Is IRS Appeals Using the Taxpayer First Act to Restrict Taxpayer Access?

As the name and its suggests, the Taxpayer First Act (TFA) made numerous changes to the tax code with the general intent of improving taxpayer rights and interaction with the IRS. These changes ranged from the possibly consequential (Sec. 1101’s requirement that the IRS submit a comprehensive customer service strategy to Congress, found here) to the somewhat misguided (Sec. 1203’s “clarification” on Innocent Spouse as noted here), to the outright absurd (Sec. 1406 requiring the IRS to play helpful information on their phone line while placing taxpayers on hold. I’ll take the scratchy “muzak,” thank you very much. Keith anticipated the issue before TFA with his own suggestion here.)

One provision that went largely unheralded, as far as I can tell, was the requirement that most taxpayers be provided their case file prior to meeting with IRS Appeals (codified at IRC § 7803(e)(7)). Few taxpayers (or practitioners) would oppose greater access to case files, so this seems to be a straightforward win for taxpayer rights -most pertinently, the taxpayer “Right to be informed.” IRC § 7803(a)(3)(A).

And yet in my experience IRC § 7803(e)(7) may actually result in less access to information, rather than more. How is this possible? The devil is in the details…

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To be fair, as I will argue, the devil isn’t really in the “details” of the statute. Rather, the devil is in the implementation of the statute. But that lacks alliteration and “the impishness is in the implementation” is not a commonly used phrase. Still, it is more of an “impish” problem than a devilish one. That is to say, the problem is more of an impish gremlin than a glaring devil. It causes problems precisely by going unnoticed. Allow me to explain.

Typically, when IRS Appeals asks me for numerous documents to support my client’s case, I ask Appeals for numerous documents in return. Even prior to the TFA I would ask for the administrative case file. In the past some Appeals Officers (AOs) would be confused about what I was asking for, and some would be on top of things. Post-TFA there is much less initial confusion and clarification in response to these requests, because Appeals has specifically been instructed to provide taxpayer’s case files.


Or not. In my experience, AOs reply quickly to my request for the administrative case file because they interpret it as a “TFA Request” for the case file. Indeed, that is what the subject line has read on the faxed documents I have received from the IRS over the last year.

But who cares what the IRS calls it, so long as it is the case file, right?

Not so fast. A “TFA” case file does not contain all the same information that a non-TFA case file might: importantly, it contains less. Let’s look at the statutory language to see why:

“In any case in which a conference with the Internal Revenue Service Independent Office of Appeals has been scheduled upon request of a specified taxpayer, the Chief of Appeals shall ensure that such taxpayer is provided access to the nonprivileged portions of the case file on record regarding the disputed issues (other than documents provided by the taxpayer to the Internal Revenue Service) not later than 10 days before the date of such conference.”

IRC § 7803(e)(7)(A), emphasis provided.

That emphasized parenthetical makes all the difference. One of the main things I want from the IRS is a copy of correspondence from the taxpayer to the IRS. This is because (1) I want to know exactly what it is the taxpayer has so far argued or provided for consistency purposes, and (2) because of how many IRC § 6662 penalty cases I deal with, and specifically because of the holding of Walquist, (see my take here) it is critical to know if a taxpayer responded to an automated exam, period. (In my view, this is because it takes it from the realm of being “fully automated” if the taxpayer responds to the exam, and supervisory approval of penalties arguably should then ensue.)

Further, where you are working with Appeals on a Collection Due Process case having the full administrative file (including, per the Treasury Regulation, the documents sent by the taxpayer to the IRS -see Treas. Reg. § 301.6330-1(f)(2)(A-F4)) is critical because of record review issues (see posts here and here). But when the IRS responds to your request for the case file with a “TFA case file” you aren’t getting the full picture. This is a gremlin rather than a devil because you (the practitioner) might not immediately (or ever) notice it. In my experience IRS Appeals used to provide communications from the taxpayer to the IRS in a request for the administrative file because… well, it is part of the administrative file. An important part.

Practice Tips

This whole issue came to my attention precisely because I don’t ask for the generic “case file” when I’m working with Appeals. Rather, I ask for very specific things in addition to the full administrative file. I also usually ask for clarification on whether something isn’t included in the documents Appeals sends to me because (1) it doesn’t exist, or (2) the AO just doesn’t think they need to provide it. These specific requests make the gremlin of a perfunctory TFA case file pop out pretty quickly.

As a real-life example, I recently asked for a client’s administrative case file, as well as any call log notes from the IRS pertaining to the taxpayer, and any documents submitted by the taxpayer to the IRS. Because the issue of whether my client had contacted the IRS was critical, I specifically asked Appeals for clarity as to whether the IRS did not have records of any communication, or whether Appeals simply was not planning on providing them. Appeals replied with a fax that said “TFA Case File” and provided a copy of the tax return and some automated exam notices. That was it. I responded by saying “Thank you for the TFA Case File I didn’t ask for. When you get a chance, could you send the documents I actually did ask for?”

(Disclosure, especially for impressionable students: I didn’t actually respond that snarkily. That type of attitude doesn’t help your client and runs afoul of the general proposition that you shouldn’t be a jerk to the IRS. Or anyone, really.)

My take is that this is an issue of training. Appeals Officers are essentially told in their IRM that  “taxpayers have a right to x and y documents under the TFA, so when they ask for their case file you have to give them x and y documents.” This gets internalized on-the-fly as “these are the only documents you ever have to give taxpayers, and those are the only documents you need to give on any request for additional information.”

Post-TFA, is Appeals Right to Limit the Case File?

It is not yet clear to me that IRS Appeals is taking the legal position that the TFA actually intended to constrain taxpayer access by supplanting any previous, broader taxpayer right to see the documents or communications they’ve sent to the IRS. My bet is that some individual Appeals officers may take a harder line on what practitioners are entitled to than others. When people are time-crunched and emotions are running high, I worry that the TFA could lead to more Appeals Officers digging in and saying “look, this is all I have to give you so it is all that I am giving you.”

Nonetheless, it is clearly bad policy for Appeals to hold back non-privileged case file information. The mission of Appeals isn’t to play “gotcha!” It is to try to resolve, without litigation, controversies in a fair and impartial manner that will enhance voluntary compliance and public confidence in the Service. It would be a perversion of this mission if Appeals held back information directly relevant to the merits of the case on the grounds that it isn’t covered by the TFA, though specifically requested by the taxpayer.

But beyond cutting against their own policy, it would really just amount to a waste of time since a practitioner can eventually get it through either FOIA, Branerton, or discovery anyway (at least in docketed cases). Appeals should want to resolve cases, not kick the can down the road. I would encourage the IRS to look at the TFA as a floor, not a ceiling, in taxpayer rights and services. Where necessary, Appeals should do more than just provide the documents covered by IRC § 7803(e)(7)(A) if they are serious about their mission and taxpayer rights more broadly. When holding back information they have (and that has been asked for), perhaps Appeals should ask themselves “what do you think of someone that does the bare minimum?”

A Final Plea

I have mixed feelings on the TFA, writ large. I think it was enacted with the right intentions, but I think that it would have seriously benefited from more practitioner input at an earlier stage. Yes, Congress did ask for comments in this instance but they gave a turn-around time of about two weeks (actually less) to get them in. This was covered by Procedurally Taxing at the time (here), and it is hard to imagine that the few comments that did come in were given much weight that late in the game.

Yet we’ve already seen some of the unintended consequences of the legislative language play out with innocent spouse, and I worry that this “right to the case file” may carry similar baggage. Both are issues that I think the practitioner community would have seen from the outset.

So here’s the plea. As previously noted, the TFA required the IRS to come up with a comprehensive customer service strategy. That report came out fairly recently (January 2021). When it has been fully digested, let’s not only have the IRS make some internal changes, but even possibly bring Congress back to the table. Unlike most political issues (and especially “substantive” tax law changes), changes to tax administration garners broad bipartisan support. The TFA saw essentially unanimous support from Congress, signed into law by a president that was impeached (at the time) along party lines. Going back to (arguably) the most important change to tax administration prior to TFA, you have the IRS Restructuring and Reform Act of 1998… which saw essentially unanimous support from Congress, signed into law by a president that was impeached along party lines.

At the end of the day, real respect for taxpayer rights (putting “taxpayers first”) is going to require something of an attitude change with the IRS. To me, part of this means striving to help the taxpayer, rather than looking for ways to make things difficult in the hope of scoring a default “win.” As something of a coda to that point, I’ve recently had another adventure crop up with the TFA “case file” provision. Apparently, some Appeals Officers read the statute as requiring an Appeals conference to be scheduled within 10 days of receiving the TFA file… In other words, receipt of the TFA file starts a ticking clock for the taxpayer to act quickly or miss out on a conference.

This is not at all what the statute says. Granted, Congress used needlessly convoluted language: that the case file must be delivered to the taxpayer “not later than 10 days before” the conference.  But I truly believe that the misreading of the statute (somehow seeing it as constraining the taxpayer) is much easier to do when you come from an adversarial mindset. Let’s hope, as the IRS is pulled more and more into the realm of benefits delivery, that this mindset adapts.

Finality of a Tax Court Decision

The Sixth Annual Tax Controversy Institute will be held online on Friday, July 16th, 2021. The virtual institute is sponsored by the University of San Diego School of Law and the tax law firm RJS Law. The event will be free of charge and will allow practitioners to earn free education credits. Speakers will include IRS Commissioner Charles Rettig and Tax Court Judge Copeland. The Institute will also be presenting the Richard Carpenter Award for integrity, dedication and expertise in representing taxpayers to Nina Olson, former National Taxpayer Advocate and the Executive Director of the Center for Taxpayer Rights. For more information about the event and to register, click here.

Thanks to Carl Smith for bringing to my attention another interesting decision.  The recent case of Kirik v. Commissioner,—Fed. Appx.—(2nd Cir. 2021) in an unpublished opinion addresses the issue of when the Tax Court retains jurisdiction to modify its decision or order of dismissal after the 90 days to appeal has run, but no appeal has been taken.  The statute at issue is IRC § 7481(a) and the circuits have split on the issue. Section 7481(a) provides that a Tax Court decision becomes final upon the expiration of the time allowed for filing a notice of appeal (90 days under section 7483), where no notice of appeal has been filed within such time.

In a related but definitely distinct issue, in the case of Myers v. Commissioner Joseph DiRuzzo, representing petitioner Myers, asked the D.C. Circuit to hold that the 90-day period in IRC § 7483 to file a notice of appeal in the Tax Court is non-jurisdictional and subject to equitable tolling.  The D.C. Cir. had no precedent on the issue one way or another, but refused to decide the issue — instead holding that a motion for reconsideration tolled the appeal period under the FRCP, just like a motion to vacate explicitly would under the FRCP.  As we wrote after the Guralnik decision, it’s hard to see how an FRCP rule can extend a statutory deadline that is jurisdictional, but life has its mysteries.  The issue in Kirik involves a different code section but some of the same underlying principles are at play.


The Second Circuit described the issue in Kirik as follows:

Although § 7481(a) is quite explicit as to when a decision of the Tax Court becomes final, circuit courts have split on whether, and under what circumstances, the Tax Court may vacate or revise one of its finalized decisions. The Sixth Circuit has concluded emphatically that “once a decision of the Tax Court becomes final, the Tax Court no longer has jurisdiction to consider a motion to vacate its decision.” Harbold v. Comm’r, 51 F.3d 618, 621 (6th Cir. 1995). Other circuits, and the Tax Court itself, have acknowledged a few narrow exceptions to this rule, including situations in which there has been a fraud on the court, where the Tax Court did not have jurisdiction in the first place, Davenport Recycling Assocs. v. Comm’r, 220 F.3d 1255, 1259 (11th Cir. 2000), and where the Tax Court discovers a clerical error after the decision became final, Stewart v. Comm’r, 127 T.C. 109, 112 n.3 (2006).

The Second Circuit has never definitively decided whether the finality rule is jurisdictional or merely a claim processing rule that is subject to judicially‐created exceptions.  In Cinema ’84, 412 F.3d at 371, it declined to expressly adopt any of the exceptions identified above. Assuming that the Tax Court’s finality rule is not strictly jurisdictional and the above‐referenced exceptions could be properly considered by the Tax Court, none would make the slightest difference in this case, since there is no possible argument that the Kiriks’ delay was caused by fraud, mutual mistake, clerical errors, or the Tax Court’s lack of jurisdiction to enter a decision in the first place. Indeed, the Kiriks do not argue otherwise.

The paragraph summarizing the law is a shortened version of what the 2d Cir. wrote in its 2005 opinion in Cinema ’84, except that Cinema ’84, being decided only shortly after the Supreme Court in Kontrick v. Ryan in 2004 for the first time distinguished “claim-processing rules” from jurisdictional rules, does not use those two terms.  Thus, in Kirik, the 2d Cir. seems to realize for the first time that it may, in an appropriate case, have to rule on the issue of whether the Tax Court loses the ability to modify its decision after 90 days as a jurisdictional matter or whether there might be exceptions because the 90-day rule is only a claim-processing rule.

The facts of Kirik were terrible.  The notice of deficiency had sought about $3 million in taxes and penalties alone.  The Kiriks did not seek to vacate the Tax Court’s order of dismissal for lack of prosecution until almost 9 months had elapsed (instead of the 30 days generally provided for in Tax Court rules).  Although the 2d Cir. in Kirik could have used the words and the tests for “equitable tolling”, it did not; instead, it discussed the taxpayers’ request for an excusable neglect exception.  It stated:

[t]he Kiriks essentially argue that we should create a new exception to the finality rule based on the concept of excusable neglect. But we need not decide whether we can, or even should, acknowledge such an exception because even the most charitable and expansive definition of excusable neglect could not salvage the Kiriks’ claims here.

Although excusable neglect provides a permissible basis for noncompliance with court rules in a variety of contexts, all applications of the doctrine require courts to consider “the reason for the delay, including whether it was within the reasonable control of the movant.” Silivanch v. Celebrity Cruises, Inc., 333 F.3d 355, 366 (2d Cir. 2003) (internal quotation marks omitted). “We have noted that the equities will rarely if ever favor a party who fails to follow the clear dictates of a court rule,” id. (internal quotation marks and alteration omitted), going so far as to observe that where the rule governing a filing deadline “is entirely clear . . . a party claiming excusable neglect will, in the ordinary course, lose,” Canfield v. Van Atta Buick/GMC Truck, Inc., 127 F.3d 248, 251 (2d Cir. 1997). 

Here, the Kiriks’ delay in filing their motion was entirely within their control. There is no dispute that the Kiriks fired their attorney, thus taking on the risks associated with navigating the Tax Court alone, notwithstanding their self-professed lack of sophistication and less-than-complete fluency in English. Inexplicably, they then failed to respond to multiple orders from the Tax Court, including the order dismissing their case for lack of prosecution. Several months later, the IRS sought to levy on the Kiriks’ assets, yet even then the Kiriks did not file a motion to vacate the order dismissing their case. It was not until July 2020 – almost nine months after the Tax Court issued its dismissal order – that the Kiriks finally got around to making their motion. Nothing in our case law suggests that the Kiriks’ neglect, which was considerable, was even remotely excusable. Consequently, we see no reason to second guess the Tax Court’s denial of the Kiriks’ motion to vacate the October 2019 order dismissing their case.

In its Cinema ’84 opinion, the 2d Cir. also dodged deciding the issue of whether the Tax Court retained jurisdiction to modify its decisions after 90 days.  Cinema ’84 was a TEFRA case.  Here are the sentences in which Cinema ’84 declined to consider that taxpayer’s argument for an exception:

However, we have not explicitly adopted any of the exceptions to the general rule, discussed supra. In any event, it is unnecessary for us to decide in the present case which, if any, of the exceptions this Court recognizes because regardless of how Reigler’s argument is characterized, vacatur was not warranted here, where the Tax Court was under no duty to appoint a TMP and its failure to do so did not deprive Reigler of due process.

So, while the Kirik case does not really add to the resolution of this issue, it points out the conflicting case law and once again highlights the existence of the issue.  Because the facts in the Kirik case do not favor relief, perhaps for those who want to reopen the door after the 90-day period has run, the failure of the 2nd Circuit to address this issue head-on provides a benefit.  Here, bad facts did not really influence the further development of the law.  Of course, no one should wait until after 90 days have passed before coming back to the Tax Court to seek a reversal of the decision.  Convincing the Court to reverse will be hard enough.  Adding onto that an uncertain test with a high bar makes it almost impossible.

News from the Independent Office of Appeals

Thanks to Christine who invited me at the suggestion of Richard Furlong, Senior Stakeholder Liaison at the IRS Communications & Liaison office in Philadelphia, I had the opportunity to attend a presentation and listening session by the Executives in Appeals on January 26, 2021. The executives had a brief slide presentation but primarily gave the relatively small audience the opportunity to ask questions and make comments. It’s hard to know in these types of events what the long-term impact of the discussion will be, but I appreciated the opportunity to hear from Appeals on its current thinking and to have the ability to make comments. I will discuss a few of the topics that arose during the call but mostly riff on the thoughts the discussion triggered for me.


Appeals Customer Service

One thing I learned from this presentation is that Appeals has a customer service phone line. Here is information about the line from the presentation:

If you submitted a request for Appeals consideration on your case, contact the IRS office that offered the Appeals request for an update on the status. If the IRS office states that your request was sent to the Office of Appeals and you have not received anything from Appeals after 60 days after the government has reopened, call Appeals Customer Service at 559-233-1267.

Question: is this Appeals Customer Service helpful in checking on status of an Appeals protest assigned to an Appeals Officer?

Since I did not know Appeals had such a number, I obviously could not answer the question. Christine observed to the gathered Appeals executives that she had called the number and not received a response. In response to her observation she was told that a response is only given if a case is assigned to an Appeals Officer and perhaps in her case the matter had not been assigned. This practice obviously limits the effectiveness of the customer service line.

Certainly exceptions exist but my experience with individual Appeals Officers both inside and outside the government is quite positive. An area of disappointment with Appeals involves finding the Appeals Officer assigned to a case. This disappointment is especially present in Tax Court cases. After the answer is filed, cases are referred by Chief Counsel’s office to Appeals unless the case previously went through Appeals. In most cases there is a long dead time between the referral and the time the Appeals Officer alerts you to their existence.

This long delay creates several problems. For Counsel and Appeals this long dead zone is what caused the Tax Court to reimpose the requirement of an answer in small tax cases back in 2006, since taxpayers resorted to calling the Tax Court for information about their cases due to an inability to hear from the IRS for months on end. For the system, I think, without empirical evidence, that the long delay is a causative factor in the high number of defaulted Tax Court petitions. Unrepresented individuals who have enough interest in their cases to take the effort to file a petition go into a lengthy dead zone before they have the opportunity to move forward on their case. I think this causes some to simply lose interest. For practitioners the long delay can make it hard to keep the client engaged. At an academic clinic it almost always means that the student who is invested in the case and prepares the petition will not still be working in the clinic when the Appeals Officer reaches out. This means that documents collected to present the case languish in our files and then someone must relearn the case when it is assigned to an AO. In many of our cases we have the material to quickly resolve the matter but cannot do so without someone to engage with on the other side.

I would prefer a system in which the AO, or someone in Appeals, was assigned almost immediately after the submission of whatever document triggers the visit to Appeals. This would allow early engagement for those pro se individuals or practitioners interested in engagement but would not necessarily require the AO to push those not actively coming forward to provide information until the AO was ready. It would also allow AOs who were able to engage early to alert the taxpayer or practitioner about documents or testimony needed at a point when the case was not getting close to aging in the AO’s inventory. AOs, like many government employees, have internal time frames for working cases. Exceeding those time frames can require the AO to engage in internal reporting necessary if a case when past an internally created time period. This, in turn, can cause the AO to push to close a case. The closer to the internal reporting deadline the AO starts working on the case, the less time the taxpayer has to gather information before the AO feels the internal pressure. I know that my desire for early assignment of the AO, or Settlement Officer, faces practical issues that the Appeals executives would have to overcome.

In Tax Court cases, the Chief Counsel assigned attorney is known relatively quickly because of the time period built in by the answer, even though after the answer the attorney may put the case on the shelf in order to work on other more pressing cases. However, at least the taxpayer or the practitioner knows who has the case. Could Appeals build an assignment model similar to that of Chief Counsel?  In small tax cases the practical person assigned may be a paralegal but you have someone with whom to engage to keep the case moving.

I like the idea of a customer service number and am glad that I finally learned that it exists. If, however, the information I would usually want from the number, viz., the identity of the person assigned to my case, is something that the number would not provide, maybe I am unlikely to use it even though I now know it exists.

Impact of COVID on Appeals Workload

Slide 6 of the slides used during the meeting shows a year by year comparison of the Appeals inventory for the year prior to COVID and for last year. A fairly dramatic reduction occurs in 2020. This is not shocking but does provide a stark example of the impact of COVID on this function. Also interesting is that the mix of work remains constant in the various categories of Appeals inventory. The list also shows the impact of the shift of work over the past two decades since RRA 98 to collection. In the almost 100-year history of Appeals the last couple decades have dramatically altered its workload from the first 75 years of its existence.

Revision of Form 12153 and Triage of Cases

It was only a glancing part of the discussion but the effort by Appeals to redesign Form 12153 did receive some mention. In December I had the opportunity with several other low income tax clinicians to engage with members of Appeals who were redesigning this form. Form 12153 is used by taxpayers to request a CDP hear. I think it is one of the easier forms for taxpayers to use but applaud Appeals for working to make it better. They put a lot of thought into their new design and were very polite about listening to my suggestions.

The redesign may signal a willingness to rethink how CDP cases move through Appeals. Generally, CDP cases get worked on a first in, first out basis. This can create problems for taxpayers and for the IRS. For taxpayers requesting a hearing based on a lien filing, a quick hearing would help since they want to remove the lien. In cases in which the taxpayer was pyramiding taxes of some type, a quick hearing is needed by the IRS. CDP cases come in many shapes and sizes. Getting a handle on which ones might benefit from early intervention could provide for a better system.


The Appeals executives indicated that they intended to repeat this presentation in other areas of the country. If you want to engage with Appeals leadership you might reach out to your local IRS stakeholder liaison to see if the opportunity is available to you.

When to Waive CDP Rights

Professor Caleb Smith discusses Toney Jr. v. C.I.R., Dkt. # 25496-16SL, a designated order from a few weeks ago. Rather than embed the discussion in Caleb’s DO Post, we have split this off to discuss issues surrounding waiving CDP rights, with Caleb looking for input from readers who may have considered what is the best practice when reaching an agreement with a Settlement Officer in a CDP case . Les

The order in Toney v Commissioner actually deals with the oft questioned “prior chance to argue the underlying tax” blogged about hereand here among others. The case is a pretty clear loser on that point, since Mr. Toney had previously had Appeals conferences and argued the tax.  But it got me thinking about a different issue that I have had with the IRS: specifically, how to approach Form 12257 “Waiver of CDP Rights and Summary Notice of Determination” from both legal and tactical perspectives.


In Toney, the taxpayer and the IRS settlement officer came to an agreement to full-pay the liability within 60 days. The settlement officer prepared the 60-day extension form and a Form 12257 “Summary Notice of Determination” and sent it to Mr. Toney. A Notice of Determination (and the judicial review it affords) seemed unwarranted, since both parties agreed on the proper outcome.

But for reasons unknown Mr. Toney did not full pay and did not sign the Form 12257. The IRS settlement officer got tired of waiting and sent a Notice of Determination sustaining the lien instead.

From the outset it is important to note that Form 12257 is likely NOT a determination for IRC 6330(d)(1)purposes, despite having the phrase “Summary Notice of Determination” as its header. It is really more of a contract, and in any case too contingent to be a “determination.” For one, the taxpayer has to sign it to give it force, and for two even if the taxpayer signs it, it still requires secondary approval by an IRS Appeals manager.  See Fine v. C.I.R., T.C. Memo. 2016-217. In any event, the IRS does not treat it as a Notice of Determination (and no Tax Court decision has either): if the taxpayer does not sign and return Form 12257, the IRS sends an actual Notice of Determination to the taxpayer later.

Because it is not a Notice of Determination, it neither starts the clock running on petitioning Tax Court nor gives the Tax Court jurisdiction on such a petition. In other words, nothing much happens until you sign and have the Form 12257 approved or the IRS gets tired of waiting and sends an actual Notice of Determination.

And that is where the question of tactics arises. After a CDP hearing in which there appears to be a meeting of the minds on the correct outcome, a friendly IRS Appeals/Settlement officer will often suggest signing a Form 12257 to “speed up the process.” For example, if both parties agree that the taxpayer should be eligible for a payment plan of $100/month, why even retain judicial review? Why not just enter into the plan and waive the right to review?

One might be concerned that after waiving the right to judicial review the IRS will take some action that seems inconsistent with (or just completely reneges on) the agreement the parties came to. Not to worry, the IRS Appeals/Settlement Officer may retort: the very terms of Form 12257 provide “I [the taxpayer] do not waive my right under Appeals’ retained jurisdiction to receive another hearing with Appeals if I disagree with the IRS over how it followed Appeals’ determination.”  In other words, Appeals still has your back if the IRS doesn’t follow through on its apparent promises.

Yet believe it or not, having Appeals retain jurisdiction but without Court review is likely cold comfort for many practitioners. Generally, I give fairly high marks to IRS Appeals… when it is localIRS Appeals. When the IRS Appeals/Settlement officer is at a “campus” (Fresno comes to mind) my experiences have been, shall we say, less encouraging. It is in precisely those situations that I am reluctant to sign away the right to judicial review.

Perhaps because of this the best practice is to insist on an ACTUAL Notice of Determination. On the downside, this slows things down and creates more work for the IRS which in turn might not make for the most collegial relationship with the Appeals/Settlement officer. On the plus side, you’re here to look out for your client’s interests not the workload of the IRS, and frankly because part of the problem stems from impersonal IRS campus officers, developing relationships with them might be close to impossible. I can think of exactly one campus AO that I’ve had twice, and I’m not positive she remembered me. Of course, some consideration hinges on just how valuable Tax Court review of a collection action is under the fairly permissive “abuse of discretion” standard of review.

But assuming (as I do) that having access to Tax Court review is better than not, a problem remains. In the hypothetical I’ve proposed, you have reached a meeting of the minds with the IRS after a CDP hearing. Say both parties agree to an Installment Agreement and that the IRS will release a lien after three monthly payments are made. You nonetheless insist on a Notice of Determination, since you’d rather have the option of court review than not: you trust the Appeals/Settlement Officer but want to be sure the IRS follows through.

What good is the Notice of Determination in that instance? If three months later the IRS does not withdraw the lien what judicial review do you have? Your ticket has expired by the time you have cause to use it. I suppose one could argue on some sort of contract theory ground that failure of the IRS to properly follow through with the Form 12257 terms should be litigable. But I’d rather not mess around with that, and I’m not sure that in any case the Tax Court (which, lest we forget, is of eminently limited jurisdiction) would be amenable to the argument.

And so I end with a humble question to the readers of PT on this conundrum: what are the best practices you’ve found for working with Form 12257? Has it been an issue? Have you had post-CDP actions taken by the IRS that have caught you off-guard (either from Form 12257 or a Notice of Determination)?

Chamber of Commerce Files Amicus in Facebook Case: In Praise of Appeals

The Chamber of Commerce, no stranger to cases challenging fundamental issues in tax procedure, has filed an amicus brief in the case I discussed earlier this week where Facebook is suing IRS due to the agency denying Facebook access to Appeals.

The amicus largely repeats the substantive arguments Facebook has made though emphasizes 1) the importance that taxpayers place on ensuring access to a fair and impartial Appeals function and 2) the cost to the system if IRS is allowed to bypass Appeals when it in its unreviewable discretion believes that decision is consistent with “sound tax administration.”

The brief highlights how taxpayers value privacy (uhh a privacy argument  in a case involving Facebook?) and unlike cases in federal court, Appeals proceedings are outside the public eye. The brief also discusses how Exam is kept in check by Appeals’ mission to settle cases fairly and on the hazards of litigation, a balancing act that Exam does not apply in evaluating possible resolutions:

Taxpayers no longer can feel confident that they will have access to an independent forum to serve as a safety valve on an overzealous examination team. Taxpayers and examination teams alike may focus more energy on convincing IRS Counsel whether it is in the interests of “sound tax administration” to permit access to IRS Appeals at the expense of devoting effort to developing the merits of the issues in the case. The effects of Revenue Procedure 2016-22 will be felt far beyond those cases in which access to IRS Appeals is actually denied.

The brief also emphasizes the Chamber’s view that IRS is trying to carve out a different path and extend dreaded tax exceptionalism:

The IRS continues to resist application of the APA, arguing in this case that “Congress has provided specific rules for judicial review of tax determinations; those specific rules control over the more general rules for judicial review embodied in the APA.”


Whatever the underlying merits of the IRS Appeals process, and Facebook’s claims in this case, it is nonetheless astonishing for the IRS to argue in its Motion to Dismiss that it has the authority to deny taxpayers access to an independent administrative forum in an arbitrary and capricious manner, and that taxpayers that are adversely impacted by those actions have absolutely no judicial recourse. Whatever one can say about the goals of “sound tax administration,” a system in which the IRS is above the law—the very same law that applies to all administrative agencies of the federal government—is not one that the Supreme Court has approved and is not one that this Court should approve.

The Chamber brief hangs its hat in part on the argument that the courts have been pushing back on tax exceptionalism. That to me is atmpospherically relevant, but it proves too much: administering the tax system is different from say regulating noxious emissions or ensuring airplane safety.  The devil is in the details of the particular procedures or path IRS believes warrant a separate approach.

IRS has not helped itself in this case though by promulgating essentially a standardless standard that allows Counsel to bypass Appeals that as the brief indicates allows Counsel to “mask illegitmate reasons for denying access to Appeals.” Even if in this case the reason for cutting off access to Appeals is legitimate, the lack of guidance on what should inform or explain that bypass decision generates a perception of illegitimacy, and that is not sound tax administration.


Facebook Asserts that TBOR Mandates Right to Appeals

Facebook and IRS are squaring off in Tax Court over billions in taxes relating to its transfer of intangible assets to Irish subsidiaries. That fight has spawned major procedural side skirmishes in a California federal district court, including battles over privilege and IRS’s refusal to allow the social media giant access to Appeals.

Perhaps in a later post I will return to the interesting privilege battles. This post is about the important legal issues in Facebook’s challenge to the IRS’s rules that allow Counsel discretion to eliminate a taxpayer’s right to Appeals.


In its complaint that it filed last November, Facebook seeks a declaratory judgment that IRS unlawfully issued a 2016 revenue procedure that unlawfully denied its access to an administrative forum. IRS began its audit of Facebook in 2011, and Facebook repeatedly sought Appeals consideration. After Facebook declined to extend the SOL on assessment for a sixth time because IRS did not agree to provide a timetable for Appeals consideration, IRS issued its stat notice. Facebook petitioned to Tax Court and renewed its request for Appeals consideration. IRS refused, referring to the 2016 revenue procedure that allowed Counsel to bypass its right to Appeals review in its transfer pricing deficiency case in the interest of “sound tax administration.”

The case tees up Appeals role and whether taxpayers have the right to Appeals’ consideration in light of developments over the last two decades. Prior to 1998, it was generally accepted that the right to Appeals was discretionary, and the product of IRS procedural rules that IRS was not required to follow. The pre-1998 Code barely acknowledged Appeals’ role in tax administration.   When we rewrote the Saltzman and Book IRS Practice and Procedure chapter on Appeals (currently slated for another refresh this summer) we discuss how the 1998 IRS Restructuring and Reform Act of 1998 (RRA 98) changed that through a host of Code provisions that directly mention Appeals and an off Code but still statutory directive to IRS to ensure an independent Appeals function. In addition, the 2015 codification of TBOR in Section 7803(a)(3)(E) requires that the Commissioner ensure that IRS employees be familiar with and act in accord with taxpayer rights, including the “right to appeal a decision of the Internal Revenue Service in an independent forum.”

In its response to government’s motion to dismiss Facebook argues that RRA 98 and Section 7803(a)(3)(E), taken together, mean that IRS is not free to cut off Appeals’ rights as it has done via the revenue procedure (and as an aside in the IRM when it allows for bypassing Appeals in cases designated for litigation). In making its argument, Facebook claims that TBOR itself creates a substantive right. In response to the IRS view that Section 7803(a)(3)(E) does not directly provide a remedy for violations, Facebook argues that when Congress explicitly directs agency action (as it argues was done with Appeals consideration), an agency cannot dismiss that as meaningless. In addition, Facebook claims that Section 7803(a)(3)(E) justifies the court ordering a remedy for agency violations, through Supreme Court precedent that courts should not read language in statutes as “mere surplusage.”  This argument syncs with our recent guest post on the subject.

The government makes a number of arguments in response, including that TBOR merely expresses general principles and does not create binding rights, the TBOR reference to an independent forum refers to judicial and not administrative review, and that in any event Facebook does not have Article III or statutory standing to bring the litigation.

The matter is scheduled for a hearing in April. We will keep a close eye on this litigation.

Even apart from this case, the broader issue of the role of taxpayer rights in tax procedure is an issue that is picking up steam and is likely to become one of the major issues in tax procedure in the next few years. On PT Christina Thompson recently discussed Alice Abreu and Richard Greenstein’s article on taxpayer rights (which flags some of the issues in this litigation). In addition, Keith and I will be on a panel at the Tax Court judicial conference in Chicago later this month that will consider taxpayer rights, and in May Alice and I will be moderating two panels at the ABA Tax Section Individual and Family Tax Committee and Pro Bono and Tax Clinics Committee that will consider rights in controversies and include more on the Facebook litigation. One of the main promoters of taxpayer rights in tax administration, Nina Olson, is convening the third International Taxpayer Rights Conference in May.

Supreme Court Grants Cert. to Decide Whether SEC ALJs Need to Be Appointed Under the Appointments Clause; SG Changes Position and Now Supports Required Appointment

We welcome frequent guest blogger, Carl Smith, who blogs today on a frequently discussed topic – the Appointments Clause and its application to employees of the IRS office of Appeals. Keith

In six prior posts since September 2015 (here, here, here, here, here, and here), I have blogged about the storm at the SEC over whether its ALJs need to be appointed under the Appointments Clause or are mere “employees”, who do not need to be appointed. This issue could spill over into whether the ALJs that the Treasury uses to try Circular 230 sanctions matters need to be, and are properly, appointed. I suspect that they may not be.

I noted that in the courts of appeals, the government took the position that the SEC ALJs were mere employees, so there was no problem in the fact that SEC ALJs had been issuing recommended rulings on administrative sanctions matters without having first been appointed. Two Circuits had split on this question: The Tenth Circuit held that SEC ALJs need to be appointed; Bandimere v. SEC, 844 F.3d 1168 (10th Cir. 2016); while the D.C. Circuit held that they did not. Raymond J. Lucia Cos., Inc. v. SEC, 832 F.3d 277 (D.C. Cir. 2016). I correctly predicted that the Supreme Court would grant cert. to resolve this issue. In fact, the Court did so in Lucia on January 12, 2018. But, I never predicted that in the Solicitor General’s response to the cert. petition in Lucia he would change position 180 degrees and now argue that SEC ALJs have to be appointed. Presumably since the government was no longer seeking to reverse the ruling in Bandimere, the Court did not grant the government’s cert. petition in Bandimere.

This means that both of the parties to the Lucia case currently argue for its reversal. Although it has not done so yet, I suspect the Court will appoint an amicus to argue in favor of the ruling below, since the parties won’t. It is expected that Lucia will be heard and decided by the Court before its current Term ends on June 30.

Central to the Lucia case will be what the Court meant in Freytag v. Commissioner, 501 U.S. 868 (1991), when it held that Tax Court Special Trial Judges (STJs) were inferior officers of the United States who need to be appointed.


In Freytag, the Supreme Court held that the Appointments Clause did not prohibit the Tax Court’s Chief Judge from appointing STJs because the Tax Court was one of the “Courts of Law” mentioned in the Clause and because the Chief Judge could act for the Tax Court.  In reaching these rulings, the Supreme Court made a subsidiary holding that STJs are not employees of the government, but inferior officers who need to be appointed. To support its holding that STJs are officers, the Supreme Court cited the many judicial duties that STJs perform.  At the end of this section of the opinion, the Supreme Court also observed that STJs can enter final decisions in some cases under  § 7443A(c). It is this finality observation that has puzzled and split the lower courts.

In Landry v. FDIC, 204 F.3d 1125 (D.C. Cir. 2000), a majority of a 3-judge panel of the D.C. Circuit held that the Supreme Court’s observation in Freytag that STJs can rule with finality in some cases meant that being able to make a final ruling was a but for requirement of officer status. Since FDIC ALJs could not enter final rulings, but simply made recommended rulings to the whole FDIC, the majority held that the ALJs were mere employees who did not need to be appointed. The third judge on the panel argued instead that, in Freytag, the Supreme Court had already decided that STJs were officers before it made the observation about STJs being in some cases allowed to enter final orders, so finality was not a but for requirement of an officer.

Like FDIC ALJs, SEC ALJs cannot make final rulings – at least where defendants appeal their proposed ruling to the whole SEC. In Bandimere, the Tenth Circuit disagreed with the Landry majority that being able to issue final rulings was a but for requirement of officer status. The Tenth Circuit held that the SEC ALJs performed nearly all the duties that STJs did, so were also officers who needed to be appointed.

In Lucia, citing Landry, the D.C. Circuit held that SEC ALJs need not be appointed because they did not have final ruling authority. After Bandimere was issued, Lucia moved for reconsideration of the ruling in his case by the full D.C. Circuit. He asked the D.C. Circuit to consider whether it should overrule Landry and agree with the Tenth Circuit in Bandimere. An en banc rehearing was granted. However, the en banc D.C. Circuit split evenly on the question, which left the original holding in Lucia intact. Lucia then sought cert.

In response to Lucia’s cert. petition, the new SG under President Trump surprisingly changed the government’s position – agreeing with the Tenth Circuit that the ability to issue final rulings was not a but for requirement of officer status. The SG felt that the SEC ALJs were sufficiently like Tax Court STJs to have to be appointed. Thus, the SG also sought reversal of the D.C. Circuit. The SG asked the Court to grant cert. in Lucia, even though the parties were no longer in disagreement. (Appointments Clause issues are not jurisdictional, so the courts can accept the parties’ waiver of Appointments Clause arguments.) The SG thinks there is a need for Supreme Court guidance in this area – including issues not discussed below as to removal powers for ALJs, which may now be problematic. A number of Court watchers thought that the issue of appointment of SEC ALJs was now moot and that cert. might not now be granted. However, they were wrong.

But, in granting cert. in Lucia, the Supreme Court did not ask the parties to brief any additional questions – e.g., involving removal powers.

Possible Effect on Appeals Office Personnel Issuing CDP Rulings 

In addition to Lucia’s possible impact on ALJs used by Treasury to hold Circular 230 sanctions hearings, the opinion may have an impact, as well, on an issue that I raised over a decade ago. In a CDP case that I had in the Tax Court, I moved to remand the case to have the CDP hearing redone by a Settlement Officer and Appeals Team Manager who were both appointed consistently with the Appointments Clause. I noted that no Appeals personnel were then appointed. But, citing Freytag, I argued that the duties of Appeals personnel in conducting statutorily-mandated CDP hearings were so similar to the duties of an STJ that such Appeals personnel were also officers for purposes of the Appointments Clause.

In Tucker v. Commissioner, 135 T.C. 114 (2010), the Tax Court rejected my argument for several reasons. For one thing, the court felt that the positions in Appeals were not “established by law” for purposes of the Clause. But, also, the Tax Court held that Appeals personnel in CDP did not make final rulings, and, citing Landry, the Tax Court held that the ability to make a final ruling was a but for requirement of officer status per Freytag.

I appealed Tucker to the D.C. Circuit. That court, at 676 F.3d 1129 (D.C. Cir. 2012), affirmed the Tax Court, but on different reasoning. The D.C. Circuit was troubled by the idea that Congress might be able to get around the Appointment Clause by assigning duties that had to be performed by a constitutional officer to preexisting employees in the bureaucracy. Therefore, the D.C. Circuit bypassed issuing any ruling on whether or not the position of CDP hearing person was “established by law”. The D.C. Circuit next held that collection issues were of too minor importance to require an officer. As to underlying tax liability rulings that could be made in CDP under section 6330(c)(2)(B), Freytag clearly would treat those rulings as ones for which an officer was required. Disagreeing with the Tax Court, the D.C. Circuit held that Appeals Office personnel issuing underlying liability rulings issued rulings with “effective finality”. However, the D.C. Circuit held that the ability to exercise discretion in a tax liability ruling was a but for requirement of officer status – one that was not met by Appeals personnel who ruled under the thumb of IRS Counsel attorneys. It was this lack of discretion that undermined the idea that Appeals personnel in CDP were officers needing to be appointed.

I thought that the D.C. Circuit’s ruling that Appeals exercised little discretion in making CDP underlying liability rulings was not factually supported, and I sought cert. But, cert. was denied.

I had not expected to again litigate the Tucker issue, but Florida attorney Joe DiRuzzo has decided that he wants to relitigate the issue in the Tax Court and in courts of appeals – hoping to create a Circuit split. Before the Supreme Court granted cert. in Lucia, Joe had made motions to remand in (at the moment) four different pending Tax Court CDP cases, arguing that the hearings should be redone by appointed Appeals personnel. The cases are: Thompson, Docket No. 7038-15L (appealable to the Ninth Circuit); Elmes, Docket No. 24872-14L (appealable to the Eleventh Circuitt); Fonticiella, Docket No. 23776-15L (appealable to the Eighth Circuit); and Crim, Docket No. 16574-17L (appealable to the D.C. Circuit). If the Supreme Court agrees with Lucia and the SG that issuing final rulings is not a but for requirement for officer status, then the Tax Court will have to at least revise its rationale for its holding that CDP hearing personnel need not be appointed. Perhaps, after reading the Supreme Court’s Lucia opinion, the Tax Court may also have to rule that CDP hearing personnel need to be appointed. In its lengthy response to the motion to remand (filed on January 5, 2018 in the Thompson case – i.e., a week before the Supreme Court granted cert. in Lucia), the IRS discusses the possible relevance of Lucia and the SG’s change in position, but argues that Landry, Lucia, and both Tucker opinions are, at least at the moment, still good law.


How Does Appeals Notify You of Their Involvement in the Case

Over the past year, the decision by Appeals to no longer hold face to face meetings and the subsequent partial reversal of that decision served as the highest item of interest regarding Appeals. Taxpayers with cases involving controversies large enough to warrant assignment to an Appeals Officer in the field can now obtain a face to face conference with Appeals again. Taxpayers whose cases do not have sufficient dollars at issue continue to be sent to the back of the bus because the low dollar amount of their controversy means their cases get assigned to low graded Appeals employees who reside in the six Service Centers where Appeals has employees.

One of the concerns that Appeals has in allowing the case of a taxpayer with a small amount of tax at issue to meet with a “live” Appeals employee in a face to face meeting is that the case is scored for assignment to a low graded Appeals employee and in the local offices Appeals does not have low graded employees, or enough low graded employees, so it needs to send these case to the Service Centers where the low graded Appeals employees reside. Because of the limited geographical availability of these employees and the fact that Service Centers do not really accommodate meetings with taxpayers, taxpayers with smaller dollars at issue continue to have the pleasure to deal with the IRS via phone and fax just as they did during the examination phase of their case.

On the listserv for clinicians who work on cases involving low income taxpayers, a new issue concerning Appeals emerged recently. The new issue involves the manner in which Appeals notifies the taxpayer, or the representative, of the assignment of the case in Appeals. Several individuals posting to the listserv reported receiving contact via phone instead of mail of the assignment of the Appeals employee and some reported that in that phone contact the Appeals employee also wanted to discuss the merits of the case. Because the phone contact came “out of the blue” with no opportunity for the person receiving the call to prepare for the discussion, the representatives receiving these calls invariably sought to put off the discussion of the case with varying degrees of success. In questioning the Appeals employee about the approach of calling out of the blue to discuss a case with prior correspondence, some representatives received the explanation that Appeals no longer sent letters in order to save money.


Donna Hansberry, the Director of Appeals, attended the most recent Low Income Taxpayer Clinic conference on December 7 to discuss the interplay between Appeals and those representing low income taxpayers. She did not seem to be aware of any changes within Appeals that stopped the employees from sending letters to taxpayers and representatives upon assignment of the case and that encouraged Appeals employees to “cold call” taxpayers or representatives seeking to discuss the case. She asked that attendees send her information about this practice and also solicited comments on what Appeals should adopt as the best practice for notifying taxpayers and representatives of the case assignment as well as notifying them of the time (and for taxpayers owing sufficient money, the place) for holding the Appeals conference.

One of the slides she used in her presentation showed that the number of Appeals employees in the past three years. She said that the number has dropped by 1/3 since 2010. The number of cases has dropped but not by the same percentage.

Another slide she displayed showed the breakdown of the caseload in Appeals which is now heavier on collection cases than examination cases.

Because Donna solicited feedback on this issue, PT will be glad to collect feedback and forward it to her. If you have experienced the type of cold call described above, let us know by sending in a comment. We also will forward to her suggestions on how to make the interaction with Appeals work best. Do you want a letter immediately upon assignment of the case to an Appeals employee letting you know the name, address, fax number and phone number of the employee and then another letter setting up the conference? Is there a way to reduce the number of letters and still allow you to properly prepare for the Appeals conference? Let us know your thoughts so we can pass them along or pass them along directly to Appeals.