Tax practitioners should be pleased that recent improvements have enabled the Internal Revenue Service to handle appeals more efficiently and in a more timely fashion than in the past.
While for many practitioners, taking a case to the IRS appeals unit is not a regular occurrence, there are times when the client would benefit if someone else reviewed the facts, and that someone could be Appeals.
"Appeals is the independent arm of the Internal Revenue Service," explained David Robison, chief of appeals for the IRS. "It's our job to fairly and impartially weigh the relative merits for the government and for the taxpayers and try to reach a resolution of that tax dispute without going to litigation. We are successful about 85 percent of the time."
The appeals division handles 50,000 cases annually, most of which come from the Small Business/Self-Employed Division. The average case is now resolved in 300 days, a 25 percent improvement from last year.
The SB/SE Division is continuing to look for methods to reach faster solutions, according to Kevin Brown, commissioner of that division. "My view is to make audits as quick as possible, and to make collection work as quick as possible," he said. "It doesn't mean taking shortcuts. What it does mean is that we adhere to a schedule that we would set out for the taxpayer in the beginning. We don't let cases languish."
"A third of the taxpayer base is served by the SB/SE Division, yet we have 75 percent of the noncompliance," Brown noted. "And unfortunately, this sort of growth in this tax gap has coincided with the decline in overall IRS resources. Between 1996 and 2004, the IRS lost 25 percent of its revenue agents, revenue officers and criminal investigators."
It's critical that Appeals maintain its reputation for independence and taking a "fresh look" at disputes, said Robison.
"The taxpayer and representative have to believe that we are going to take an independent evaluation of their case, or they wouldn't come to us. There wouldn't be the faith that the system would work," he said. "We take a case, and we try to get to an answer that is fair for both the government and the taxpayer."
One of the factors that Appeals considers in exams, or audit cases, is the hazard of litigation - what would happen if the case were to be litigated.
"We apply a series of analyses to the facts of the case, and try to estimate what will happen if the case were to be litigated," said Jeff Allison, director of tax policy and procedure for IRS Appeals.
"The important thing for us to realize is that hazard of litigation is not one answer. It's not a science, it's something that we look at, and we debate the different facts, and their relative importance," he said.
However, the appeals unit would not look at factors such as whether a taxpayer is represented by counsel or whether the taxpayer has the financial means to pursue litigation, said Allison.
Robison said that the majority of collection cases are the result of 1998 legislation that gives taxpayers the right to question whether the IRS followed proper procedures.
"It is very powerful in that, on the filing of a collection dueprocess appeal request, it stays in Collections. Which means it stops the enforcement machinery from moving against the taxpayer," he said. "It stops the lien actions to the extent that they have not yet occurred. It stops levy actions. And it's also the first time in the history of American tax collection that we have a judicial review over tax collection."
Picking up speed
Appeals also takes on a major role in the offer-in-compromise program, said Robison. If the operating division in question - usually the SB/SE Division - rejects the offer, the taxpayer has the opportunity to come to Appeals.
"About 56 percent of the time they do come to Appeals, and we work to look at that offer, applying the same authorities that the operating division applied, but with a fresh set of eyes, and we often don't reach a resolution with them as well," he said. "When we poll our taxpayers who come to Appeals, they don't say we get the wrong answers, what they say is it takes too long for us to get to an answer. So we have been devoting a lot of time and energy over the last several years to getting to those answers, just as effectively, but much faster. And we've been succeeding in that effort, improving the amount of time it takes us to get to an answer by 10, 20, even 30 percent faster than we have in past years."
The average exam case takes 300 days, about 25 percent faster than it took last year, while collection due-process cases average 150 days, according to Robison. "But we're speeding that process up as we get earlier contact and have more specialization and we're able to do that. I see that dropping significantly in this next year," he said.
"An offer-in-compromise case, we used to take about 350 days, now we take about 250 days. We've dropped a third of our time just in the last year, through looking at how the process works, and figuring out ways to make it go faster," he said.
Alternative dispute resolution programs are another means to bring quicker resolution to cases, noted Allison. Two early-intervention programs - fast-track settlement and fast-track mediation - are able to close out a case years ahead of schedule.
"Both bring Appeals officers into the process earlier, and bring all parties together face to face to discuss the issue and reach a conclusion," Robison said.
Other alternative dispute resolution methods include post-appeal arbitration - the least popular of the alternative methods - and post-appeal mediation. Post-appeal mediation brings a resolution 85 percent of the time.
"Post-appeal mediation is terrific. It puts all the decision-makers at the same table and acts as a reality check. This method is much quicker and cheaper than moving forward with litigation," said Jim Dougherty, tax division manager at the Deloitte & Touche national office.
