Proposed Rule2022-19662
Resolution of Federal Tax Controversies by the Independent Office of Appeals
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
September 13, 2022
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document contains proposed regulations relating to the IRS Independent Office of Appeals' resolution of Federal tax controversies without litigation and relating to requests for referral to that office following the issuance of a notice of deficiency to a taxpayer by the IRS. The proposed regulations reflect amendments to the law made by the Taxpayer First Act of 2019. The proposed regulations apply to all persons that request to have a Federal tax controversy considered by that office. This document also provides a notice of a public hearing on these proposed regulations.
Full Text
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<title>Federal Register, Volume 87 Issue 176 (Tuesday, September 13, 2022)</title>
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[Federal Register Volume 87, Number 176 (Tuesday, September 13, 2022)]
[Proposed Rules]
[Pages 55934-55952]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-19662]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 301
[REG-125693-19]
RIN 1545-BP72
Resolution of Federal Tax Controversies by the Independent Office
of Appeals
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing on
proposed rulemaking.
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SUMMARY: This document contains proposed regulations relating to the
IRS Independent Office of Appeals' resolution of Federal tax
controversies without litigation and relating to requests for referral
to that office following the issuance of a notice of deficiency to a
taxpayer by the IRS. The proposed regulations reflect amendments to the
law made by the Taxpayer First Act of 2019. The proposed regulations
apply to all persons that request to have a Federal tax controversy
considered by that office. This document also provides a notice of a
public hearing on these proposed regulations.
DATES: Written or electronic comments must be received by November 14,
2022. Outlines of topics to be discussed at the public hearing
scheduled for November 29, 2022, must be received by November 14, 2022.
If no outlines of topics are received by November 14, 2022, the public
hearing will be cancelled.
ADDRESSES: Commenters are strongly encouraged to submit public comments
electronically. Submit electronic submissions via the Federal
eRulemaking Portal at <a href="http://www.regulations.gov">www.regulations.gov</a> (indicate IRS and REG-125693-
19) by following the online instructions for submitting comments. Once
submitted to the Federal eRulemaking Portal, comments cannot be edited
or withdrawn. The Department of the Treasury (Treasury Department) and
the IRS will publish for public availability any comment to its public
docket. Send paper submissions to: CC:PA:LPD:PR (REG-125693-19), Room
5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station,
Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Keith L. Brau at (202) 317-5437 (not a toll-free number). Concerning
submissions of comments or the public hearing, Regina Johnson,
preferably at <a href="/cdn-cgi/l/email-protection#d6a6a3b4babfb5beb3b7a4bfb8b1a596bfa4a5f8b1b9a0"><span class="__cf_email__" data-cfemail="e69693848a8f858e8387948f888195a68f9495c8818990">[email protected]</span></a> or (202) 317-6901 (not a toll-free
number).
SUPPLEMENTARY INFORMATION:
Background
I. Overview
This document contains proposed amendments to the Procedure and
Administration Regulations (26 CFR part 301) to implement section
7803(e) of the Internal Revenue Code (Code). The proposed amendments
(proposed regulations) relate to the resolution by the IRS Independent
Office of Appeals (Appeals) of Federal tax controversies without
litigation, including guidance regarding requests for referral to
Appeals following the issuance of a notice of deficiency. (References
in this preamble to ``Appeals'' include references to the former Office
of Appeals where appropriate.)
Since its establishment by the IRS in 1927, Appeals' mission has
been to resolve Federal tax controversies without litigation on a basis
that is fair and impartial to both the Government and the taxpayer.\1\
In doing so, Appeals has independently considered disputed
administrative determinations made by the IRS in administering and
enforcing the internal revenue laws arising from the IRS's examination
or collection activities with respect to a particular taxpayer, and
attempted to resolve those disputes without litigation. See House TFA
Report, at 29. Appeals generally considers whether to resolve Federal
tax controversies without litigation based on the likelihood of either
the taxpayer's or the IRS's position prevailing if the Federal tax
controversy was resolved before a court. When Appeals resolves a
Federal tax controversy, it does so through an administrative
settlement of the matter.
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\1\ See H.R. Rep. No. 39 Part 1, 116th Cong., 1st Session (House
TFA Report), 28-29, fn. 4 (2019). The House TFA Report states that
Appeals was established and has operated under the general authority
of the Secretary of the Treasury or her delegate (Secretary)
provided by section 7805 of the Code to interpret the Code, and the
authority of the Commissioner of Internal Revenue (Commissioner)
provided by section 7803 to, among other things, ``administer,
manage, conduct, direct, and supervise the execution and application
of the internal revenue laws or related statutes and tax conventions
to which the United States is a party,'' and by section 7804 to,
among other things, ``employ such number of persons as the
Commissioner deems proper for the administration and enforcement of
the internal revenue laws, and the Commissioner shall issue all
necessary directions, instructions, orders, and rules applicable to
such person.'' Sections 7803(a)(2)(A) and 7804(a).
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The IRS Restructuring and Reform Act of 1998 (RRA), Public Law 105-
206 (112 Stat. 685, 689 (1998)) directed the Commissioner to
restructure the IRS by establishing and implementing an organizational
structure that ensured an independent appeals function within the IRS.
Although the Code did not mandate the existence of an independent
office within the IRS, provisions of the Code have required the
independent administrative review of certain administrative
determinations, such as section 6159 regarding terminating an
installment agreement, sections 6320 and 6330 regarding notice and an
opportunity for a hearing before a levy or upon the filing of a notice
of lien, and section 7122 regarding rejections of an offer in
compromise (OIC).
For decades the Internal Revenue Manual (IRM) has contained the
mission statement of Appeals (Appeals Mission Statement), which is ``to
resolve [Federal] tax controversies, without litigation, on a basis
which is fair and impartial to both the Government and the taxpayer and
in a manner that will enhance voluntary compliance and public
confidence in the integrity and efficiency of the Service.'' See IRM
[[Page 55935]]
8.1.1.1(1) (10-01-2016) (regarding accomplishing the Appeals mission).
On July 1, 2019, the President signed into law the Taxpayer First
Act of 2019 (TFA), Public Law 116-25 (133 Stat. 981 (2019)). Among
other things, the TFA added new section 7803(e) to the Code. New
section 7803(e)(1) establishes the IRS Independent Office of Appeals
``to codify the role of the independent administrative appeals function
within the IRS.'' See House TFA Report, at 29. New section 7803(e)(2)
provides rules regarding the appointment, duties, qualifications, and
compensation of the Chief of Appeals who is to supervise and direct
Appeals, including that the Chief of Appeals is appointed by and
reports directly to the Commissioner. In connection with expressly
setting forth the role of Appeals, the TFA codified in new section
7803(e)(3) the Appeals Mission Statement, with the additional duty of
resolving Federal tax controversies on a basis that ``promotes a
consistent application and interpretation of, and voluntary compliance
with, the Federal tax laws.'' See section 7803(e)(3)(B).
To meet Appeals' mission, new section 7803(e)(6)(A) provides that
all IRS employees working within Appeals are to report to the Chief of
Appeals. In addition, new section 7803(e)(6)(B) provides the Chief of
Appeals with the authority to obtain legal assistance and advice from
the staff of the IRS Office of the Chief Counsel (Chief Counsel) with
regard to cases pending at Appeals, which, to the extent practicable,
is to be provided by Chief Counsel staff who were not involved in
advising the IRS employees directly working on the case prior to its
referral to Appeals or in preparation of the case for litigation. See
House TFA Report, at 30.
The remainder of this Background describes new sections 7803(e)(4)
and 7803(e)(5), which are the primary focus of the guidance provided in
the proposed regulations.
II. General Availability of the Appeals Resolution Process
Section 7803(e)(4) of the Code, also enacted by the TFA, provides
that ``the resolution process [to resolve Federal tax controversies]
shall be generally available to all taxpayers.'' For example, a
taxpayer who does not resolve the taxpayer's deficiency case with the
IRS examiner assigned to the case usually will receive a 30-day letter
of a proposed determination of tax liability that provides the position
of the IRS regarding the taxpayer's Federal tax controversy. Generally,
receipt of the 30-day letter triggers an opportunity for the taxpayer
to request that Appeals consider the taxpayer's Federal tax
controversy.
As an alternative to having a court decide Federal tax
controversies without litigation (or without further litigation if the
taxpayer has petitioned the United States Tax Court (Tax Court)) and to
facilitate Appeals' function, Appeals uses one or more dispute
resolution methods to settle Federal tax controversies. The Appeals
dispute resolution methods may include, but are not limited to, a
conference, correspondence, and certain Appeals-provided alternative
dispute resolution services. These alternative dispute resolution
services include fast-track settlement, fast-track mediation, post-
Appeals mediation, Rapid Appeals Process, or early referral of issues
to Appeals.
The most frequent type of Federal tax controversy involves a
taxpayer disputing a liability that is subject to deficiency procedures
under section 6212. In many of these cases the taxpayer requests an
Appeals conference after the IRS has made a determination of the
taxpayer's liability and sent a preliminary (30-day) letter to the
taxpayer. In another group of cases, the taxpayer has received a notice
of deficiency and filed a petition in the Tax Court, after which the
docketed case may be forwarded to Appeals for consideration.
III. Limitation on Access to the Appeals Resolution Process
As discussed in more detail in section I.C. of the Explanation of
Provisions, the TFA did not require that the IRS grant all requests for
Appeals to consider any dispute regarding a Federal tax controversy.
The Secretary of the Treasury or her delegate (Secretary) may provide
exceptions that allow the IRS to deny requests for Appeals
consideration of a Federal tax controversy. In general, it has been the
historic practice of the Treasury Department and the IRS to publish
limitations on the access to the Appeals resolution process in IRS
guidance such as regulations, revenues procedures, and the IRM.
Although the TFA does not prohibit the IRS from denying requests
for Appeals consideration for Federal tax controversies, the TFA did
add new section 7803(e)(5) to the Code. After the enactment of the TFA,
the IRS must follow the special notification procedures set forth in
section 7803(e)(5) if a taxpayer who is in receipt of a notice of
deficiency requests to have the Federal tax controversy referred to
Appeals and that request is denied. In such a case, the IRS is required
to provide the taxpayer a written notice containing a detailed
description of the facts involved in the controversy, the basis for the
decision to deny the request, a detailed explanation of how the basis
for the decision applies to such facts, and the procedures for
protesting the decision to deny the request.
Explanation of Provisions
Proposed Sec. Sec. 301.7803-2 and 301.7803-3 would implement
section 7803(e) as explained in sections I and II of this Explanation
of Provisions, respectively. Proposed Sec. 301.7803-2 implements
section 7803(e)(3) and (4) regarding the resolution of Federal tax
controversies by Appeals. Proposed Sec. 301.7803-3 implements the
special notice procedures of section 7803(e)(5) to be followed by the
IRS upon denying taxpayer requests to have Federal tax controversies
referred to Appeals for those taxpayers in receipt of a notice of
deficiency.
I. Appeals Resolution of Federal Tax Controversies Without Litigation
A. Proposed Sec. 301.7803-2(a): Functions of Independent Office of
Appeals
As previously mentioned in the Background, in addition to
establishing the IRS Independent Office of Appeals in section
7803(e)(1) to codify the role of the independent administrative appeals
function and providing rules in section 7803(e)(2) regarding the
supervision of Appeals by the Chief of Appeals, the TFA codified in
section 7803(e)(3) the Appeals Mission Statement to resolve Federal tax
controversies with respect to taxpayers without litigation.\2\ Section
7803(e)(3) provides that ``[i]t shall be the function of [Appeals] to
resolve Federal tax controversies without litigation on a basis which
(A) is fair and impartial to both the Government and the taxpayer, (B)
promotes a consistent application and interpretation of, and voluntary
compliance with, the Federal tax laws, and (C) enhances public
confidence in the integrity and efficiency of the [IRS].'' These
functions are consistent with the historical functions of Appeals prior
to the enactment of the TFA. As further indication that Congress
intended Appeals to generally maintain its functions as they existed at
the time the TFA was enacted, the legislative history provides that
``Independent Appeals is intended to perform functions similar to those
of the current Appeals.'' See House TFA Report, at 30. Accordingly,
[[Page 55936]]
proposed Sec. 301.7803-2(a), consistent with the statutory text of
section 7803(e)(3), provides that Appeals resolves Federal tax
controversies without litigation on a basis that is fair and impartial
to the Government and the taxpayer, promotes a consistent application
and interpretation of, and voluntary compliance with, the Federal tax
laws, and enhances public confidence in the integrity and efficiency of
the IRS.
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\2\ The TFA's codification of the Appeals Mission Statement was
generally consistent with Appeals Mission described in the Internal
Revenue Manual at the time the TFA was enacted. IRM 8.1.1.1(1) (10-
1-2016).
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B. Proposed Sec. 301.7803-2(b): Consideration of Federal Tax
Controversies by Appeals Generally Available to All Taxpayers
Section 7803(e)(4) provides that the Appeals resolution process
described in section 7803(e)(3) to resolve Federal tax controversies
without litigation ``shall be generally available to all taxpayers.''
Proposed Sec. 301.7803-2(b)(1), consistent with the statutory text of
section 7803(e)(4), provides that the Appeals resolution process is
generally available to all taxpayers to resolve Federal tax
controversies.
The statute does not define the term ``Federal tax controversy.''
Consistent with the excerpts of the House TFA Report described in the
Background, proposed Sec. 301.7803-2(b)(2) defines a ``Federal tax
controversy'' as a dispute over an administrative determination with
respect to a particular taxpayer made by the IRS in administering or
enforcing the internal revenue laws, related Federal tax statutes, and
tax conventions to which the United States is a party (collectively
referred to as internal revenue laws) that arises out of the
examination, collection, or execution of other activities concerning
the amount or legality of the taxpayer's income, employment, excise, or
estate and gift tax liability; a penalty; or an addition to tax under
the internal revenue laws. Under these proposed regulations, Appeals
generally continues to resolve a Federal tax controversy based on the
likelihood the taxpayer's or the IRS's position with respect to the
administrative determination made by the IRS would prevail if the
Federal tax controversy was resolved by a court, as it did before
enactment of the TFA. In doing so, Appeals continues to independently
consider disputed administrative determinations made by the IRS in
administering or enforcing the internal revenue laws with respect to a
particular taxpayer arising from the IRS's examination, collection, or
execution of other activities with respect to the particular taxpayer
and attempts to resolve the disputes without litigation.
Consistent with the practice of Appeals prior to the enactment of
the TFA, the Appeals resolution process is also available to persons
who seek review of certain administrative determinations made by the
IRS with respect to such persons that do not directly involve their tax
liabilities, penalties, or additions to tax. Even though such matters
are not within the definition of a Federal tax controversy in proposed
Sec. 301.7803-2(b)(2), proposed Sec. 301.7803-2(b)(3) provides that
disputes over administrative determinations made by the IRS with
respect to a particular person regarding the listed topics are treated
as a Federal tax controversy. Appeals consideration of such
administrative determinations made by the IRS is consistent with the
historical functions of Appeals prior to the enactment of the TFA,
which Congress intended to codify in section 7803(e)(3). Specifically,
the legislative history states: ``Independent Appeals is intended to
perform functions similar to those of the current Appeals.'' See House
TFA Report, at 30. For example, Appeals considers determinations
involving initial or continuing tax exemption or foundation
classification of particular organizations, and initial or continuing
qualification of particular employee plans, unless the issue underlying
that determination is addressed by Chief Counsel through a technical
advice issued by the office of an Associate Chief Counsel (Associate
Office). See proposed Sec. 301.7803-2(b)(3)(iv) and (v); sec. 12.01 of
Rev. Proc. 2022-2 (2022-1 I.R.B. 120) (relating to use of technical
advice); Sec. 601.106(a)(1)(v)(a) of the Statement of Procedural Rules
(26 CFR part 601) (same). In addition to the topics listed in proposed
Sec. 301.7803-2(b)(3)(i) through (vii), proposed Sec. 301.7803-
2(b)(3)(viii) includes any other topic that the IRS determines can be
considered by Appeals. This proposed rule, therefore, allows Appeals to
consider administrative determinations made by the IRS with respect to
a particular person that are not Federal tax controversies within the
meaning of proposed Sec. 301.7803-2(b)(2) but that Appeals has
historically considered and attempted to resolve without litigation.
Based on its limited resources, the only disputes that are not Federal
tax controversies as defined in proposed Sec. 301.7803-2(b)(2) that
Appeals has historically considered and continues to consider are those
categories of disputes with respect to a particular person specified in
proposed Sec. 301.7803-2(b)(3)(i) through (vii). This proposed rule
also allows the addition of new categories of administrative
determinations made by the IRS with respect to a particular person that
in the future may become evident as appropriate to fulfill the function
of Appeals. See proposed Sec. 301.7803-2(b)(3)(viii).
C. Proposed Sec. 301.7803-2(c): Exceptions to Consideration by Appeals
When the TFA was enacted, the Appeals resolution process was
subject to exceptions and requirements that could limit use of that
process. Congress recognized these limits, and the statute and
legislative history demonstrate that the IRS retains discretion to have
appropriate limits following the statutory codification of the role of
an independent appeals function within the IRS (that is, Appeals). As
mentioned previously, section 7803(e)(4) provides that ``[t]he
[Appeals] resolution process . . . shall be generally available to all
taxpayers.'' Section 7803(e)(4) (emphasis added). In choosing to use
the words ``generally available'' in section 7803(e)(4), Congress made
clear that the statute does not impose an unqualified requirement that
the Appeals resolution process become a forum for any dispute with the
IRS.
In addition to the statutory language of section 7803(e)(4), the
House TFA Report also reflects the intention of Congress that the
Treasury Department and the IRS retain after the enactment of the TFA
their historical discretion to determine whether the resolution of
particular types of disputes is appropriate for the Appeals resolution
process, or the discretion of the IRS to determine whether a particular
Federal tax controversy is appropriate for the Appeals resolution
process:
Independent Appeals is intended to perform functions similar to
those of the current Appeals. Independent Appeals is to resolve tax
controversies and review administrative decisions of the IRS in a
fair and impartial manner, for the purposes of enhancing public
confidence, promoting voluntary compliance, and ensuring consistent
application and interpretation of Federal tax laws. Resolution of
tax controversies in this manner is generally available to all
taxpayers, subject to reasonable exceptions that the Secretary may
provide. Thus, cases of a type that are referred to Appeals under
present law remain eligible for referral to Independent Appeals.
See House TFA Report, at 30-31 (emphasis added).
The House TFA Report also explains that Congress knew the existing
backdrop of Appeals exceptions when it passed the TFA: ``The Committee
is aware that the Code does not currently require that all taxpayers be
provided an opportunity to contest an administrative
[[Page 55937]]
decision in Appeals, although most taxpayers are afforded that
opportunity.'' See House TFA Report, at 29. The House TFA Report noted
some of the existing exceptions:
Exceptions occur, and include cases in which inadequate time
remains on the limitations period for assessment and collection or
those in which the only arguments raised by the taxpayer are
frivolous positions. Similarly, if a case has reached a point at
which litigation is initiated, the availability of consideration by
Appeals may be limited. First, authority to settle cases referred to
the Department of Justice for defense or initiation of litigation
rests solely with that Department. Therefore, such cases are not
eligible for referral to Appeals. The terms under which a case
pending in the [United States Tax Court] may be referred to Appeals
are described in published guidance that centralizes the decision to
withhold a case from Appeals to assure consistent standards are
applied.
See House TFA Report, at 29 (footnotes omitted). The footnote to the
last quoted sentence cites the guidance in Rev. Proc. 2016-22 and Sec.
601.106 of the Statement of Procedural Rules (26 CFR part 601) that
sets out some of these exceptions, stating: ``Exceptions to the general
rule in favor of requiring Appeals consideration include cases that are
withheld in the interests of sound tax administration, among other
reasons.'' See House TFA Report, at 29, fn. 8.
Proposed Sec. 301.7803-2(c) sets forth the exceptions to
consideration of a Federal tax controversy by Appeals. These
exceptions, which are listed in proposed Sec. 301.7803-2(c)(1) through
(24), generally predate the enactment of the TFA. The proposed
exceptions to consideration by Appeals involve Federal tax
controversies, or issues arising in these controversies, that are
excepted from consideration by Appeals and matters or issues that are
otherwise ineligible for consideration by Appeals because they are not
Federal tax controversies as defined in proposed Sec. 301.7803-2(b)(2)
nor treated as Federal tax controversies in proposed Sec. 301.7803-
2(b)(3). To the extent that a matter or issue not eligible for
consideration by Appeals is present in a case that otherwise is
eligible for consideration by Appeals, the ineligible matter or issue
will not be considered by Appeals in the resolution of the case.
The Treasury Department and the IRS request comments on the scope
and rationale for the exceptions described in proposed Sec. 301.7803-
2(c)(1) through (24). To the extent any of the proposed exceptions may
differ from prior Appeals practice, comments are requested on the
effects of such differences and whether the objectives of such
exceptions could be accomplished by alternative means while still
allowing Appeals to function in accordance with section 7803(e)(3).
Comments are also requested on whether any additional exceptions to
Appeals consideration are warranted.
1. Frivolous Positions
Proposed Sec. 301.7803-2(c)(1) provides that Appeals consideration
is not available for an administrative determination made by the IRS
with respect to a particular taxpayer in which the IRS rejects a
frivolous position, which includes any case solely involving the
failure or refusal of the taxpayer to comply with the tax laws because
of frivolous moral, religious, political, constitutional,
conscientious, or similar grounds. A frivolous position includes a
position the IRS has identified as frivolous for purposes of section
6702(c) of the Code (regarding listing of frivolous positions). A list
of positions that the IRS has determined to be frivolous under section
6702(c) can be found in Notice 2010-33 (2010-17 I.R.B. 609 (April 26,
2010)). Proposed Sec. 301.7803-2(c)(1) codifies the pre-TFA practice
of the IRS of denying the request of a taxpayer for Appeals resolution
of frivolous arguments, including cases based solely on frivolous
moral, religious, political, constitutional, conscientious, or similar
grounds.
This approach is also consistent with the restriction in section
7803(e)(5)(D), also added by the TFA, that the notice and protest
procedures under section 7803(e)(5) do not apply to an Appeals referral
request if the issue is frivolous within the meaning of section
6702(c). Appeals consideration of frivolous positions would facilitate
the abuse of the tax system by allocating IRS and Appeals resources to
a secondary review of positions that have already been designated as
frivolous. Similar existing restrictions precluding the consideration
of frivolous positions by Appeals can be found in Sec. 601.106(b) of
the Statement of Procedural Rules (26 CFR part 601) (regarding appeal
procedures not extending to cases involving solely the failure or
refusal to comply with tax laws because of frivolous moral, religious,
political, constitutional, conscientious, or similar grounds), IRM
5.14.3.3(1) (10-20-2020) (relating to installment agreement requests
made to delay collection action), and IRM 8.22.5.5.3 (11-08-2013)
(relating to frivolous issues).
2. Penalties Related to Frivolous Positions and False Information
Similarly, proposed Sec. 301.7803-2(c)(2) provides that Appeals
consideration generally is not available regarding a penalty assessed
by the IRS with respect to a particular taxpayer for asserting a
frivolous position, making a frivolous submission, or for providing
false information. Examples of such penalties include sections 6702
relating to frivolous tax submissions and 6682 relating to false
information with respect to withholding. See IRM 8.11.8.2(1), (3) (10-
28-2013) (relating to a section 6702 penalty for frivolous tax
submissions); IRM 8.22.8.10.4(1) (08-26-2020) (relating to a frivolous
tax submission penalty under section 6702 and a false Form W-2, ``Wage
and Tax Statement,'' penalty under section 6682). These penalties are
immediately assessable. The IRS notifies the taxpayer of the penalty
assessment and makes a demand for payment. See sections 6703(b),
6671(a), and 6682(c) (relating to penalty assessment). A taxpayer
seeking judicial review must first pay the entire penalty and then file
a claim for refund with the IRS within two years of the date of
payment. These penalties are designed to deter frivolous behavior or
improper conduct by a taxpayer. If Appeals does not consider the merits
of the taxpayer's frivolous position, it follows that Appeals should
not consider the IRS's assessment of the penalty with respect to the
taxpayer as well.
Similarly, under proposed Sec. 301.7803-2(c)(2) Appeals
consideration is not available regarding the IRS's assessment of a
penalty with respect to a particular taxpayer who submits false
information. Appeals consideration of an administrative determination
made by the IRS to impose a penalty that stems from the particular
taxpayer's improper conduct of submitting false information would be
inconsistent with the purpose of the penalty, which is designed to
disincentivize the taxpayer from engaging in this improper conduct and
to encourage voluntary compliance.
Although penalties assessed by the IRS under sections 6702 and 6682
with respect to particular taxpayer generally are excepted from Appeals
consideration, proposed Sec. 301.7803-2(c)(2) recognizes that Appeals
may obtain verification that the assessment of the penalties with
respect to a particular taxpayer complied with sections 6203 (relating
to method of assessment) and 6751(b) (relating to approval of
assessment) of the Code in a collection due process (CDP) hearing. See
section 6330(c)(1), section 6330(c)(4)(B), and IRM 8.22.8.10.4(1) and
(11) (relating to Appeals review of certain limited issues in a CDP
action). Appeals also may consider a non-
[[Page 55938]]
frivolous challenge to an administrative decision made by the IRS in
assessing a penalty under section 6702 or section 6682 with respect to
a particular taxpayer in a CDP hearing. An example of such a non-
frivolous argument that Appeals could consider is the argument that a
section 6702 penalty was erroneously assessed by the IRS because the
return the taxpayer filed does not fall within section 6702. For
instance, if a taxpayer properly reported the taxpayer's income tax
liability but included a statement objecting to pay the amount of
reported liability that would otherwise go to the military and as a
result the taxpayer is assessed a section 6702 penalty, Appeals could
consider the taxpayer's non-frivolous argument that the IRS erroneously
assessed the penalty because the return filed does not fall within
section 6702.
3. Whistleblower Awards
Proposed Sec. 301.7803-2(c)(3) provides that Appeals consideration
is not available for any administrative determination made by the IRS
under section 7623 relating to awards to whistleblowers. The IRS
Whistleblower Office provides awards of up to 30 percent of the amount
recovered in tax enforcement actions to individuals who provide
credible evidence of tax fraud to the IRS. A whistleblower files a
claim providing information of alleged tax fraud involving a taxpayer.
The IRS Whistleblower Office notifies the whistleblower that it has
received the claim, that it will use the information to determine
whether to pursue an investigation, and that it will inform the
whistleblower as to whether the information meets the criteria for
paying an award. If the IRS Whistleblower Office subsequently evaluates
the whistleblower's claim and determines that it does not meet the
criteria for an award, Appeals consideration is not available to the
particular whistleblower for the administrative determination made by
the IRS under section 7623. Proposed Sec. 301.7803-2(b)(2) defines a
Federal tax controversy as a dispute over an administrative
determination with respect to a particular taxpayer made by the IRS in
administering or enforcing the internal revenue laws, related Federal
tax statutes, and tax conventions to which the United States is a party
(collectively referred to as internal revenue laws). An administrative
determination made by the IRS is only with respect to a particular
taxpayer and arises out of the examination, collection, or execution of
other activities concerning the amount or legality of the taxpayer's
income, employment, excise, or estate and gift tax liability; a
penalty; or an addition to tax under the internal revenue laws. In a
whistleblower case, the whistleblower's Federal tax liability is not at
issue and Appeals is not reviewing a determination by the IRS in its
examination, collection, or execution of other activities with respect
to the whistleblower's Federal tax liability. Consequently, a
whistleblower claim does not fall within the definition of a Federal
tax controversy, and it is excepted from Appeals consideration
consistent with Appeals' pre-TFA procedures. See sec. 4 of Rev. Proc.
2016-22 (2016-15 I.R.B. 577) (relating to practices for the
administrative appeals process in Tax Court). It also is not treated as
a Federal tax controversy under proposed Sec. 301.7803-2(b)(3), which
identifies certain matters with respect to a particular person subject
to Appeals review that do not arise from the examination, collection,
or execution of other activities concerning a taxpayer's Federal tax
liability or directly involve the taxpayer's Federal tax liabilities,
penalties, or additions to tax.
4. Administrative Determinations Made by Other Agencies
Proposed Sec. 301.7803-2(c)(4) provides that Appeals consideration
is not available for an administrative determination issued by an
agency other than the IRS. An example is a determination by the Alcohol
and Tobacco Tax and Trade Bureau (TTB) concerning an excise tax
administered by and within the jurisdiction of TTB. Such taxes include
an excise tax imposed by Chapter 32 (relating to firearms and
ammunition); by Subtitle E (relating to alcohol, tobacco, and certain
other excise taxes); or by Subchapter D of Chapter 78 (relating to U.S.
possessions) of the Code, to the extent it relates to Subtitle E. This
exclusion relating to the excise taxes administered by the TTB is
currently found in Sec. 601.106(a)(3) of the Statement of Procedural
Rules (26 CFR part 601). Proposed Sec. 301.7803-2(c)(4) is consistent
with the statute and the definition of a Federal tax controversy in
Sec. 301.7803-2(b)(2) because the Appeals resolution process is
available only for consideration of administrative determinations made
by the IRS with respect to a particular taxpayer. Neither section
7803(e) nor the House TFA Report refers to any agency other than the
IRS or contemplates Appeals consideration of a decision by any agency
other than the IRS. See House TFA Report, at 31. Similarly, Sec.
301.7803-2(b)(2) defines a Federal tax controversy as a dispute over an
administrative determination with respect to a particular taxpayer made
by the IRS in administering or enforcing the internal revenue laws,
related Federal tax statutes, and tax conventions to which the United
States is a party (collectively referred to as internal revenue laws).
An administrative determination made by the IRS is only with respect to
a particular taxpayer and arises out of the examination, collection, or
execution of other activities concerning the amount or legality of the
taxpayer's income, employment, excise, or estate and gift tax
liability; a penalty; or an addition to tax under the internal revenue
laws. Appeals therefore will not consider an administrative
determination of a tax that is not administered by or within the
jurisdiction of the IRS.
5. Taxpayer Assistance Order
Proposed Sec. 301.7803-2(c)(5) provides that Appeals consideration
is not available for a decision made by the IRS not to issue a Taxpayer
Assistance Order (TAO) under section 7811 of the Code (relating to
TAOs) with respect to a particular taxpayer if the taxpayer submits a
request for Taxpayer Advocate Service assistance. This clarification in
the proposed rule is consistent with the general definition of a
Federal tax controversy in proposed Sec. 301.7803-2(b)(2) because the
Office of the Taxpayer Advocate (commonly referred to as the Taxpayer
Advocate Service) is an independent part of the IRS, and its decision
not to issue a TAO is a process separate and distinct from an
administrative determination made by the IRS with respect to a
particular taxpayer that arises out of the examination, collection, or
execution of other activities concerning the amount or legality of the
taxpayer's income, employment, excise, or estate and gift tax
liability; a penalty; or an addition to tax under the internal revenue
laws.
6. Material To Be Deleted From a Written Determination
Proposed Sec. 301.7803-2(c)(6) provides that Appeals consideration
is not available for any decision by the IRS concerning material to be
deleted from the text of a written determination with respect to a
particular taxpayer pursuant to section 6110 of the Code (relating to
public inspection of written determinations) unless the written
determination is otherwise being reviewed by Appeals. Appeals did not
consider these types of matters before the TFA was enacted, and these
proposed regulations continue this exception. See sec. 4 of Rev. Proc.
2016-22. Like whistleblower awards, disputes
[[Page 55939]]
under section 6110 do not involve the type of controversy that Appeals
has traditionally handled, that is, reviewing an administrative
determination made by the IRS with respect to a particular taxpayer
that arises out of the examination, collection, or execution of other
activities concerning the amount or legality of the taxpayer's income,
employment, excise, or estate and gift tax liability; a penalty; or an
addition to tax under the internal revenue laws. A section 6110 dispute
does not involve the resolution of a Federal tax controversy but rather
is a dispute limited to whether particular information in a written
determination to be issued by the IRS to the taxpayer is information
that must be redacted before the written determination is released to
the public as required by section 6110.
Proposed Sec. 301.7803-2(c)(6) permits a disagreement concerning
material to be deleted under section 6110 from the text of a written
determination to be taken up at an Appeals conference that is otherwise
scheduled regarding a taxpayer's determination. If Appeals is already
considering the substantive content of the determination, minimal
resources and time would be required to also review the redactions. See
sec. 13.04 of Rev. Proc. 2022-5 (2022-1 I.R.B. 256) (relating to exempt
organization and private foundation status). This review would not
require the analysis of an entirely new dispute by Appeals, which would
require significant resources.
7. Denials of Access Under the Privacy Act
Similarly, proposed Sec. 301.7803-2(c)(7) provides that Appeals
consideration is not available for any dispute regarding a
determination of the IRS resulting in denial of access under the
Privacy Act (5 U.S.C. 552a(d)(1)) (relating to access to records) to a
particular person. Like a dispute involving section 6110, a dispute
involving the denial of access under the Privacy Act does not involve
the type of controversy that Appeals has traditionally handled. Rather
than involving a controversy regarding an administrative determination
made by the IRS with respect to a particular taxpayer that arises out
of the examination, collection, or execution of other activities
concerning the amount or legality of the taxpayer's income, employment,
excise, or estate and gift tax liability; a penalty; or an addition to
tax under the internal revenue laws, such a dispute involves whether
the Privacy Act prevents disclosure of records. In addition, 5 U.S.C.
552a(d)(2) and (3) creates administrative review rights for an agency's
refusal to amend a record accessed under the Privacy Act, but there is
no similar statutory authority to obtain administrative review,
including by Appeals, of a denial of access under the Privacy Act.
Rather, 5 U.S.C. 552a(g) provides that a civil action may be brought in
certain cases.
8. Issues Settled by a Closing Agreement
Proposed Sec. 301.7803-2(c)(8) provides that Appeals consideration
is not available for any issue that the IRS and a particular taxpayer
have resolved in an agreement described in section 7121 of the Code
regarding closing agreements and for any decision by the IRS to enter
into or not enter into such agreement. Proposed Sec. 301.7803-2(c)(8)
further provides that Appeals may consider the question of whether an
item or items are covered by a closing agreement, and how the item or
items are covered. Closing agreements are binding on the IRS and the
taxpayer in accordance with section 7121. Under section 7121(b), a
closing agreement between the IRS and a taxpayer is final unless fraud,
malfeasance, or misrepresentation of a material fact can be shown; the
case cannot be reopened as to the matters agreed upon or the agreement
modified by any officer, employee, or agent of the United States.
Therefore, any issue that is resolved by a closing agreement under
section 7121 is statutorily precluded from being considered by Appeals.
9. The IRS Erroneously Returns or Rejects an OIC
According to section 7122(f) of the Code, if an OIC is not rejected
within 24 months after submission, it shall be deemed to be accepted.
An offer under section 7122 will not be deemed to be accepted if it is
rejected or returned as nonprocessable or no longer processable within
the 24 months. See sec. 1.07 of Notice 2006-68 (2006-31 I.R.B. 105
(July 31, 2006)) (relating to OICs). Proposed Sec. 301.7803-2(c)(9)
provides that Appeals consideration is not available when the IRS
erroneously returns or rejects a taxpayer's OIC submitted under section
7122 as nonprocessable or no longer processable and the taxpayer
requests Appeals consideration on the basis that the OIC should be
deemed to be accepted under section 7122(f). This exception includes,
for example, the claim that the IRS's mistaken rejection or return was
in bad faith. Because the IRS returned or rejected the offer without
making a determination regarding the OIC, there is no administrative
determination made by the IRS for Appeals to review.
10. Criminal Prosecution Is Pending Against Taxpayer
Proposed Sec. 301.7803-2(c)(10) provides that Appeals
consideration is not available for a Federal tax controversy with
respect to a taxpayer while a criminal prosecution or a recommendation
for criminal prosecution is pending against the taxpayer for a tax-
related offense other than with the concurrence of Chief Counsel and
the Department of Justice, as applicable. Appeals consideration
therefore may be temporarily unavailable, and it may come later if the
other requirements in proposed Sec. 301.7803-2 are met. This proposed
exception to Appeals consideration avoids any interference or even the
appearance of any interference with a criminal prosecution or an
investigation that has been recommended for criminal prosecution. A
similar existing exception can be found in Sec. 601.106(a)(2)(vi) of
the Statement of Procedural Rules (26 CFR part 601) (relating to the
exclusion of review while a recommendation for criminal prosecution is
pending).
11. Branded Prescription Drug Fee and Health Insurance Providers Fee
Proposed Sec. 301.7803-2(c)(11) provides that consideration by
Appeals is not available for issues relating to the allocation among
different fee payers of the branded prescription drug fee found in
section 9008 of the Patient Protection and Affordable Care Act (PPACA),
Public Law 111-148 (124 Stat. 119 (2010)), as amended by section 1404
of the Health Care and Education Reconciliation Act of 2010 (HCERA),
Public Law 111-152 (124 Stat. 1029 (2010)), and the health insurance
providers fee found in section 9010 of PPACA, as amended by section
10905 of PPACA, and as further amended by section 1406 of HCERA. The
Further Consolidated Appropriations Act, 2020, Division N, Subtitle E,
section 502, Public Law 116-94 (133 Stat. 2534 (2019)), repealed the
section 9010 fee for calendar years beginning after December 31, 2020
(fee years after the 2020 fee year). Thus, Appeals will not consider
issues involving the branded prescription drug fee and the section 9010
fee because these disputes do not involve tax issues with respect to a
particular taxpayer, but issues concerning how a statutory fee is
allocated amongst multiple fee payers.
Each allocated fee in sections 9008 and 9010 (when it was in
effect) has a built-in corrections process that allows
[[Page 55940]]
fee payers an opportunity to address errors and other problems before
the final fee is determined. Allowing the regular Appeals process to be
available with respect to one fee payer would be inconsistent with the
process of calculating the allocated fees, under which adjusting one
fee payer's fee affects the fees payable by all other fee payers.
Comparatively, the built-in corrections process allows for each fee
payer's liability to be determined in a relatively short time. Appeals
consideration therefore is not appropriate given the nature of the
allocated fee process and the impracticality of, and lack of time for,
Appeals consideration. Furthermore, the regulations provide that all
fee determinations by the IRS are final. See 26 CFR 51.7(d) (relating
to the finality of the branded prescription drug fee calculation
process) and 26 CFR 57.6(c) (relating to the finality of the health
insurance providers fee calculation process). Proposed Sec. 301.7803-
2(c)(11) promotes efficient and fair tax administration and enforcement
of the internal revenue laws, leading to the consistent resolution of
issues and conserving IRS and taxpayer resources.
12. IRS's Automated Process of Certifying a Seriously Delinquent Tax
Debt
Proposed Sec. 301.7803-2(c)(12) provides that consideration by
Appeals is not available for the certification or issuance of a notice
of certification of a seriously delinquent Federal tax debt of a
particular taxpayer to the Department of State (State Department) under
section 7345 of the Code (relating to the revocation or denial of a
taxpayer's passport in the case of serious tax delinquencies). The IRS
relies on automated systems to identify every electronic taxpayer
record on an individual's account with an unpaid assessed tax liability
that is not statutorily excepted from the definition of seriously
delinquent tax debt or otherwise in a category excluded from
certification. Once all eligible unpaid liabilities have been
identified, the systems aggregate the amount of unpaid liabilities. If
the total is more than the statutory threshold, the taxpayer is
identified as having a seriously delinquent tax debt, and the relevant
transaction code is posted to the electronic taxpayer records. The
Commissioner of the IRS's Small Business/Self-Employed Division then
certifies that the identified individuals each have a seriously
delinquent tax debt, and the IRS sends a list of all certified
individuals to the State Department. The taxpayer receives Notice
CP508C, ``Notice of certification of your seriously delinquent Federal
tax debt to the State Department,'' informing the taxpayer to contact
the IRS at the phone number in that notice to request reversal of the
certification if the taxpayer believes the certification is erroneous.
The sole remedy of a taxpayer who believes that a certification is
erroneous or that the IRS incorrectly failed to reverse a certification
because the tax debt is either fully satisfied or ceases to be a
seriously delinquent tax debt is to file a civil action in court under
section 7345(e). Although a taxpayer can challenge the certification in
a Federal district court or the Tax Court, the taxpayer cannot
challenge the underlying liabilities because the amounts of the
liabilities that constitute a seriously delinquent tax debt are not at
issue in the certification process. See Ruesch v. Commissioner, 154
T.C. 289 (2020). In a docketed case, Appeals consideration is not
appropriate given the automated nature of the IRS's process for
identifying and certifying individuals with seriously delinquent tax
debts and because the certification of a taxpayer will have been
verified by the assigned Counsel attorney in answering the docketed
case. Consequently, there are no issues for Appeals to consider. An
existing exception similar to this proposed rule can be found in Notice
2018-01 (2018-2 I.R.B. 299 (January 16, 2018)) (relating to revocation,
limitation, or denial of a passport in the case of certain tax
delinquencies).
13. Issues Barred From Consideration in CDP Cases
Proposed Sec. 301.7803-2(c)(13) provides that consideration by
Appeals is not available for any issue that is statutorily prohibited
from being considered during a CDP hearing in accordance with section
6320 regarding notice and opportunity for a hearing upon the filing of
a notice of lien, section 6330 regarding notice and opportunity for a
hearing before levy, the corresponding regulations, or any other
administrative guidance related to CDP hearings. For example, in a CDP
case a taxpayer is precluded from requesting relief under section 66
relating to community property and section 6015 relating to relief from
joint and several liability on a joint return if the Commissioner has
already made a final determination as to spousal defenses in a
statutory notice of deficiency or final determination letter. See
Sec. Sec. 301.6320-1(e)(2), 301.6330-1(e)(2); Sec. Sec. 301.6320-
1(e)(3) Q&A-E4, 301.6330-1(e)(3) Q&A-E4. In this example, a taxpayer
may request relief, and receive a second final determination, only if
one of the exceptions provided in Sec. 1.6015-5(c) (relating to effect
of a final administrative determination) or IRM 25.15.17.7 (03-05-2019)
(relating to issuing second preliminary and final determinations for
the same relief request) apply. In another example, if a taxpayer
received a prior CDP notice under section 6320 or 6330 for the same tax
liability and taxable period, the taxpayer has had an opportunity to
dispute the existence and amount of that liability and may not
challenge it in a subsequent CDP hearing, regardless of whether the
taxpayer requested a CDP hearing in response to the prior notice. See
Sec. Sec. 301.6320-1(e)(3) Q&A-E7, 301.6330-1(e)(3) Q&A-E7. The
Procedure and Administration Regulations (26 CFR part 301) provide that
a taxpayer whose CDP hearing request is untimely is not entitled to a
CDP hearing under section 6320 or section 6330 but may receive an
``equivalent hearing.'' See Sec. Sec. 301.6320-1(i)(1), 301.6330-
1(i)(1). Proposed Sec. 301.7803-2(c)(13) also applies to equivalent
hearing requests.
14. Authority Over the Matter Rests With Another Office
Proposed Sec. 301.7803-2(c)(14) provides that consideration by
Appeals is not available for any case, determination, matter, decision,
request, or issue with respect to a particular taxpayer that Appeals
lacks the authority to settle. There is no reason for Appeals to expend
resources considering a Federal tax controversy that it cannot
ultimately resolve.
Proposed Sec. 301.7803-2(c)(14)(i) through (v) provides a non-
exclusive list of examples illustrating this rule. Appeals does not
have authority to resolve an issue with respect to a particular
taxpayer in a docketed case after a referral has been made to the
Department of Justice. For instance, Appeals lacks the authority to
settle a tax claim in a bankruptcy court where the taxpayer has filed a
petition in the bankruptcy court and objected to the Government's proof
of claim and requested that the court determine tax liability. Section
7122(a) provides that settlement authority resides with the Department
of Justice after a referral is made.
Appeals also lacks authority over decisions that are delegated
exclusively to other offices within the IRS. For example, Appeals
cannot consider a competent authority case under a United States tax
treaty that is within the exclusive authority of the United
[[Page 55941]]
States Competent Authority. The term Competent Authority is defined in
U.S. tax treaties as the Secretary or her delegate. The Secretary has
delegated this authority to the Commissioner, who has redelegated it to
the Commissioner of the Large Business and International (LB&I)
Division of the IRS, the Deputy Commissioner of LB&I, and specified
officials within LB&I with respect to particular matters. See IRM
1.2.2.5.11 (06-09-2021) (Delegation Order 4-12 (Rev. 4)). The United
States Competent Authority has exclusive authority over a competent
authority issue it accepts for consideration or a competent authority
resolution that was previously accepted by the taxpayer. Therefore,
Appeals generally does not have authority to review these matters. See
sec. 6.04(1) of Rev. Proc. 2015-40 (2015-35 I.R.B. 236) (regarding
procedures for requesting competent authority assistance under U.S. tax
treaties).
In another example, Appeals lacks authority over the discretionary
decision of the Commissioner or the Commissioner's delegate whether to
rescind a section 6707A penalty for a non-listed reportable
transaction. See section 6707A(d) (relating to the Commissioner's
authority to rescind the penalty); Sec. 301.6707A-1(e) (relating to
rescission authority); and IRM 8.11.7.6.8(2) (10-29-2013) (relating to
rescission requests).
Similarly, Appeals lacks authority over an issue when a requesting
spouse seeks relief under section 6015 relating to relief from joint
and several liability on a joint return and a nonrequesting spouse is a
party to a docketed case in the Tax Court and does not agree to
granting full or partial relief under section 6015. See Chief Counsel
Notice 2013-011 (June 7, 2013) (relating to litigating cases that
involve claims for Innocent Spouse relief under section 6015). As
explained in Chief Counsel Notice 2013-011, the IRS, which includes
Appeals, is legally prohibited from providing section 6015 relief or
settling with the requesting spouse if the non-requesting spouse is a
joint petitioner or an intervenor in a Tax Court case and is not a
party to the settlement. See Corson v. Commissioner, 114 T.C. 354
(2000). In that case, authority to resolve the issues rests solely with
the Tax Court.
Appeals also lacks authority over a criminal restitution-based
assessment under section 6201(a)(4) of the Code relating to certain
orders of criminal restitution and restriction on challenge of
assessment.
15. Certain Technical Advice Memoranda
Proposed Sec. 301.7803-2(c)(15) provides that Appeals
consideration is not available for certain adverse actions related to
the initial or continuing recognition of tax-exempt status, an entity's
classification as a foundation, the initial or continuing determination
of employee plan qualification, or a determination involving an
obligation and the issuer of an obligation under section 103. The
proposed exception regarding the recognition of tax-exempt status,
foundation classification, plan qualification determination, or
determination involving an obligation and the issuer of an obligation
under section 103 applies only if the adverse action is based upon a
technical advice memorandum (TAM) issued by an Associate Office before
an appeal is requested. Appeals may request that the Associate Office
reconsider the TAM. See sec. of 12.01 Rev. Proc. 2022-2 regarding
Appeals submitting a proposed disposition of an issue contrary to a TAM
as a request for a new TAM.
A TAM is advice furnished by an Associate Office in a memorandum
that responds to any request for assistance on any technical or
procedural legal question involving the interpretation and proper
application of any legal authority that is submitted in accordance with
an applicable revenue procedure. See Rev. Proc. 2022-2 (defining the
term ``Associate office'' and explaining when and how an Associate
Office provides technical advice, conveyed in technical advice
memoranda). Chief Counsel has jurisdiction over legal questions. See
section 7803(b)(2). If a TAM is furnished concerning an organization's
exempt status or foundation classification, or concerning an employee
plan's status or qualification, Chief Counsel's decision with respect
to those issues is the final position of the IRS and therefore excepted
from Appeals consideration. See Sec. 601.106(a)(1)(v)(a); IRM
8.1.1.2.1(1)(c.) (02-10-2012) (relating to exceptions to Appeals
authority). Accordingly, an IRS field office must process the
taxpayer's case in accordance with the conclusions in the TAM. See sec.
12.01 of Rev. Proc. 2022-2. Similarly, if a TAM provides conclusions
involving an obligation and the issuer of the obligation under section
103, the field office must apply the conclusions to the issuer and any
holder of the obligation unless a new TAM is issued on behalf of the
holder for the same issue addressed in the initial TAM. See sec. 12.01
of Rev. Proc. 2022-2. As in the guidance referenced in this paragraph,
proposed Sec. 301.7803-2(c)(15) provides that when these issues and
determinations are the subject of a TAM from an Associate Office, they
are excepted from Appeals consideration because Chief Counsel has
exclusive authority to resolve these issues.
16. Technical Advice From an Associate Office in a Docketed Case
For the same reasons as explained in section C.15. of this
Explanation of Provisions, proposed Sec. 301.7803-2(c)(16) provides
that Appeals consideration is not available for any case docketed in
the Tax Court if the notice of deficiency, notice of liability, or
final adverse determination letter is based upon an Associate Office
TAM in that case involving an adverse action described in Sec.
301.7803-2(c)(15). Like the exception in proposed Sec. 301.7803-
2(c)(15), the exception in proposed Sec. 301.7803-2(c)(16) relates to
the initial or continuing recognition of tax-exempt status, an entity's
classification as a foundation, the initial or continuing determination
of employee plan qualification, or a determination involving an
obligation and the issuer of an obligation under section 103. When
these issues and determinations are the subject of a TAM from an
Associate Office, they are final and excepted from Appeals
consideration. See Sec. 601.106(a)(2)(iii) (relating to an exception
if a notice of deficiency, notice of liability, or final adverse
determination letter is based upon specified ruling or technical
advice); sec. 12.01 of Rev. Proc. 2022-2.
17. Letter Rulings Issued by an Associate Office
Proposed Sec. 301.7803-2(c)(17) provides that Appeals
consideration is not available for a decision by an Associate Office
whether to issue a letter ruling or the content of a letter ruling. A
taxpayer requests a letter ruling by submitting a request that meets
the requirements of the revenue procedure that describes the letter
ruling process, which is updated annually. The most recent update is
Rev. Proc. 2022-1.
As explained in section 2.01 of Rev. Proc. 2022-1, a letter ruling
is a written determination issued to a taxpayer by an Associate Office
in response to the taxpayer's inquiry, filed prior to the filing of
returns or reports that are required by the tax laws, about its status
for tax purposes or the tax effects of its acts or transactions. A
letter ruling interprets the tax laws and applies them to the
taxpayer's specific set of facts. An Associate Office issues a letter
ruling
[[Page 55942]]
when appropriate and in the interest of sound tax administration. A
voluntary request for a letter ruling is not an administrative
determination that is part of the IRS's compliance function. The
taxpayer is not required to file a return consistent with the letter
ruling. The letter ruling program is not designed to present a position
of the IRS for Appeals to consider. The program is designed instead to
provide taxpayers with information regarding whether the IRS will
accept a position to be taken on the taxpayer's return. An exception
similar to the exception in proposed Sec. 301.7803-2(c)(17) already
exists in section 10.02 of Rev. Proc. 2022-1.
However, proposed Sec. 301.7803-2(c)(17) provides that the subject
of the letter ruling may be considered by Appeals if all other
requirements in proposed Sec. 301.7803-2 are met. For example, assume
that a taxpayer submits a letter ruling request pursuant to Rev. Proc.
2022-1 and an Associate Office issues a letter ruling adverse to the
taxpayer's request. If the taxpayer files a tax return contrary to the
adverse letter ruling and a Federal tax controversy arises that
involves the subject of the adverse letter ruling, Appeals could
consider the subject of the letter ruling in the dispute if all other
requirements in proposed Sec. 301.7803-2 are met.
18. Challenges Alleging That a Statute Is Unconstitutional
Proposed Sec. 301.7803-2(c)(18) provides that Appeals
consideration is not available for any issue based on a taxpayer's
argument that a statute violates the United States Constitution unless
there is an unreviewable decision from a Federal court holding that the
cited statute is unconstitutional. An argument that a statute violates
the United States Constitution includes an argument that a statute is
unconstitutional on its face or as applied to a specific person. For
purposes of the proposed regulations, an unreviewable decision is a
decision that can no longer be appealed to any Federal court because
all appeals in a case have been exhausted or the time to appeal has
expired and no appeal was filed, such as a final determination under
section 7481 of the Code. Once there is an unreviewable decision, no
further action can be taken in the case by any court. In fulfilling its
function of considering hazards of litigation based upon the
possibility that an administrative determination made by the IRS with
respect to a particular taxpayer would be reversed in a court
proceeding, Appeals may consider such an unreviewable decision.
Proposed Sec. 301.7803-2(c)(18) further provides that this exception
does not preclude Appeals from considering a Federal tax controversy
based on arguments other than the constitutionality of the statute,
such as whether the statute applies to the taxpayer's facts and
circumstances, and settling the Federal tax controversy weighing the
likelihood a court would agree with the position of the taxpayer or the
Government.
Appeals is not an appropriate forum to consider constitutional
challenges to Federal tax statutes. Whether the actions taken to enact
a Federal tax statute comport with the Constitution is initially
determined by Congress and the President. Questions regarding the
constitutionality of a duly enacted statute are determinations of
general applicability resolved at the highest levels of the Treasury
Department and the IRS, in consultation with the Office of Legal
Counsel of the Department of Justice. Such a determination is not
appropriate for Appeals to consider.
In addition, one of the statutory duties of Appeals is to resolve
cases on a basis that ``promotes a consistent application and
interpretation of, and voluntary compliance with, the Federal tax
laws.'' See section 7803(e)(3)(B). A Federal court's unreviewable
decision is a determination by the judicial branch on the merits of the
constitutional challenge that may reject the determinations made by
Congress, the President, the Treasury Department, or the IRS with
regard to the constitutionality of a Federal tax statute, thereby
providing a basis for Appeals to consider constitutional challenges to
the Federal tax statute that is the subject of the taxpayer's dispute.
Unlike a Federal court's unreviewable decision, which is publicly
available to all taxpayers, an Appeals resolution relates only to a
single Federal tax controversy and, by law, the outcome generally can
only be communicated by the IRS to the taxpayer. Any constitutional
determination with respect to a Federal tax law should be communicated
and applied consistently to all taxpayers. Accordingly, the Treasury
Department and the IRS believe that it would be inappropriate for
Appeals to consider challenges to the constitutionality of a statute in
the absence of an unreviewable decision from a Federal court holding
the statute to be unconstitutional.
The Treasury Department and the IRS request comments on this
proposed exception.
19. Challenges Alleging That a Treasury Regulation Is Invalid
Proposed Sec. 301.7803-2(c)(19) provides that Appeals
consideration is not available for any issue based on a taxpayer's
argument that a Treasury regulation is invalid unless there is an
unreviewable decision from a Federal court invalidating the regulation
as a whole or the provision in the regulation that the taxpayer is
challenging. As explained previously, an unreviewable decision is a
decision that can no longer be appealed to any Federal court. As with
the exception for constitutional challenges, this exception does not
preclude Appeals from considering a Federal tax controversy based on
other arguments. For example, Appeals may consider whether the Treasury
regulation applies to a taxpayer's facts and circumstances and resolve
the Federal tax controversy by weighing the likelihood a court would
agree with the position of the taxpayer or the Government.
Questions regarding the validity of a Treasury regulation are
determinations of general applicability resolved at the highest levels
of the Treasury Department and the IRS. Sections 7801 through 7805 of
the Code vest with the Secretary, the Commissioner, and other Treasury
Department officials the authority to administer the internal revenue
laws, including the power to promulgate regulations. Pursuant to these
provisions of the Code and 31 U.S.C. 321(b), the delegated authority to
prescribe Treasury regulations is held by the Assistant Secretary of
the Treasury for Tax Policy (Assistant Secretary for Tax Policy) and
the General Counsel for the Department of the Treasury (Treasury
Department General Counsel). See Treasury Directive 18-02 (9-4-1986)
and Treasury Order 107-03 (01-30-1978). The process of reviewing and
approving Treasury regulations before they are published is extensive
and involves senior officials in numerous offices within the Treasury
Department, the IRS, and sometimes other Federal agencies. See IRM Part
32.1 (Chief Counsel Regulation Handbook) for a description of the
process for drafting regulations. Before a regulation is published in
the Federal Register it must be approved by the Associate Chief Counsel
responsible for drafting the regulation; a Deputy Chief Counsel; the
Deputy Commissioner for Services and Enforcement; multiple individuals
in the Treasury Department's Office of Tax Policy, including the
Assistant Secretary for Tax Policy; the Treasury Department's Office of
General Counsel;
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the Office of the Executive Secretary; and, in some cases, the
Secretary of the Treasury.
In light of the extensive review and approval procedures at senior
levels in both the Treasury Department and the IRS, we believe that it
would be inappropriate for Appeals to consider arguments regarding the
validity of Treasury regulations in the absence of an unreviewable
Federal judicial decision holding the regulation invalid. In the
absence of an unreviewable Federal judicial decision holding a Treasury
regulation invalid, Appeals consideration of such arguments would also
be inconsistent with the delegation of the Secretary's authority to
prescribe regulations to the Assistant Secretary for Tax Policy and to
the Treasury Department General Counsel. Furthermore, unlike the
authority to apply the tax laws to a specific set of facts, which, for
example, is redelegated to the examination function within the IRS to
facilitate examination of a particular taxpayer, the authority and
function to promulgate regulations rests with the Assistant Secretary
for Tax Policy and the Treasury Department General Counsel. Such a
determination would not be appropriate for Appeals to consider until
there is an unreviewable decision from a Federal court invalidating the
regulation as a whole or the provision in the regulation that the
taxpayer is challenging.
Treasury regulations are generally submitted for notice and comment
under the Administrative Procedure Act and have the force and effect of
law once a Treasury decision containing such regulations is published
in the Federal Register. Consequently, Treasury regulations are binding
on the Treasury Department, the IRS and the public, including all
Treasury Department and IRS employees. This means that Treasury
Department and IRS employees must follow the regulations until they are
revised, removed through the notice and comment process, or invalidated
by subsequent legislation or an unreviewable decision of a Federal
court. As an office within the Treasury Department and the IRS, these
requirements apply to Appeals and its employees.
In addition, as with constitutional challenges to a statute, a
determination with respect to the validity of a regulation should be
communicated and applied consistently to all taxpayers. Unlike a non-
public Appeals settlement, an unreviewable decision by a Federal court
is available to all taxpayers and the IRS regarding the validity of a
Treasury regulation. A settlement before Appeals is specific to a
taxpayer and cannot be disclosed by the IRS unless an exception to
section 6103 of the Code applies. Furthermore, unlike most Appeals
analysis, which weigh litigation hazards in applying the law to
specific facts, considering the validity of a regulation does not
involve taxpayer specific facts. A Federal court's unreviewable
decision is a determination by the judicial branch on the merits of the
validity challenge that may reject the determinations made by other
levels of the Treasury Department or the IRS with regard to the
validity of a Treasury regulation, thereby providing a basis for
Appeals to consider a regulation's validity. Accordingly, the Treasury
Department and the IRS believe that it would be inappropriate for
Appeals to consider challenges to the validity of a Treasury regulation
unless a Federal court has rendered an unreviewable decision holding
that the regulation is invalid.
The Treasury Department and the IRS request comments on this
proposed exception.
20. Challenges Alleging That a Notice or Revenue Procedure Is Invalid
Proposed Sec. 301.7803-2(c)(20) provides that Appeals
consideration is not available for any issue based on a taxpayer's
argument that an IRS notice or revenue procedure published in the
Internal Revenue Bulletin is procedurally invalid unless there is an
unreviewable decision from a Federal court invalidating the notice or
revenue procedure. An unreviewable decision is a decision that can no
longer be appealed to any Federal court, as explained previously.
However, this proposed rule would not prevent Appeals from considering
the likelihood that a court would agree or disagree with the
interpretation of the tax law asserted by the taxpayer, even though it
may differ from the interpretation described in a notice or revenue
procedure. Additionally, the proposed rule would not prevent Appeals
from considering a Federal tax controversy based on arguments other
than the validity of a notice or revenue procedure. For example,
Appeals may consider whether the notice or the revenue procedure
applies to the taxpayer's facts and circumstances and resolve the
Federal tax controversy weighing the likelihood a court would agree
with the position(s) of the taxpayer or the Government.
Similar to Treasury regulations, the process for drafting and
publishing notices and revenue procedures is extensive. See IRM Part
32.2 (Chief Counsel Publication Handbook) for a description of the
process for drafting published guidance, including notices and revenue
procedures. Notices and revenue procedures are approved within the
Treasury Department's Office of Tax Policy, involve numerous policy and
implementation determinations, and involve the coordination and
agreement of many offices within the Treasury Department, the IRS, and
sometimes other Federal agencies. The approval process includes
consideration of administrative law requirements applicable to such
guidance. Furthermore, unlike the application of the tax law to a
specific set of facts and circumstances during, for example, an
examination, procedural determinations regarding notices and revenue
procedures must be approved at high levels within the Treasury
Department and are not specific to the facts of a particular case.
Ultimately, whether an IRS notice or revenue procedure is invalid is a
determination of general applicability resolved at the highest levels
of the Treasury Department and the IRS. Such a determination thus would
not be appropriate for Appeals to consider. Furthermore, any
determination regarding whether a notice or revenue procedure failed to
comply with administrative law requirements, such as notice and comment
under 5 U.S.C. 553, should be communicated and applied consistently. As
with constitutional and regulation validity challenges, an unreviewable
decision of a Federal court is the appropriate means of making
information accessible to all taxpayers and the IRS regarding whether a
notice or revenue procedure was prescribed in accordance with
applicable Federal law. A settlement before Appeals is specific to a
taxpayer and cannot be made available to other taxpayers. A Federal
court's unreviewable decision is a determination by the judicial branch
on the merits of the validity challenge that may reject the
determinations made by other levels of the Treasury Department or the
IRS with regard to the validity of an IRS notice or revenue procedure,
thereby providing a basis for Appeals to consider the validity of an
IRS notice or revenue procedure. Accordingly, the Treasury Department
and the IRS believe that it would be inappropriate for Appeals to
consider challenges alleging that a notice or revenue procedure is
procedurally invalid unless a Federal court has rendered an
unreviewable decision holding the notice or revenue procedure to be
invalid.
[[Page 55944]]
The Treasury Department and the IRS request comments on this
proposed exception.
21. Case or Issue Designated for Litigation or Withheld From Appeals
Proposed Sec. 301.7803-2(c)(21) provides that Appeals
consideration is not available for any case or issue designated for
litigation, or withheld from Appeals consideration in a Tax Court case,
in accordance with guidance regarding designating or withholding a case
or issue. Designation for litigation means that the Federal tax
controversy, comprising an issue or issues in a case, will not be
resolved without a full concession by the taxpayer or by decision of
the court. The ability to designate a case for litigation or withhold a
Tax Court case from Appeals existed long before section 7803(e) was
added to the Code. See, e.g., sec. 3.03 of Rev. Proc. 2016-22 and IRM
33.3.6 (12-10-2010) (relating to designating a case for litigation).
See also NHQ-04-0521-0003 (5-24-2021) (interim guidance on designation
of cases for litigation). Chief Counsel will not refer to Appeals any
case or issue that has been designated for litigation.
Also, Chief Counsel will withhold from Appeals a Tax Court case or
one or more issues in a Tax Court case if Chief Counsel determines
referral is not in the interest of sound tax administration. For
example, Chief Counsel may decide not to refer a Tax Court case to
Appeals when the Tax Court case involves a significant issue common to
other cases in litigation for which it is important that the IRS
maintains a consistent position or when the Tax Court case is related
to a case over which the Department of Justice has jurisdiction after
referral to the Department of Justice for prosecution or defense.
While the role of Appeals has been to review the IRS's and the
taxpayer's positions and consider issues based on the likelihood that
the IRS's or the taxpayer's position would prevail if it were resolved
by a court, the processes described earlier allow Chief Counsel to
strategically manage its cases, fulfilling Chief Counsel's role of
ensuring a consistent application and interpretation of the internal
revenue laws and aiding in the development of the tax law. See section
7803(b)(2)(E). These processes are intended to serve the tax
administration interests of the IRS and taxpayers by improving
taxpayers' understanding of and voluntary compliance with the internal
revenue laws, leading to more effective and fair IRS enforcement.
Unlike an Appeals resolution, a judicial decision in designated or
withheld cases will provide notice to all taxpayers of any development
in the law, leading to the early resolution of issues and conserving
IRS and taxpayer resources.
22. Appeals Issued the Determination That Is the Basis of the Tax
Court's Jurisdiction
Proposed Sec. 301.7803-2(c)(22) provides that except as provided
in proposed Sec. 301.7803-2(f)(1) (regarding when the Tax Court
remands a CDP case for reconsideration), Appeals consideration is not
available for any case docketed in the Tax Court if the notice of
deficiency, notice of liability, or other determination was issued by
Appeals officials. Examples of the cases subject to proposed Sec.
301.7803-2(c)(22) include a case under sections 6320 or 6330, section
6404 (relating to abatement of interest), section 7428 (relating to
declaratory judgment on the classification of specified organizations),
section 7476 (relating to declaratory judgment on qualification of
certain retirement plans), section 7477 (relating to declaratory
judgment on the value of certain gifts), or section 7479 (relating to
declaratory judgment on the eligibility of an estate with respect to
installment payments under section 6166 (regarding the extension of
time for payment of estate tax where the estate consists largely of an
interest in a closely held business)). This proposed rule is reflected
in Rev. Proc. 2016-22. See secs. 3.01 and 4 of Rev. Proc. 2016-22.
Under the proposed rule, Chief Counsel will not refer a docketed case
to Appeals if Appeals previously reviewed the case and issued the
correspondence stating its determination. A taxpayer whose case has
been reviewed by Appeals cannot request a duplicative or second
opportunity to have the same case reviewed by Appeals. It would be a
redundant exercise and a significant mismanagement of time and
resources for the IRS and Appeals to allow a taxpayer to request
consideration by Appeals if Appeals already has considered the same
matter.
23. Appeals Consideration Is a Prerequisite to the Jurisdiction of Tax
Court
Proposed Sec. 301.7803-2(c)(23) provides that subsequent Appeals
consideration is not available when timely Appeals consideration itself
is a prerequisite to Tax Court jurisdiction over an issue. To meet the
statutory jurisdictional requirements in cases in which exhaustion of
administrative review is a prerequisite to the Tax Court's
jurisdiction, and such administrative review includes consideration by
Appeals, Appeals consideration must be requested before a petition is
filed in the Tax Court. Such a case is excluded from Appeals at the
docketed stage because the taxpayer failed to take advantage of the
earlier administrative opportunity to request Appeals review. Failure
to request prior Appeals consideration will constitute a failure to
exhaust available administrative remedies and the failure cannot be
cured while the case is docketed.
Proposed Sec. 301.7803-2(c)(23) lists some examples of such cases.
Appeals consideration must be requested before a petition is filed in
the Tax Court regarding a declaratory judgment request under section
7428 relating to declaratory judgments on the classification of
specified organizations. See section 7428(b)(2) (regarding exhaustion
of administrative remedies prior to seeking declaratory judgment
pursuant to section 7428); sec. 10.05 of Rev. Proc. 2022-5 (regarding
the same). Other examples are cases to which section 7476(b)(3) applies
regarding exhausting administrative remedies prior to seeking
declaratory judgment pursuant to section 7476 relating to declaratory
judgment on qualification of certain retirement plans. See Sec.
601.201(o)(6)(i) of the Statement of Procedural Rules (26 CFR part 601)
(regarding the same); section 7477(b)(2) (regarding exhausting
administrative remedies prior to seeking declaratory judgment pursuant
to section 7477 relating to declaratory judgment on the value of
certain gifts); see Sec. 301.7477-1(d)(4)(ii) (regarding the same).
24. An Administrative Determination To Deny or Revoke a CPEO
Certification
Proposed Sec. 301.7803-2(c)(24) provides that Appeals
consideration of an administrative determination made by the IRS to
deny or revoke a Certified Professional Employer Organization (CPEO)
certification is not available because the IRS has established another
independent review process to review the determination. It is excepted
from Appeals consideration because review by Appeals would be
duplicative when a non-Appeals office has an established process to
independently review the matter. The CPEO certification procedures
established the IRS Office of Professional Responsibility (OPR) as the
independent reviewer of the IRS's decision to deny or revoke a CPEO
certification. The CPEO program under sections 3511 (relating to the
rules for CPEOs) and 7705 (relating to the definition of CPEOs) of the
Code involves the certification of a
[[Page 55945]]
Professional Employer Organization as having met certain tax status,
background, experience, business location, financial reporting,
bonding, and other requirements described in statutes and regulations.
An applicant for certification that received a notice of proposed
denial of certification can request review by OPR. Current procedures
are in Rev. Proc. 2016-33 (2016-25 I.R.B. 1034). A CPEO that received a
notice of suspension and proposed revocation of certification can also
request review by OPR. Current procedures are in Rev. Proc. 2017-14
(2017-3 I.R.B. 426).
D. Request for Comments on Other Exclusions
The list of exclusions in proposed Sec. 301.7803-2(c) does not
include certain exclusions from Appeals review currently provided in
the IRM. The Treasury Department and the IRS are evaluating whether
these items, which relate to requests for relief under Sec. Sec.
301.9100-1 through 301.9100-22 of the Procedure and Administration
Regulations (9100 relief) and requests for a change in accounting
method, should be included on the list.
1. 9100 Relief
The IRM currently provides that Appeals consideration is not
available for a decision issued by an Associate Office regarding 9100
relief relating to a request for an extension of time for making an
election or other application for relief where the decision is
reviewable by a court under an abuse of discretion standard. See IRM
8.6.3.11(4) (10-06-2016) (relating to procedures if Appeals conclusion
is contrary an IRS position) and IRM 8.6.3.11(4) (10-06-2016) (relating
to extension of time for making certain elections). Under this rule,
Appeals will not settle any case or matter contrary to the Associate
Office's decision to deny the extension request, nor will Appeals
consider any hazards of litigation based upon the possibility that
Chief Counsel's denial of the 9100 relief would be reversed in a court
proceeding. The 9100 relief regulations provide that the decision to
grant taxpayers an extension to make a regulatory election is left to
the Commissioner's discretion. See Sec. 301.9100-1(c) (regarding
Commissioner's discretion to grant an extension to make a regulatory
election). The Commissioner has delegated this authority to Chief
Counsel.
2. Changes of Accounting Method
Section 1.446-1(a)(2) of the Income Tax Regulations provides that
no method of accounting is acceptable unless, in the opinion of the
Commissioner, it clearly reflects income. See section 446(b). Rev.
Proc. 2015-13 (2015-5 I.R.B. 419) provides the automatic and non-
automatic procedures to obtain the consent of the Commissioner to
change a method of accounting. Section 11.02 of Rev. Proc. 2015-13
states that the Associate Office will deny a request to make a change
in method of accounting if the requested change would not clearly
reflect income or would otherwise not be in the interest of sound tax
administration.
The IRM currently provides that Appeals consideration is not
available for a decision issued by an Associate Office regarding a
change of accounting method where the decision is reviewable by a court
under an abuse of discretion standard. See IRM 8.6.3.3(2) (10-06-2016)
(relating to procedures if Appeals conclusion is contrary to Service
position) and IRM 8.6.3.10(3) (10-06-2016) (relating to change in
accounting practice or method). Thus, Appeals will not settle any case
or matter contrary to the Associate Office's decision to deny the
method change, nor will Appeals consider any hazards of litigation
based upon the possibility that a court would reverse Chief Counsel's
denial of the request for a change in accounting method.
When a taxpayer receives a letter ruling approving a change in
method of accounting, the IRS and the taxpayer typically enter into a
consent agreement regarding the change. The terms of the consent
agreement are binding on the IRS and the taxpayer and are not subject
to Appeals consideration. See IRM 8.1.1.2.1(1)(d.) (02-10-2012)
(relating to some exceptions to Appeals authority).
3. Comments Requested
The Treasury Department and the IRS request comments on whether
items relating to requests for changes in methods of accounting and
requests for 9100 relief should continue to be excluded from Appeals
review. In addition to general comments, comments are specifically
requested on the following:
A. whether the binary nature of decisions regarding 9100 relief and
changes in method of accounting make these decisions unsuitable for
Appeals review,
B. whether a different review standard should apply if Appeals
considers 9100 relief or changes of accounting method, and
C. what impact would Appeals review of 9100 relief and changes in
accounting method have on later years that are not before Appeals?
E. Originating Office Has Completed Its Review
Proposed Sec. 301.7803-2(d)(1) provides a prerequisite requirement
that a taxpayer must meet before Appeals may consider the taxpayer's
Federal tax controversy. Appeals consideration of a matter or issue is
appropriate only after the originating IRS office has completed its
action on the Federal tax controversy and issued a final administrative
determination or a proposed administrative determination that is
accompanied by an offer for Appeals consideration. This requirement is
necessary because a case or issue is not ready for Appeals
consideration until the originating IRS office has completed its
factfinding and developed a position. If the originating office has not
set out its position, there is no administrative determination made by
the IRS with respect to the particular taxpayer for Appeals to
consider. If the originating office has not set out its position
regarding the Federal tax controversy, the request for Appeals
consideration is premature and the taxpayer may request Appeals
consideration after the originating office has set out its position if
the other requirements in proposed Sec. 301.7803-2 are met.
Circumstances in which Appeals consideration is premature arise in
many contexts. For example, Appeals consideration is premature if a
taxpayer petitions the Tax Court in a deficiency case under section
6213(a) and raises for the first time a claim for relief under section
6015. Because the issue was first raised in litigation, the IRS does
yet not have a position regarding the taxpayer's eligibility for relief
under section 6015. In another example, a taxpayer files a claim with
the IRS for abatement of interest under section 6404 and after 180 days
pass without a determination, the taxpayer files a petition with the
Tax Court. Appeals consideration would be premature before the IRS has
considered the merits. Another example is a relevant new issue raised
during Appeals consideration for which the originating office has not
set out its position. Similarly, Appeals consideration is premature if
during an examination a decision is made to return an OIC that was
submitted by the taxpayer. In yet another example, as part of an
examination the IRS requests documents that the taxpayer does not
provide, and the IRS refers the matter to the Department of Justice to
bring a summons enforcement action. An administrative determination
regarding the taxpayer's liability has not been made by the IRS. The
decision to bring a summons enforcement action is part of
[[Page 55946]]
the process that leads to an administrative determination that will be
made by the IRS, and Appeals consideration would be premature because
the position of the originating office has not been set out.
Proposed Sec. 301.7803-2(d)(2) provides that the requirement that
the originating office must have completed its review will be treated
as satisfied when the person requests to participate in an Appeals
early consideration program and such request is granted. Where
administrative guidance permits the originating office to engage
Appeals prior to completing its action on the case, Appeals may
consider the controversy under the terms of that administrative
guidance. For example, Appeals may consider the Federal tax controversy
in mediation under a fast track settlement program or early
consideration of some issues under an early referral program. These
programs existed prior to the TFA. See, e.g., Rev. Proc. 2003-40 (2003-
25 I.R.B. 1044) (relating to mediation under the LB&I Division Fast
Track Settlement Program), as modified by Rev. Proc. 2015-40 (regarding
procedures for requesting competent authority assistance under U.S. tax
treaties); Rev. Proc. 99-28 (1999-29 I.R.B. 109) (relating to early
consideration of some, but not all, issues in case under Early Referral
Program). These programs promote a more efficient disposition of a
taxpayer's case by leading to the early resolution of issues or
developing or narrowing the issues in dispute.
F. Procedural and Timing Requirements Are Followed
Proposed Sec. 301.7803-2(e) provides the procedural and timing
requirements that a taxpayer must meet before Appeals may consider the
taxpayer's Federal tax controversy. Specifically, proposed Sec.
301.7803-2(e) provides that a request for Appeals consideration must be
submitted in the time and manner prescribed in applicable forms,
instructions, or other administrative guidance and that all procedural
requirements must be complied with for Appeals to consider a Federal
tax controversy. These proposed requirements existed prior to the
enactment of the TFA. An example of specific procedural requirements
are the special claim procedures for penalties under sections 6694(b),
6700, and 6701. For instance, a CP 15 Notice and Demand letter is sent
to a promoter upon assessment of the penalties advising the promoter of
the special claim procedures pursuant to section 6703(c). Section
6703(c)(1) allows the promoter to pay at least 15 percent of the amount
of the penalty within 30 days and file a claim for refund of the amount
paid. If the claim for refund is disallowed and a written request for
Appeals consideration is received timely, Appeals may consider the
claim for refund in the same manner as any other claim for refund. The
special claim procedures, including the requirement to pay at least 15
percent, are part of the required claims process. Appeals review is
unavailable to a claimant unless the claimant follows the special claim
procedures.
Another example of procedural requirements is the refund procedures
under section 6402. Appeals review is unavailable to a claimant that
submits a claim for refund under section 6402 unless the claimant
follows the required claims procedures in section 7422(a) regarding the
requirement to file an administrative claim according to IRS procedures
before filing suit and Sec. Sec. 301.6402-2 and 301.6402-3 regarding
general procedures for making a claim for a refund of income tax. To
promote compliance and an orderly process, the proposed rule would
ensure that the taxpayer complies with statutory and regulatory
requirements and Appeals has sufficient information to consider the
taxpayer's claim.
In addition, proposed Sec. 301.7803-2(e) provides that there must
be sufficient time remaining on the appropriate limitations period for
Appeals to consider the matter, as provided in administrative guidance.
Consideration of a case by Appeals can take a significant amount of
time. Appeals needs to correspond with the taxpayer and in some cases
the IRS office that made the administrative determination or proposed
administrative determination, understand and evaluate both parties'
legal arguments, in some cases negotiate with the taxpayer, and make a
determination. This all must be completed with sufficient time for an
assessment to be made if a settlement cannot be reached. If there is
insufficient time remaining on the assessment limitations period,
Appeals will not have time to conduct an independent review before the
period expires. This requirement was in place well before the TFA was
enacted and is necessary for tax administration. See, e.g., IRM
8.20.5.3.1.3(1) (03-01-2016) (relating to cases not accepted by
Appeals); IRM 8.21.2.3(2)b (10-15-2014) (same). Similarly, proposed
Sec. 301.7803-2(e) also provides that in a case docketed in Tax Court,
if Chief Counsel has recalled the case from Appeals or, if not
recalled, Appeals has returned the case to Chief Counsel so that it is
received by Chief Counsel prior to the date of the calendar call for
the trial session, further consideration by Appeals will not be
available if there is insufficient time for such consideration. See
sec. 3.07 of Rev. Proc. 2016-22.
G. One Opportunity for Consideration by Appeals
Proposed Sec. 301.7803-2(f)(1) provides that if a Federal tax
controversy is eligible for consideration by Appeals and the procedural
and timing requirements are followed, a taxpayer generally has one
opportunity for Appeals to consider such matter or issue in the same
case for the same period or in any type of future case for the same
period. According to proposed Sec. 301.7803-2(f)(1), Appeals has
considered a Federal tax controversy if the Federal tax controversy was
before Appeals for consideration and Appeals issued a determination or
made a settlement offer, decided the Federal tax controversy was not
susceptible to settlement, or the person who requested consideration
failed to respond to Appeals' communications and as a result of that
failure Appeals issued or made a determination. Appeals also has
considered a Federal tax controversy if the taxpayer notifies Chief
Counsel or the IRS that the taxpayer wants to discontinue settlement
consideration by Appeals or requests to transfer settlement
consideration of a Federal tax controversy that is currently before the
Tax Court from Appeals to Chief Counsel. Additionally, a taxpayer with
a Federal tax controversy who previously failed to respond to Appeals'
communications with respect to that Federal tax controversy is treated
as having had a prior opportunity for Appeals consideration. This
proposed rule is intended to deter and not reward nonresponsive
taxpayers and to avoid wasting Appeals resources.
Appeals therefore generally will consider a Federal tax controversy
only once. A taxpayer whose Federal tax controversy has been reviewed
by Appeals cannot request a duplicative or second opportunity to have
it reviewed by Appeals. Neither section 7803(e) nor its legislative
history indicates that Congress intended for a taxpayer whose case
already has been considered by Appeals to have multiple opportunities
for Appeals consideration. It would be duplicative to allow a taxpayer
to request consideration by Appeals if Appeals already has considered
the same matter. This one-bite-at-the-apple rule is a practical,
longstanding rule that existed prior to the TFA. See secs. 3.01 and 4
of Rev. Proc. 2016-22.
There are several exceptions to this proposed rule. Proposed Sec.
301.7803-
[[Page 55947]]
2(f)(1) provides an exception to the proposed general rule where the
Tax Court remands a CDP case for reconsideration. This exception to the
general rule accounts for the Tax Court's ability to remand CDP cases
for further Appeals consideration. Proposed Sec. 301.7803-2(f)(2)
provides an exception for a taxpayer that participated in an Appeals
early consideration program but did not reach an agreement with
Appeals. See, e.g., Rev. Proc. 99-28 (1999-29 I.R.B. 109) (relating to
early consideration of some, but not all, issues in case under Early
Referral program); Rev. Proc. 2003-40 (2003-25 I.R.B. 1044) (relating
to the Large Business and International Division Fast Track Settlement
(FTS) program), as modified by Rev. Proc. 2015-40 (2015-35 I.R.B. 236)
(regarding procedures for requesting competent authority assistance
under U.S. tax treaties); Rev. Proc. 2017-25 (2017-14 I.R.B. 1)
(relating to the Small Business/Self-Employed Division FTS program);
Rev. Proc. 2016-57 (2016-49 I.R.B. 707) (relating to the FTS program
for certain collection cases and issues); and Announcement 2012-34
(2012-36 I.R.B. 334) (relating to the Tax-Exempt and Government
Entities Division FTS program). It also provides an exception for a
taxpayer that may be able to request post-Appeals mediation under the
terms of administrative guidance after a traditional appeal if no
agreement was reached between the taxpayer and Appeals. See, e.g., Rev.
Proc. 2014-63 (2014-53 I.R.B. 1014) (relating to Appeals mediation).
The exception to the general rule in proposed Sec. 301.7803-
2(f)(2) that carves out early consideration programs is a critical part
of these programs. As previously mentioned, these fast track and early
consideration programs promote a more efficient disposition of a
taxpayer's case by leading to the early resolution of issues or
developing or narrowing the issues in dispute. If a taxpayer who
unsuccessfully participated in one of these programs was unable later
to have Appeals consider the taxpayer's case, it is unlikely the
taxpayer would take advantage of these programs. Similarly, post-
Appeals mediation promotes a more efficient disposition of a taxpayer's
case.
Proposed Sec. 301.7803-2(f)(2) also provides an exception to the
general rule in proposed Sec. 301.7803-2(f)(1) for taxpayers who
provide new information to the IRS and who meet the conditions and
requirements for audit reconsideration or for reconsideration of
liability issues previously considered by Appeals. Appeals may consider
the new information. See IRM 8.7.7.17 (12-17-2019) (relating to audit
reconsideration cases); IRM 8.7.7.16 (12-17-2019) (relating to
reconsideration of claims for liabilities previously considered by
Appeals).
H. Special Rules
The following are proposed special rules.
1. Appeals Reconsideration
Proposed Sec. 301.7803-2(g)(1) provides a special rule that
notwithstanding the exception in proposed Sec. 301.7803-2(c)(22), if
Appeals issued a notice of deficiency, notice of liability, or other
determination, without having fully considered one or more issues
because of an impending expiration of the statute of limitations on
assessment, Appeals may choose to have Chief Counsel return the case to
Appeals for full consideration of the issue or issues once the case is
docketed in the Tax Court. This is a longstanding rule that existed
prior to the enactment of the TFA and can be found in section 3.02 of
Rev. Proc. 2016-22. The proposed rule promotes the efficient
disposition of cases by leading to the early resolution of issues and
developing or narrowing the issues in dispute.
2. Coordination Between Chief Counsel and Appeals
Proposed Sec. 301.7803-2(g)(2) provides a special rule that
Appeals and Chief Counsel may determine how settlement authority in a
Federal tax controversy that is before the Tax Court will be
transferred between the two offices. For example, to promote a more
efficient disposition of a case in the Tax Court, the case may be
transferred from Chief Counsel to Appeals or from Appeals to Chief
Counsel by agreement between them. This is a longstanding practice that
has been used to efficiently manage resources and respond to
developments in litigation. Details regarding this practice are most
recently described in Rev. Proc. 2016-22. In another example, if Chief
Counsel determines that the case is needed for trial preparation, Chief
Counsel may request that Appeals return the case (including settlement
authority) to Chief Counsel before Appeals has completed its
consideration of the case. See sec. 3.08 of Rev. Proc. 2016-22.
Ensuring adequate time to prepare for trial is pragmatic and beneficial
to taxpayers and Chief Counsel attorneys. Chief Counsel also may delay
forwarding a case to Appeals when Chief Counsel anticipates filing a
dispositive motion (for example, a motion for summary or partial
summary judgment, or a motion to dismiss for lack of jurisdiction), in
which case Chief Counsel will retain the case until the Tax Court rules
on the motion. See sec. 3.04 of Rev. Proc. 2016-22. Allowing Chief
Counsel and Appeals the flexibility to respond to the needs of specific
Federal tax controversies promotes the efficient disposition of a
taxpayer's case, including developing or narrowing the issues in
dispute.
I. Applicability Date
These regulations are proposed to apply to all requests for
consideration by Appeals that are received on or after the date 30 days
after a Treasury Decision finalizing these rules is published in the
Federal Register. The Treasury Department and the IRS request comments
on the proposed applicability date.
II. Requests for Referral to Appeals Following Issuance of a Notice of
Deficiency
A. Notice and Protest
If a taxpayer received a notice of deficiency authorized under
section 6212, section 7803(e)(5) requires the Commissioner to explain
the basis for denying an Appeals referral request and provide
procedures to protest the denial. Proposed Sec. 301.7803-3(a)
implements section 7803(e)(5) and provides that if any taxpayer
requests Appeals consideration of a matter or issue and the request is
denied, the Commissioner or the Commissioner's delegate must provide
the taxpayer a written notice that provides a detailed description of
the facts involved, the basis for the decision to deny the request, a
detailed explanation of how the basis for the decision applies to such
facts, and the procedures for protesting the decision to deny the
request if the requirements of proposed Sec. 301.7803-3(a) are met.
These requirements are listed in proposed Sec. 301.7803-3(a)(1)
through (5).
1. Notice of Deficiency
Proposed Sec. 301.7803-3(a)(1) provides that the taxpayer must
have received a notice of deficiency authorized under section 6212 for
the notice and protest procedures to apply.
2. Frivolous Positions
Proposed Sec. 301.7803-3(a)(2) requires that, for the notice and
protest procedures to apply, the taxpayer's issue must not involve a
frivolous position. This proposed requirement follows from the
restriction on Appeals access in proposed Sec. 301.7803-2(c)(1), which
makes Appeals review unavailable for frivolous positions. Also,
pursuant to section 7803(e)(5)(D),
[[Page 55948]]
the protest procedures under section 7803(e)(5) do not apply to an
Appeals referral request if the issue is frivolous. Like the exception
in proposed Sec. 301.7803-2(c)(1), this proposed rule prevents
taxpayers from continuing to propose frivolous arguments. Allowing a
taxpayer to protest the IRS's decision to deny the taxpayer's request
for Appeals consideration of frivolous positions would result in wasted
IRS time and resources.
3. Multiple Requests for Referral to Appeals
Proposed Sec. 301.7803-3(a)(3) requires that the taxpayer must not
have previously requested Appeals consideration for the same matter or
issue in a taxable year or period for the notice and protest procedures
to apply. Thus, when a taxpayer already has requested Appeals
consideration and filed a valid protest under section 7803(e)(5), the
notice and protest procedures in proposed Sec. 301.7803-3(a) do not
apply if the taxpayer submits another Appeals referral request
concerning the same matter or issue in a taxable year or period. It
would be redundant to allow the taxpayer to submit multiple referral
requests and protests under section 7803(e)(5), including when the
taxpayer's prior protest was either rejected or allowed in a final
decision by the Commissioner or the Commissioner's delegate.
4. Previous Appeals Consideration
Except as provided in proposed Sec. 301.7803-2(f)(2), proposed
Sec. 301.7803-3(a)(4) provides that for the notice and protest
procedures to apply, Appeals must not have previously considered the
matter or issue in a taxable year or period that is the subject of the
request and determined that it could not be settled. This requirement
follows from the prerequisite in proposed Sec. 301.7803-2(f), which
provides that Appeals will consider a Federal tax controversy only
once. Since a taxpayer receives only one opportunity for Appeals
review, it would be redundant to allow a taxpayer to submit a protest
under section 7803(e)(5) if Appeals already has considered the same
matter or issue in a taxable year or period and decided that it could
not be settled or a settlement offer was rejected.
5. Notice of Deficiency With More Than One Matter or Issue
Proposed Sec. 301.7803-3(a)(5) requires that if the notice of
deficiency for which the taxpayer requests Appeals consideration
includes more than one matter or issue in a taxable year or period, the
taxpayer must request referral and submit all matters or issues sought
for Appeals consideration at the same time. This proposed rule will
ensure the efficient use of Appeals' time and resources and help to
prevent unnecessary delays and potential abuse. For example, without
this proposed rule, a taxpayer in a case with three issues could
potentially seek sequential Appeals consideration for each issue
separately, thereby wasting Appeals' time and resources, creating
unnecessary delay, and abusing the referral process. Such a piecemeal
approach, if allowed, also would undermine the one-bite-at-the-apple
rule in proposed Sec. 301.7803-2(f)(1).
6. Applicability Date
The regulations in this section are proposed to apply to all
relevant requests for consideration by Appeals that are received on or
after a Treasury Decision finalizing these rules is published in the
Federal Register.
Statement of Availability of IRS Documents
For copies of recently issued revenue procedures, revenue rulings,
notices, and other guidance published in the Internal Revenue Bulletin,
please visit the IRS website at <a href="http://www.irs.gov">http://www.irs.gov</a>.
Special Analyses
This regulation is not subject to review under section 6(b) of
Executive Order 12866 pursuant to the Memorandum of Agreement (April
11, 2018) between the Treasury Department and the Office of Management
and Budget regarding review of tax regulations.
In accordance with the Regulatory Flexibility Act (5 U.S.C. 601 et
seq.) it is hereby certified that these proposed rules will not have a
significant economic impact on a substantial number of small entities.
The proposed rules affect any person who would like to have a
Federal tax controversy considered by Appeals, including any small
entity. Because any small entity could potentially request
consideration by Appeals, these proposed regulations are expected to
affect a substantial number of small entities. However, the IRS has
determined that the economic impact on small entities affected by the
proposed rules would not be significant.
The proposed rules provide procedural and timing requirements for
consideration by Appeals. The proposed rules also establish the general
availability of consideration by Appeals and exceptions to that
consideration. The procedural requirements, timing requirements, and
the vast majority of the exceptions to consideration by Appeals already
exist in previously established guidance regarding Appeals. The
proposed regulations also provide rules regarding certain circumstances
in which a written explanation will be provided regarding why Appeals
consideration was not provided. None of the proposed rules affect
entities' substantive tax liability nor do they affect the process that
Appeals follows when it considers an eligible Federal tax controversy.
Any significant economic impact on small entities will result from the
application of the substantive tax provisions and will not be as a
result of the proposed regulations. Accordingly, the Secretary hereby
certifies that the proposed rules will not have a significant economic
impact on a substantial number of small entities. The Treasury
Department and the IRS invite comment from members of the public about
potential impacts on small entities.
Pursuant to section 7805(f) of the Code, this notice of proposed
rulemaking has been submitted to the Chief Counsel for the Office of
Advocacy of the Small Business Administration for comment on its impact
on small business.
Comments and Public Hearing
Before these proposed amendments to the regulations are adopted as
final regulations, consideration will be given to comments that are
submitted timely to the IRS as prescribed in the preamble under the
ADDRESSES section. The Treasury Department and the IRS request comments
on all aspects of the proposed regulations, particularly circumstances
where Appeals consideration is not available. Any electronic comments
submitted, and to the extent practicable any paper comments submitted,
will be made available at <a href="http://www.regulations.gov">www.regulations.gov</a> or upon request.
The public hearing is being held by teleconference on November 29,
2022, beginning at 10 a.m. EST. Requests to speak and outlines of
topics to be discussed at the public hearing must be received by
November 14, 2022. If no outlines are received by November 14, 2022,
the public hearing will be cancelled. Requests to attend the public
hearing must be received by 5:00 p.m. EST on November 22, 2022. The
telephonic hearing will be made accessible to people with disabilities.
Requests for special assistance during the telephonic hearing must be
received by November 22, 2022. Announcement 2020-4, 2020-17 I.R.B. 1,
provides that until further notice, public hearings
[[Page 55949]]
conducted by the IRS will be held telephonically. Any telephonic
hearing will be made accessible to people with disabilities.
Drafting Information
The principal author of these proposed regulations is Keith L. Brau
of the Office of the Associate Chief Counsel (Procedure and
Administration). Other personnel from the Treasury Department and the
IRS participated in their development.
List of Subjects in 26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
taxes, Penalties, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, the Treasury Department and the IRS propose to amend
26 CFR part 301 as follows:
PART 301--PROCEDURE AND ADMINISTRATION
0
Paragraph 1. The authority citation for part 301 is amended by adding
entries for Sec. Sec. 301.7803-2 and 301.7803-3 in numerical order to
read, in part, as follows:
Authority: 26 U.S.C. 7805.
* * * * *
Section 301.7803-2 also issued under 26 U.S.C. 7803.
Section 301.7803-3 also issued under 26 U.S.C. 7803.
* * * * *
0
Par. 2. Sections 301.7803-2 and 301.7803-3 are added to read as
follows:
Sec. 301.7803-2 Appeals resolution of Federal tax controversies
without litigation.
(a) Function of Independent Office of Appeals. Appeals resolves
Federal tax controversies without litigation on a basis that is fair
and impartial to both the Government and the taxpayer, promotes a
consistent application and interpretation of, and voluntary compliance
with, the Federal tax laws, and enhances public confidence in the
integrity and efficiency of the Internal Revenue Service (IRS).
(b) Consideration of a Federal tax controversy by the Independent
Office of Appeals--(1) In general. The Appeals resolution process is
generally available to all taxpayers to resolve Federal tax
controversies.
(2) Definition of Federal tax controversy. For purposes of this
section, a Federal tax controversy is defined as a dispute over an
administrative determination with respect to a particular taxpayer made
by the IRS in administering or enforcing the internal revenue laws,
related Federal tax statutes, and tax conventions to which the United
States is a party (collectively referred to as internal revenue laws)
that arises out of the examination, collection, or execution of other
activities concerning the amount or legality of the taxpayer's income,
employment, excise, or estate and gift tax liability; a penalty; or an
addition to tax under the internal revenue laws.
(3) Other administrative determinations treated as Federal tax
controversies. Notwithstanding the definition of a Federal tax
controversy in paragraph (b)(2) of this section, disputes over
administrative determinations made by the IRS with respect to a
particular person regarding the following topics are treated as Federal
tax controversies for purposes of this section:
(i) Liabilities and penalties administered by the IRS that are
outside the Internal Revenue Code (Code), such as a liability or
penalty pursuant to section 5321 of title 31 of the United States Code
(relating to civil Report of Foreign Bank and Financial Accounts or
Bank Secrecy Act penalties);
(ii) A request under the Freedom of Information Act (5 U.S.C. 552);
(iii) Application to become, or the sanction of, an Electronic
Return Originator or Authorized IRS e-file Provider;
(iv) The initial or continuing qualification of an organization as
exempt from tax under section 501(a) (relating to tax-exempt
organizations) or section 521 of the Code (relating to tax-exempt
farmers' cooperatives), or as an organization described in section
170(c)(2) of the Code (relating to charitable organizations); the
classification or reclassification of an organization's foundation
status under section 509(a) of the Code (relating to private
foundations); and the classification of an organization as a private
operating foundation under section 4942(j)(3) of the Code (relating to
an operating foundation);
(v) The qualification of an employee plan;
(vi) An IRS proposed determination to a bond issuer that interest
on an obligation the bond issuer previously issued is not tax-exempt
under section 103 of the Code (relating to interest on State or local
bonds), that an issue of bonds fails to qualify for the tax credits for
the bondholders or direct payments to the issuer with respect to the
bonds under provisions of the Code applicable to tax-advantaged bonds,
or that denies a claim for recovery of an asserted overpayment of
arbitrage rebate under section 148 of the Code (relating to arbitrage)
with respect to tax-exempt bonds or under section 148 as modified by
relevant provisions of the Code with respect to other tax-advantaged
bonds;
(vii) Administrative costs under section 7430 of the Code (relating
to awarding of costs and certain fees); or
(viii) Any other topic that the IRS has determined can be
considered by Appeals.
(c) Exceptions to consideration by Appeals. The following are
Federal tax controversies that are excepted from consideration by
Appeals or matters or issues that are otherwise ineligible for
consideration by Appeals because they are neither a Federal tax
controversy nor treated as a Federal tax controversy under paragraph
(b)(3) of this section. If a matter or issue not eligible for
consideration by Appeals is present in a case that otherwise is
eligible for consideration by Appeals, the ineligible matter or issue
will not be considered by Appeals during resolution of the case. The
exceptions are:
(1) An administrative determination made by the IRS rejecting a
position of a taxpayer that the IRS has identified as frivolous for
purposes of section 6702(c) of the Code (regarding listing of frivolous
positions) and any case solely involving the taxpayer's failure or
refusal to comply with the tax laws because of frivolous moral,
religious, political, constitutional, conscientious, or similar
grounds.
(2) Penalties assessed by the IRS under section 6702 (relating to
frivolous tax submissions) or section 6682 of the Code (relating to
false information with respect to withholding) or any other penalty
imposed for a frivolous position or false information. Appeals,
however, may obtain verification that the assessment of the penalties
complied with sections 6203 (relating to method of assessment) and
6751(b) (relating to approval of assessment) of the Code in a
collection due process (CDP) hearing under sections 6320 (relating to a
hearing upon filing of a notice of lien) and 6330 (relating to a
hearing before levy) of the Code. Appeals also may consider a non-
frivolous substantive challenge to a section 6702 or section 6682
penalty in a CDP hearing.
(3) Any administrative determination made by the IRS under section
7623 of the Code (relating to awards to whistleblowers).
(4) An administrative determination issued by an agency other than
the IRS, such as a determination by the Alcohol and Tobacco Tax and
Trade Bureau (TTB) concerning an excise tax
[[Page 55950]]
administered by and within the jurisdiction of TTB.
(5) A decision made by the IRS not to issue a Taxpayer Assistance
Order (TAO) under section 7811 of the Code (relating to TAOs).
(6) Any decision made by the IRS concerning material to be deleted
from the text of a written determination pursuant to section 6110 of
the Code (relating to public inspection of written determinations)
unless the written determination is otherwise being considered by
Appeals.
(7) Any denial of access under the Privacy Act (5 U.S.C.
552a(d)(1)).
(8) Any issue resolved in an agreement described in section 7121 of
the Code (regarding closing agreements) that the taxpayer entered into
with the IRS, and any decision made by the IRS to enter into or not
enter into such agreement. Appeals may consider the question of whether
an item or items are covered, and how the item or items are covered, in
a closing agreement.
(9) A case in which the IRS erroneously returns or rejects an offer
in compromise (OIC) submitted under section 7122 of the Code (relating
to compromises) as nonprocessable or no longer processable and the
taxpayer requests Appeals consideration to assert that the OIC should
be deemed to be accepted under section 7122(f).
(10) Any case in which a criminal prosecution, or a recommendation
for criminal prosecution, is pending against the taxpayer for a tax-
related offense, except with the concurrence of the Office of Chief
Counsel or the Department of Justice, as applicable.
(11) Issues relating to allocation among different fee payers of
the branded prescription drug and health insurance providers fees in
section 9008 of the Patient Protection and Affordable Care Act (PPACA),
Public Law 111-148 (124 Stat. 119 (2010)), as amended by section 1404
of the Health Care and Education Reconciliation Act of 2010 (HCERA),
Public Law 111-152 (124 Stat. 1029 (2010)), and section 9010 of PPACA,
as amended by section 10905 of PPACA, and as further amended by section
1406 of HCERA.
(12) A certification or issuance of a notice of certification of a
seriously delinquent Federal tax debt to the Department of State under
section 7345 of the Code (relating to the revocation or denial of a
passport in the case of serious tax delinquencies).
(13) Any issue barred from consideration under section 6320 or
section 6330 of the Code, Sec. Sec. 301.6320-1 and 301.6330-1, or any
other administrative guidance related to collection due process
hearings or equivalent hearings.
(14) Any case, determination, matter, decision, request, or issue
that Appeals lacks the authority to settle. The following is a non-
exclusive list of examples:
(i) A case or issue in a case that has been referred to the
Department of Justice.
(ii) A competent authority case (including a competent authority
resolution previously accepted by the taxpayer) under a United States
tax treaty that is within the exclusive authority of the United States
Competent Authority.
(iii) A decision of the Commissioner of Internal Revenue or the
Commissioner's delegate to not rescind a section 6707A penalty for a
non-listed reportable transaction.
(iv) A request for relief under section 6015 of the Code (relating
to relief from joint and several liability on a joint return) when the
nonrequesting spouse is a party to a docketed case in the United States
Tax Court (Tax Court) and does not agree to granting full or partial
relief under section 6015 to the requesting spouse.
(v) A criminal restitution-based assessment under section
6201(a)(4) of the Code (relating to certain orders of criminal
restitution and restriction on challenge of assessment).
(15) An adverse action related to the initial or continuing
recognition of tax-exempt status, an entity's classification as a
foundation, the initial or continuing determination of employee plan
qualification, or a determination involving an obligation and the
issuer of an obligation under section 103. This exception applies only
if the tax-exempt recognition, classification, determination of
employee plan qualification, or determination involving an obligation
and the issuer of an obligation under section 103 is based upon a
technical advice memorandum issued by an Office of Associate Chief
Counsel before an appeal is requested.
(16) Any case docketed in the Tax Court if the notice of
deficiency, notice of liability, or final adverse determination letter
is based upon a technical advice memorandum issued by an Office of
Associate Chief Counsel in that case involving an adverse action
described in paragraph (c)(15) of this section.
(17) A decision by an Office of Associate Chief Counsel regarding
whether to issue a letter ruling or the content of a letter ruling. The
subject of the letter ruling may be considered by Appeals if all other
requirements in this section are met. For example, if an Office of
Associate Chief Counsel issues an adverse letter ruling to a taxpayer,
the taxpayer cannot immediately appeal the issuance of the adverse
letter ruling. If the taxpayer subsequently files a return taking a
position that is contrary to the letter ruling and that position is
audited by the IRS, Appeals can consider that Federal tax controversy
if all other requirements in this section are met.
(18) Any issue based on a taxpayer's argument that a statute
violates the United States Constitution unless there is an unreviewable
decision from a Federal court holding that the cited statute is
unconstitutional. For purposes of this paragraph, an argument that a
statute violates the United States Constitution includes any argument
that a statute is unconstitutional on its face or as applied to a
particular person. This exception does not preclude Appeals from
considering a Federal tax controversy based on arguments other than the
constitutionality of a statute, such as whether the statute applies to
the taxpayer's facts and circumstances. For purposes of this section,
the term unreviewable decision is a decision of a Federal court that
can no longer be appealed to any Federal court because all appeals in a
case have been exhausted or the time to appeal has expired and no
appeal was filed. Once there is an unreviewable decision no further
action can be taken in the case by any Federal court.
(19) Any issue based on a taxpayer's argument that a Treasury
regulation is invalid unless there is an unreviewable decision from a
Federal court invalidating the regulation as a whole or the provision
in the regulation that the taxpayer is challenging. This exception does
not preclude Appeals from considering a Federal tax controversy based
on arguments other than the validity of a Treasury regulation, such as
whether the Treasury regulation applies to the taxpayer's facts and
circumstances.
(20) Any issue based on a taxpayer's argument that a notice or
revenue procedure published in the Internal Revenue Bulletin is
procedurally invalid unless there is an unreviewable decision from a
Federal court holding it to be invalid. This exception does not
preclude Appeals from considering a Federal tax controversy based on
arguments other than the validity of a notice or revenue procedure,
such as whether the notice or revenue procedure applies to the
taxpayer's facts and circumstances.
(21) Any case or issue designated for litigation, or withheld from
Appeals consideration in a Tax Court case, in
[[Page 55951]]
accordance with guidance regarding designating or withholding a case or
issue. For purposes of this section, designation for litigation means
that the Federal tax controversy, comprising an issue or issues in a
case, will not be resolved without a full concession by the taxpayer or
by decision of the court.
(22) Any case docketed in the Tax Court if the notice of
deficiency, notice of liability, or other determination was issued by
Appeals unless the exception in paragraph (f)(1) of this section
(regarding when the Tax Court remands a CDP case for reconsideration)
applies.
(23) A case in which timely Appeals consideration must be requested
before a petition is filed in the Tax Court because exhaustion of
administrative review, including consideration by Appeals, is a
prerequisite for the Tax Court to have jurisdiction, and the taxpayer
failed to timely request Appeals consideration. For example, Appeals
consideration must be requested before a petition is filed in the Tax
Court regarding a declaratory judgment request under sections 7428
(relating to declaratory judgment on the classification of specified
organizations), 7476 (relating to declaratory judgment on qualification
of certain retirement plans), or 7477 (relating to declaratory judgment
on the value of certain gifts) of the Code.
(24) An administrative determination made by the IRS to deny or
revoke a Certified Professional Employer Organization certification.
(d) Originating office has completed its review--(1) In general.
Appeals consideration of a matter or issue is appropriate only after
the originating IRS office has completed its action on the Federal tax
controversy and issued an administrative determination or a proposed
administrative determination accompanied by an offer for consideration
by Appeals. If the originating office has not completed its action
regarding the Federal tax controversy, the request for Appeals
consideration is premature. Appeals may consider the Federal tax
controversy if the taxpayer requests consideration after the
originating office's action is complete and if all requirements in this
section are met.
(2) Exception for early consideration programs. Where
administrative guidance permits the originating office to engage
Appeals prior to completing its action regarding the Federal tax
controversy, Appeals may consider the Federal tax controversy under the
terms of that administrative guidance, such as mediation under a fast
track settlement program or early consideration of some issues under an
early referral program.
(e) Procedural and timing requirements are followed. A request for
Appeals consideration of a Federal tax controversy must be submitted in
the time and manner prescribed in applicable forms, instructions, or
other administrative guidance. All procedural requirements must be
complied with before Appeals will consider a Federal tax controversy.
In addition, there must be sufficient time remaining on the appropriate
limitations period for Appeals to consider the Federal tax controversy,
as provided in administrative guidance. In a case docketed in the Tax
Court, if the Office of Chief Counsel has recalled the case from
Appeals or, if not recalled, Appeals has returned the case to the
Office of Chief Counsel so that it is received by the Office of Chief
Counsel prior to the date of the calendar call for the trial session,
further consideration by Appeals will not be available if there is
insufficient time for such consideration.
(f) One opportunity for consideration by Appeals--(1) In general.
If a Federal tax controversy is eligible for consideration by Appeals
and the procedural and timing requirements are followed, a taxpayer
generally has one opportunity for Appeals to consider such matter or
issue in the same case for the same period or in any type of future
case for the same period, unless the Tax Court remands for
reconsideration in a collection due process case. Appeals has
considered a Federal tax controversy if the Federal tax controversy was
before Appeals for consideration and Appeals issued a determination or
made a settlement offer, Appeals decided the Federal tax controversy
was not susceptible to settlement, or the person who requested
consideration was issued and failed to respond to Appeals'
communications and as a result of that failure Appeals issued or made a
determination. Appeals also has considered a Federal tax controversy if
the taxpayer notified the Office of Chief Counsel or the IRS that the
taxpayer wanted to discontinue settlement consideration by Appeals or
requested to transfer from Appeals to the Office of Chief Counsel
settlement consideration of a Federal tax controversy that is currently
before the Tax Court.
(2) Exceptions. Notwithstanding paragraph (f)(1) of this section,
taxpayers retain the opportunity for a traditional appeal after
participating in an early consideration program as described in
paragraph (d)(2) of this section if no agreement was reached between
the taxpayer and the IRS originating office. Taxpayers may be able to
request post-Appeals mediation under the terms of administrative
guidance after a traditional appeal if no agreement was reached between
the taxpayer and Appeals. Notwithstanding paragraph (f)(1) of this
section, taxpayers who provide new information to the IRS and who meet
the conditions and requirements for audit reconsideration or for
reconsideration of issues previously considered by Appeals may have an
opportunity for Appeals consideration.
(g) Special rules. The following special rules apply to this
section:
(1) Appeals reconsideration. Notwithstanding the exception in
paragraph (c)(22) of this section, if Appeals issued a notice of
deficiency, notice of liability, or other determination without having
fully considered one or more issues because of an impending expiration
of the statute of limitations on assessment, Appeals may choose to have
the Office of Chief Counsel return the case to Appeals for full
consideration of the issue or issues once the case is docketed in the
Tax Court.
(2) Coordination between Office of Chief Counsel and Appeals.
Appeals and the Office of Chief Counsel may determine how settlement
authority in a Federal tax controversy that is before the Tax Court is
transferred between the two offices.
(h) Applicability date. This section is applicable to requests for
consideration by Appeals made on or after October 13, 2022.
Sec. 301.7803-3 Requests for referral to Appeals following the
issuance of a notice of deficiency.
(a) Notice and protest. If any taxpayer requests consideration by
Appeals of any matter or issue eligible for consideration by Appeals
under section 7803(e)(5) of the Internal Revenue Code (Code) (relating
to limitation on designation of cases as not eligible for referral to
Appeals) and the request is denied, the Commissioner of Internal
Revenue or Commissioner's delegate shall provide the taxpayer a written
notice that provides a detailed description of the facts involved, the
basis for the decision to deny the request, a detailed explanation of
how the basis for the decision applies to such facts, and the
procedures for protesting the decision to deny the request if the
requirements of paragraphs (a)(1) though (5) of this section are met:
(1) Notice of deficiency. The taxpayer received a notice of
deficiency authorized under section 6212 of the Code (relating to
notice of deficiency).
(2) Frivolous positions. The issue involved is not a frivolous
position
[[Page 55952]]
within the meaning of section 6702(c) of the Code (regarding listing of
frivolous positions).
(3) Multiple requests for referral to Appeals. The taxpayer has not
previously requested consideration by Appeals, pursuant to section
7803(e)(5), of the same matter or issue in a taxable year or period.
(4) Previous Appeals consideration. Appeals has not previously
considered the matter or issue in a taxable year or period that is the
subject of the request and determined that the matter or issue could
not be settled or a settlement offer was rejected, except as provided
in Sec. 301.7803-2(f)(2) with respect to a taxpayer participating in
an early consideration program.
(5) Notice of deficiency with more than one matter or issue. If the
notice of deficiency for which the taxpayer requests Appeals
consideration includes more than one matter or issue in a taxable year
or period, the taxpayer must request referral for Appeals consideration
and submit all such matters or issues at the same time.
(b) Applicability date. This section is applicable to relevant
requests for consideration by Appeals made on or after [insert date of
Treasury decision finalizing these rules is published in the Federal
Register].
Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2022-19662 Filed 9-9-22; 11:15 am]
BILLING CODE 4830-01-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.