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Appeals in the 1990s: "new directions." (From the IRS Appeals: 1992 NSPA National Issues Conference)

The Internal Revenue Service is adopting new ways to do business. Our future is described in three goals: * Increase voluntary compliance; * Reduce taxpayer burden; and * Improve productivity and customer satisfaction.

Appeals has an important role to play in achieving each of these goals. I would like to highlight these new initiatives for you, but before that, I would like to review the Appeals process.

An effective program to resolve tax controversies without litigation is an essential part of the U.S. tax system. From the onset, the Treasury Department, as a matter of policy, has preferred to administratively settle rather than litigate most tax disputes.

Appeals is one of the oldest and largest settlement organizations in the United States. It has about 3,000 employees, including 1,300 Appeals officers. Organizationally, Appeals is in the Office of Chief Counsel, which is the primary legal counsel to the Commissioner of the Internal Revenue Service.

Appeals is led by a National Director in Washington, D.C., and there is a Regional Director of Appeals (RDA) in each of the seven IRS regions. The RDA has responsibility for the operation of Appeals within that region.

ROLE OF APPEALS IN U.S. INCOME TAX

PROCEDURE

The U.S. federal income tax appeal procedure is shown on the flow chart on the facing page.

Most cases come to Appeals when tax adjustments or penalties are proposed i n an examination of the taxpayer's return. The taxpayer can respond to the proposed adjustments in one of three ways: 1. The taxpayer can agree with the adjustment and pay the deficiency. This will close the case. 2. The taxpayer may have a notice of deficiency issued. This enables him to petition the dispute to the U.S. Tax Court. 3. The taxpayer can file a protest and take the dispute to Appeals. Note that even if the taxpayer chooses the second alternative and files a petition with the Tax Court, the case will be forwarded to Appeals by the Chief Counsel for settlement consideration before trial. Finally, note that Appeals may also consider a case when the taxpayer files a claim for refund of taxes previously paid and the IRS disallows the refund claim.

Independence. Appeals is the only administrative part of Internal Revenue Service which has been delegated the authority to settle tax controversies. It is organizationally independent from those IRS functions where the tax disputes originate. Also, Appeals does not prepare cases for litigation. Thus, Appeals is independent from both the enforcement and litigation arms of the Internal Revenue Service, which allows for an impartial review of protested tax adjustments.

Settlement Philosophy. In settling a case, the Appeals officer will evaluate the facts, evidence and hazards of litigation to determine an acceptable settlement range. The term hazards of litigation refers to the uncertainties of the outcome if the case is tried. The settlement should be fair, impartial and reflect the merits of the issues in the case.

Settlement Authority, The authority to settle tax disputes administratively has been delegated to Chiefs, Associate Chiefs and Team Chiefs in Appeals offices throughout the country. The Appeals officers hold conferences with taxpayers and their representatives and then recommend settlement proposals to the Appeals Chief, Associate Chief or Team Chief for approval on behalf of the IRS.

APPEALS IN THE 1990s

Compliance 2000

In an effort to reduce the taxpayer's burden and increase compliance, the Internal Revenue Service is adopting a new approach to administering and enforcing the tax law. We believe that Appeals will play a key role in making Compliance 2000 successful.

Traditionally, the role of Appeals has been to resolve tax disputes; by its nature this reduces the burden on the taxpayer. With the new initiatives which Compliance 2000 brings, Appeals is in a position to further expand this role.

The essence of Compliance 2000 is to educate and assist taxpayers so that tax returns are filed correctly. Since Appeals is often the last IRS office the taxpayer deals with in a chain of IRS contacts - often Taxpayer Service, Service Centers and Examination - we may have the greatest impact on changing the taxpayer's attitude and behavior. This is particularly true when the issues which brought the taxpayer to Appeals are unclear or the outcome uncertain. If the taxpayer leaves Appeals more informed and better able to comply, we have succeeded on both counts - reducing taxpayer burden and increasing compliance.

However, the direct contact which Appeals has with individual taxpayers is limited. We can have a greater impact in "reaching" taxpayers in other ways.

The goal of Compliance 2000 is to make our tax system more understandable and to help taxpayers comply, rather than using resources to make changes after the returns are filed. Appeals will play a major role in this effort, primarily through the settlement process.

Most issues considered in Appeals involve "shades of gray" where the Service does not have a "yes" or "no" answer. Appeals can identify these issues and secure an IRS position.

We can inform Examination of issues which cannot be sustained. We can ask for technical rulings on issues where the IRS position is unclear. We can also recommend law changes. The technical expertise in Appeals can be used in many ways to identify problem areas and provide solutions which will benefit all taxpayers.

Appeals Workload

The Appeals workload is made up of two basic categories - cases which have been docketed in the U.S. Tax Court and cases not docketed. A review of recent statistics shows that the type of cases in Appeals is changing dramatically. There is also a trend towards a reduced inventory in Appeals.

Inventory

In the mid 1980s the number of cases docketed in the Tax Court increased dramatically. Since Appeals officers had to give priority to the docketed cases on an upcoming Tax Court calendar, the timeliness on nondocketed cases slipped.

In recent years, there has been noticeable changes in the composition and total number of cases in Appeals. The number of docketed cases has been decreasing substantially - there were about 36,000 in 1988 and only about 23,000 as of December 31, 1991. Also, the total number of new cases coming to Appeals has also decreased. This has occurred mainly due to the changes brought about by the 1986 Tax Reform Act which reduced the volume of tax shelters. (See Table 1)

This trend toward reduced inventory, in both docketed and nondocketed cases, has had noticeable effects on case management and customer service.

Overage Cases

An overage case is one which has been in our inventory for more than one year. As of December 31, 1991, the overage percentage was 17.8% which continues the gradual reduction from the December 1990 and December 1989 percentages (21.2% and 27.8%). (See Table 2)

Inventory Dollars

Another interesting development is, that while the total number of workunits in Appeals' inventory has decreased, the number of inventory dollars in the docketed area has increased the total number of dollars within the Appeals jurisdiction, both docketed and nondocketed, averages about $40 billion. Of that number, the docketed work units average $15.6 billion. Appeals is closely following this rise in the docketed inventory. (See Table 3)

Tax Shelters

As stated earlier, the changes implemented by the 1986 Tax Reform Act are responsible for the decline in the volume of tax shelters. While the October 1990 Appeals' inventory contained 16,667 tax shelters, there were only 7,152 cases in December 1991. (See Table 4)

TEFRA

There also has been a decrease in the TEFRA workunits. These workunits consist mainly of partnership and S corporation returns. As of December 1991, there were 3,795 partnership/corporate level cases involving $2.53 billion in recommended TEFRA deficiencies in Appeals inventory. In an effort to further reduce the number of suspended cases in TEFRA, our Examination function is concentrating on the largest partnership returns. More than 250,000 individual investor returns are suspended in Examination. We estimate that through Appeals settlement action, about 85,000 TEFRA investor cases will be closed in 1992. (See Table 5 on following page.)

Customer Service

More had to be done and is being done, to improve Appeals' customer service.

The Appeals Customer Service program is designed to deal with a frequent complaint of taxpayers: "It takes so long to get an Appeals conference." This program was designed to demonstrate our responsiveness to taxpayer needs and thereby improve satisfaction.

The local Denver Appeals and Examination offices began testing this program with the dual goals of improving the information that taxpayers get about the appeals process and to provide assistance in getting through the process.

Taxpayers receive a flyer about the program at the same time they get an examination report which proposes adjustments to their tax liability. The flyer includes the name and telephone number of the Appeals Service Representative who is available to answer questions and to assist in requesting an Appeals conference, preparing a protest and resolving delays at any stage of the process.

The Denver test was a tremendous success. We received very favorable taxpayer comments and resolved hundreds of taxpayer inquiries. The program is being expanded to at least one appeals office in every region during Fiscal Year 1993.

Appeal Rights on Service

Center Claims

In the past, when taxpayers filed refund claims which were disallowed by the Service Center, they were advised that their option, if they disagreed, was to go to district court or claims court. Along with Service Center personnel, we developed an initiative to expand taxpayers' rights for an Appeals hearing. We revised the disallowance letters to clearly advise taxpayers of their right to an administrative appeal. Now, cases are sent directly from the Service Centers to Appeals when taxpayers ask for Appeals consideration.

This program was successfully tested in the Salt Lake City Appeals office and the Fresno sub-office during 1991. It was expanded nationwide during fiscal year 1992.

Collection Enforcement

Activities

Appeals and Collection are cooperating in testing formal appeals procedures for collection enforcement activities such as liens, levies, etc.

The first test was held in Atlanta, Detroit and Richmond. Taxpayers' rights were expanded to provide for an independent hearing to answer questions about the legal sufficiency of Collection's seizures on their property. Though small, the sample showed that there were some instances where Appeals could be a "safety valve." This generally occurred with unusual legal issues with which Collection employees were unfamiliar or would not normally anticipate.

We are now testing the extension of appeal rights to taxpayers on virtually any action Collection would take to collect tax - liens, levies, seizures, installment plan agreements, etc. In the first test, the basis for appeal was limited to the legal issues only. The "new" test will allow taxpayers to question the fairness of the collection method chosen to resolve the specific collection problem.

Accounts Receivable Dollar

Inventory (ARDI)

All offices within the IRS are mobilizing to reduce the accounts receivable dollar inventory to more closely reflect outstanding collectible debt. Appeals is also contributing to the effort. We are initiating plans in two new areas to reduce the ARDI - Offers in Compromise and Installment Plans.

Offers in Compromise

Some cases go to trial simply because the taxpayer is unable to pay the tax and would rather take a chance with the Tax Court rather than lose everything by a concession. We are exploring the merits of an offer in compromise to enable taxpayers to separate their inability to pay the tax from determining what the tax due under law is. (Policy Statement P-5-100.)

Offers in compromise can be used to resolve those cases where taxpayers cannot pay the entire tax liability. These cases should be considered at two levels. First, the amount of the liability must be determined, including the consideration of hazards of litigation. The settlement negotiations would proceed in the normal manner, and the Appeals officer would secure an agreement with the taxpayer. Then, if it appears that the taxpayer is unable to pay the liability, we will consider the offer in compromise provisions and encourage the submission of an offer for consideration while the case is being settled.

At the same time the settlement negotiations are taking place, Appeals would ask Collection to expedite the investigation of the taxpayer's ability to pay. For example, if the settlement, after considering hazards of litigation, amounts to $50,000 and the taxpayer makes an offer to pay $30,000, the $50,000 would be assessed. The $30,000 offer would be accepted, if Collection recommends acceptance and District Counsel concurs. If Collection determines that the offer is not acceptable, Appeals would make an independent determination regarding the acceptability of the offer. In some cases, this would include the negotiation of an amended offer.

These procedures would also apply to docketed cases. However, the Appeals officer would secure the appropriate stipulation for settlement amount and complete the offer negotiations before the trial date. Also, the offer in compromise should not be accepted until the judge has signed the court order and the tax has been assessed.

Installment Agreements

A second initiative dealing with collection of tax is a result of both a proposed regulation and the recommendation of an Appeals task force. We are developing procedures to give Appeals Associate Chiefs the authority to enter into installment agreements for the full payment of many of the tax liabilities determined by Appeals. This change would allow many taxpayers who cannot pay in full currently to satisfy their tax liability through installment payments, without submitting detailed financial information. More than one-third of our workunits would qualify for this new procedure.

While both of these new procedures will add additional Appeals time on cases, we believe that the decrease in taxpayer burden and the increase in agreed settlements will balance this cost. Other benefits are: * Increased payment of taxes without collection action; * Better management of IRS'S accounts receivable inventory; and * Increased taxpayer satisfaction.

Large Case Program

Appeals maintains a specialized program for the settlement of large cases. Some of the features of the large case program in Appeals parallel the Coordinated Examination Program (CEP) for large cases in Examination, while other features are unique to Appeals. (See Table 6.)

Presently, there are approximately 600 large cases in Appeals' inventory. As of December 31, 1991, these cases involve over $45.7 billion in disputed liability.

While large cases represent less that 1% of the 60,000 cases in Appeals, they represent more than 80% of the total amount of liability in dispute in Appeals. These magnitudes suggest the critical importance of large cases in Appeals.

Team Approach. Large cases are defined as cases where the total tax in dispute is $ 10 million or more. Appeals has adopted a "team" approach for settling large and other complex cases. The team approach is used whenever it can facilitate the settlement process, for example, by reducing the time otherwise needed to arrive at an overall settlement, or by concentrating specialist expertise within Appeals.

Each team consists of a Team Chief or team leader, and one or more Appeals officers selected according to the needs of each team. Team members do not have to work in the same office as the team chief, they may travel to the location where the case is assigned. Over the past 13 years, Appeals has promoted more than 50 senior Appeals officers to act as Team Chiefs.

Team Chiefs have settlement authority, over their cases; this is the distinguishing feature of the Team Chief approach. Each Team Chief is authorized to approve the settlements of the team members without having to obtain approval from higher authority. This delegation of settlement authority facilitates settlement of large cases.

A high percentage of all large case proposed adjustments are protested to Appeals. Many large case examinations result in very substantial proposed adjustments, and these large cases invariably reach Appeals, generally in nondocketed status. Appeals is making an effort to reduce the time to close a large case, which is presently about 35 months. (See Table 7 on previous page.)

The number of issues raised in a large case examination sometimes exceeds 200. Such complex cases are obviously unsuited for formal tax litigation. However, the inherent complexity of these cases illustrates an advantage of administrative dispute resolution - a wider range of issues to be resolved encourages settlement. Also, we have found that large case taxpayers are bringing an increasingly larger share of total adjustments proposed by examiners to Appeals, than they did in prior years. (See Table 8 on previous page.)

The percentage of dollars of proposed adjustments recommended by Examination that were protested to Appeals has risen dramatically over the last 13 years. For many years, this "unagreed percentage" averaged about 45%. Beginning about 1978, however, the percentage began to rise steadily until in 1989 the unagreed percentage was more than 80%. Much of the increase is attributable to large case taxpayers.

A downward trend in the unagreed percentage began in 1990 and we expect this trend to continue. It is unclear what accounts for the downward trend; however, changes in the relationship between Examination and Appeals, especially in large case, may be responsible.

Large Case Initiative

A large case initiative was started in Appeals in 1991 which brought about some permanent changes of large case procedures. These changes will increase our ability to settle difficult issues such as transfer pricing. 1. Pre- and Post-conference Meetings. Pre-Conference meetings are now held between Appeals and Examination on certain large cases hefore the first Appeals settlement conference. The purpose of the meeting is to add to Appeals' understanding of the issues and to help identify additional information which may have to be developed. Post-closing meetings are also held after Appeals closes the case. The purpose of this meeting is to communicate the resolution of the case to the examination team. These conferences focus on significant issues - those currently in dispute and similar issues which may be raised in subsequent examinations of the same taxpayer. 2. Rollover Issues. Delegation Order No. 236 allows Examination to apply ("rollover") the Appeals settlement of identical issues to subsequent tax years if the facts and law have not changed. This procedure saves both government and taxpayer resources by eliminating the need to set up issues that could otherwise be resolved in Examination. 3. Managerial involvement. Increased managerial involvement in large cases has helped accelerate the closure of large cases in Appeals. This includes the creation of an Assistant Regional Director of Appeals for Large Case ln each of the seven regions.

Industry Specialization Program

The Industry Specialization Program (ISP) was developed to promote uniform and consistent treatment of issues nationwide and to provide better identification and development of issues. If present, an ISP coordinated issue is required to be raised on each industry audit.

The large case examination function has an Industry Specialization Program through which examiners gain expertise in the audit of a particular industry. Also, a large amount of industry information is made available to other examiners.

Industries are selected based upon the complexity and significance of tax issues. The number of industries in the ISP varies; presently there are 22 industries in theprogram, including aerospace, banking, forest products and pharmaceuticals.

Appeals and Chief Counsel also participate in the ISP. In Appeals, a coordinator is assigned to each industry. They develop settlement guidelines for issues which are influenced by differing facts and settlement positions for issues which are purely legal. Before accepting a settlement of an ISP issue, Appeals officers contact the ISP coordinator for concurrence.

If the coordinator and the Appeals officer disagree over a proposed settlement, the Regional Director of Appeals (RDA) will resolve the dispute. If the dispute cannot be resolved by the RDA, it will be referred to the National Director of Appeals for resolution.

Appeals Coordinated Issues (ACI)

Program

The ACI program was also developed to control the settlement of certain issues and to ensure consistent treatment of the issues. An ACI is an issue of nationwide or industry-wide importance which the National Director of Appeals has determined will require a departure from the normal decentralized practice of settlement within Appeals. An ACI may not be settled without the concurrence of the Appeals officer who is the ACI coordinator for that issue unless the settlement is approved by the Regional Director of Appeals.

Some changes will be made to the ACI program as a result of changes to the ISP. We will remove those ACIs which will be coordinated separately under the settlement guidelines or positions of the ISP. The new ACI program will be expanded to coordinate issues which may be either legal or factual in nature. Also, this program will be used to coordinate information on cases that fall into a common category. For example, we may be called on to provide Congress with information about tax disputes with failed Savings and Loan Associations. The ACI program provides us a means of coordinating information about this special "category of case.

Issue Tracking

Appeals maintains an Issue Tracking System to follow the disposition of certain issues for all cases in Appeals where the amount of tax in dispute exceeds $1 million.

Issues in a case where the amount of tax in dispute exceeds $1 million are recorded by the Internal Revenue Code section.

For cases where the amount of tax in dispute is more than $1 million, less than $10 million, Appeals tracks the disposition of the five largest issues. For cases where the amount of tax in dispute is over $10 million, Appeals tracks the disposition of the 10 largest issues. In addition, all ISP and ACI issues are tracked.

Issues Designated for Litigation

If Chief Counsel designates an issue or case for litigation, Appeals settlement authority over the issue or case is withdrawn. However, the withdrawal only affects the taxpayer whose case or issue is designated for litigation. Appeals still has jurisdiction to settle any non-designated issues of that taxpayer and similar issues of different taxpayers.

Within Appeals, different procedures apply for cases docketed before the U.S. Tax Court and for nondocketed cases. In generall nondocketed cases in Appeals will be designated for litigation only under unusual circumstances and with the concurrence of the National Director of Appeals. For cases docketed in the U.S. Tax Court, see guidelines set forth in Rev. Proc. 87-24, 1987-1, C.B. 720.

Generally, Rev. Proc. 87-24 gives Appeals sole settlement authority over cases docketed in the U.S. Tax Court until the case is returned to Counsel (Section 2.04). However, Counsel may determine that Appeals should forego settlement authority over certain cases or issues after consulting with the National Director of Appeals (Section 2.08). This occurs infrequently - only two cases in the last three years have been removed from Appeals' jurisdiction in order to litigate the case.

Appeals' International

Programs

International issues comprise a large portion of Appeals inventory. Because of the importance of international issues within Appeals, the National Director of Appeals established an Office of International Programs in January 1991. This office takes an active role in coordinating international issues and developing training programs.

Appeals Officer-International

Specialists]

Appeals officers have traditionally been generalists in the tax law. But due to the growing importance and complexity of the international area, we have recently started a program of international specialization. Under this program, Appeals officers who have a substantial background in international taxation, including those who formerly were international examiners, can use their expertise most effectively by concentrating on international issues, principally in large "team" cases.

Appeals Conferences Abroad

In the past, taxpayers living overseas dealt with Appeals by mail or through a representative located in the United States. So that these taxpayers could obtain services comparable to those in the United States, Appeals offered settlement conferences in Europe at American embassies in Bonn, London, Paris and Rome. The Appeals Team Chief who is responsible for these overseas conferences has full settlement authority for tax liability up to $250,000. During the two-year demonstration period, the program proved highly successful with taxpayers seeking a face-to-face meeting. Appeals now plans to expand the program to offer conferences worldwide, with Appeals officers traveling to the site, when the number of cases is sufficient.

Application of the Issue Tracking

System

Appeals has created a number of different computer programs which use the information contained in the Appeals Issue Tracking System on international issues. These programs are used to develop an international database that will: * Estimate sustension rates; * Define trends; * Determine training needs and identify individual Appeals officers to attend training; and * Distribute information regarding specific issues to the Appeals officers who are responsible for reported cases containing that issue.

We have developed data bases for use by field personnel to provide better communication on international large case issues.

Advance Pricing Agreement

(APA) Process

The APA process was developed so that taxpayers and the Service could reach an agreement on the taxpayers' prospective use of transfer pricing methods or cost sharing arrangements. Rev. Proc. 91-22, 1991-11, IRB 11, issued by the Office of Associate Chief Counsel (International), sets forth the procedures for obtaining an Advance Pricing Agreement.

The APA process is based on cooperation, and both taxpayers and the government derive significant benefits. Taxpayers welcome the concept as a way to obtain certainty in a complex area as well as to avoid lengthy confrontation with the IRS and possibly with a foreign tax administration. In addition, both the IRS and the taxpayer benefit from a more rapid and less costly resolution of transfer pricing issues.

The APA program has grown quickly. From a small beginning - seven APA requests - the program now includes 38 taxpayers, involving 15 different countries. One agreement is fully complete and has been approved by the relevant foreign competent authority. Six others are in their final stages.

Although Rev. Proc. 91-22 discusses Appeals generally, it does not specifically describe the involvement of Appeals in the APA review process, nor does it address whether the taxpayer and Appeals can use the principles developed in the APA to resolve substantially similar transfer pricing issues for prior years in Appeals.

The National Director of Appeals and the Associate Chief Counsel International) have established guidelines which apply at the regional level defining the responsibility and authority within Appeals consistent with Rev. Proc. 91-22. These guidelines intended to give direction to the APA and to foster prompt and clear communication concerning our involvement in the APA process.

Evaluation of an APA, If a taxpayer indicates that an APA should be applied by Appeals to resolve prior years under Appeals jurisdiction, Appeals will evaluate the APA request. After the APA is issued, Appeals will have the responsibility to resolve prior years.

Application of the APA to Years Currently Under Examination. Appeals will provide a copy of the supporting statement to the District Director. This is done so that the District Director may resolve the transfer pricing issues of the intervening years under examination on the same basis (under the "rollover" authority of Delegation Order 236, 1991-5, IRB 6).

Competent Authority Procedures

A new revenue procedure was recently issued on competent authority assistance. Rev. Proc. 91-23, 1991-11, IRB 11, applies to competent authority requests filed after March 18, 1991, Sec. 5.04 spells out the relationship of Appeals to the competent authority process.

General Rule - Appeals Review Prior To Competent Authority. Taxpayers who do not agree with the proposed adjustment must generally pursue their right of administrative review with Appeals before requesting competent authority assistance.

Standard of Appeals Review, Appeals consideration of potential competent authority matters will be made on the merits of the underlying issues in accordance with domestic law and without regard to any issues or considerations that do not involve potential competent authority matters.

Exception - Competent Authority Review Prior To Appeals, The U.S. competent authority may accept a taxpayer request for assistance prior to its consideration by Appeals if it is in the best interests oft he parties. Appropriate cases may include situations in which the taxpayer's disagreement is limited to the amount of the proposed adjustment, or in the case of a proposed allocation adjustment, to the methodology used by the Service in computing the proposed adjustment.

Condition. As a precondition, the U.S. competent authority may, and at any time during the process, require the taxpayer to waive any future administrative review in Appeals on any or all of the issues contained in the request for competent authority assistance.

Limitation on Additional Appeals Consideration. When Appeals previously considered a matter before its acceptance by the U.S. competent authority and the matter remains unresolved after completion of the competent authority proceedings, a new rule applies. The Service will not permit the matters previously considered in the competent authority proceedings to be referred to Appeals for further consideration, unless the U. S. competent authority, with the concurrence of the Associate Chief Counsel (International) and the National Director of Appeals, agrees to the taxpayer's request for additional consideration. This applies both to docketed and nondocketed cases and to refund claims,

Also note that the U.S. competent authority will not accept any taxpayer's request for assistance involving a case that is either pending in a U.S. court or has been designated for litigation, without the consent of the Associate Chief Counsel (International) (Rev. Proc. 91-26, 1991-17, IRB 7).

Arbitration

Docketed Cases. The Office of Chief Counsel is preparing to submit a transfer pricing issue in a docketed Tax Court case to binding arbitration. Tax Court Rule 124 now permits voluntary binding arbitration of factual issues docketed in the Tax Court. Under the form of arbitration being considered, the panel of arbitrators must choose either the transfer price amount submitted by the taxpayer or by the government; the arbitrators cannot select any other amount. The Tax Court will enter judgment consistent with the arbitrator's report.

Nondocketed Cases. Rule 124 arbitration applies to cases which have been docketed in the Tax Court. In order to encourage taxpayers to resolve controversies without litigation, also is exploring the feasibility of extending arbitration to nondocketed cases in Appeals. Under this proposal, if it appears that settlement will not be reached in Appeals, the Appeals officer may offer arbitration. Each side would submit its settlement offer to a mutually acceptable arbitration panel and agree to be bound by the panel's decision. Among the many issues that must be addressed is whether the Service has the authority to bind itself to the decision of the arbitrators.

Binding arbitration of transfer pricing and other nondocketed issues has an enormous potential to speed the resolution of complex factual issues Appeals without litigation - Appeals inventory of proposed transfer pricing adjustments alone is almost $12 billion. National Office Appeals will be able to evaluate the proposal for arbitration of nondocketed cases as soon as the Service gains experience with arbitration of docketed cases.

Appeals Training

Because of the dynamic changes within our tax system, we recognize the importance of keeping the skills of our employees compatible with those professionals in the business community. Appeals knows that good training is the best investment we can make in our people.

Our office of training and Quality Programs provides for employee development of the 3,000 Appeals employees. This includes assessing training needs, providing materials, classes and instructors and evaluating how the training meets the needs.

Appeals training focuses on: * technical training, including courses for recruits, senior technicians and support personnel and a full continuing professional education program. * specialty seminars derived from the needs of IRS initiatives. * courses on achieving a total quality organization. * training for all employees in areas of special emphasis, such as ethics, EEO and diversity. * management training, both developmental and continuing education.

Appeals training courses are prepared primarily from two sources: materials developed specifically for Appeals and those prepared by other functions (such as Examination and Chief Counsel). Commercially prepared materials (including computer-based and self-study) are used where IRS has little expertise in the area, or where the need is immediate or short-lived and a large investment in developing our own course is not warranted.

Appeals holds basic and advanced training sessions for Appeals, Counsel and Examination personnel on U.S. international tax law. The Office of International Programs presents these seminars.

The selection of the international tax issues to be covered in each advanced seminar is based, in large part, on comparisons of Appeals' recent sustension rates and the current open inventory of cases in Appeals. This information is obtained from the Appeals Issue Tracking System. Appeals officers assigned to cases with these issues are identified through the Issue Tracking System and are invited to attend.

MEASURING THE

QUALITY OF THE

APPEALS PROCESS

Some of the ways which Appeals can measure its success is how well we achieve the goals of: * Improving customer satisfaction; * Increasing voluntary compliance; and * Reducing the burden on the taxpayer.

For taxpayers, this means getting their cases to Appeals quickly and having them resolved sooner. It means a quality decision and assistance in understanding the law. It also means an expanded effort to let taxpayers know what their appeal rights are and how to use them. Publication 5 (Appeal Rights and Preparation of Protests for Unagreed Cases) tells them what is available.

There is no absolute standard for measuring the quality of the Appeals process. Rather, there are a number of different factors that, taken as a whole, contribute to the overall quality of the process.

Traditionally, we have measured our quality by gathering statistics which show our success in certain areas such as: timeliness of holding conferences; the age of inventory; the sustension rate on case settlements and other measurable factors.

The traditional measurement focused on the quality of each individual case. This standard is important to ensure that there is consistency in our settlements throughout the country. Also, by looking at how well we do separate cases, we can project how we are performing as a whole. This approach is important to identify training needs, to give feedback to Examination and to evaluate the performance of Appeals officers.

Number of Cases Resolved By

Appeals

In fiscal year 1991, Appeals completed about 72,000 cases, of which about 86% were successfully resolved by agreement with the taxpayer. These volumes are far larger than can be resolved by the courts.

In 1991, the Tax Court closed 33,331 cases; of these, however, only 1,205 cases were decided by the court - the rest were settled. The Circuit Courts of Appeals decided 204 tax cases and the Supreme Court issued opinions in two tax cases.

These results show that the appeals process is necessary for the successful administration of the tax system.

Post Review

Appeals has always had a national post review process to assure that the settlements we reach are of the highest quality,' clearly explained and consistent throughout the country. This system will be enhanced in Fiscal Year 1992 with the creation of a joint review process for the Large Case Program involving both Appeals and Examination. Cases that fall outside the definition of a large case will continue to be reviewed through the traditional method. Starting in fiscal year 1992, we will also review a random sample of cases. This method will ensure that we review a wide variety of cases and issues.

The new joint process review for large case will focus on how the cases were handled in Examination and Appeals. Were all procedures properly followed to ensure proper consideration and an expeditious resolution? The quality of the disposition and supporting statement will also be reviewed. Teams made up of Appeals and Examination personnel will review the complete case file and interview the participants - both on cases closed in Examination and cases closed in Appeals. A joint oversight committee will then evaluate the results and make appropriate recommendations to improve the large case program, both in Examination and Appeals.

The Taxpayer Perspective

For taxpayers, an effective system for dispute resolution is more than numbers and agreements. Taxpayers should be assured that the Appeals process is fair and impartial, accessible and understandable. Also, customer service must be emphasized.

New Directions

We've described the steps Appeals is taking to meet these taxpayer needs. The process is not perfect, but we continue to improve it. We want to find a system that balances the rights of the taxpaying public with those of the government.

If you have any questions about the IRS administrative appeals process, please call me or Bonnie Franklin of my staff at (202) 401-6221.

James J. Casimir is the National Director of Appeals, Office of Chief Counsel, Internal Revenue Service.
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Author:Casimir, James J.
Publication:The National Public Accountant
Date:Jul 1, 1992
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