IRS clarifies that Appeals case memos should be shared with taxpayers upon request

The IRS Independent Office of Appeals (Appeals) issued internal guidance reminding employees that they should share a copy of the Appeals case memorandum (ACM) with taxpayers who make an informal request, the national taxpayer advocate (NTA) said in a blog post Tuesday.

“This clarification is a meaningful step toward transparency and a welcome development for taxpayer rights,” NTA Erin Collins wrote.

The internal guidance reiterates what the Internal Revenue Manual (IRM) 8.1.1.6.4(2) has made clear for years, she said – that taxpayers may informally request ACMs, and they are not categorically exempt from disclosure.

The ACM is a written analysis in which an Appeals officer details the facts, legal conclusions, and rationale behind their proposed resolution. Management must review ACMs before a settlement is final. Historically, Appeals shares the ACM with the IRS examination division to help inform future enforcement actions, Collins said.

However, she said she has heard from both taxpayers and tax practitioners that Appeals often cites an “alleged policy” against issuing ACMs when it refuses to release the memos.

When that happens, “taxpayers may be left without a clear understanding of why their appeal was decided a certain way or what was shared with the IRS compliance team,” Collins wrote.

Collins has raised the issue of taxpayer accessibility to ACMs in multiple Annual Reports to Congress and in her blog, saying that withholding the ACMs from taxpayers “undermines both the independence and transparency of Appeals.”

Melissa Wiley, a tax controversy attorney and a partner at Kostelanetz LLP, said she had not asked for ACMs in the past mainly because she and other practitioners “have grown weary of asking the IRS for things that (1) take many months to be shared, and (2) are mostly redacted if/when you get a copy.”

The IRS’s refusal to provide ACMs to taxpayers is one of the operational issues “that have caused taxpayers to view Appeals as less than independent,” Wiley said in an email. “Appeals is supposed to take a fresh look at cases and consider them without favor to one side or the other. Yet Appeals summary of their reasoning on why they decided a case one way or another has only been shared with exam as a matter of course, not with both sides.”

Some parts that might be included in an ACM such as the IRS’s litigation strategy should not be shared with taxpayers, she said. But Appeals’ independent analysis of the strengths and weaknesses of a case should be shared, Wiley said.

“Erin is right that greater transparency will give taxpayers and their representatives a greater sense that Appeals truly is acting independently,” she said. “And the instruction to IRS employees to share ACMs without a FOIA (Freedom of Information Act) request means that unnecessary procedural hurdles will not be placed in the way.”

The guidance came in the form of an internal reminder about the existing policy, which does not go as far as Collins’s recommendations that Appeals automatically share ACMs at the close of each case.

However, the guidance “is an important course correction,” Collins said. “It puts Appeals employees on notice that blanket refusals to share ACMs are inconsistent with the IRM and inconsistent with taxpayer rights. It also sends a clear signal to taxpayers and their representatives that they have the right to ask for and receive this critical document.”

Collins said she will continue to advocate for automatic disclosure of ACMs in every case. In addition, she recommends that Appeals:

• Track fulfillment of ACM requests and develop internal metrics to evaluate how Appeals is implementing the policy.
• Limit redactions to truly sensitive or privileged content, ensuring the rest of the memo remains intelligible and informative.
• Inform taxpayers of their right to request the ACM through standard Appeals correspondence and public-facing materials.
• Alternatively, have the ACM as an internal document solely for the purpose of documenting the basis of the settlement and receiving manager approval and not share it with the IRS.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.