Updated Guidelines for Ex Parte Communications

Editor: Valrie Chambers, Ph.D., CPA

Procedure & Administration

The IRS on Feb. 15, 2012, issued Rev. Proc. 2012-18, which superseded Rev. Proc. 2000-43 and updated the rules on ex parte communications between IRS Office of Appeals (Appeals) employees and employees of other IRS functions. The mission of Appeals is to resolve disputes “on a basis which is fair and impartial to both the Government and the taxpayer and in a manner that will enhance voluntary compliance and public confidence in the integrity and efficiency of the Service” (Internal Revenue Manual §8.1.1.1(1)). In general, the provisions strive to maintain the independence of Appeals, while balancing the interests of Appeals in being able to seek and maintain technical expertise (Rev. Proc. 2012-18, §2.02(2)).

Section 1001(a) of the Internal Revenue Service Restructuring and Reform Act of 1998, P.L. 105-206, required the IRS to “[e]nsure an independent Appeals function within the Internal Revenue Service, including the prohibition in the plan of ex parte communications between appeals officers and other Internal Revenue Service employees to the extent that such communications appear to compromise the independence of the appeals officers.” To implement that provision, the IRS and Treasury released Rev. Proc. 2000-43.

In 2011, the IRS issued Notice 2011-62, which requested comments on the suggested detailed guidance. The IRS stated that “[s]ince the issuance of Rev. Proc. 2000-43 in October 2000, the IRS has made changes to some of its business practices and adopted new ones that did not exist at the time that the revenue procedure was issued.” Consequently, Rev. Proc. 2012-18 was issued in February 2012. Several important aspects of the Appeals relationship with other functions have been clarified in Rev. Proc. 2012-18.

Ex parte communications are those that take place between any Appeals employee (e.g., Appeals officers, settlement officers, team case leaders, and tax computation specialists) and employees of other IRS functions (i.e., originating functions, specifically Examination, Collection, and Service Center functions) without the taxpayer or his or her representative being given an opportunity to participate in the communication (Rev. Proc. 2012-18, §2.01; and see Regs. Sec. 601.501 (defining representative)).

An “opportunity to participate” means that the taxpayer or the taxpayer’s representative is given a reasonable opportunity to attend a meeting or conference call where Appeals and the originating function are discussing the strengths and weaknesses of the facts, issues, or positions in the taxpayer’s case (Rev. Proc. 2012-18, §2.01(3)). Generally, reasonable accommodations are required to be made to include the taxpayer; however, if there is an unreasonable delay, then it is sufficient if Appeals notifies the taxpayer or the taxpayer’s representative of the date and time that the communication will take place (Rev. Proc. 2012-18, §2.01(3)).

Rev. Proc. 2012-18, discussed in detail below, provides further guidance on the restrictions on ex parte communications. In addition, the IRS Office of Chief Counsel released Chief Counsel Notice 2012-010 (CC-2012-010) relating to the updated restrictions in Rev. Proc. 2012-18. The notice specifically details the responsibilities of the Chief Counsel’s Office in maintaining appropriate communications with Appeals. Specifically discussed in this column are ex parte restrictions on Appeals discussing issues with other functions in a nonspecific manner, seeking legal advice from Chief Counsel, participating in alternative dispute resolution (ADR) activities, and remediation of potential violations.

Impact on Appeals Activities

Appeals employees may engage in certain communications without invoking the ex parte restrictions. These include generic discussions with other functions and seeking legal advice from the Chief Counsel in various instances. One practice that might concern taxpayers or their representatives was possible participation of Appeals personnel on Issue Management Teams (IMTs). Rev. Proc. 2012-18 states that Appeals employees may participate in “generic, noncase-specific discussions” with other IRS functions to stay updated on relevant legal and tax administrative developments. This includes communications about the commissioner’s policies and operational goals. However, Appeals may not participate in IMTs, although they can be briefed in generic discussions on noncase-specific information (Rev. Proc. 2012-18, §2.04).

Section 2.06 of Rev. Proc. 2012-18 provides certain guidelines for communications between Appeals employees and the IRS Office of Chief Counsel, which is the legal adviser to the commissioner and all IRS employees on matters pertaining to the interpretation, administration, and enforcement of internal revenue laws and related statutes. Because IRS field attorneys regularly participate in examination cases, Notice 2012-010 further clarifies the Chief Counsel’s position on the updated ex parte rules. The notice provides that Appeals may communicate with the Chief Counsel to obtain legal advice, without requiring inclusion of the taxpayer or the taxpayer’s representative, with one limitation. Accordingly, Appeals employees can request the Chief Counsel’s Office to provide legal opinions on technical issues, review closing agreements, review restricted consent language, review statutory notices of deficiency, and provide legal opinions on the defensibility of barred statute of limitation defenses. (See Chief Counsel Notice 2012-010; see also Deloitte Dbriefs webcast: “IRS Appeals Process: An Update From the Deputy Chief, Appeals” (Feb. 22, 2012).)

Chief Counsel Notice 2012-010 specifically addresses the review of statutory notices of deficiency and stresses that the ex parte restrictions do not apply, as efforts by Appeals to resolve the case have ended at this juncture, and instead the deficiency notices represent final determinations, which must accurately reflect the legal theories and positions consistent with the IRS’s current position. Accordingly, any review of the statutory notice of deficiency does not violate the ex parte rules, even if the reviewer is an attorney who advised the Examination team. However, if the attorney recommends adjustments to the notice of deficiency, manager approval is necessary prior to the issuance by Appeals, and further scrutiny will be applied to recommendations on issues advocated by Examination that were rejected by Appeals. If Appeals decides to adopt the attorney’s recommendation, there should be a meeting between Appeals, the attorney, and the taxpayer or the taxpayer’s representative before the new notice of deficiency is issued to discuss any new theory or adjustment.

With regard to the limitation in Chief Counsel Notice 2012-010, an Appeals employee may not be in direct contact with a field attorney regarding a case pending before Appeals if that field attorney personally provided legal advice, or served as an advocate, regarding the same issue in the same case to the originating function (Rev. Proc. 2012-18, §2.06). The extent and nature of a field attorney’s involvement governs whether that individual is subject to the ex parte rules (CC-2012-010). When such a restriction applies, Chief Counsel will assign a new attorney who will be allowed to review the file and discuss, with the first attorney, if something is unclear or for any other reason, assuming the second attorney and reviewer reach an independent judgment (CC-2012-010).

Rev. Proc. 2012-18 also provides that in certain instances where an Appeals employee is acting outside the capacity of a traditional settlement role, the restrictions may not apply. Participation by Appeals employees in certain ADR programs will not trigger the ex parte restrictions, assuming the individuals are not acting within a traditional Appeals settlement role (Rev. Proc. 2012-18, §2.05(1)). Accordingly, under programs such as fast track settlement, whereby the Appeals officer is effectuating a settlement under Examination’s jurisdiction, the Appeals employee may have communications with the originating function about those proceedings without requiring the taxpayer to be included. These restrictions also do not apply to post-Appeals mediation proceedings (Rev. Proc. 2012-18, §2.05(2)).

It should be noted that Appeals officers can still communicate with the originating function without being subject to the ex parte rules, regarding ministerial, administrative, or procedural matters (Rev. Proc. 2012-18, §2.03(2)). These types of communications include, but are not limited to (1) whether certain information was requested/received; (2) case controls; (3) tax calculations that are solely mathematical; (4) closed cases that involve or affect the taxpayer; (5) general information about related cases; (6) status of other Appeals cases; and (7) mathematical errors affecting the proposed tax liability (Rev. Proc. 2012-18, §2.03). Conversely, prohibited communications include those that discuss (1) accuracy of facts; (2) relative merits; (3) perception of the taxpayer’s demeanor or credibility; and (4) level of the taxpayer’s cooperation (Rev. Proc. 2012-18, §2.03). Any transmittal by the originating function of the administrative file, i.e., Form 4665, Report Transmittal, should not include statements or comments intended to influence Appeals. (See SB/SE Examination Area Directors Memorandum SBSE-04-0812-049 (Aug. 1, 2012). The taxpayer or the taxpayer’s representative is entitled to a copy of Form 4665 or any rebuttals to the protest that are prepared by examination personnel.)

Applicability to Collections

In general, ex parte communications between Appeals employees and employees of the originating functions are prohibited to the extent that communications appear to compromise Appeals’s independence. The principles of the ex parte rules also apply to communications with Collections employees, when Collections is the originating function, such as collection due process (CDP) appeals, collection appeals program cases, offers in compromise, and trust fund recovery penalty cases (Rev. Proc. 2012-18, §2.03(10)). However, certain communications relating to CDP cases remanded to Appeals by the Tax Court, such as a written memorandum by the Chief Counsel attorney on the case or court deadlines, will be allowed (Rev. Proc. 2012-18, §2.03(10)). The technical written memorandum should not contain information relating to the accuracy or credibility of the taxpayer, and a copy of the memorandum must be delivered to the taxpayer (Rev. Proc. 2012-18, §2.02(10)(c)(i)(A); CC-2012-010).

Potential Remediation

Finally, Rev. Proc. 2012-10 contains a remediation provision to cure any breach of ex parte restrictions. If a potential breach has occurred, the taxpayer should be notified and the communication or information shared (Rev. Proc. 2012-18, §§2.02(7) and 2.10). The taxpayer is given a reasonable amount of time to respond to this information, but further remedies are solely within the discretion of Appeals (Rev. Proc. 2012-18, §§2.02(7) and 2.10). The updated rules in Rev. Proc. 2012-18 provide clearer guidance about permissible communications; however, they do not provide additional rights to the taxpayer to enforce those provisions.

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