What happens at an IRS Appeals conference, from the first letter to the settlement offer

Before the conference

The Appeals Officer must verify the statute and make initial contact within 45 days of receiving a liability, penalty or innocent spouse case, and within 30 days for CDP and offer cases (IRM 8.6.1.2). The letter is Letter 5157 for a non-docketed case and Letter 3808 for a docketed one; the ATE may call instead. Initial contact must include an offer of Secure Messaging (IRM 8.6.1.4.3.1), and the IRM tells ATEs to discuss the conference options and document the one chosen.

The IRM tells ATEs to “Set realistic target dates for the taxpayer and/or the representative to submit additional information, and proposal and counterproposal settlements.” Treat those dates as firm. If a written submission will follow the protest, send it well before the conference so the ATE can read it. For a virtual service delivery (VSD) conference, the IRM asks for documents at least 10 business days ahead.

If the client has not yet protested, see writing a formal protest first. Prepare for the conference as for a settlement negotiation built on a trial assessment. The ATE will evaluate each issue by the probable result in litigation (hazards of litigation). Know which witnesses would testify, which documents are admissible, and where the burden of proof lies.

Getting the case file

Under IRC 7803(e)(7), a “specified taxpayer” with a scheduled conference is entitled to the nonprivileged portions of the case file on the disputed issues (other than documents the taxpayer provided) at least 10 days before the conference. Specified taxpayers are individuals with adjusted gross income of $400,000 or less and other taxpayers with gross receipts of $5 million or less for the year in dispute (statutory amounts). If the client qualifies, the ATE must offer access in the initial contact (IRM 8.6.1.2.1.1).

Respond promptly. The IRM tells ATEs to allow about 14 calendar days for the taxpayer to ask for the file, then time for redaction by the STARS team, then at least 10 calendar days before the conference. A request made after the conference has started is not treated as a Taxpayer First Act request. The file comes by fax (150 pages or less), USB drive, PDF through Secure Messaging, or paper. The file must include all workpapers relevant to the disputed issues, and if the ATE consulted case histories from systems such as AMS or ICS, those portions are included too.

Choosing the format

In-person conferences are not offered to taxpayers who raise only frivolous or ideological arguments (IRM 8.6.1.6).

During the conference

The IRM describes the conference style: “Appeals conferences are informal to promote frank discussion and mutual understanding.” ATEs are told to prepare thoroughly to maximize the chance of closing the case in one conference, to keep an open mind, and that “Above all, it is of utmost importance to be a good listener.” (IRM 8.6.1.5). The ATE should explain the Appeals process and may mention that an outside contractor could contact the taxpayer for a survey.

A practical order: confirm the issues and amounts; walk through the facts on each issue, conceding what the documents do not support; argue the law; and then let the ATE react. Settlement proposals and counterproposals then follow on the target dates the ATE set.

If the taxpayer attends without a representative and says at any point that he or she wants to consult one, the conference must be suspended and rescheduled if needed (IRM 8.6.1.5.3.2). If a representative unreasonably delays the case, the ATE can bypass the representative only with prior manager approval and written notice to both the representative and the taxpayer; the representative still receives copies of correspondence. An ATE cannot bypass counsel of record in a docketed case (IRM 8.6.1.5.3.3).

New information and new issues

This is where conferences most often stall. New information is anything related to a disputed issue that the taxpayer did not share with the examiner and that, in the ATE's judgment, needs additional analysis or investigative action (IRM 8.6.1.7.5). Information given in response to the ATE's own question to clarify the report or protest is not sent back to Compliance.

The lesson is to get documents to the examiner before the case leaves Examination. When that is not possible, tell the ATE early so the statute can be extended in time.

Returning a case to Examination: what the IRM requires

The definitions decide whether a document is “new information” at all. Under IRM 8.6.1.7.5, “Additional analysis means categorizing, sorting, or reviewing large volumes of records, or requiring additional steps or reasoning to reach a conclusion.” and “Investigative action means actions required for fact finding, to make inquiries or to verify the authenticity of an item.” A single document that answers a question the ATE asked, or that corroborates something already referenced in the report, protest or rebuttal, does not meet either definition and stays with Appeals. A box of receipts that nobody has sorted does. If a submission needs sorting, sort it and present an indexed schedule, so the ATE can review rather than analyze.

The IRM also tells the ATE what not to do with a thin file. IRM 8.6.1.7.2: “Appeals will attempt to settle a case on factual hazards when the case submitted by Compliance is not fully developed and the taxpayer has presented no new information or evidence.” Appeals may weigh new theories and alternative legal arguments from either side, but “the ATE will not develop evidence that is not in the case file to support the new theory or argument.” A taxpayer whose examiner did not develop the facts is better served by arguing the hazards on the existing record than by handing Appeals new evidence that sends the case back. A new theory or alternative legal argument, as opposed to new evidence, follows a different path (IRM 8.6.1.7.6): Appeals keeps jurisdiction, sends the argument to the original examination group with an interim Form 5402 marked “JURISDICTION RETAINED”, and the Appeals Team Manager allows Exam “at least 45 days for written review and comment (subject to ex parte requirements)”. The taxpayer gets Letter 5209 explaining what was sent and why, and receives Exam's written comments, which the ex parte rules require to be shared.

When jurisdiction is released, IRM 8.6.1.7.7 sets the steps: the ATE prepares a customized Form 5402 marked “JURISDICTION RELEASED” with the reason and the return address, which for SB/SE field, office examination and LB&I cases is the Examination Technical Services location that serves the originating group; prepares Letter 5209 to the taxpayer and representative, which “advises taxpayers that you are returning the case to the originating function and the reason, i.e., because they raised a new issue, submitted new information, etc., and releasing jurisdiction of their case”; and submits the case to the ATM, after which Appeals Processing closes the case and ships the administrative file back on Form 3210. If Examination later sends it back, IRM 8.2.1.4 applies a shorter statute test than the usual 365 days: “There must be at least 180 days remaining on the ASED at the time that the case is received in Appeals for a case in which the originating function returns a case that was previously returned to them for consideration of new information or a new issue.” Count the days before agreeing to a return: 210 days when Exam receives the case, time for Exam's work, and 180 days when Appeals receives it back, or the client will be asked for a Form 872 consent.

Recording the conference

Audio and stenographic recordings are allowed for in-person conferences when requested under IRC 7521(a). The taxpayer must give 10 days' advance notice and bring its own equipment; Appeals makes its own audio recording too. A stenographer must be a federal court reporter, qualified to take depositions for federal court, or state licensed or certified. “Video recordings are not allowed.” The recording rules apply only to in-person conferences, not telephone conferences (IRM 8.6.1.6).

Who else may attend

“Appeals has the discretion to invite Counsel and/or Compliance to the conference.” (IRM 8.6.1.5.4), and “Appeals may also request that other experts attend conferences.” (for example an Appeals engineer or economist on a valuation issue). The taxpayer is not asked for consent to the examiner's attendance, but is entitled to be present for all of it. On the taxpayer's side, IRM 8.6.1.5.3 restates IRC 7521(b)(2): if the taxpayer clearly states at any time during the conference a wish to consult a representative, the ATE must stop, and the conference is rescheduled if necessary. If the examiner attends, the ex parte rules apply: the examiner cannot discuss the merits with the ATE outside the taxpayer's presence, and a preconference meeting between Appeals and the examiner without offering the taxpayer a chance to attend is the kind of contact Rev. Proc. 2012-18 prohibits. See ex parte rules. The taxpayer may bring witnesses who are not authorized to practice; they may testify but not represent the taxpayer (Pub 5).

After the conference

The ATE is told to “Complete the conference timely and make an accurate and prompt decision to ensure the least amount of delay.” If agreement is reached, the ATE prepares the settlement computation and the agreement form, usually Form 870-AD for a mutual-concession settlement (settlement forms). Until the agreement form is signed and accepted, a tentative agreement can be renegotiated if the law it relied on changes in a substantive and material way (IRM 8.6.4.2.7). If there is no agreement, Appeals issues a notice of deficiency or other closing letter, and the case may later return to Appeals in docketed status (Tax Court petitions). If settlement talks fail on a narrow issue, post-Appeals mediation may be available before the case closes.

Questions practitioners ask