IRS has expanded examination settlement authority.

On Mar. 15, 1996, the IRS issued revised Delegation Order 236 (Rev. 2), in which it expanded the authority of examination case managers to settle disputes with taxpayers under Sec. 7121. Case managers are now delegated the authority to execute closing agreements and Forms 870-AD, Offer of Waiver of Restrictions on Assessment and Collection of Deficiency in Tax. Under the expanded authority, case managers may use a previous settlement between the IRS Appeals office and a particular taxpayer (or another taxpayer directly involved in a Coordinated Examination Program (CEP) case) to resolve the same issue in another tax year.

Pursuant to Delegation Order 236, the following criteria must be met to use the expanded settlement authority:

* The facts surrounding the transaction or taxable event in the tax period under examination are substantially the same as the facts in the settled tax period.

* The legal authority relating to the issue has not changed.

* The underlying issue must have been settled by Appeals independently of other issues (i.e., no trading of issues) in the settled tax period.

* The issue must have been settled in Appeals for the same taxpayer (including subsidiaries) or another taxpayer directly involved in the transaction or taxable event in the settled tax period.

In conjunction with the release of the revised Delegation Order 236, the IRS has issued Delegation Order 247, which also enables case managers to accept closing agreements and Forms 870-AD, and issues a new policy statement.

Within the CEP, Delegation Order 247 extends to all examination case managers the discretionary authority to accept settlement offers, regardless of the amount of the liability, with respect to Industry Specialization Program (ISP) coordinated issues on which Appeals has a coordinated issue paper containing settlement guidelines or positions. A proposed settlement, together with any related closing agreement and/or Form 870-AD and supporting documentation, must be reviewed and approved by the appropriate specialists/coordinators within the Examination, International and Appeals functions.

In addition to these delegation orders, the Service issued a new policy statement, applicable to all taxpayers (i.e., not limited to the GEP), that encourages Examination to use its newly delegated authority to obtain the greatest possible number of agreements. The new statement will be helpful to advocates trying to settle disputes with the IRS. According to the statement, "Examining agents are encouraged to exercise [settlement] authority to obtain the greatest possible number of agreements to tax determinations without sacrificing the quality or integrity of those determinations and to dispose of tax differences at the lower level."

As the documents indicate, the IRS is emphasizing a philosophy geared toward settling disputes at the earliest stage possible. Taxpayers and their representatives should use these documents to encourage examiners to reach settlements or resolve issues earlier in the administrative process, so as to reduce the costs associated with an exam.