Part 4. Examining Process

Chapter 10. Examination of Returns

Section 28. Designation of Cases for Litigation

4.10.28 Designation of Cases for Litigation

Manual Transmittal

September 03, 2024

Purpose

(1) This transmits revised IRM 4.10.28, Examination of Returns, Designation of Cases for Litigation.

Material Changes

(1) IRM 4.10.28.1, Program Scope and Objectives, added Chief Counsel to paragraph (3), Policy Owner and added paragraph (6) Contact Information.

(2) IRM 4.10.28.1.2, Authority, updated reference to Delegation Order 30-9 because it was revised and replaced references to the Deputy Commissioner Services and Enforcement with the Chief Tax Compliance Officer.

(3) IRM 4.10.28.1.3, Responsibilities, added clarification on oversight responsibilities.

(4) IRM 4.20.28.1.4, Program Management and Controls, added new subsection.

(5) IRM 4.10.28.1.5, Acronyms, removed DCSE (Deputy Commissioner Services and Enforcement) because the position no longer exists. Added TE/GE (Tax Exempt and Government Entities).

(6) IRM 4.10.28.2.1, Effect of Designating a Case for Litigation, changed contact for employment tax issues to TE/GE Division Counsel.

(7) IRM 4.10.28.2.2, Procedures for Designating a Nondocketed Case Under the Jurisdiction of a Business Operating Division, added clarification for when the issue and the case are under different practice areas. Also removed obsolete position titles.

(8) IRM 4.10.28.3, Taxpayer First Act Procedures in Designated Cases, replaced references to DCSE with Chief Tax Compliance Officer.

(9) Other editorial corrections made as needed.

Effect on Other Documents

This IRM supersedes IRM 4.10.28 dated April 4, 2022.

Audience

Examination personnel in all divisions

Effective Date

(09-03-2024)

Ronald H. Hodge II
Assistant Deputy Director Compliance Integration
Large Business and International Division

4.10.28.1 (09-03-2024)

Program Scope and Objectives

  1. Purpose: This IRM provides guidance to the field on the criteria that should be applied in considering if a request for designation for litigation should be made to the Office of Chief Counsel. This IRM also provides interim guidance on the requirements of Section 1001 of the Taxpayer First Act (TFA) with respect to the limitation on designation of cases as not eligible for referral to the IRS Independent Office of Appeals (Appeals).

  2. Audience: This guidance mostly applies to LB&I cases, but may also include SB/SE and TE/GE cases.

  3. Policy Owner: LB&I Policy under the Strategy, Policy and Governance office in the Assistant Deputy Commissioner Compliance Integration (ADCCI) organization and Chief Counsel.

  4. Program Owner: The LB&I Policy Office within ADCCI.

  5. Primary Stakeholders: Examination personnel in all divisions and Chief Counsel.

  6. Contact Information: To recommend changes or to make any other suggestions to this IRM section, contact the IRM author or see SPDER’s IMD Contacts list by referencing guidelines provided in IRM 1.11.6.5, Providing Feedback About an IRM Section - Outside of Clearance. A request or inquiry can also be made using the LB&I Policy Gateway at https://irsgov.sharepoint.com/sites/PolicyGateway/SitePages/Large-Business-and-International-Policy-Gateway.aspx.

4.10.28.1.1 (04-04-2022)

Background

  1. Historically, cases designated for litigation have been infrequent. The IRS should continue to use designation infrequently, subject to careful consideration at all levels of the process. Chief Counsel Directives Manual 33.3.6.2.1, Nondocketed Case under the Jurisdiction of an Operating Division, sets out the existing procedures for designating for litigation issues in cases under the jurisdiction of a business operating division (BOD).

4.10.28.1.2 (09-03-2024)

Authority

  1. The TFA added IRC 7803(e)(5), which provides that if any taxpayer who has received a statutory notice of deficiency (SNOD) requests referral to Appeals and such request is denied, the Commissioner shall provide the taxpayer a written notice with a detailed description of the facts involved, the basis for the decision to deny the request, a detailed explanation of how the basis of such decision applies to such facts, and the procedures for protesting the decision to deny the request. Under the TFA, this process does not apply when the taxpayer’s request is denied because the issue involved is a frivolous position (within the meaning of IRC 6702(c)).

  2. In Delegation Order 30-9 (Rev.2) (April 8, 2024), the Commissioner delegated to the Chief Tax Compliance Officer the authority to deny a taxpayer’s request for referral to Appeals after the issuance of a SNOD in a case designated for litigation, and to provide the taxpayer with the written notice described above. This authority may be redelegated to the BOD Commissioners. The delegation order also delegated to the Chief Tax Compliance Officer the authority to receive, review, and decide a taxpayer’s protest of the decision to deny a request for referral to Appeals after the issuance of a SNOD in a case designated for litigation. This authority may not be redelegated.

4.10.28.1.3 (09-03-2024)

Responsibilities

  1. The Chief Tax Compliance Officer and Chief Counsel have oversight responsibility for designated cases. Also see IRM 4.10.28.1.2, Authority and IRM 4.10.28.2.2, Procedures for Designating a Nondocketed Case Under the Jurisdiction of a Business Operating Division.

  2. The LB&I Policy Office under the Assistant Deputy Commissioner Compliance Integration is responsible for coordinating updates to this IRM.

4.10.28.1.4 (09-03-2024)

Program Management and Program Controls

  1. The designation of cases for litigation is intended to be an infrequent practice, and subject to approval at the highest levels of both the IRS and Chief Counsel.

4.10.28.1.5 (09-03-2024)

Acronyms

  1. The following are commonly used acronyms:

    Acronym Definition
    ADCCI Assistant Deputy Commissioner Compliance Integration
    BOD Business Operating Division
    CCDM Chief Counsel Directives Manual
    DRM Designation Recommendation Memorandum
    SNOD Statutory Notice of Deficiency
    TE/GE Tax Exempt and Government Entities
    TFA Taxpayer First Act

4.10.28.1.6 (04-04-2022)

Related Resources

  1. See CCDM 33.3.6, Designating a Case for Litigation.

4.10.28.2 (04-04-2022)

Business Operating Division Request for Designation

  1. Certain legal issues are susceptible to recurring compliance challenges that are not effectively addressed administratively or through published guidance. In limited circumstances, examination personnel may consider requesting designation of an issue in a case where sound tax administration is best served by establishing a legal precedent on the issue. Examples illustrative of situations in which sound tax administration is best served by establishing judicial precedent are where designation would:

    1. Stem the proliferation of abusive tax transactions or other significant non-compliance (through early issue resolution); or

    2. Reduce future compliance and litigation costs of other taxpayers and the government (through early issue resolution, formulating broad-based settlement initiatives, or other means); or

    3. Resolve issues with respect to which published guidance has not resulted in compliance or where there is a wide divergence between IRS and taxpayer viewpoints on the law.

  2. Examination personnel should request designation of an issue in a case in the limited circumstances where sound tax administration is best served by establishing a legal precedent on the issue and not merely to prevent Appeals’ review.

4.10.28.2.1 (09-03-2024)

Effect of Designating a Case for Litigation

  1. When an issue under the jurisdiction of a BOD is designated for litigation, a partial agreement may be secured for the non-designated and agreed issues. The taxpayer will not receive a 30-day (or similar) letter with respect to the remaining unresolved issues in the case. Rather, the taxpayer will be issued a SNOD for the unagreed issues. In general, the designation of an issue in a case will not preclude the consideration by Appeals of the remaining issues either before or after the case is docketed. Nor, in general, will designation preclude Appeals from considering and settling the same issue in other cases involving a different taxpayer within its jurisdiction.

    Note:

    Contact TE/GE Division Counsel to discuss the appropriate procedures to follow if the issue in question is an employment tax issue.

4.10.28.2.2 (09-03-2024)

Procedures for Designating a Nondocketed Case Under the Jurisdiction of a Business Operating Division

  1. A request for designation must be raised through the BOD executive chain as set out below.

    1. If the BOD examination personnel and the second-level manager overseeing the case, in coordination and consultation with local Counsel, determine that an issue in the case is appropriate for consideration for designation, they will consult with the Area Counsel (who will consult with other Division Counsel, as appropriate). The Area Counsel and examination personnel will make a reasonable effort to identify other cases presenting the proposed designated issue to allow for IRS-wide strategic coordination. If the Area Counsel concurs that it is appropriate to consider designation, then examination personnel will prepare a written memorandum that sets forth the facts of the case and the factors and justifications that support considering designation of the issue in the case for litigation. This initial request memorandum will be reviewed and approved by the Area Counsel and the first-level executive with jurisdiction over the examination; it will then be forwarded to the applicable second-level executive with jurisdiction over the case (Examination Director), the applicable second-level executive with jurisdiction over the issue (Issue Director), and the appropriate Division Counsel.

    2. The Examination Director, the Issue Director and the Division Counsel will consult on the merits of designating the issue for litigation. The Division Counsel will also consult with the appropriate Associate Chief Counsel with jurisdiction over the issue.

    3. If the Examination Director and the Division Counsel, after consultation with the Issue Director and the Associate Chief Counsel, conclude that designation for litigation is appropriate, the Division Counsel will prepare the Designation Recommendation Memorandum (DRM) for the Examination Director’s signature and concurrence. The DRM must set forth the rationale for the recommendation. After concurring in the DRM, the Examination Director must notify the taxpayer in writing of the proposed designation, the rationale for the recommendation, and that the matter will be referred to the BOD Deputy Commissioner. The Examination Director’s written notice of the proposed designation will also provide the taxpayer an opportunity to submit its views on the designation recommendation in writing and/or to request a meeting with the BOD Deputy Commissioner and the Division Counsel within 30 days of being notified of the designation recommendation.

    4. If, after reviewing the DRM and any additional information provided by the taxpayer within 30 days of being notified of the designation recommendation, the BOD Deputy Commissioner and the Division Counsel conclude that designation is appropriate, they will forward the DRM, any information provided by the taxpayer and any additional information relevant to the recommendation simultaneously to the Chief Counsel and the Associate Chief Counsel with jurisdiction over the issue.

    5. Within 5 business days of the date the DRM is forwarded to the Chief Counsel, the Division Counsel will notify the taxpayer that a recommendation for designation has been made and will provide the taxpayer with an opportunity to share its views in writing and/or to request a meeting with the Chief Counsel, within 30 days of the notification that a recommendation has been made to the Chief Counsel. The Associate Chief Counsel will provide the Chief Counsel with written comments on the recommendation within 30 days of receipt of the DRM. If the Chief Counsel does not approve the designation, the examination will continue in the normal course.

    6. If the Chief Counsel approves the designation for litigation of the issue in the case, then examination personnel will work on issuance of the SNOD. The Chief Counsel (or designee) will notify the taxpayer within 5 business days of the Chief Counsel’s decision and the taxpayer may then at such time request referral to Appeals, as described below. Alternatively, the taxpayer may wait until receipt of the SNOD to begin the process outlined below.

4.10.28.3 (09-03-2024)

Taxpayer First Act Procedures in Designated Cases

  1. The TFA prescribes new requirements that apply to any taxpayer who has received a SNOD and made a request for referral to Appeals, including a taxpayer whose case has been designated for litigation.

    1. Upon receipt of a SNOD (or the receipt of notice of the Chief Counsel’s decision, as described above), a taxpayer whose case has been designated for litigation under the foregoing procedures may request referral to Appeals. In that case, the appropriate BOD Commissioner will review and either approve or deny the request in writing within 30 days of receiving the request or within 30 days of the issuance of the SNOD, whichever is later.

    2. If the BOD Commissioner denies the taxpayer’s request for referral to Appeals, the BOD Commissioner will provide the taxpayer a written notice with a detailed description of the facts involved, the basis for the decision to deny the request, a detailed explanation of how the basis of such decision applies to such facts, and procedures for protesting the decision to the Chief Tax Compliance Officer within 30 days of receiving the taxpayer’s request, or within 30 days of the issuance of the SNOD, whichever is later.

    3. The taxpayer may protest the decision to deny the request for referral to Appeals. The written protest must be made within 30 days and submitted to the Chief Tax Compliance Officer. The Chief Tax Compliance Officer has 30 days to review the taxpayer’s protest and communicate a written decision sustaining or reversing the decision to deny the taxpayer’s protest and the rationale for the decision.

  2. If the process set forth herein results in a reversal by the Chief Tax Compliance Officer of the decision to deny the request for referral to Appeals IRM 4.8.9.25 outlines the process for referring to Appeals a case in which a statutory notice of deficiency has been issued by Compliance. Also, these TFA procedures do not extend the time the taxpayer has to file a petition to the United States Tax Court. Accordingly, the taxpayer should consider timely petitioning the Tax Court so that their case may be considered by Appeals in a docketed status pursuant to Rev. Proc. 2016-22 .

  3. This process furthers congressional intent by ensuring that designation of cases for litigation will remain infrequent and subject to the highest level of oversight within the IRS and the Office of Chief Counsel.