Venable partner Stephanie Loughlin and counsel Matt Journey discussed tax controversy appeals in a September 22, 2015 Accounting Today article. Tax controversies occur when an individual takes a questionable deduction or treats income differently than the IRS defines it. Areas generating such controversies typically involve independent-contractor-versus-employee issues, worthless debt issues, compensation issues, Section 1031 exchanges, changes to accounting methods, FBAR, and issues in the international arena.
"Appeals personnel are supposed to be independent of the Exam function and are authorized to look at case law and see if it can be settled," said Loughlin and Journy. "It's unlike Exam where the examiner takes the IRS position. In Appeals, they consider the IRS position but also look at what courts have decided in determining whether to settle."
Discussing the Appeals Judicial Approach and Culture program (AJAC), Loughlin said it did two main things, "Generally speaking it prohibits the Appeals officer from raising new issues. This is significant because when Appeals could raise new issues, it could put the taxpayer in a position where they would choose to get a notice of deficiency and go to Tax Court immediately, rather than first go to Appeals, to avoid to new issues from being raised. The second thing it did was to prohibit the taxpayer from introducing any new evidence at Appeals. This is the hardest part to deal with. The Appeals officer might want to understand different things about the issue than the examiner wanted, so he might want to expand the universe of what they think is relevant. But if you didn't present the evidence during the exam, this would prohibit you from doing so in Appeals. We still don’t know completely how this plays out."
"The IRS agent might ask for documents A, B and C, which the taxpayer provides," added Journy. "But the Appeals officer also wants to see documents F and G, which are also relevant. Because they were never requested during the exam, the Appeals officer technically can’t consider them even if F and G are relevant and will be considered if the case goes to court."