IRS Appeals Officers do not have to be independent
The US Supreme Court determined that IRS Appeals Officers do not serve judicial functions. Therefore, they are expected to be biased IRS employees rather than independent judges.
This decision is not surprising because Appeals Officers are just IRS employees with additional authority to settle matters. If the taxpayer does not agree, they can spend the money and time to go to Tax Court or the US Court of Federal Claims. Unfortunately, the judicial process is expensive and is only cost-effective for larger cases.
Tucker v. Comm., (CA DC 4/20/2012) 109 AFTR 2d 2012-1856, cert denied 11/26/2012
Thompson- Reuters full synopsis of decision:
The Supreme Court has declined to review a decision of the Court of Appeals for the District of Columbia Circuit which, affirming the Tax Court, rejected a taxpayer’s contention that under the Appointments Clause of Article II, Section 2, of the U.S. Constitution, the “appeals officer” who handled his collection due process (CDP) hearing must be appointed either by the President or by the Secretary of the Treasury.
Background.Code Sec. 6320(a)(1) requires IRS to give a taxpayer written notice of the filing of a tax lien upon his property. The notice must inform him of the right to request a hearing in IRS’s Appeals Office. (Code Sec. 6320(a)(3)(B), Code Sec. 6320(b)(1)) Under Code Sec. 6320(b)(3), the CDP hearing is to be “conducted by an officer or employee” of the IRS Office of Appeals. At the hearing, the taxpayer may raise any relevant issues including appropriate spousal defenses, challenges to the appropriateness of collection actions, and collection alternatives, such as an offer-in-compromise (OIC). (Code Sec. 6330(c)(2)(A))
Facts. Larry E. Tucker filed income tax returns for 2000, 2001, and 2002 that reported tax due, but he did not pay the tax. IRS assessed the tax and issued a notice of the filing of a tax lien. Tucker timely requested and was granted a CDP hearing.
After the hearing, Tucker proposed an OIC instead of the partial installment plan offered by the settlement officer, but she rejected his proposal, and her decision was approved by her team manager (a position tasked with overseeing various Appeals functions, including CDP hearings).
Tucker appealed to the Tax Court. The Tax Court initially remanded the matter back to Appeals for a supplemental CDP hearing, in which a different settlement officer and team manager again rejected Tucker’s OIC. The team manager and both settlement officers had been hired by the IRS Commissioner under Code Sec. 7804(a) and were not appointed by the President or the Secretary of the Treasury. The case then resumed in the Tax Court, which rejected Tucker’s constitutional claim that certain employees of IRS Office of Appeals were “Officers of the United States,” so that their appointments must meet the requirements of the Constitution’s Appointments Clause. (U.S. Constitution, Article II, Section 2, Clause 2) The Tax Court found that the IRS personnel involved in the CDP hearing were properly hired under the IRS Commissioner’s authority under Code Sec. 7804(a). (Tucker (2010), 135 TC 114, see Weekly Alert ¶ 14 07/29/2010)
Appellate court. The DC Circuit found that Appeals employees (i.e., team managers, settlement officers, and appeals officers) did not exercise the significant authority necessary to make the Appointments Clause applicable to them.
The Court reasoned that the main criteria for distinguishing between inferior officers and employees not covered by the clause was: (1) the significance of the matters resolved by the officials, (2) the discretion they exercise in reaching their decisions, and (3) the finality of those decisions. Under this analysis, the DC Circuit found that the Appeals employees’s lack of discretion was determinative and that it offset the effective finality of Appeals employees’ decisions within the executive branch.
Appeals employees’ discretion was highly constrained. Looking at the most significant Appeals employees’ power, the authority to compromise disputed tax liability on the basis of the hazards of litigation, the Court found that their decisions in this area—and indeed all their decisions—were subject to consultation requirements, guidelines, and supervision. The Appeals Office must: request legal advice from an Associate Chief Counsel office on novel or significant issues; seek a technical advice memorandum from the Chief Counsel’s Office for an issue that’s complex or for which there’s no uniformity in its resolution; follow established technical or legal IRS positions that are favorable to the taxpayer; adhere to guidelines in regs and the Internal Revenue Manual in making settlements; and obtain a favorable opinion from the General Counsel for the Treasury for any compromise where the unpaid tax is $50,000 or more.
Decision now final. Now that the Supreme Court has denied certiorari, the DC Circuit’s decision is final.
References: For collection due process hearings with regard to levies, see FTC 2d/FIN ¶ V-5255 ; United St