IRS Appeals May Put Settlement Authority in Fewer Hands

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By Dolores W. Gregory and Erin McManus

Oct. 5 — IRS Appeals is considering a change in procedure for resolving large-dollar, complex cases by consolidating settlement authority in the hands of a half-dozen managers across the country, tax controversy attorneys told Bloomberg BNA.

Internal Revenue Service Appeals officers have said in recent public and private forums that the agency plans to shift settlement authority from 35 Appeals team case leaders (ATCLs) to their managers, the attorneys said, a move they say would weaken the appeals process.

A spokesman for the IRS confirmed Oct. 5 that the agency is considering changes in its Appeals “workstream” following a report by the Treasury Inspector General for Tax Administration last year that highlighted “a significant control weakness related to our delegated settlement authority in the Penalty Appeals workstream.”

“We are currently evaluating whether we have a similar control weakness in other workstreams in Appeals and will make decisions in due course,” the spokesman said.

Tom Linguanti, partner with Baker & McKenzie LLP in Chicago, said the reported reason for the change is the IRS's concerns about “inconsistent settlements, bad settlements, and ‘rogue' appeals officers,” but he is skeptical about that rationale. Many of the larger cases are dealt with by a panel of four to five appeals officers, he said, so the opportunity for someone to “go rogue” is limited.

“Appeals works well, despite the challenges we have,” Linguanti said. “You take away the settlement authority at the ATCL level and bring it up to the managers–who may be well meaning but won’t be in these appeals conferences—you won’t have the decision maker in the room, you won’t have the fact finder in the room.”

Fear of Bottleneck

That means the process would create a bottleneck, as the manager takes the time to become familiar with the case, and presumably, raises concerns about some aspect of the proposed settlement, he said. In the alternative, it could mean that managers would be merely rubber-stamping decisions made below, but that would further delay settlements.

Linguanti noted that the ATCLs are the most senior, experienced officers in IRS Appeals. Taking away their settlement authority could be demoralizing, he said, and might persuade many of them that it is “time to retire or move on.”

Jean A. Pawlow, partner with McDermott Will & Emery LLP, told Bloomberg BNA that the shift in authority has been hinted at for some time and is consistent with practices she has observed with cases under review by Appeals. Pawlow originally wrote on the subject in the National Law Review on Oct. 4.

“We’re seeing appeals settlements getting rejected—it’s part of a broader trend,” she said.

Like other practitioners, Pawlow believes the appeals process has been working effectively.

“Appeals has been a safety valve. It was a good impartial place to resolve your case,” she said, and the number of cases settled kept things moving.

Mary McNulty, partner with Thompson & Knight LLP in Dallas, told Bloomberg BNA that she has already seen changes in Appeals.

“I was at an Appeals Conference this morning with a Settlement Officer in a collection due process case,” she said in an e-mail Oct. 5. “We reached an agreement, and then the Settlement Officer said he would need to get his manager’s approval. I normally handle LB&I cases, so that struck me as odd and was disconcerting.”

McNulty noted that “the decision maker is not in the room and yet can overturn an agreement reached between the taxpayer and the Appeals officer. While managers have been involved in my LB&I cases, their role has been one of processing, not approval. Managerial approval of agreements reached at LB&I Appeals Conferences would greatly undermine confidence in the system.”

Penalty Concerns

The motivation for the change could be a concern about documentation, Pawlow said, noting that the TIGTA report seemed to suggest that there wasn’t sufficient material in the case files to support the settlements.

The TIGTA report, issued July 30, 2015, reviewed a sampling of penalty appeals cases and estimated that in fiscal year 2013, 1,411 penalty appeal cases and more than $39 million in penalty abatements didn't comply with Appeals criteria (163 DTR G-3, 8/24/15).

“People were speculating that it’s a paperwork exercise,” Pawlow said. But “it’s hard to tell if it’s perceived that they’re over estimating the litigation risk,” she added.

Lawrence Hill, partner with Shearman & Sterling LLP, said he had heard rumors about a shift in settlement authority but was not aware of any final decision being made.

“I would think that politically there will be some obstacles to overcome before the Team Case Leaders are excluded from the process,” Hill said. “I think it more likely that a pilot program would be implemented or that authority would be delegated to the Team Manager in designated classes of cases.”

Donald L. Korb, of counsel with Sullivan & Cromwell LLP in Washington, and former IRS chief counsel, told Bloomberg BNA that he doesn’t think a shift in settlement authority is a good idea because Appeals is working fine as it is.

Active Involvement Necessary

Having a manager who hasn't been actively involved in a case responsible for settling the case “will not be very effective,” Korb said, echoing concerns by other practitioners that it will create a bottleneck that slows down the process of resolutions and ultimately will encourage taxpayers to take the dispute to court.

If the IRS is concerned about inconsistent application of penalties, he said, then there are better ways to ensure more uniformity, such as designating specific appeals officers to coordinate penalties.

Linguanti said he heard the shift was to have taken place by Oct. 1, but so far no official word has come down from the IRS about it. This suggests that the IRS hasn't yet made that move.

“It does remain to be seen what the IRS will do,” Pawlow said, noting that one appeals officer, who spoke at an annual conference sponsored by the IRS and the New York Chapter of the Tax Executives Institute, had cautioned that nothing had been done yet.

The IRS often puts practice into place before issuing an official announcement, she said.

“Practioners are trying to keep this train from leaving the station; making sure IRS has really thought through what this means to appeals process,” she said.

With assistance from Matthew Beddingfield.

To contact the reporters on this story: Dolores W. Gregory in Washington at and Erin McManus in Washington at

To contact the editor responsible for this story: Molly Moses at

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