The IRS is gearing up its tax compliance efforts after a few years of reduced activity. One indication of these increased efforts is the recent hiring of 400 new IRS Appeals Division employees. The IRS now has roughly the same number of Appeals Officers that existed a decade ago. As professionals who deal with the IRS know, the Appeals Division is the second layer of IRS review for taxpayers whose estate and income tax returns are audited.
The first level is the audit level, where the agent is likely to view issues from the IRS perspective. If matters cannot be settled at the audit level, the next step is typically the Appeals Division. The Appeals Officer is supposed to consider the "hazards of litigation," meaning rather than take a biased IRS view, the Appeals Officer should consider the legal issues supporting each side and strive to reach a reasonable settlement. As Kurt Meier, deputy chief of the Internal Revenue Service's Appeals division recently said at an American Bar Association luncheon, Appeals must provide an "impartial, fresh look." It has been my experience that most Appeals Officers subscribe to this view.
Therefore, often taxpayers who settle their tax problems with the IRS will do so at the Appeal level, not at the audit level with an agent. Settling at the Appeals level avoids the added cost and time involved in Tax Court litigation. For this reason, having adequate Appeals Officers on board is not bad news.