The new look of IRS appeals.

The vision of the IRS Office of Appeals (Appeals) is to provide premier dispute-resolution services through the use of innovative approaches and dynamic processes. Appeals has implemented a number of changes to achieve this vision: new leadership, new structure, various initiatives to encourage earlier resolution of issues and a more proactive role in tax shelters. The goal is to become more efficient and to enhance the independent administrative appeals process for all taxpayers.

Leadership Changes

In spring 2002, Dave Robison replaced Dan Black as the Chief, Appeals. Mr. Robison brings a wealth of knowledge to Appeals from his 30 years of IRS experience. Formerly, Mr. Robison was the Industry Director of Financial Services in the Large and Mid-Size Business (LMSB) Compliance division. He also held the position of Assistant Director of the Manhattan District and gained extensive international experience while working in Jakarta, Indonesia and Riyadh, Saudi Arabia.

Karen Ammons is the new Deputy Chief, Appeals. She also worked in the LMSB Compliance division. Formerly, Ms. Ammons was a Director, Field Operations for the Heavy Manufacturing &Transportation group. In addition to her LMSB experience, she has an extensive background with the IRS in the International, Computer Audit Specialist and Appeals divisions.

Mr. Robison and Ms. Ammon face a number of challenges in their new positions. The first is revitalizing Appeals. Historically, Appeals had the highest employee satisfaction record at the IRS, but this trend changed due to the type of work assigned to Appeals Officers and the division's reorganization. Prior to the Internal Revenue Service Restructuring and Reform Act of 1998 (IRSRRA `98), 95% of Appeals work came from the Office of Examination. After the IRSRRA `98, more than 50% of its work comes from the Office of Collection (Collections).This switch frustrated Appeals Officers; they were not trained in Collections and felt that the work was not of the same caliber as income tax work. In addition, the huge influx of Collections work (e.g., liens and levies) with short deadlines, caused workload problems. Frustration led to a workforce that felt the organization was not focused. Mr. Robison recognizes this challenge and is taking steps to alleviate it.

A major challenge for Appeals is to regain the workforce's historical enthusiasm while reorganizing for a third time in recent years. Fortunately, both Mr. Robison and Ms. Ammon are experienced in reorganizations, having been actively involved in the LMSB "stand-up" and in the subsequent changes to the LMSB's structure. Also, they receive the support of experienced executives and management and a talented workforce willing to take on the challenge to once again make Appeals an outstanding organization that serves the American public, rendering fair and impartial decisions to both taxpayers and the government.

Appeals Reorganization

Appeals was originally structured geographically, to serve all types of cases in each location. A few years ago, it reorganized into two structures: Large Business and Specialty Programs (LBS) and General Appeals. LBS handled large cases; General Appeals, small cases and collection issues. However, this setup presented a number of obstacles. For example, Appeals Officers in many instances were located in different cities from their managers, causing communication problems, limiting management involvement and slowing down the approval processes. As a result, Appeals is reorganizing to consolidate LBS and General Appeals and structuring the organization on a more geographic basis.

The field structure will be geographically based, dividing the country into east and west sectors:

* A Director, Field Operations (DFO), will manage each sector. Chuck Dietz is the DFO of the east sector; Earl Blanche is the DFO of the west sector.

* Nine Area Directors (ADs) will report to the DFOs. Their responsibilities are divided on a geographic basis.

* Each AD has 10 to 12 Appeals Team Managers reporting to him or her.

* Each Appeals Team Manager manages the groups of Appeals and Settlement officers located in his or her area.

The new structure also provides for field specialists:

* Tax Computation Specialists will be managed separately from the structure described above.

* Three groups of Appeals Team Case Leaders in the west sector report to an AD, and four groups in the east sector report to another AD. The two ADs report directly to the Chief, Appeals. However, field executives (east and West) will be responsible for managing a group's day-to-day activities.

* Two ADs (east and west) are assigned to manage the Tax Computations group.

* A group will be named to work solely on Appeals for Tax Exempt and Government Entities. The Appeals Team Manager in charge of this group will report to an AD.

Headquarters will be staffed by the Chief, Appeals, the deputy and their respective staff. Headquarters will also contain the Directors of Field Technical Services and of Strategic Planning. The Director of Field Technical Services will manage the Director of Technical Guidance, the Director of Tax Policy and Procedures for each of the divisions and the Director of Processing. The Director of Strategic Planning will manage the newly created office of Strategic Planning; Measures and Analysis; Appeals Quality Measurement System; Strategic Human Resources; Finance and Administration; and Business Systems Planning.

These changes should not greatly affect taxpayers. Actually, taxpayers should benefit from the reorganization, because the approval process should be expedited between the Appeals Officer and Managers, resulting in quicker case resolution.

Alternative Dispute Resolution Techniques

Appeals is unique in that Officers can use mediation skills and weigh the hazards of litigation to resolve cases. Appeals is now attempting to use these skills early in the examination process. The IRS has introduced several programs over the past couple of years to promote the use of these skills, such as fast-track dispute resolution, post-appeals mediation and arbitration.

Fast-track dispute resolution (Notice 2001-67) uses Appeals tools while the case is still in Examination. Appeals Officers can use either mediation or settlement authority to assist a Revenue Agent and taxpayers in resolving cases. Post-appeals mediation (Rev. Proc. 2002-44) is a nonbinding program that uses a mediator, either an IRS Appeals Officer who has not been involved in the case or a team consisting of an independent Appeals Officer and a non-IRS mediator, to facilitate communications between the Appeals Officer and the taxpayer to resolve a case. Arbitration (Anns. 2000-4 and 2002-60) is a program that employs an arbitrator to enter into the process and render a binding decision.

Each of these programs allows a taxpayer to have his or her case looked at by someone who has not been involved previously. Taxpayers and the IRS have had great success with these programs thus far.

Tax Shelters

Appeals is also using its specialized skills in the tax shelter arena, playing a major role in IRS settlement initiatives. After analyzing the hazards of litigation, Appeals is creating a settlement offer to be used for all taxpayers who enter into particular transactions. This approach provides an expedited resolution process, rather than looking at each taxpayer's transaction. For example, Appeals developed the settlement offer on liability management company transactions. One of the options under the offer is to use fast-track dispute resolution to resolve the issue. If the parties do not resolve their issue this way, they can request arbitration to obtain a settlement. This example exemplifies the use of Appeals' skills to resolve a large number of cases.

Conclusion

Appeals is going through a number of changes. In the end, it should be a better organization that can contribute more to the overall tax system. These changes should, in turn, contribute to a more efficient and effective Appeals process for taxpayers, thus reducing both the cost and burden to the taxpayer and the IRS.

FROM JIM DOUGHERTY, CPA, DIRECTOR, AND RONA FAUST, CPA, SENIOR MANAGER, TAX CONTROVERSY, DELOITTE & TOUCHE LLP, WASHINGTON, DC