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…
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.
Great!
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.