enforced a settlement on these facts, it would “allow the estate to take an unfair advantage of a simple, honest error that was immediately corrected.” Citing to Adams, the court quoted “The party seeking modification, however, must show that the failure to allow the modification might prejudice him… Discretion should be exercised to allow modification where no substantial injury will be occasioned to the opposing party; refusal to allow modification might result in injustice to the moving party and the inconvenience to the Court is slight.”

The court pointed out that in eve-of-trial settings, the rules were much more stringent.  Eve-of-trial cases, such as Dorchester and Stamm, also involved the filing of stipulation of settled issues.  Allowing the enforcement of the terms of the mistaken fax would provide an inappropriate advantage to the estate and an injustice would occur.  The Court summed up its view by stating that:

We find those cases [Dorchester and Stamm] distinguishable from the instant case because: (1) The parties did not reach a meeting of minds, execute any settlement agreement, notify the Court that a settlement had been reached, or file a stipulation of settled issues with the Court; (2) the Court did not cancel or delay the trial date because of any settlement between the parties (i.e., the Court granted a continuance in this case because the estate’s expert was ill); and (3) Mr. Lindenbaum contacted Mr. Sherland with regard to the error the next day.

 

In a footnote, the Court added, “Even if we held there was a meeting of minds, we would deny the estate’s motion because the ‘settlement’ was never signed or approved by, or even submitted to, any Service official authorized to approve it.” The Manko case gives hope to petitioners seeking to hold the Service to a settlement not communicated to the Court through the formality of a pre-trial settlement; however, any tentative agreement must have the approval of the appropriate level of authority or it will fail as a basis for binding the Service to the settlement.

David v. Commissioner – The Appeals Officer sent to the taxpayer’s representative an audit statement and a Form 870-AD together with a transmittal letter that stated the taxpayers would be notified “when the proposed settlement is approved.”  The Appeals Officer did not receive back an executed Form 870-AD and later informed the representative that the settlement was no longer available.   The taxpayer sought to enforce the settlement in Tax Court.  The Court found there was no binding settlement because there was no indication that the appropriate person at the Service had approved the settlement and, in fact, the letter to the taxpayer indicated that the approval had not yet occurred.

The opinion offers nothing of great interest except the attempts by the taxpayer’s representative to turn the offer of settlement into a binding settlement on the basis of the delegation orders in the face of clear language in the transmittal letter that the Appeals Officer still needed authorization on his end. 

Mathia v. Commissioner – The parties in this collection due process case submitted the case fully stipulated under Rule 122.  Although the issue of when a settlement occurred arose in the context of a collection due process case challenging the timeliness of respondent’s assessment, the real issue focused on the TEFRA partnership proceeding that gave rise to the assessment.  Applying the same general rules of contract that control in other circumstances, the Tax Court determined that no binding settlement existed in the TEFRA case at the early date sought by petitioner, and held that the statute of limitations on assessment remained open at the time the Service assessed the liability at issue in the collection due process case.

“A settlement agreement can be reached through offer and acceptance made by letter, or even in the absence of a writing…. Settlement of an issue before the Court does not require the execution of a closing agreement under section 7121, or any other particular method or form….Settlement agreements are effective and binding once there has been an offer and an acceptance, filing the agreement with the Court as a stipulation is not required for the agreement to be effective and binding.”  This description certainly fits the circumstances of the settlement my clinic thought it had with the appeals officer.  There was an offer and acceptance of the offer and even the preparation of computations before the appeals officer suddenly, at a much later point, brought up for the first time the failure of the manager to assent to the agreement.

The court in Mathia carefully examined the correspondence between the partnership and the Service attorney to determine if it had a binding settlement.  It found that the correspondence confirms

that Greenwich and respondent reached an agreement in 1991 to enter into a settlement of the partnership-level proceeding, we remain unconvinced that the agreement was sufficiently fleshed out in 1991 to constitute a binding settlement agreement at that time.  The agreement in principle that was reached in 1991 set forth the parameters of a settlement, but the correspondence described above reflects that negotiations continued between respondent and the attorney representing the Swanton TEFRA partnerships to at least September 3, 1993.  Moreover, the correspondence indicates that the execution of a decision document resolving the partnership litigation depended upon the fulfillment of certain conditions such as the TMP’s ability to represent that all partners consented to the settlement.  Implementing and finalizing the proposed settlement required the collection and analysis of detailed information, the preparation of calculations and agreements, and in some cases, the execution of closing agreement by individual partners.

The court further found that even if it determined that the parties had entered into a binding settlement agreement, it would not qualify as an agreement between a partner and the Service within the meaning of IRC 6231(b)(1)(C).  This section requires an agreement between the Service and a partner not the Service and the partnership.  The case then goes into an analysis of the partnership provisions not relevant to the overall analysis of when an agreement becomes binding because the analysis here is peculiar to the partnership provisions.

Estate of Hunt v. United States, 103 Fed.Appx. 475 (4th Cir.2004)(unpublished opinion)(no free copy of the opinion located) – The taxpayer and the Service entered into a settlement which the parties knew would generate a refund through the operation of the carryback of a loss.  In the settlement discussions, both parties anticipated that the taxpayer would receive interest on the refund payment.  When the Service paid the refund, it paid no interest because the refund occurred within 45 days of the request.  The taxpayer brought suit in federal district court seeking interest arguing the Service was equitably estopped from arguing he should not receive interest and the district court agreed.  The Fourth Circuit reversed finding that employees of the Service could not create a right to interest through their misunderstanding of the application of the refund provisions that was not granted by the statute.  The case shows another limitation on settlement with the government.  Parties cannot rely on every statement that the Service employee makes and use that statement as a basis for relief not otherwise available.

Lessons on Settlement Agreements and Their Binding Effect

If you tell the Tax Court orally or in writing that a basis for settlement exists, you should expect the settlement to bind the parties in the absence of a mutual mistake or fraud.  The difficulty will compound if the Court cancels a scheduled trial time because of representation of settlement; however, do not expect to get out of a settlement reported to the Court just because the reporting of the settlement does not cause postponement of a trial.  You cannot use as an excuse for undoing a settlement that the computations did not turn out the way you expected.  Do the math before telling the Court you have a settlement unless you do not care what the math will bring.

You cannot expect the Court to bind the Service in the same way it might bind the petitioner.  If you expect to bind the Service, you must show that the properly authorized person gave assent to the settlement, see Burton v. Commissioner.  You cannot trick a party into settlement by seeking to use a mistake as the basis for binding a party.  If you know the other side has made a mistake in something you receive, better to clear the air before you try to argue for a binding settlement than to look slick in trying to enforce an agreement you know did not exist in the mind of the other party.  The Court will also not enforce provisions not contained in a settlement document contrary to the statute.

If the Service employee does not affirmatively state to you that a proposed settlement has the approval of the appropriate manager, assume that it does not.  Ask whether such authority exists before taking an offer to your client and suggesting to your client that the Service has agreed to a particular settlement.  The Court precedent suggests little reluctance in enforcing terms recited to the Court and very little appetite for enforcing settlements not yet brought to the Court.  If you want to bind the Service, get it in writing signed by the authorized official or get a statement made by a Chief Counsel attorney to the Court.  Anything else will create problems in trying to enforce it.  A twenty year old letter from practitioners to the Commissioner can still provide some useful basis for thought on this issue.

 

When Does a Settlement Become Binding on a Party in the Tax Court (Part 2)

During a negotiation with the Service about a case pending in Tax Court, when does the discussion cross the line from tentative agreement to binding agreement? It is very rare that the government will be bound by something other than a statement to the Court.  As with most instances of line drawing, describing the things that clearly fall on either side of the line comes much easier than finding the actual crossing point.  This post does not seek to discuss the settlement process in federal tax cases generally.  For an excellent and in depth article on that process from a broader perspective look at the article “Settling with the IRS: The Importance of Procedure” by Ronald Stein, 2005 Tax Notes Today 123-33 (June 28, 2005).

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Clearly Binding Agreements

The poster child for cases clearly creating a binding agreement is the case of Dorchester Industries Inc. v. Commissioner.  The Dorchester case should have notoriety because it served as the springboard for the Service offshore effort which has so successfully identified offshore accounts.  If you want more background on the case and how it led to the volunteer offshore program through which the IRS has collected billions of dollars over the past decade, you can read my article about the agent who worked the Dorchester case.  Instead, the case is best known for the antics of the owner of the business after apparently reaching an agreement and the Tax Court’s response to those antics.

The taxpayer engaged in complicated offshore transactions. The examination went on for about eight years.  The parties obtained a special trial session from the Tax Court because they anticipated a several week trial.  On the eve of trial, the parties reached an agreement to resolve the case.  The agreement principally involved a concession by the taxpayer.  The parties went before the Court and told the Court they had reached a basis for settlement.  The Court accepted their representation and gladly cancelled the special trial session.  The Court ordered the parties to file a decision document within 30 days.  The Government computed the correct tax based on the agreement of the parties and sent the decision document to petitioner.  Petitioner’s owner refused to sign the decision document, or allow its counsel to do so, and the case went back before the Court.  The Service moved to enforce the agreement by entry of a decision and the Court granted the motion.  In doing so, Judge Halpern used strong language about the binding nature of a settlement agreement and that the settlement agreement served as a contract between the parties which the Court could enforce.

The opinion sets out the facts leading up to the agreement reported to the Court in great detail. It does not simply enter the decision without comment, but sets the scene by providing the actions of the parties prior to the moment of reporting the settlement to the Court.  The factual background in Dorchester, and in any case seeking to enforce a settlement, has significance on the decision of the Court to enforce a broken agreement between the parties.  The Court held an evidentiary hearing on the issues leading up to the report of settlement.  The opinion recounts in great detail all of the discussions leading up to, and including, the report to the Court that the parties had reached a basis for settlement and no longer needed the scheduled special trial session.  The Court then examined the actions of the parties in deciding whether these actions added up to an enforceable contract.  It found:

A settlement is a contract and, consequently, general principles of contract law determine whether a settlement has been reached. A prerequisite to the formation of a contract is an objective manifestation of mutual assent to its essential terms. Mutual assent generally requires an offer and an acceptance. “An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.” 1 Restatement, Contracts 2d, sec. 24 (1981).

In a tax case, it “is not necessary that the parties execute a closing agreement under section 7121 in order to settle a case pending before this Court, but, rather, a settlement agreement may be reached through offer and acceptance made by letter, or even in the absence of a writing.” Settlement offers made and accepted by letters are enforced as binding agreements.

The Tax Court went on to say that “A valid settlement, once reached, cannot be repudiated by either party; and after parties have entered into a binding settlement agreement, the actual merits of the settled controversy are without consequence.”

If you attend a Tax Court calendar call, you will almost always see several cases in which the Government offers to the Court a signed stipulation of settled issues or a signed decision document with only faxed signatures. Occasionally, you will see the parties stand in front of the judge and orally explain the basis for settlement issue by issue.  If signed documents get submitted to the Court by the Chief Counsel attorney, it is common that the taxpayers or their representative do not even appear.  The Court accepts these documents or the oral statements of agreed issues and orders the parties to submit a signed decision document within 30 or 60 days.  The Court also removes that case from the trial calendar by doing this and relieves the parties of the necessity of trial even though they have not perfectly completed the case at that point.  This normal action at a trial calendar sets up almost precisely the circumstances that existed in Dorchester.  If either party later tries to back out of the settlement after making that representation to the Court and after the postponement of the trial as a result of the representation, the Court will, in almost all cases, enforce the settlement reflected in the document lodged with the Court at calendar call or in the statements made by the parties.  Exceptions to the enforcement of the settlement will generally only occur if a party can show a misunderstanding of the agreement or some false statement in the formation of the agreement.  Several cases address these situations:

Other Eve of Trial Cases Where the Court Enforces Settlement

Clark v. Commissioner – Judge Haines faced a case similar to Dorchester with petitioners who sought to avoid having an oral statement of settlement as well as a written stipulation of settled issues become binding.  Because the parties anticipated a lengthy trial, they requested and received a special trial session in San Francisco as had the petitioners in Dorchester.  Before the scheduled trial date, taxpayers and counsel agreed to settlement.  The parties informed the Court of the settlement in a conference call, causing the court to cancel the scheduled trial session.  The parties then filed a stipulation of settled issues with the Court.  The attorney for the Office of Chief Counsel sent decision documents to petitioners’ counsel.  Petitioners said they disagreed with the computations but never explained why.  Petitioners found some additional evidence that would have allowed them to obtain a better settlement had they found it before the filing of the stipulation of settled issues. The court found they were bound, stating that, “This Court has declined to set aside a settlement duly executed by the parties and filed with the Court in the absence of fraud, mutual mistake, or other similar ground.” Here, the petitioners found at least two issues they wanted to contest after they agreed to the settlement.  First, they found an application for extension of time to file.  During the settlement negotiations, the Service had stated it would concede a penalty if petitioners produced this document.  Second, they noticed a duplication of rental income in the notice of deficiency.  Based on these items found after they stated the basis for settlement, petitioners sought to unwind the settlement.  At least they offered a concrete basis for their request, but the court rejected their request stating, “If petitioners made a mistake in agreeing to the settlement, respondent contends, and the Court agrees, it was not mutual but unilateral. This Court has previously held that a party may be bound by its agreement although it has made a unilateral mistake in the calculation of a deficiency. Petitioners have not shown that respondent committed fraud or otherwise improperly induced petitioners to agree to the offer.”

Stamm International Corporation v. Commissioner – The parties requested a special trial calendar because of the anticipated length of the trial.  Before the special trial calendar, the parties contacted the Court to state that a basis of settlement was reached and this caused the cancellation of the special trial calendar.  Shortly thereafter, the parties filed a memorandum of settled issues.  After filing the memorandum, respondent began to see the downside of its agreement:

During a meeting on February 12, 1987, among respondent’s counsel, a revenue agent, and petitioner’s accountant, the applicability of section 959 to the calculation of the correct amount of the deficiencies was raised. Prior to this meeting, respondent’s counsel had not taken account of section 959, which, for reasons discussed below, would reduce the total amount to be paid by petitioner to approximately $1.1 or $1.25 million. Petitioner’s attorneys had discussed among themselves the effect of section 959 on the computation prior to execution of the settlement agreement, and they had been aware that respondent’s counsel was not giving effect to that section. They had not, however, discussed section 959 with respondent’s counsel or otherwise called attention to his apparent error.

As a result of realizing the failure to take into account the impact of section 959, which reduced the anticipated liability by 70%, the Service sought to reopen the settlement discussions. Petitioner refused and asked that the Court enforce the settlement.  Because petitioner knew of the impact of section 959 on the settlement, the Court found that this impact was a unilateral mistake.  It refused to negate the settlement based on the failure of one party to understand the computational consequences of the deal.  The parties described the settlement with great specificity in their memorandum of settlement to the Court.  The Court found that the settlement was not ambiguous.

At the hearing on whether to enforce the settlement, the Service argued that the agreement should be set aside 1) based on the unilateral mistake of his counsel which was known by petitioner’s counsel and 2) because the agreement did not mention the application of 959.  Service did not argue that the agreement was not authorized or binding, but rather that, as a matter of contract law, it should be relieved of the agreement.  The Service cited to no authority that the Court should relieve it of the settlement based on the mistake of fact.  There was misleading silence by petitioner’s counsel but no overt misrepresentation.

The court notes that in Saigh v. Commissioner and other cases it unwound a settlement where “excusable damaging silence” upon a false or true representation of the other party, even one innocently made, is recognized as a ground for relief from a settlement stip.  Here, the silence was the not equivalent of a misrepresentation because petitioner’s counsel had no duty to explain the Code to respondent.  The Service cited Adams v. Commissioner for the position that the “primary consideration in determining whether a settlement stipulation should be set aside is whether such action is necessary to prevent manifest injustice…  The determination, however, takes into account the injury to the opposing party and the inconvenience to the Court, as well as possible injustice to the moving party.”  The Court points out that if a computational surprise in the amount of the deficiency by itself were a basis for overturning an agreement, petitioners [or respondent] would make this motion all the time once they received the computations and could see the tax consequences of the issue settlement.  The Court also felt that a party had a very high burden to undo a settlement in the posture of this case unlike the Adams case, which involved a pre-trial motion.  The case points to the need for a party, if money is the driving force – which will almost always be the case for petitioners, to calculate the dollar impact of a settlement before agreeing to the issues in a settlement stipulation filed with the Court.

The Court then looked at what the agreement meant and how to interpret it in the context of the 959 argument. If the agreement was unclear, a trial of the matter might be inevitable, even where the agreement might have otherwise been binding.  The Court found that the agreement was ambiguous and indefinite; however, looking at the Code as a whole in this section, the Court concluded that the most logical reading of the agreement is to view it as allowing the application of 959 in the absence of a clear statement to the contrary.  It appreciated that the Code was complex and understood the failure of respondent’s counsel to appreciate how it would work but, nonetheless, felt that the agreement included related adjustments such as the one in 959.  So, the Court enforced the settlement agreement allowing petitioner to reduce the tax owed by including the 959 adjustments in the computation.  Because the document providing the Court with the settlement agreement would have been reviewed by the party within the Service authorized to settle the case, the argument of lack of approval at the appropriate level was unavailable to the Service and was never made.

The Stamm case demonstrates that if either party pulls out of an eve-of-trial settlement, the Court will enforce the settlement.  In submitting the settlement document to the Court, the Service will necessarily have obtained the necessary approval level for settlement.  So, that argument will never really provide an effective basis for pulling out of a settlement communicated to the Tax Court.

When Does a Settlement Become Binding on a Party in the Tax Court (Part 1)

In handling a case in Tax Court, parties look diligently for a path to settlement. Sometimes settlement proves easy to achieve.  Sometimes settlement seems impossible or nearly impossible.  Sometimes you seem to have a settlement and then either the taxpayer or the IRS backs away.  This three-part post looks at what happens in the last situation – where the parties appeared to have achieved settlement only to have it slip away – with the view of when can the Court bind the parties to a settlement that once existed and then  seemed to disappear.  The answer in these situations generally turns out more favorably for the IRS than for taxpayers, for reasons discussed below.  The discussion in the post appeared in the May-June edition of the Journal of Practice and Procedure.

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Settlement Discussions

The research for this post resulted from a failed settlement in a clinic case. The client, a surviving spouse who had relied on her husband to primarily handle the financial matters of the couple, brought to the clinic an issue it had not previously handled concerning the ability to roll over IRA funds after the statutory 60-day period – a topic discussed in a recent guest post.  The Code gives the Service the authority to waive the statutory time frame administratively where it fins the failure to roll over the funds meets certain criteria.  The affirmative authority granted to the Service under Section 408(d)(3)(i) represents a rare instance of the legislative branch specifically ceding authority to the executive branch to override the time frame established by statute.  I think Congress saw too many situations in which taxpayers like my client ended up with a huge, unintended tax bill from small mistakes made by themselves, their financial advisors or the financial institution and created a process for the Service to have a “do-over.”  Every month or so you can see a flurry of these applications posted in Tax Notes or other publications as the Service grants or denies the requests of the individuals who made a mistake.

As the students began the representation, one of the first issues they faced concerned the ability of Appeals, or Chief Counsel, or the Tax Court, to grant the relief the taxpayer sought. The statute provides a method for obtaining a waiver administratively but does not mention relief through judicial action.  We had some concern whether the Appeals Officer had authority to settle this case by granting full or partial relief for the client to roll over the IRA well past the 60-day deadline.  Their research provided no clear answer.  The students did not want to assume that negotiation with the Appeals Officer could result in relief.

They began by providing the Appeals Officer with factual and legal information in support of granting relief and asked for confirmation that this matter could be resolved in a Tax Court proceeding. After hearing their preliminary presentation of the issue and facts, the Appeals Officer indicated that he thought the case was susceptible to settlement in the Tax Court proceeding and that he should be able to come up with a settlement that the client would like.  The discussion went on for a few months at which point it appeared that settlement was reached, allowing the client to roll over a certain percentage of the funds and causing her to take into income the balance.  The client agreed with the proposed settlement but wanted to know the financial impact.  The Appeals Officer made no mention of needing to get approval from his manager and the students did not ask about this.  The Appeals Officer provided a computation, and when the student attorneys pointed out a mistake in the computation he said he would make sure the mistake got fixed in the final computation.  The students notified the Appeals Officer that the client accepted the offer and stood ready to sign the decision document.  The students asked the Appeals Officer to write a letter to the client’s bank stating that it could transfer the funds to the retirement account in accordance with the settlement.  They were calling the Appeals Officer every two weeks trying to get an answer on that question and the Appeals Officer was deferring until he could obtain an answer from the Chief Counsel attorney about that.  At no point did he say that the entire settlement was off or that the settlement turned on getting an answer to this question.

Finally, over two months after the apparent agreement, the Appeals Officer wrote to say that his manager did not agree with the settlement and asked that the client agree to a full concession of her case and that his only concession would be waiving the penalty for substantial understatement. Throughout the negotiations, the Appeals Officer never mentioned that he had not obtained the authority of his supervisor to make the offer that he made to settle the case.  Everything he did suggested that he had authority to reach the proposed settlement.  The sudden and unexpected rejection after the conclusion of the semester left us in a quandary and put the clinic in a tight spot for the early fall trial calendar date because the students who had spent all semester working on this case had finished the class and new students had to start.  As we looked into what we might do, we examined the Tax Court precedent concerning settlements to determine if the Appeals Officer’s actions here might result in a binding settlement.

Guidance to Appeals Officers

The lines of authority for Appeals Officers and Chief Counsel docket attorneys clearly require managerial approval for settlement. I knew this but failed to explicitly mention it to the students working with the Appeals Officer because I thought the Appeals Officer would make clear his authority during the settlement process.  This experience may change my practice in preparing students for this process.  My own practice as a docket attorney and my experience dealing with Appeals Officers and Chief Counsel docket attorneys on many cases is that this approval process was constantly mentioned so that the other side knows a settlement needs further approval.  In circumstances in which the approval exists for the line employee in Appeals or in Counsel to make a settlement offer, my experience is that this is also communicated so that the taxpayer or their counsel knows that the offer already has approval.  As a government employee operating with lines of authority, making clear those lines and the stage of approval of a proposal seems like a best practice and one most employees in those offices follow.

I incorrectly assumed that my students were dealing with someone who would make that clear. The case served as a good learning tool for me and for the students working on it.  We did not necessarily want the lesson that we learned because it felt as though the rug was pulled out from underneath us after a fair negotiation, but we did not have a binding settlement with Appeals and we learned that as we researched the authority for binding settlements.  While I think an Appeals Officer or a docket attorney has a responsibility to make the lines of authority clear when making a proposal, that responsibility does not come from a requirement placed upon the individual in the Internal Revenue Manual or the Code.

The IRM does make some mention of the duty of an Appeals Officer to advise the taxpayer of the scope of their authority, but not on this point. IRM 8.6.4.1.6.7 provides that the Appeals Officer should “advise taxpayers that tentative agreements not finalized using Form 870-AD or Form 906 are subject to renegotiation in the circumstances described above.”  Form 870-AD is the consent to assess form used by Appeals that seeks to bind the parties, in a non-docketed phase of the case, to the terms of the agreement so that the taxpayer cannot later bring a refund suit to recover the taxes.  Form 906 is a closing agreement form binding the parties to the agreement pursuant to IRC 7121.  The language of the IRM referring to circumstances described above refers to “Exercise care in a case where a tentative agreement was reached with the taxpayer and a change in the position of an applicable authority occurs which affects the agreement in a substantive and material manner.  If a tentative agreement was not finally reflected on Form 870-AD or Form 906 and signed by a Service official authorized by the Commissioner to approve negotiated settlements, the tentative agreement is subject to modification if the law or legal precedent relied upon to formulate the tentative agreement changes.  If the change is substantive and material, the agreement is renegotiated.  For purposes of this section, the word “substantive” means the change in law or legal precedent results in a meaningful change to Appeals’ assessment of the hazards of litigation.”

We found other IRM provisions addressing settlement and finality but nothing expressly addressing the discussion an Appeals employee might have during settlement negotiations concerning the managerial approval process. IRM 8.6.4.3.3 discusses how to achieve greater finality in non-docketed cases through the use of Form 870-AD or Form 906 and IRM 8.4.1.17.2 requiring the manager to review the stipulated decision in a complex Tax Court case.  This provision suggests, by negative implication, that the manager need not review the decision document prepared and sent out by the Appeals Officer in routine cases.  It does not address the issue of whether the manager must approve the settlement before the Appeals Officer sends out the decision document in a routine case.  Creating clear directives on this point in the manual provisions would give needed guidance to Appeals employees about their duties in settlement negotiations.  In docket Tax Court cases, Appeals Offices deal primarily with pro se taxpayers who will never have dealt with Appeals before and will have every reason to believe that the person with whom they are negotiating has the authority to bind the Service.  Creating clarity about when a proposal is, or is not, subject to further approval does not detract from the settlement discussions and avoids situations that can create hard feelings toward the Appeals employee and the government process.

As discussed in part 2 of this post, taxpayers in other cases have also mistakenly thought they had an agreement only to find they did not. Appeals could instruct its employees to make it clear when a proposed settlement needs further approval.  Such a practice would enhance customer service.

Although some strong case law exists on the binding nature of certain actions prior to trial, as discussed below, those cases primarily turn on action by the taxpayer and not by the government. The precedent binding the Government to an agreed settlement provides little relief to taxpayers in most instances.  These posts will examine the circumstances that can bind a party in Tax Court to an agreement as well as the circumstances that do not.  Unfortunately, the circumstances in our case fell into the non-binding category; however, the Chief Counsel attorney ultimately offered the same settlement that Appeals inextricably withdrew leaving our client happy at the end of the day.  The Chief Counsel attorney made it clear that she made the same offer because she thought it was a good offer and not because she thought a binding agreement existed. The discussion here applies only to cases in Tax Court and not to non-docketed discussions with Appeals.  The case law concerns settlement discussions between petitioners and the Government.  Those discussions could occur with either Appeals or Chief Counsel.  The same general principles should apply no matter whether Appeals or Counsel engaged in the negotiations, although interaction with the Court frequently plays a role in the outcome and that implicates Chief Counsel attorneys more than Appeals Officers.

Summary Opinions for 10/2/15 to 10/16/15

Lots of discussion of revenue procedures in this Sum Op, including what deference should be afforded.  Plus, an interesting TEFRA cert denial, terrible financial disability case, new IRS pilot program, and the IRS changing its policy on levying some Social Security payments.

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  • The IRS has released Notice 2015-72, which contains a proposed Revenue Procedure that would update the administrative appeals process for docketed Tax Court cases and update Rev. Proc. 87-24.  The Service indicates the update is appropriate given the various reorganizations of the Service since ’87 (right after the Mets last won the World Series), the increase in Tax Court litigation, and the new IRS procedures regarding workload. The changes do not drastically modify the general framework, but do have some modifications, including outlining more specifically how cases that are not immediately referred to Appeals should be handled, and providing additional guidance on keeping Appeals independent.  The IRS has requested comment on the changes by November 16, 2015.  For more specifics on the changes, Thomson Reuters has content here, as does Professor Timothy Todd at Forbes here.
  • Another day, another taxpayer loss under Section 6511(h) for financial disability.  Often, these fact patterns make the IRS look harsh.  In Reilly v. United States, the District Court for the District of Central California held that the taxpayer had failed to meet the requirements of Rev. Proc. 99-21.  In Reilly, a married couple attempted to obtain refunds for various past years where tax had been overpaid but returns were not filed.  The taxpayers claimed financial disability to toll the statute on refunds under Section 6011(h).  In the year where tax returns were first not filed, the husband was diagnosed with terminal pulmonary disease and various other related health issues, which were debilitating.  The wife, who for 39 years had not dealt with the family finances, fell into a deep depression, and failed to handle the financial affairs or attend to her ailing husband.  The husband’s doctor provided an opinion stating the lack of compliance was due to hubby’s health, and likely due to wife’s depression.  The Service, however, denied the request for tolling because the doctor was not wife’s physician, and that the letter did not include the certification as to its contents.  The claim also lacked the statement by husband that no one had the authority to act on his financial behalf.  The Court found the Service was correct, and that information was lacking (although it might have held substantial compliance if it had just been the doctor statement for husband missing the certification).  At trial additional information was provided to show the missing elements, but it was too late (and didn’t 100% comply).  Tough result for folks who probably could have used the assistance and likely could have complied had they fully understood the requirements.  It would be nice to see more cases arguing against any deference to Rev. Proc. 99-21, or for the Service to update its procedure.   Especially when a courts states, “[t]he Secretary has set forth regulations governing proof of financial disability at Rev. Proc. 99-21,” which was the case here.   Revenue Procedures are not regulations and generally should not receive the same deference.  Carlton Smith and Keith may have both discussed that point as regard this particular Rev. Proc. on PT in the past.  Probably just a loose use of the term “regulations”, but worth flagging.
  • Agostino and Associates has published their October Monthly Journal of Tax Controversy, which can be downloaded here. Quality work, as always.
  • IRS has announced a pilot program to test the authenticity of W-2s by working in conjunction with payroll companies.  This blog has recreated the Thompson Reuters Checkpoint news post on the topic.
  • About a year ago in SumOp, we discussed the JT USA, LP v. Comm’r, where the 9th Cir. reversed the Tax Court holding a partner had to completely elect out of TEFRA and treat all items as non-partnership items, and could not do it with only some items.  SCOTUS won’t review the matter.  Some additional background on the case can be found on Law360 here.
  • Periodically, Carlton Smith is kind enough to forward me articles from various news outlets regarding tax policy and administration.  This NYT article was one such post, which discusses academic and nonprofit computer scientists that are creating algorithms that assist in determining when tax evasion is occurring.  The code maps out the various entities and transactions found in specific shelters, and then assists in flagging those when found in taxpayer returns.  The stereotype of the unfeeling, robotic IRS agent might have just taken one step closer to an actual robot reality.  To all of our young readers out there, “I just want to say one word to you.  Just one word…Plastics.”  Just kidding. Two words, “computer science”.
  • Carlton also forwarded me this article regarding the passing of Jerry S. Parr, the Secret Service agent who was credited with saving President Regan during the 1981 assassination attempt.  This was just one example of a life of service that touched many people.  Our condolences go out to the Parr family, including his wife, retired Tax Court Judge Carolyn Parr.
  • In an internal memo for SB/SE, the Service has indicated a policy decision was made that under the Federal Payment Levy Program, SSA disability insurance payments will not be subject to the 15% levy.
  • A novel SOL suspension case was decided by the District Court for the Western District of North Carolina in United States v. Godley.   In Godley, an estate had obtained an extension to pay estate tax under Section 6166 on certain closely held business interests held by the decedent.  Under Section 6166, the estate can have up to five years of non-payment, followed by ten years of equal installment payments.  Under Section 6502(a), the Service usually has ten years to collect assessed tax, but under Section 6503(d) that period is suspended while Section 6166 payments are outstanding.  The question in Godley was when the suspension stops if installment payments are not made.  The Court held that failure to pay is not enough on its own, and that notice and demand by the Service of payment is needed.  The Court further stated the statute does not specify what constitutes notice and demand, and, after reviewing applicable law, found notice and demand occurred when the IRS notified the taxpayer about the unpaid tax, and stated the amount it demanded to be paid (makes sense).  There is a little more nuance in the case, regarding exactly what was in the IRS letters, but, generally, the Service sent notices stating the amount due that had to be paid, and said the taxpayer would be booted from the installment payment plan if not immediately brought current. The Service argued it was not the type of notice and demand required.  The Court disagreed, and found the notice and demand in the IRS letter terminated the suspension of the SOL.  Godliness (you got the bad pun, right) is next to cleanliness, and Les has been cleaning up the collections content in Saltz Book, including adding a much more insightful discussion of Godley.  The new chapter has actually been substantially reworked, and we are happy that it will be available on Checkpoint (and probably Westlaw) in December, and in print in January!
  • Last year around this time, Carlton Smith wrote “Hurray! A Tax Court Judge Decides an Innocent Spouse Case without Discussing Rev. Proc. 2013-34”, which, as the title indicated, was a discussion of Varela v. Comm’r, where the Tax Court held that a spouse was entitled to innocent spouse relief under Section 6015(b) because holding the spouse responsible would be inequitable under subsection (b)(1)(D).  In the post, Carlton advocates for Judges forgoing a review of the ever changing Revenue Procedure that indicates what the Service views as inequitable.  Carlton articulates well that “inequitable” doesn’t change, but the IRS view of “inequitable” does, which he believes is incorrect.  Hence, the Hurray! when the Tax Court made an inequitable determination without the Rev. Proc.  Well, it appears this is catchier than a T-Swift song, as Judge Goeke in Scott v. Commissioner  has held that it would be inequitable to impose tax (at least partially) on a spouse, and cites to only the applicable statute and prior judicial opinions.  Hurray!

 

“Judging Litigating Hazards – Another View”

Today we welcome guest blogger Sheldon “Shelly” Kay. Shelly practices with Sutherland in Atlanta.  He was the District Counsel in Atlanta when I was the District Counsel in Richmond, and we went to many meetings together.  After leaving Chief Counsel’s office, he returned to the IRS as an executive where he served, during part of that return visit, as the National Director of Appeals.  He is a great manager and leader.  He writes today to present a different view of the state of Appeals than my rather gloomy view published a few months ago.  Because his practice takes him to a different part of the hallway in Appeals or perhaps a different office since I doubt his cases get handled by too many Service Center Appeals employees, we may be describing different experiences based on our different client bases.  I hope his assessment is more correct than mine.  Keith

Like Professor Fogg, I am a former attorney and supervisor for the Office of Chief Counsel of the Internal Revenue Service. Additionally, I was also the Deputy Chief and the Chief of Appeals. Throughout my career, I have had the opportunity to work closely with and across the table from many Appeals Technical Employees (both Appeals Officers and Settlement Officers). Throughout all, I have gained a great respect for their knowledge and have valued their input.

Professor Fogg lists several areas where he has perceived a decline in Appeals, leaving it, in his words, “a very different Appeals Division from the one developed decades ago.” He also suggests that Appeals officers “with little or no knowledge of litigation” cannot properly analyze evidentiary questions or properly evaluate hazards of litigation. I respectfully disagree with his assessment.

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Training

In the tax arena, training is vital to being able to keep up with the ever-changing legal landscape. With the significant budget decreases over the last several years, Appeals has had less to spend on training. I have often stated that more funds for training would be advantageous for Appeals, its Technical Employees, as well as the taxpayers, and I continue to believe that. However, given the current budgetary restrictions, Appeals has done an excellent job of addressing several important areas in the training of its employees using in-house experts to fill the gaps in some cases.

For example, with the assistance from attorneys of the Office of Chief Counsel, led by Associate Area Counsel, Mark Miller, Appeals Technical Employees have been offered targeted training classes. Just this year, Miller’s team of attorneys from all Chief Counsel Divisions, taught a web-based, two-day, seven-hour course on topics such as:

  • Rules of evidence
  • The weight to be given taxpayers’ testimony
  • Burden of proof
  • Hazards of Litigation and penalties
  • IRC section 6201(d).

Attending Calendar Calls, Tax Court Trials and Receiving Counsel Settlement Memorandum

Just a couple of years ago, while I was at the Appeals Division, Mark Miller and a group of dedicated and knowledgeable Chief Counsel attorneys, visited Appeals Division’s campuses (Service Centers) to provide a two-day seminar for both Appeals Officers and Settlement Officers that covered technical tax and procedural topics.

I would agree that watching the trial of a case that an Appeals Technical Employee personally considered would be helpful. However, suggesting that such attendance would help in weighing the credibility of witnesses is a little overdone. Analyzing credibility and the weight that a court might give to testimony is something we all can do. I would argue that the amount and nature of an Appeals Officer’s experience, as well as just having the ability to judge credibility, is what’s important.

As for the suggestion that Appeals Technical Employees should learn how Chief Counsel attorneys resolve cases, all Counsel Settlement Memoranda are shared with Appeals. Reviewing the CSMs can provide a useful tool for additional growth by Appeals Technical Employees. I would recommend to all Appeals managers that they use the opportunity for continued training, presented whenever they receive a CSM. This kind of feedback can help in the development of their professionals.

Due to recent policy changes designed to bolster its independence, the Appeals Division is currently working on a docketed examination assistance project. In public statements, Appeals has explained that the project was initiated to develop formal procedures for obtaining examination assistance from Compliance technical employees when taxpayers submit new information or raise new issues in docketed Tax Court cases. Appeals is working closely with Compliance and Counsel to devise procedures that protect Appeals’ independence while getting examiners to review new information submitted on docketed cases.

Understanding Burden of Proof

Not only has the topic of burden of proof been covered in Chief Counsel training for Appeals Technical Employees discussed above, but, as we all know, the determination of who has the burden of proof rarely makes a difference in a court’s opinion. While a discussion of burden of proof will often appear in a Tax Court opinion, the Court usually concludes that determining who has the burden of proof does not impact its opinion.

“Reach the Correct Result”

Professor Fogg suggests that Appeals Technical Employees are trying “to reach the correct result.” I am not sure what is meant by “the correct result,” but Appeals Division’s mission is to “resolve tax controversies, without litigation, on a basis which 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 Internal Revenue Service.” Appeals’ mission directs it to reach principled resolutions of tax disputes based on the law and the relevant facts as developed by Compliance.

Quality Service

If anyone finds that Appeals Technical Employees are not properly performing their duties or understanding the nuances of a particular case, taxpayers and their representatives should elevate their concerns to Appeals management. Discussing issues with Appeals management, just like in the other operating divisions of the IRS, can help both parties (taxpayers and Appeals) better understand the issues and procedures involved and is an accepted way to respond to situations, like those identified by Professor Fogg. The Taxpayer Bill of Rights listed in IRS Publication 1 includes the Right to Quality Service. Taxpayers have the right to receive prompt, courteous, and professional assistance in their dealings with the IRS, to be spoken to in a way they can easily understand, to receive clear and easily understandable communications from the IRS, and to speak to a supervisor about inadequate service. I encourage taxpayers and their representatives to elevate concerns to Appeals’ management whenever appropriate.

I am proud to have been the Chief of Appeals. The Appeals Division that I regularly experience is as good today as it was “decades ago.”