The IRS Appeals Office is NOT Independent or Unbiased

The IRS Appeals Office was created with the aim of providing taxpayers with an impartial and informal forum to have taxpayer and IRS disputes reviewed and tax controversies resolved. This function serves a vital role in our government’s system of administering our tax laws, yet appeals office employees frequently and blatantly violates IRS policies and our tax laws. The IRS’ recent announcement that it does not agree with the Tax Court’s determination in the Moore v. Commissioner case provides an example.

In the Moore case the IRS appeals offer and the IRS appeals offer specialist (the person that reviews offers in compromises that are submitted by taxpayers) had direct communication with two revenue officers – in violation of Section 1001(a) of the Revenue Restructuring Act of 1998. More specifically, the Revenue Officers passed along their belief to the appeals employees that the taxpayer had concealed assets from the IRS, which ultimately led the IRS Appeals Office to reject the taxpayer’s offer in compromise.

Section 1001 was enacted by Congress to prevent IRS appeals office employees from conspiring with the IRS collections employees (i.e., IRS debt collectors) and/or the IRS exam employees (or IRS auditors), to the detriment of the taxpayer. This is the key provision that allows the IRS Appeals Office to claim to provide taxpayers with “independent” and “unbiased” review of cases.

While the IRS has agreed that the IRS appeals office employees acted illegally in the Moore case, the IRS disagrees that the taxpayer in that case is entitled to a second independent appeals hearing. Thus, the IRS is saying the equivalent of “yes our employees got caught committing an illegal act, but our illegal act that harmed the taxpayer should not entitle the taxpayer to a fair review.” This highlights the flawed logic that is embraced by many IRS employees.

The Revenue Restructuring Act also provides that IRS employees employment must be terminated if there is a final adjudication or determination that the IRS employee violated our tax laws. One is left wondering if the IRS employees involved in the Moore case were fired. The reality is that most IRS employees are not fired, despite the law dictating that their employment must be terminated.

In many cases IRS managers will claim that an IRS employee who was caught breaking the law is not to be fired due to there being no official and/or final adjudication that the IRS employee acted illegally – even though there is no doubt that the IRS employee behavior was 100% illegal.

Even then, IRS managers are often the last people who should be making these decisions. In my experience the IRS managers often have a worse track record than their employees (one IRS manager that I met likes to brag to his employees that he used to start every taxpayer audit by asking the taxpayer what time it was and pointing out that he does not wear a watch due to IRS audits taking way too long, in an effort to intimidate taxpayers).

This isn’t to say that there are not good, decent, and honest people working for the IRS. It is to say that these bad apples exist and, in my opinion, the number of bad apples is much greater than the good apples and the bad apples often rule the roost. Unfortunately taxpayers have no way of knowing who they are talking to when they speak to IRS employees. I have often wondered if Congress should require all such complaints against IRS employees be reduced to writing and be made available to the public, so that taxpayers can check to see if their IRS employee is a good or bad apple.

There have been a number of tax practitioners who have questioned whether the IRS Appeals Office is truly an independent forum that provides an opportunity to have an unbiased review for tax controversies. Based on my experience, I would say that the answer is clearly “no” (and that does not take into account the fact that most IRS Appeals Office employees started out working for the IRS collection function, and they have not shed the “my only mission in life is to collect as much in taxes as possible no matter what the tax laws say” mentality).

The IRS Appeals Office’s illegal collusion was discovered by the taxpayer in the Moore case. I would guess that most taxpayers are not that lucky.