- 8.6.1.1 Introduction to Discussion on Conferences
- 8.6.1.2 Communications with the Taxpayer and/or Representative
- 8.6.1.3 Conference Techniques Used by Appeals Technical Employees (ATEs)
- 8.6.1.4 Audio and Stenographic Recording of Conferences
- 8.6.1.5 Effect of Compliance Action
- 8.6.1.6 New Issues and Reopening Closed Issues
Manual Transmittal
August 15, 2012
Purpose
(1) This transmits revised IRM 8.6.1, Conference and Settlement Practices, Conference and Issue Resolution.
Material Changes
(1) Revised IRM to reflect new organizational titles resulting from Appeals 2012 Alignment Project.
Effect on Other Documents
This IRM supersedes IRM 8.6.1, Conference and Settlement Practices, Conference and Issue Resolution, dated October 25, 2011.Audience
Appeals employeesEffective Date
(10-01-2012)
Susan L. Latham
Director, Policy, Quality and Case Support
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This section covers procedures used by Appeals Technical Employees (ATEs) who conduct conferences for the purpose of resolving issues in dispute. A description of ATEs can be found in IRM 8.1.3.3(3). As an integral part to accomplishing the Appeals mission, schedule conferences on dates and at locations reasonably convenient to taxpayers and/or their representatives. Also offer to schedule telephone conferences, and when convenient for the taxpayer, conduct conferences by correspondence.
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See IRM 8.20.6.9, Appeals Case Processing Manual, Interim Actions, Remittances, Partials, Transfer and Returns, for information when a taxpayer requests that the conference location be transferred and for taxpayers residing outside the United States who specify where they want the conference to be held.
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Conference procedures for Appeals Team Case Leaders (ATCLs) are covered in IRM 8.7.11, Appeals Team Cases.
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This subsection provides instructions to include the employee badge number on all written correspondence to the taxpayer and/or the representative. IRM 8.6.1.2.5..
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This subsection provides directions on the use of answering machine/voice mail and faxes when communicating with the taxpayer and/or the representative.
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Also discussed are the procedures in place for providing copies of communications to taxpayers when a valid Power of Attorney exists.
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The subsection also provides guidance on preparing written communications when working with taxpayers who file a joint return. It outlines relief from the separate notice requirements of Section 3201(d) of RRA '98.
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This subsection provides instructions for the Appeals employee to explain the Appeals process and include an explanation that the taxpayer might be contacted to complete a customer satisfaction survey. See IRM 8.6.1.2.6.
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Answering machines and voice mail are frequently used when communicating with taxpayers, representatives, and other IRS employees. These systems are not secure and may not be used to transmit sensitive information, including tax information, except under the provisions of IRC 6103.
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Guidelines for leaving information on answering machines/voice mail may be found in IRM 11.3.2.6.1, Leaving Information on Answering Machines/Voice Mail.
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Appeals employees must remember to protect tax information when using the fax machine. IRC 6103 provides details on the confidentiality and disclosure rules that must be followed when working with taxpayer return or taxpayer return information.
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IRM 11.3.1.11, Facsimile Transmission of Tax Information, specifically addresses the use of faxes.
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In addition, Appeals employees should be familiar with the provisions of IRM 8.1.6.1, Practice Before Appeals, which details what each Appeals employee must verify before disclosing information of a confidential nature.
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Faxed information is not sealed and little protection is guaranteed at the receiving end. To protect confidential tax information, certain precautions must be taken. At a minimum employees should:
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Use a cover sheet, identifying the person for whom the information is intended and the number of pages being faxed.
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If faxing to the taxpayer, avoid including specific confidential information, other than name and phone number, on the cover sheet.
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If faxing to an authorized third party, use that person’s name on the cover sheet – not the taxpayer’s (IRM 11.3.1.11(11)).
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Use the standard caveat found in IRM 11.3.1.11(12) on all fax cover sheets. The standard language is on the fax cover sheet generated from ACDS.
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Fax the information in an order in which the cover sheet will become the first page covering the faxed tax information.
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IRM 11.3.1.11(9)(a) indicates that the taxpayer must provide authorization to fax and where to fax prior to transmission. In addition, employees must inform taxpayer of potential disclosure risks and document this in the taxpayer’s file. These requirements are reiterated in the IRS Information Protection Briefing available through ELMS.
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If any doubt exists as to security of the faxed information, employees should mail the information to the taxpayer’s address of record or furnish it to the taxpayer at the Appeals conference.
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Original notices and other written communications are required to be sent to the taxpayer and a copy to the first representative listed on line 2 of Form 2848. Power of Attorney and Declaration of Representative (See 26 CFR 601.506).
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If the taxpayer also wants the second representative who is listed on Form 2848 to receive a copy of notices and communications, or if the taxpayer does not want any notices or communications sent to the representative(s), the taxpayer designates it on the Form 2848 by checking a box in Section 7 of Form 2848.
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There is no provision on the Form 2848 that provides for only representatives receiving the written communications. The notices and written communications must always be sent to the taxpayer as well, unless the taxpayer elects to add language to the Power of Attorney specifically stating that written communications not be sent to the taxpayer.
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For more information about these provisions, see section 7 of Form 2848 and Form 2848 Instructions and Publication 947, Practice Before the IRS and Power of Attorney.
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Section 3201(d) of RRA ‘98 requires that, wherever practicable, any notice relating to a joint return be sent separately to each individual filing the joint return. The phrase "any notice" , at a minimum, covers all notices required to be sent by statute. However, some notices not required by statute may be includible if they relate to the collection of the taxpayers’ joint and several liabilities or to any adjustment that may result in the issuance of a statutory notice of deficiency under IRC 6212.
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In certain instances, Letter 967(CG), Letter Transmitting Consent Extending Period of Limitation, does not have to be sent separately to joint return taxpayers. The Right to Refuse, allowed by IRC section 6501(c)(4)(B), now included on the Form 872, satisfies the requirements of section 3201(d) when one Letter 967 and one Form 872 are sent to spouses filing jointly as long as Appeals is confident that the spouses live at the same address. To ensure that both spouses receive their rights, Appeals must:
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receive either one Form 872 - signed by both spouses or
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receive two Forms 872 - one signed by each spouse.
Note:
If a Form 872 with only one signature is received, a separate Letter 967 and Form 872 must be sent to the spouse who did not sign the Form 872.
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Appeals is not required to send initial contact letters separately to each spouse under section 3201(d) because the letters do not contain a notice required by statute; however, Appeals is not precluded from sending them separately.
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To summarize, the following table presents the actions that must be taken by Appeals when working joint returns:
If ... Then ... Sending any type notice or correspondence Document what was sent and whether it was a separate mailing or a joint mailing to the spouses. If it is a joint mailing, document why a separate mailing was not used. Spouses have different mailing addresses Send all notices and correspondence in separate mailings to each spouse. Spouses have the same mailing address Send notices required by statute in separate mailings to each spouse.
All other documents can be sent using joint mailing.One or both spouses have not indicated a new mailing address All notices and letters must be sent to the last known address within the meaning of Reg. 301.6212-2.
Send notices required by statute in separate mailings to each spouse using the last known address.
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Section 3705(a) of the Restructuring and Reform Act of 1998 (RRA 98) requires manually generated correspondence to include the name, telephone number, and unique identifying number of an employee who can be contacted with respect to correspondence. In Appeals, the unique identifying number is an employee’s badge number. The number to enter is the right-most seven digits on the front of the employee's badge number.
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Any written communication with the taxpayer and/or the taxpayer’s representative in which sharing of information or data occurs is considered correspondence covered under Section 3705(a) of RRA 98. This includes faxes and e-mails.
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It is mandatory to include the unique identifying number on all correspondence to the taxpayer and/or the taxpayer's representative.
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All forms of communication generated on APGolf automatically include the employee’s badge number if the employee’s ACDS profile is updated to include the badge number. Employees should update their own ACDS profile to include their badge number. To update your ACDS profile, click on the "PERSONNEL" button from the ACDS top menu, then "Update Profile," then "badge number." Enter the 10-digit badge number and click "submit update."
Note:
When APGolf is not used, the correspondence, fax and/or e-mail require the employee badge number be manually inserted if the number has not been previously provided.
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At the beginning of the Appeals process, the ATE should provide the taxpayer with an explanation of the Appeals process. In some situations, evidence of providing taxpayers with IRS publications can serve as adequate documentation that the proper action was taken and/or explanation was provided to the taxpayer at the appropriate time in the Appeals process. As part of the explanation of the Appeals process, the ATE will explain that the taxpayer might be contacted at the conclusion of the process to participate in a customer satisfaction survey. In regards to the customer satisfaction survey, the ATE will explain the following:
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The taxpayer might be contacted by an outside contractor and asked to participate in a customer satisfaction survey.
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The taxpayer's participation in the survey is voluntary.
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The survey will not ask for personal or financial information of any kind.
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The results of the survey will be used to further improve the Appeals process and service to our customers.
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The ATE should update the case activity record to reflect that an explanation was provided about the customer satisfaction survey.
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Conference techniques used by ATEs vary depending on the types of cases but there is no substitution for preparation, judgment, and common sense when conducting an Appeals conference.
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Be thoroughly prepared for all aspects of a case. This maximizes the possibility of closing the case with one conference while resolving the disputed issues in a quasi-judicial manner. It is essential to have an open mind and genuine interest in achieving a mutually acceptable agreement.
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Set realistic target dates for the taxpayer and/or the representative to submit additional information, and proposal and counterproposal settlements. Ensure they understand the need to adhere to the dates set.
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Completing a conference timely and making accurate and prompt decisions enables the taxpayer to know with the least amount of delay, the final decision of the Internal Revenue Service regarding the amount of tax liability, or other issues in dispute.
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Appeals conferences are informal to promote frank discussion and mutual understanding. Do not consider ideological kinds of arguments. Handle conferences objectively with a goal of reaching a sound decision based upon the merits of the issues in dispute.
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Conduct conferences in an open atmosphere that fosters cooperation in the resolution of disputes. Above all, it is of utmost importance to be a good listener.
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Hold conferences on dates and in locations reasonably convenient to taxpayers and representatives. Generally, use Appeals offices, sub-offices, or other IRS-staffed posts of duty that are not temporary or part-time locations. However, managers may approve holding conferences at other sites when feasible and necessary to provide a convenient conference opportunity. Ordinarily, the amount in dispute is not an important factor in approving another conference site.
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Hold the number of conferences to a minimum. A frank discussion of the facts and law ordinarily brings a case to a prompt conclusion.
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Evaluate the merits of all circuit riding requests and consider the reasons the taxpayer and ATE needs to meet face-to-face. Some factors to consider:
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The case involves factual issues that would merit a face-to-face meeting
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There are substantial books and records to review. Since Appeals is not the first finder of fact, arrangements should be made through the Appeals Team Manager to have a revenue agent or Tax Compliance Officer available to review any substantial books and records before and/or during the conference
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The taxpayer will be present and the ATE will be able to determine the credibility of the oral testimony
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The taxpayer has presented valid reasons why he/she cannot come to the nearest Appeals Office. These reasons could include the special needs of a disabled or low-income taxpayer.
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The distance the taxpayer would have to travel would be unreasonable or cause a hardship
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Allow circuit riding when the taxpayer's residence (or business address for business entities) is more than 150 miles from the nearest Appeals Office.
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Area Directors have the discretion of reducing the number of miles based on their geographic reality or on a case-by-case basis.
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Allow circuit riding if the nearest Appeals Office cannot take the case due to high inventories or lack of technical skills, or if there is no convenient alternative.
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ATEs will circuit ride at least quarterly to meet the needs of each and every taxpayer.
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In the states where Appeals no longer has a presence, has a small presence, or may not have the technical expertise, the designated circuit riding location is shown below:
State with No Appeals Presence Designated Circuit Riding Location Arkansas Little Rock Idaho Boise Kansas Wichita Montana Helena North Dakota Fargo Rhode Island Providence Vermont Burlington Wyoming Cheyenne Alaska Anchorage
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Generally, a taxpayer does not have the right to a conference with an ATE other than the one assigned to his or her case. In CDP cases, however, where the ATE has had prior involvement, the case must be reassigned. See IRM 8.22.2.2.4.5 for rules about determining if the Appeals technical employee had prior involvement.
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In cases where the prior involvement rule does not require transfer, the Appeals Team Manager or the Area Director of the Appeals Office, may authorize a change in assignment where the circumstances warrant.
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The ATE will refer a taxpayer directly to the Appeals Team Manager to discuss (i) any concern raised by the taxpayer about the ATE, including the ATE's perceived impartiality and/or (ii) a request to have the case reassigned. The request will ordinarily be considered after the taxpayer has received the Uniform Acknowledgement Letter but before a conference/hearing is conducted. If the taxpayer requests that the case be transferred during the conference/hearing process, refer the request to the Appeals Team Manager.
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The Appeals Team Manager will evaluate the taxpayer's request and/or concerns and determine whether the case should be transferred to another ATE. The Appeals Team Manager shall communicate the decision directly to the taxpayer/representative.
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IRC 7521(b)(2) requires an officer or employee of the Internal Revenue Service to stop the interview whenever a taxpayer wishes to consult with a representative qualified to represent the taxpayer before the Internal Revenue Service.
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Allow the taxpayer a reasonable amount of time to complete this right of consultation. In situations where the taxpayer invokes the right of consultation, document the case activity record accordingly.
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If advisable, Appeals may request representatives of the Compliance, Area Director, engineering, or other experts to attend conferences.
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Generally, Area Counsel is not involved in Appeals conferences but may be present in cases where Department of Justice recommends criminal prosecution and the fraud penalty is contested.
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Audio and stenographic recordings are allowed on Appeals cases scheduled for face-to-face conferences. Taxpayers and their authorized representatives who request such recordings are advised their request may be allowed, if they qualify for a face-to-face conference, pursuant to the following procedures.
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Face-to-face conferences are no longer offered to, or allowed for taxpayers who only raise frivolous issues and/or arguments, or other issues such as those concerning moral, constitutional, religious, conscientious, political, or similar grounds.
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In addition, taxpayers with issues deemed frivolous, who still desire a face-to-face conference are allowed an opportunity to raise specific relevant issues in response to the Appeals letter advising them they do not qualify for a face-to-face conference.
Note:
Taxpayers who say they have relevant issues must state what the issues are and must provide necessary information before a face-to-face meeting is scheduled.
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Taxpayers who raise specific relevant issues and provide necessary information are allowed a face-to-face conference and are allowed to audio record such conference if a request to record is made pursuant to IRC 7521(a).
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Some taxpayers, who initially raised frivolous issues, then raise specific relevant issues and are given a face-to-face recorded conference, try to discuss frivolous issues during the recorded conference.
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Attempt to discuss the specific relevant issues. However, if it becomes apparent the taxpayer can no longer be persuaded to discuss only relevant issues, terminate the conference.
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IRC 7521(a) authorizes both taxpayers and the IRS to audio record in-person interviews dealing with the determination or collection of taxes. These in-person interviews are initiated by the IRS for the purpose of gathering information regarding a taxpayer's tax liability, income or assets.
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Unlike interviews with Collection and Examination, conferences with Appeals are new hearings requested by the taxpayer, where the taxpayer raises issues for consideration. On that basis, IRC 7521(b)(1) does not apply to Appeals.
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IRC 7521, which was part of the Taxpayer Bill of Rights 1 (TBOR1), provides for audio recordings. It allows the taxpayer to audio record any in-person interview relating to the determination or collection of any tax as long as there is a 10-day advance notification.
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Although the IRS previously determined the provision was not mandatory for Appeals because Appeals conferences are not taxpayer "interviews " , the Tax Court found that under IRC 7521 a taxpayer must be permitted to make an audio record of a IRC 6330 hearing. See Keene v. Commissioner 121 T.C. 8 (2003)
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Audio recordings are allowed on all types of cases that have face-to-face conferences on issues that are not deemed frivolous. In these cases, the taxpayer must follow the requirements of IRC 7521. They must give ten (10) days advance notice of their intent to audio record, and provide their own recording equipment. Appeals also makes an audio recording of the conference with IRS equipment.
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Follow the provisions of Notice 89-51, 1989-51 C.B. 691, or its successor, when allowing recordings in cases within Appeals jurisdiction.
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Allow stenographic recordings by court reporters if all the following conditions are met:
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the court reporters have the credentials listed below;
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the taxpayer qualifies for a face-to-face conference; and
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the taxpayer has given a 10-day advance notice.
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The stenographer must have one of the following credentials to be allowed to make a stenographic recording in Appeals.
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Court reporter of the United States District Court.
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An independent reporter qualified to take depositions for use in United States District Court.
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Licensed or certified by any state to be a court reporter or to take depositions.
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Appeals audio records any conference stenographically recorded by the taxpayer and requests a copy of the stenographer’s record. If Appeals determines the costs of obtaining the stenographic record are too high, a copy of the record is not secured.
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The Appeals webpage contains helpful information on audio conference procedures, including how to identify yourself and participants on the recording.
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Video recordings are not allowed.
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Procedures in Notice 89-51 require ten (10) calendar days advance notice before a conference is recorded. If the taxpayer does not give the required ten-day notice, Appeals may, using its discretion and availability of IRS recording equipment, conduct the conference as scheduled, or set a new date.
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Inform the Appeals Team Manager (ATM) about these recording situations. Two Appeals employees must be present at recordings where frivolous/constitutional, et. al., arguments have previously been presented.
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At the outset of the recording, the ATE conducting the conference identifies himself or herself and states the following information:
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date
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time
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place
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name of case
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purpose of the proceeding
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All participants, including the ATE, must personally identify themselves and consent to the making of an audio recording. If an additional participant arrives or a participant leaves, verbally state this on the tape.
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When written records are presented or discussed during the proceeding, describe them in sufficient detail to permit identification when compared to other documents in the case file. If more than one tape is necessary to record the conference, each subsequent tape must be identified by giving the case name and date.
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State on the tape when the conference or recording session ends. Retain Appeals tapes in the case file.
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Process any payments or costs for copies of Appeals tapes given to taxpayers, per the provisions of Notice 89-51.
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In the examination of tax returns, examiners exercise flexibility and discretion. Examiners must exercise a great deal of judgment in deciding the extent to which items on tax returns will or will not be verified. Also, practices vary among examiners on what to disclose in work papers or reports and the extent to which items on the return are or are not verified.
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Therefore, a reviewed and approved report of examination can be accepted as reported and any item on the return not changed or commented upon in the report can be accepted as reported. Do not question unchanged items unless there is a material and substantial reason to do so.
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Policy Statement 8–2 (formerly P-8-49) states when an issue is agreed to by the taxpayer and IRS, it cannot be reopened by Appeals; specifically, a new issue is not raised unless there are substantial grounds for the action and potential tax effect is material. See IRM 1.2.17.1.2.
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It is the duty and responsibility of the ATE to conduct settlement negotiations in a manner which fosters confidence of taxpayers and/or their representatives in the fairness of the IRS. There is no greater need for diplomacy, caution, and sound judgment in Appeals than when raising a new issue, or reopening an issue where the taxpayer and IRS Compliance are in agreement.
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Policy Statement 8–3 (formerly P-8-50) states the policy of the IRS concerning the reopening of cases previously closed by Appeals. A reopening of a mutual concession case requires the approval of the Appeals Director, Field Operations or Appeals Director, Specialty Operations. This requirement applies to actions initiated by the Service. See IRM 1.2.17.1.3. The following explains references contained within this Policy Statement:
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Reference to a case closed on a basis of concessions made by both Appeals and the taxpayer, means a non-docketed case closed by a Form 870-AD type of agreement.
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Reference to a case closed on a basis not involving concessions made by both Appeals and the taxpayer, means a non-docketed case closed by other than a Form 870–AD type of agreement.
For example: A case closed by Form 870 or similar form, or closed by reason of failure of the taxpayer to file a timely petition with the United States Tax Court following issuance of a statutory notice of deficiency by Appeals, or an excise or employment tax case closed without agreement as to the assessment.
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Reference to a serious administrative omission regarding non-mutual concession cases includes criticism of an issue by the Joint Committee.
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Under Policy Statement 8-3, no approval is required to reopen previously closed cases in the following situations:
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To allow carrybacks provided by law which were not taken into account in a prior closing.
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To assess an excessive portion of a tentative allowance.
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To adjust matters previously reserved by the government or by the taxpayer in an agreement. See IRM 8.6.4, Reaching Settlement and Securing an Appeals Agreement Form.
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See IRM 8.7.7, Claim and Overassessment Cases, for procedures in cases where the taxpayer files a claim for refund in a case previously closed by Appeals.
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Restrictions of Policy Statement 8–2 do not apply to new issues raised by or in favor of taxpayers. Therefore, the use of the term "new issue" here refers only to those new issues raised by Appeals in favor of the Government.
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Reopening a previously agreed issue and raising of a new issue have the same implications, and are, for all practical purposes, one and the same. Therefore, for purposes of this section, treat reopening an agreed issue the same as raising a new issue.
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A new issue is generally defined as anything "new" discussed by the ATE concerning a taxpayer's return, the examiner's report, or the Statutory Notice of Deficiency. The discussion is about an issue not addressed in the taxpayer's protest or petition.
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A new issue in a non-docketed case is any possible adjustment to or change in the taxpayer's return or the IRS Compliance report of examination which was not in contest when the case was received by Appeals and is raised or discussed by the ATE.
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The term "issue" is used in the broadest sense. It is not limited to a point in debate in which the parties take affirmative and negative positions. It is not limited to a point or matter in dispute. It includes any matter where the ATE injects a position contrary to the position originally or previously taken by the taxpayer or any government representative. This does not mean the taxpayer must dispute the position of the ATE since there may be agreement at the time the matter is injected into the proceedings. Nonetheless, this matter is an "issue" when injected into the proceedings. Moreover, merely commenting on or asking a question about an item on the return or on prior IRS Compliance reports which is not an issue before Appeals, constitutes raising a new issue.
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New issues are not raised casually, indiscriminately, or haphazardly, and are never, under any circumstances, raised for bargaining purposes. To do so may cause extreme irritation to the taxpayer and result in a feeling that the ATE is interested solely in exacting revenue.
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It is likely a taxpayer who has a good chance of reaching a favorable resolution based on the merits of an issue already raised, could be justifiably irritated if he or she must face a new issue raised by the Government, where inquiries concerning a new issue, are perceived to be in the nature of a "fishing expedition" or "threat."
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When new issues are raised, taxpayers and/or representatives are advised regardless of the stage of Appeals consideration.
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When a case has reached Appeals, it is late in the administrative process to raise new issues. Appeals consideration is not an extension of the examination. Further, a report has been reviewed by IRS Compliance managers. After such consideration of the return, the taxpayer has every right to expect all differences have been identified.
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ATE's must exercise judgment about whether to make adjustments not made by the examiner. For many reasons the Commissioner established the policy that Appeals does not raise new issues except under certain circumstances. Therefore, if a possible adjustment to a taxpayer's return or to prior reports is discovered by Appeals but not made because such action is not within the spirit of Policy Statement 8–2, this does not constitute a serious administrative omission because it is within the Commissioner's discretion in the administration of tax laws.
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A new issue is not raised by Appeals to the taxpayer's detriment unless grounds for such action are substantial (strong, possessing real merit) and the potential effect on the tax liability is material (having real importance and great consequence).
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There must be good, sound, substantial reason already existing in the record or known to the ATE to raise the issue. Mere suspicion or guess that something might be wrong with the item is not substantial. The following are three examples of what can be encountered:
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Example 1: If Compliance disallows a claimed farm loss solely on the ground that it was a hobby and makes no comment concerning the items making up the loss, there are no substantial grounds for raising a new issue concerning the amount of loss, amount of any item making up the loss, or nature of any item making up the loss simply because the ATE merely suspects or guesses that the items were not verified.
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Example 2: If the examiner indicates in the report that these items were not verified, there is good reason for the ATE, if he or she believe such action is necessary, to refer the case back to Compliance for such verification.
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Example 3: If in the discussion of reasons for disallowance of the claimed farm loss, Compliance states some of the items of claimed expense are personal in nature, this constitutes substantial ground for the Appeals Officer to either raise a new issue or refer the case back to Compliance for further information and investigation.
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"Substantial grounds" are those which cause an ATE to be quite certain, at the time a new issue (other than an alternative issue) is raised, that the government will prevail if the issue is litigated. "Quite certain" does not necessarily mean 100 percent certain, but it does mean a very high degree of certainty.
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If an alternative issue or position represents the real issue which should be in controversy, certainly set forth the government's best position even though it does not meet the "quite certain" test.
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If a new issue is an alternative issue or alternative position, grounds are substantial if it strengthens the government's position over what was relied upon by Compliance because it represents the position of the Service or, if the Service has no position, the correct legal theory on the transaction involved.
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However, if an alternative issue or position is quite weak, even though it strengthens the government's position, it is not raised. Neither an alternative issue or position is raised if the tax effect is not material or is not compatible with the Appeals' mission and objectives.
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The burden of proof is on the government when it raises a new (affirmative) issue in a docketed case. Therefore, except in unusual circumstances, do not raise the issue unless necessary provable facts to sustain the issue are readily available. Just because the burden of proof is not immediately upon the government when a new issue is raised in a non-docketed case does not mean the standards for raising it is less restrictive than the standards for raising a new issue in a docketed case.
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A new issue is not raised unless the potential effect upon the tax liability is material. "Material" refers to amount of tax resulting from the adjustment for the new issue. Always exercise mature judgment when determining what is material just as in weighing all aspects of a case. Whether an amount of tax is material depends upon whether it is material to the government.
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A small amount of tax is never material regardless of the economic size of the taxpayer and even though the amount of tax may be large when compared to total tax liability shown on the return or change in tax liability previously proposed.
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The tax resulting from a new issue is rarely material in a typical Wage & Investment case. On the other hand, if the amount of tax resulting from the adjustment is only a small percentage of tax liability shown on the return or change in tax liability previously proposed, it may be material if the amount is quite large.
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There may be instances when failure to correct an error has an adverse effect on voluntary compliance or causes the burden of proof before the court to shift to the government. In such cases, correct the error because the effect on tax liability is material to the government.
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Preconference preparation is important so participants know the facts relied upon and issues, court decisions, and authorities prior to the first conference. This avoids the element of surprise to participants at the conference.
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Therefore, it is important that any new issue be raised before the first conference if at all possible. Offer the taxpayer or representative an opportunity to discuss the new issue prior to the government taking any formal action such as the issuance of a Statutory Notice of Deficiency.
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Policy Statement 8–2 puts limitations on raising new issues. However, it does not require that a new issue which meets the tests of substantially and materiality be raised by Appeals. The conclusion to raise or not to raise the new issue must take into account not only these policy criteria but also all surrounding facts and circumstances involved in the case, including compatibility with the Appeals mission and objectives.
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On the other hand, do not hesitate to raise a new issue when it is warranted. This is particularly applicable in situations in which the raising of a new issue may actually be conducive to an agreed disposition or may discourage misuse of the Appeals process (e.g., purposely withholding important information from the examiner). The determination of whether there has been a misuse or manipulation of the Appeals process is based on strong evidence and not mere suspicion.
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Appeals gives full, fair, and impartial consideration to the merits of each new issue raised by a taxpayer. If such an issue is based upon important evidence, such evidence is ordinarily referred to IRS Compliance for verification.
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ATEs generally frame each issue separately in the Appeals Case Memo, and do not offset the issue against a Compliance raised issue unless there is an obvious and compelling reason to do so (e.g., Appeals allows depreciation on the acquisition of an asset which is expensed by the taxpayer and fully disallowed by IRS Compliance.)