SECTION 2. BACKGROUND

In 1927, the Internal Revenue Service established an administrative appeal process to resolve tax disputes without litigation. The Appeals mission is to resolve tax controversies, without litigation, on a basis that is fair and impartial to both the Government and the taxpayer. Local Appeals Officers have traditionally reported to different managers than the Service officials who proposed the adjustment. Appeals has historically been able to settle the vast majority of the cases that come within its jurisdiction.

The inventory of cases handled by Appeals falls into two major categories — nondocketed and docketed B determined by whether the case is pending in the United States Tax Court. Nondocketed cases typically involve an administrative protest by the taxpayer of the findings and conclusions of the Examination, Collection, or other IRS function that initially considers a taxpayer’s case. The taxpayer’s protest is typically followed by a conference, or series of conferences, with the taxpayer or the taxpayer’s representative, during which Appeals and the taxpayer attempt to reach resolution of the issues in dispute. Docketed cases involve disputes where the taxpayer has filed a petition in the U.S. Tax Court, contesting a determination made by the Service in a statutory notice of deficiency. Following the filing of the petition, taxpayers who have not previously availed themselves of the opportunity for an Appeals conference generally are afforded an opportunity to

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.” Notice 99–50, 1999–40 I.R.B. 444 (October 4, 1999), set forth a proposed revenue procedure concerning the ex parte communication prohibition. The proposed revenue procedure provided guidance in the form of a series of questions and answers that address situations frequently encountered by the Service during the course of an administrative appeal and invited public comment. The Department of the Treasury and the Internal Revenue

October 23, 2000 404 2000–43 I.R.B.

istration, while preserving operational features that are vital to Appeals’ case resolution processes within the structure of the IRS and ensuring more open lines of communication between Appeals and the taxpayer/representative. Thus, in order to preserve the informal give-and-take and flexibilities that have been conducive to achieving settlements in Appeals, the guidance provided in this revenue procedure does not adopt the formal ex parte procedures that would apply in a judicial proceeding. The guidance is designed to ensure the independence of the Appeals organization, while preserving the role of Appeals as a flexible administrative settlement authority, operating within the Internal Revenue Service’s overall framework of tax administration responsibilities. For example, as more fully explained in Section 3 below:

A-4 No. The administrative file is not considered to be an ex parte communication within the context of this revenue procedure. The administrative file, containing the proposed determination and the taxpayer’s protest or other approved means of communicating disagreement with the proposed determination, sets forth the boundaries of the dispute between the taxpayer and the Service and forms the basis for Appeals to assume jurisdiction.

Q-5 Does the prohibition on ex parte communications extend to discussions between Appeals employees and the originating function during the course of preliminary review of a newly assigned case?

A-5 It depends on the nature of the communication. During the preliminary review of a newly assigned case, officials in Appeals may ask questions that involve ministerial, administrative, or procedural matters and do not address the substance of the issues or positions taken in the case. For example, Appeals employees may make the following types of inquiries without involving the taxpayer/representative:

I Appeals will retain procedures for (a)

returning cases that are not ready for Appeals consideration, (b) raising certain new issues, and (c) seeking review and comments from the originating IRS function with respect to new information or evidence furnished by the taxpayer or representative.

I Appeals will continue to be able to

obtain legal advice from the Office of Chief Counsel, subject to limitations designed to ensure that the advice to Appeals is not provided by the same field attorneys who previously gave advice on the same issue to the IRS officials who made the determination Appeals is reviewing. These limitations adopt some of the suggestions received in response to Notice 99–50 and reflect a balance between meeting Appeals’ needs for legal assistance and avoiding ex parte communications that might appear to compromise Appeals’ independence.

I Questions about whether certain in

formation was requested and whether it was received.

I Questions about whether a document

referred to in the workpapers that the Appeals Officer cannot locate in the file is available.

I Questions to clarify the content of il

legible documents or writings.

I Questions about case controls on the

IRS’s management information systems.

I Questions relating to tax calculations

I Finally, the Revenue Procedure

makes clear that the Commissioner and others responsible for overall IRS operations (including Appeals) may continue to communicate ex parte with Appeals in order to fulfill their responsibilities.

INTERNAL REVENUE SERVICE RESTRUCTURING AND REFORM ACT OF 1998

Q-1 What is “ex parte communication” and when is it prohibited?

A-1 For the purposes of this revenue procedure, ex parte communications are communications that take place between Appeals and another Service function without the participation of the taxpayer or the taxpayer’s representative (taxpayer/representative). While the legislation refers to “appeals officers,” the overall intent of the ex parte provision is to ensure the independence of the entire Appeals organization. Ex parte communications between any Appeals employee, e.g., Appeals Officers, Appeals Team Case Leaders, Appeals Tax Computation Specialists, and employees of other Internal Revenue Service offices are prohibited to the extent that such communications appear to compromise the independence of Appeals.

Q-2 Is the prohibition on ex parte communications limited to oral communications?

A-2 No. The prohibition is not limited to oral communications. It applies to any form of communication, oral or written (manually or computer generated).

Q-3 Are communications between Appeals Officers and other Appeals employees subject to the prohibition on ex parte communications?

A-3 No. As indicated in A-1 above, the ex parte communication prohibition was intended to preserve the independence of the Appeals organization as a whole. Intra-Appeals communications during the deliberation process do not compromise or appear to compromise that independence. Appeals employees may communicate freely with other Appeals employees without inviting the taxpayer/representative to participate.

Q-4 Is the administrative file transmitted to Appeals by the office that made the determination which is subject to the Appeals process (the originating function) considered to be an ex parte communication within the context of this revenue procedure?

that are solely mathematical in nature. Communications with the originating function which extend beyond matters of the type described above and address the substance of the issues in the case are prohibited unless the taxpayer is given the opportunity to participate. Examples of prohibited communications include: