Tax Payers First Act Brings Welcome Reforms to IRS Appeals Process

Few things induce gut-churning panic faster than notice of an IRS audit. It’s a fear to which no taxpayer is immune.

But thankfully, the recent passing of the Taxpayer First Act (TFA) is bringing some solace to taxpayers grappling with an IRS audit. Particularly for those appealing an audit.

Internal Revenue Service Independent Office of Appeals

To begin with, the TFA establishes the Internal Revenue Service Independent Office of Appeals. This new administrative body is exclusively under the direction of the Chief of Appeals and is responsible for supervising the TFA’s newly granted powers of appeal.

Right To Appeal Denial Explanation

Typically, all taxpayers – you included! – have the right to appeal an audit. But if your appeal happens to be denied, for example, if you’re facing pending litigation, the IRS is no longer able to simply deny your request with an unspecified rejection.

The agency is now obligated to provide you with a written explanation of their denial. And this explanation must include the perinate facts, along with an illustration of how these facts apply to their refusal of your appeal.

Right to All Non-Privileged Appeal Information

As a taxpayer, you now also have the right to all non-privileged information related to your appeal. And this documentation must be provided to you at least 10 days prior to your appeals conference.

In the past, taxpayers were forced to request this information directly from the investigators, or via a Freedom of Information Act (FOIA) request. Methods that have both proven to be complicated and time-consuming.

This new right to additional documentation, however, only applies if you’re a taxpayer with an adjusted gross income of less than $400,000, or an entity with gross receipts less than $5 million. A factor that excludes high-income earners and larger businesses.

Discouraging Collusion Between IRS Counsel Lawyers + Audit Teams

The TFA also warns against IRS Counsel Lawyers who are involved in your pending litigation also advising IRS appeals counselors in your appellate action. The TFA, however, doesn’t specifically forbid this practice, rather it suggests seeking avoidance “to the extent practical.”

More Protections, Packaged With a Greater Enforcement

The TFA also increases the IRS budget, which is bound to ramp up enforcement. And thanks to “big data,” the IRS will no doubt dig deeper into the finances of high income-earners. A move likely to increase audits.

Fortunately, the TFA’s new appeals process – which avoids tax court and is far less expensive than typical litigation – is available to high-earners, too.

Forward Progress – But Does it Do Enough?

The TFA certainly delivers some welcome reforms to the appeals process, which is critical considering an appeal is your last line of defense against the carnage an audit can wreak on your finances.

But it’s by no means a panacea for taxpayers. High-income earners and businesses are not afforded some of the new key protections, including rights to non-privileged information in pending audits.

And questions about the extent to which IRS legal councilors are advising audit teams and the conflict of interest this implies continue to linger.

Stay tuned for more TFA updates!

We’ll be deconstructing this legislation further and sharing additional insights on how these new reforms benefit your finances :—)

Questions or Comments?

Wondering how the TFA will impact your tax situation?

Direct your questions here… We look forward to hearing from you!