Previously in an unagreed case,
it was not that hard to remove a case from the agent’s (or examination’s)
jurisdiction, and obtain a conference with an Appeals Officer before the case
status changed to “docketed status”.
To greatly simplify what the procedure was, assume a taxpayer cannot settle a
case with the agent in an audit. The taxpayer simply writes a letter to the
agent and says, “We’re getting nowhere. Please issue the 30-Day Letter
(essentially the revenue agent’s report) so that I can file a protest and go to
Appeals."
Normally upon receipt of a 30-Day Letter, the
taxpayer then has a choice to write up a Protest Letter and request either
a meeting with the agent and his manager or ask the agent to send the file to
Appeals for a conference there. If the taxpayer elects to go to Appeals, in
most cases, the examination managers are happy to do anything which will help
them reduce their inventories and gladly oblige. The case then goes to a local
Appeals Office where it sits there for a long time until an Appeals Officer is
free to work the case.
For a number of reasons, Appeals Officers give top
priority to docketed cases—those
which are already petitioned to the Tax Court. This is because the Tax Court has a very
efficient calendaring procedure where newly-petitioned cases appear, usually in
six months, on a Tax Court calendar wherever the taxpayer chooses as the place
of trial, provided it is one of the cities where the Tax Court sits
periodically.
Once a case is calendared
for trial, a whole series of related internal IRS bells and whistles go off,
one of which alerts managers in the IRS Counsel organization to start bugging
their docket attorneys who in turn bug the Appeals Office where an AO
hopefully has been working the case since the petition was filed six months
before.
Since neither the Chief Counsel’s Office nor the Tax
Court can hold trials on every case which is petitioned to the Court, there is
a great scramble to settle as many cases as possible before the date of the
calendar call. IRS docket attorneys have to determine from their burgeoning
inventory of cases, which ones are likely to be settled by Appeals and which
ones are likely to go to trial. For the “trial preparation” cases, the IRS
attorneys need to get busy developing the facts, using formal discovery if
there is time left, hiring experts if called for, lining up witnesses, writing
detailed trial memoranda, and reporting the status of the case to nervous
managers and their managers so that the Chief Counsel can be sure no one will
be going to Court with a funny hat on his head. Almost all of the cases petitioned to the Tax
Court are either settled by either Appeals or Counsel or both. A relatively small number of Tax Court cases
actually go to trial.
New
Letter 5262 makes it clear that if the taxpayer has been dragging his feet in
responding to one or more Forms 4564, an Information Document Request, the
taxpayer will no longer be able to get the case removed to Appeals in
nondocketed status. Rather, the letter says, he should be on the lookout for a
90-Day letter because he will not be getting a cheery “welcome to Appeals”
letter until after he files a petition in the Tax Court.
No one thinks the Tax Court needs to go out and hire
a whole bunch of new judges to meet any surge in filings. If a taxpayer has
been blowing off the IRS enough to cause an agent to issue Letter 5262, chances
are a 90-Day Letter is going to be similarly ignored. When that happens, the
IRS waits a short while (60 days) after the 90 days expire until it is sure the
taxpayer is not going to file anything. Only then is the IRS allowed to assess
the tax, send the taxpayer a bill, and turn it over to a revenue officer for
enforced collection. That said, there is
a subtle dynamic at work here which is worthy of mention.
One can easily guess the impetus for the new
procedure here is motivated in part by the fact that increasingly, a stingy
Congress has been demanding that the IRS do more with less. As a practical
matter, for the past few years, Appeals Officers have been unable to find the
time to work their nondocketed cases because of a lack of adequate staffing.
The AOs have all they can do to just to keep up with the steady stream of cases
which are in the docketed track and are soon to appear on Tax Court calendars.
Sending a 90-Day Letter to a taxpayer is one way for
the government to find out if a taxpayer is really serious about resolving his
matter with the IRS. Let’s not lose sight of what is really going on here. A
revenue agent’s report or 30-Day Letter and a 90-Day Letter are really about
the government saying, “We’re just thinking about assessing you the amount of
tax and penalties we have been talking about for the last year and a half, but
the law requires that we bend over backwards to make sure you have nothing to
say about what we are planning to do.”
The whole time in which a case is in audit or
Appeals before a 90-Day letter is issued, it is illegal for the IRS to make an assessment, send the taxpayer a bill
to pay up, file a lien, use a levy, or take any collection action whatsoever
absent a situation in which the government is in jeopardy of not collecting
what is ultimately decided to be the actual amount owed. During that whole time, interest will
continue to run on any deficiency from the due date of the return; but, until, and
unless the taxpayer defaults the 90-Day Letter, e.g., fails to file a Tax Court petition before the expiration of
the 90 day period, the government has to be very patient and sit back and wait until
the expiration of the 90-Day petition period before it can try to collect.
In the realm
of “good government” or “bad government,” this is “not so good.” This clarification of the “pre-90 Day
Procedures” has its downside. Appeals has been too busy to work their
nondocketed cases anyway and if current news reports are correct, they will not
be getting any more people to help out at any time soon. The IRS bean counters
will probably be happy because they will now be able to show that they are
better managing their “unagreed” cases. Once a case is “sent to Notices,”
“Exam” is off the hook because their “unagreed” numbers will look better, but
if we were to apply the “substance over from doctrine,” absolutely nothing has
happened here. What they are doing here is simply throwing the case file over the
fence hoping there is someone, somewhere on the other side to clean up the mess
they were unable to resolve.
For the taxpaying public this is a mixed bag. Our
system is probably the best in the world for striking a balance between the
government’s need to administer and collect the tax and the rights of taxpayers
to hold the IRS by the nose until they are good and ready to give up and say,
“OK, you’ve got me.”
The Tax Court is not a bad place to be for a
taxpayer who has had a belly full of the IRS. Its website is user friendly and
though the rules regarding the timeliness of filing a petition are very strict,
the judges are usually very sensitive to taxpayers' feelings and realize
full-well that once they can convince the taxpayer that, “No! The Tax Court is
not just an extension of the IRS!”, they can help out where the IRS has gotten it all wrong. The
judges are smart, fair, and efficient in the way they serve the public.
This entire discussion about what a taxpayer has to
do to get a hearing in Appeals is
perhaps best seen as a lesson in what should have been done in the first place,
that is, cooperate with the agent to settle the case or cooperate and then go
to Appeals if you do not like what the agent is saying.
For those people who don’t want to risk the cost of
allowing a case to smolder for a year or two in nondocketed status in Appeals,
another permissible course in an unagreed case is to simply ask the agent to
send the case to Notices for issuances of the 90-Day Letter. He then files the
petition and ends up exactly where he should be: in docketed status in Appeals ready
to settle, the only difference being another year at least has gone by before a
taxpayer can untangle themselves from the IRS, not to mention another year of
anxiety plus money spent on attorney’s fees which might have been better spent
on something else.
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