Music playing.
Hello, welcome everyone to another installment of our
Practitioner perspectives series where, as you know, we identify
a topic of continuing education and invite a panelist, a group
of panelists both from appeals and practitioners to join us
and talk through the issues.
Here we did a couple of these last year which were very well
attended. I see over 400 people online here so far today, which
I think is great. And of course more will watch these as
recorded. And so thanks for joining us. I want to get
started by introducing our practitioner panelists here. And
1st up we have a professor, Christine Spidell. Professor
Spidell is the director of the federal tax clinic at Villanova
University School of Law. She's a frequent speaker and writer on
issues affecting low income taxpayers.
And Professor Speidel is a contributor to the procedurally
taxing blog and also is active in the American Bar Association.
Christine, we are delighted to have you today. Thank you for
joining us.
We also have today Melissa Wiley. Melissa is a member in
Kaplan and Drysdale's Washington, DC office. Her
practice focuses on advising clients on U.S. tax matters,
including civil and criminal tax controversy matters and
penalties at the federal and state level. Melissa is a member
of the various committees, including the AICPA, IRS
Advocacy and relations, and national tax committees. And
we're thrilled to have you with us today as well, Melissa.
So thank you for joining. I'm gonna turn to our deputy chief
of appeals, Liz Askey, who can introduce our appeals panelists.
Liz.
Thanks, Andy, and welcome everyone. We are excited to
have with us today 2 veterans of of our appeals organization. The
1st is, Norma Diaz. Norma is a team manager and our
collection appeals function in Miami, FL. She's been with the
service for 25 years and then Jessica Talbot in her final week
with the service, we are not letting her go out quietly is
joining us. She's the senior operations advisor currently,
to the director of examination appeals and just has a wealth of
experience drawn today, and we are gonna take advantage of that
before she sails off into the sunset. She's been with the
service for over 38 years, 25 of those with appeals. And in
addition to her current role, she has served as an appeals
officer and appeals team manager and a technical advisor to the
director. She'll again, she'll be retiring this week. We are
going to miss her and I know she's going to miss us too. So
without further ado.
I'll turn it back over I guess to Amy, right?
Ohh Amy, I need introduce you, I'm sorry.
Amy Guliano is our senior advisor here in in appeals
headquarters and none of this would be happening without her.
So sorry for for not giving you your proper introduction, Amy.
So Amy, I will now turn it over to you. Thank you.
Not at all. Thank you, Andy and Liz for those wonderful
introductions. I think as everyone can see, we have a
really fantastic panel set up for you today. Thank you to our
appeals employees for listening in. And let's go ahead and open
up today's discussion with the question for all of our
panelists.
What are your thoughts on the role of the independent Office
of Appeals when looking at penalty appeals?
You know, appeals plays a unique role with an IRS tax
administration generally. Um, does it play a unique role with
an IRS penalty administration as well?
Um, Christine, I think I might tee it off to you first if you
could weigh in and thank you for being here.
Yes. And I want to say thank you so much to to Andy and Amy and
everyone for including practitioners in this
presentation. It's really an honor to be invited.
And I think it, it really goes to your question, Amy, of the
the role of appeals and how important it really is in tax
administration. I think we all know that the the purpose of
penalties is generally to encourage voluntary compliance
and to get taxpayers to do the right thing next time or to
learn what they've done wrong. And I think toward that goal
appeals is really crucial. I've had clients who've come to me
after they've already settled in a matter with appeals. They come
to me maybe
for collection help, and have expressed just how grateful they
are that an appeals officer was willing to take the time to
explain to them what happened and to be reasonable and to
talk through the issues and they may still owe tax, but they feel
a lot better about it after they've had reasoned
consideration and somebody to actually to to connect with. And
so I think appeals is really crucial in that.
Thank you, Christine. Melissa, what are your thoughts? Yeah,
I'll echo everything that Christine has to say that's
that's going to sort of be a theme throughout my career to be
honest. But I I completely agree. I mean, I.
I want to put all of you in the place of my clients, who in many
cases have tried to sort things out themselves and think they
don't need a lawyer, they don't need a tax professional to help
them find themselves telling the same story over and over again
on the phone in letters, getting nonsensical responses. We're
getting no response at all until finally somebody from appeals
reaches out to them, and in many cases you all are the first
person who has sit and listened to them.
And that is so incredibly important and so incredibly
vital. And I could go on about how you know your authority to
settle versus just seeing things black and white. The way the
rest of the service is required to is incredibly important and
it absolutely is. But for so many of my clients, the fact
that you all are a person who sits and listens to them and
their story, I I can't overstate the importance of that so many
times clients.
Their frustration is not, you know, as Christine said, that
they have to pay the tax, they have to pay a penalty, is that
they feel like they haven't been listened to and they haven't
been paid attention to. And that is the tremendous service that
you all provide, not just to my clients and taxpayers out there,
but you also ensure that people, when they leave that contact
with the agency, feel better about it. They feel that there
is somebody who can listen and that they're not forced to go to
court. So those.
So that to me honestly, is, is the big role that you play that
really cannot, cannot be overestimated.
Jessica, I think I'm gonna turn it to our appeals panelists now.
Jessica, you, you remind me often that the majority of
appeals relating to penalties for failure to file, failure to
pay, and failure to deposit are by pro se taxpayers, does this
change or should this change how appeals approaches the case?
It really shouldn't. And I think, you know, I've got a soft
spot for penalties because most people when they come into
appeals, that's where we start them. That gives them that
opportunity to, you know, learn how to settle cases and and
really, you know, analyze the case and move forward with that.
What were the penalties?
You're most likely to see somebody who is not represented.
And they have never talked to a live person during this whole
process and appeals is that first chance for them to say,
can I just talk to you about this for a minute and just, you
know, explain what goes on and what's transpired?
So with the penalties, you know, we always, I think that focus is
this is just as important as any tax administration that appeals
does.
We have to be able to let that taxpayer say, you know what, you
want to just take a minute and tell me what's been going on
with your case and then we can get into, you know, whether
there's reasonable cause, whether there's a hazard here,
whatever, whatever the circumstance might be. But I
think it's that important, that important first step that we
say, tell us your story.
And and Norma, last but certainly not least on this
topic, you know any thoughts you have about the unique role that
appeals plays here?
I agree with Jessica. It's really about the taxpayer
experience, letting the taxpayer know that we want to listen to
their story to want to. With that, we're listening to their
concerns and sometimes we come to a resolution in favor of
the taxpayer, sometimes we don't. But the taxpayer is
satisfied that we took the time to listen to their concerns.
Now, Jessica, what if a taxpayer's appeal focuses only
on reasonable cause? Is that all appeals looks at in that case?
No, no. The actual verbiage a taxpayer may use should not
limit the scope of of that appeals hearing because
taxpayers don't know what verbiage to use. They don't know
how to. I mean, a lot of them don't even know how they got to
appeals. They're just saying I need somebody else to look at
this.
So when we get them, you know, one of the things that we teach
our AO's is that, you know, familiarize yourself with the
case. What happened from the time this started until it got
to us?
And then take a look at reasonable cause. Why did the
service deny it?
And then we will apply any kind of administrative waivers that
are available. You know the most common one is Rev Proc. 84-35
which is for those partnerships with less than 10 members, but
more recently we've got notice 2223 for COVID and late filing
and anything that was missed by the service we're definitely
applying. So those administrative waivers are
always you know part of that analysis process.
First time abate.
Uh, one of the things and and.
When we get every once in a while we'll get a TIGTA audit
and it'll provide recommendations and suggestions.
So first time abate, a lot of people think, well, it's already
been applied because it's automatically applied by the
service. But we learned through one of those TIGTA audits that
sometimes.
A taxpayer had reasonable cost for an earlier penalty.
And so they don't get the first time abate when they're actually
was an error and they you know they messed up and so they come
to appeals. So we will look back and say why was first time abate
applied earlier and if there was reasonable cause for it, we note
that in our in our notes and then we go ahead and give them
that first time abate for the penalty that's currently before
appeals. That's just part of that taxpayer experience.
And then the last thing is those litigating hazards.
You know what? What's out there? What do we see? Um.
It's not all. We don't always see a lot of favorable, uh,
decisions for taxpayers.
But one of the things that we really try to apply are what
are, what mitigating factors can we apply to that because no two
taxpayers have the same facts and circumstances. And so I
think we really have to look and say.
You know, this is what happened to you. Yes, we might have a
Boyle situation, but
this is what you were doing all along and we can say this
taxpayer, you know, really did exercise some ordinary business
care and prudence here and we can make a settlement based on
that.
So I like to think of those penalties as as a whole package.
We're not just going to look at reasonable cause, we want to
look at everything and provide relief where we can.
Melissa, I think I saw you nodding along a little bit
there. Is there anything you would like to add? Yeah. I mean,
Jessica, I I hope you never leave the service, even though
you're supposed to be this week, because that's that's right on.
For those of you who have not worked anywhere else at the
service other than appeals like you work in a very high
functioning group of individuals and things get missed all the
time at the service center level, I know this will not
surprise you. Mail gets lost all the time. People end up coming
to you because of errors. Everyone is human.
It's not just on their side, but on the side of the service. They
end up coming to you because especially during COVID, and I'm
sure many of you have seen this, in some of the cases that have
been hitting your desk, taxpayers tried their best to
comply and tried their best to communicate with the IRS. And
because of the pandemic and everyone all over the place and
the mail piling up and the mail system not working, things just
did not go the the way they were supposed to. And, you know,
other than your role as the person who's listening to the
taxpayer.
You're also their last stop before they have to go to court,
and your singular role there to prevent taxpayers from having
to go to court, to prevent judicial resources from being
used. Court is terrifying.
I don't know how many of you out there have ever gotten random
letters from the IRS about something on your own return. It
happened to me about eight years ago because my husband and I,
who are not then married, had split our mortgage interest
deduction on our house and it didn't tie up. And I got this
letter and I have to. I am a tax lawyer. I've been doing this for
20 years. And my heart started racing when I got that letter.
Like what? What did I do wrong? Oh my goodness. So, you know,
you reaching out and.
Really listening and considering all the ways in which a taxpayer
may qualify it is just the most amazing ability and and you are
the only people who are able to do that particularly in the
context of settlement. And I know we're going to talk a
little bit more about reasonable cause but.
Your reasonable cause is a hard thing to put on paper.
Reasonable cause is something you want to talk about.
You make you reasonable calls one way and the taxpayer story
that they're trying to tell maybe that within their their
abilities and what they are able to do themselves, they really
did try the absolute hardest and and couldn't comply.
So, you know, reaching out to the taxpayer as as Jessica
Jessica suggests, and listening to their story and thinking
creatively, particularly when they're pro se about what else
they they may qualify for is just such a gift that you can
give not only these taxpayers but but tax administration.
Also thank you for that Amy I'm gonna chime in here if I can
because I I was sort of thinking some of the same things that
Melissa ended up saying there and she points out you know
we're a high functioning group here and appeals being high
functioning group comes with great responsibility. I think
that's exactly right. Some of the things that Jessica
mentioned we've got to make sure you know that rev proc 8435
or notice 2 and 2223 were applied or first time abatement
was that missed that the compliance of. I'm watching the
text chat here and one of our appeals officers is noted that
she has seen quite a few situations where
first time abatement has been missed at the IRS compliance
level. So it is on us to keep an eye out for not just reasonable
cause for any other penalty relief provision that the
taxpayer is eligible for and has not been given. I think the
point about appeals being the first time some taxpayers have
talked with us is critical and certainly justifies US spending
the time to listen to the taxpayers concern in some cases
explain you know the the law to those taxpayers. So appreciate
the comments
everyone's making here. Back to you, Amy.
Thank you, Andy.
I think, uh, before we dig into reasonable cause even further,
let's, um, let's turn to the topic of supervisory approval.
Under section 6751-B. And I think here I'll start with my
our appeals panelist. What penalties must supervisory
approval be obtained and how is the issue raised in appeals?
Well, you know the the 6662 accuracy related penalty, we see
a lot of those and.
You know, some of them come through the docketed process or
the audit recon process, but we do get some through the penalty
appeals process.
And you know, right now we've got basically two ways of doing
these. There's the ones from the field examination where you know
you'll see that managerial approval and then you've got
those campus compliance cases.
In which it's an automatic assessment and it takes
something from the taxpayer or maybe they're representative to
kind of once they can contest that, then then supervisory
approval goes, you know, becomes an issue.
So a lot of these cases when we get them, that's the first thing
we're doing is, is, is tracing back what happened. Did the, was
the taxpayer contesting this originally when it was proposed,
was it not? And based on that, you know, we may recommend
concession of the penalty right up front.
Um.
The courts have really you know, that's that's something that
we've got our you know, our eyes on is because we see, we see a
lot more court decisions coming out where that's being more and
more refined on what that supervisory you know, approval
needs to look like.
Um, just this morning Amy sent me over some proposed
regulations where they want to put some, a little more
timelines, a little more specific timelines in on how
that works. And we're monitoring those closely and we're going to
apply the, you know, apply them appropriately once that's
finalized. But you know that this is one of the great things
about appeals is, you know.
Something that you think is is is decided.
Never really is you get one court that makes a decision and that
has us saying OK maybe we need to take a closer look at this
and monitor closely. So in a nutshell you know that's how we
look at those supervisory you know approval necessary is it,
it's really tracing it back to the source and and deciding
whether it was applied appropriately or not so.
Norma.
Yes, umm, for uh collection due process, I'm hearing some. The
collection appeals officers are are required to verify the
supervisor approval, and as part of the verification process, the
collection appeals officer has to determine if the penalty was
automatically calculated through electronic means and excluded
from IRC 6751 or if an exception applies in after extenuating
research.
All the options after researching all the options in
the collection appeals officer can recommend abatement. So yes,
and we also.
Pay attention, like Jessica was saying, to all the changes that
are coming so um.
In a nutshell, um, we have to determine the source, then
determine if it applies, and then we move on to recommend
abatement.
Christine, do you have thoughts here about how to how to raise
this issue with appeals?
Um, well, I'm glad Norma mentioned CDP and the
verification requirement because I think we do see it there and
it's, it's appropriately part of that CDP verification that all
procedures were followed.
We're also seeing in deficiency cases.
That chief counsel is pretty attuned to the issue and so is
appeals. And if they can't find supervisor approval in in the
record in the file then then they are recommending abatement,
which I think is is appropriate the proposed regulations.
Make your jobs much harder I think for for the moment because
we don't know what the law will be if those are finalized, what
they will say that they know they're proposing to to require
approval at A at a slightly later stage than the court has
for the deficiency penalties. But on the plus side you would
have a little bit more clarity when those are finalized. So
we're we're closely watching those as well and I think even
though it's been a messy process of figuring out what this.
Statute means and when it applies and how it applies,
it's.
It's gotten, I think that the service has responded in a
positive way and that in most of our cases we are seeing that
there was supervisory approval now which wasn't the case at the
beginning. And and so it's when you're counseling your client
about the penalties and again sort of going back to the
purpose of the whole program, right, being able to assure them
that yes, somebody looked at this and here's what it means
and here's why I think it does encourage more.
Taxpayer faith in the system to have that supervisory approval
requirement and to see that the service is is following it in
most cases now.
That's a really great sentiment and very nice to hear you.
Um, let's start really digging into reasonable cause.
So consideration of a penalty appeal requires, you know,
thorough review of the taxpayers case file and understanding
their particular facts and circumstances. Reasonable cause
exists when a taxpayer is exercised ordinary business care
and prudence in determining his or her tax obligations but was
nevertheless unable to comply. And usually that's due to
circumstances beyond the taxpayers control. So I would
ask all of our panelists here, you know, what is the best way
to approach such a fact intensive analysis?
How do you tell the story?
So I'm going to raise my hand for this one. I have been
looking in the comments and there's been some really great
suggestions from from folks who are following along and and
these are the kinds of things that I try to do with my clients
to make it easy for the appeals officer to understand the story.
You know, one suggestion was a really good timeline is, is
crucial not just around you know the filing but what happened
leading up to the filing or the payment, what happened leading
up to the payment, what happened immediately after.
When did you find out there was an issue? What did you do when
you found out that was an issue? Who did you consult? How much
time did you let go through? You know, those are the kinds of
things that when I'm working with a client, I make sure that
I'm understanding and laying out for the appeals officer, because
I do want that story to be clear for you. The other piece of it
is documentation, right? I tell my clients all the time,
whatever you have to show that you actually did these things,
give them to me so that I can put them in the appeals protest.
And hand them to the appeals officer so they know that these
things are true. They don't have to think about whether it makes
sense. They have a document that that shows it.
And when there's not something you know, I'll even go so far.
As with clients, you some of you may have seen some of this
during COVID, where they said.
Look, I, I was not going into FedEx or going into a post
office at the height of the pandemic. So I took that thing
and I put it in the mailbox. I said, OK, great. Do you have
anything, did you, you know, stop at the post office to buy
stamps before, like show me anything that might try to back
that up and and those are the things that I try to do.
You know, the other piece of that is I also really try to
give an appeals officer and idea of who my client is and what
they know because there's a very big difference between and. I'm
going to take a real life example here, a police officer
in in Philadelphia who inherits some money from his mother in
Poland. When she wins the Polish lottery. That person is going to
know and understand something very, very different from one of
my firms, estate planning clients who has had you know.
Binders full of documents and estate planning put together and
uses 3 accountants across the world to understand what they're
filing obligations are. Those are different people with
different perspectives. And you know, to my mind, one of the
things I find incredibly helpful. If you've ever heard me
speak before or ever met with me, you know that I love the
Internal Revenue manual, which is the weirdest thing to say at
a cocktail hour, but I do, and particularly the the penalty
handbook.
I find incredibly useful. I have it printed out and highlighted
and tabbed because it goes through the kinds of things that
should be looked at for each individual taxpayer. What is
their level of education? Did they consult somebody you know?
What did they hear when they consulted? How quickly did they
rectify any issues? I mean, it just does such a nice job of
laying out the factors, many of the factors that should be
considered, and when I make presentations to other
practitioners about how to do these cases.
That's where I'm sending them, right? Go to the Internal
Revenue manual. Make sure you're addressing those topics. Give
the the IRS appeals officer a timeline. Give them documents.
Sometimes even when we don't have documents, I'll go out and
get affidavits from people who know that something happened,
who saw that something happened, any incremental evidence that
can help you understand the situation. That's that's what I
view my role as in as a practitioner.
Thank you, Melissa. Christine, I'd love to hear your reaction.
Well, I'll just second everything that Melissa said.
Yeah, absolutely. I I think what she said about who the taxpayer
is and what they know is really crucial and it really is about
listening to their story. I think the point about the
timeline is extremely helpful.
A lot of my clients have difficulty understanding the
time frame in which they have to prove the circumstances that
cause them to not file on time.
Um, so people will come in and will provide you evidence of I
was hospitalized in June. It's like, well, your taxes were
doing April, so let's talk about what led up to that. But it's
incredibly common. Like just people don't automatically not
only understand what what language to use or what
qualifies, but but the time frames are often difficult for
them.
Umm.
And so yes, I think with with my clients it's I do a lot of.
Listening to their story and then brainstorming. Like Melissa
said, what could we possibly get to corroborate this? Who else
knew about this situation?
It's it's very fact intensive and.
Again, it's it's just such an important role that appeals
plays when a taxpayer is not represented because if they
don't have somebody on their side helping them.
To build the story, they may come and talk to you in a way
that's not linear, or in a way where they're talking about
something that is maybe technically irrelevant because
the time frame is not exactly what it needs to be. So I I
think you have a tremendously hard job.
Helping somebody, you know, listening to them, but then sort
of fitting what they say in into the manual. But it it really
just goes back to the facts and circumstances and listening and
putting everything that they tell you in an order that really
makes more sense and then probing right to see if they do
have any of those circumstances.
Jessica, I'm sure you're just dying to get in here.
Well, in, in timelines are the biggest help, but sometimes
there are starting points. So one of the things I like is I I
do like conferences even if they're just 15 minutes because
you can glean so much information that was unsaid or
you know or just walking somebody through something and I
I'll just share this real quickly is that.
Years ago I had someone who had all these, you know, these
failure to deposits, but they only seem to be at certain
times. And so I called and says what's going on? And she says,
well, you know, based on the Union contract, when all these
truckers come in, no matter if it's, you know, 11:00 o'clock at
night, we have to cut them a check.
So there's no way we can make our deposit the next day because
I'm still paying out checks as of midnight.
So, you know, we got talking about this and you know for all
intents and purposes the banking day ended at 5:00 o'clock.
So we did a quick recalculation and made a settlement based on
if the deposit day was the next day.
And that's what we in, that's what we went forward with and I
said you know, it's just it, it is something that.
They're doing everything in good faith.
And they're hampered by one thing or another and this, you
know, the the settlement and this I never would have known
about it had we hadn't had that, you know, 10 minute phone call
where she could tell me, Oh yeah, I got you know, I've got
truckers coming in at 11:30 and they want that check.
But I there's no way I'm going to get those you know those, uh
trust fund monies in deposited, you know on Monday. Just no way
it's going to happen. So I like conferencing. I like to be able
to you know I I stressed to a House pick up the phone if
something just doesn't seem right and have them walk you
through what happened because sometimes you will get a whole
new perspective.
Normal. What are your thoughts here?
Yeah, in in city P and collection due process hearing,
we got a lot of process, um taxpayers and requesting penalty
relief and many of the taxpayers have dealt already with the
revenue officer, a collector and they're nervous about the whole
process.
And, um, the conferences are meaningful, but sometimes they,
they they're not very organized. They don't know how to present
the case. So what I usually tell the taxpayer is.
I want you to put it in writing for me and write it like you're
writing to a friend. You're telling a story and put the
dates in and attach any documentation that you think
it's relevant to your request. And then you send it to me and
I'll review it and after I conduct my review, we'll speak
again.
And um, and it works wonders because they have the
opportunity to present.
For the to present their case without writing the letter, and
then after they talk to us and they write the letter, we have a
second conversation and we get so much more information from
them.
But umm it is.
Communication is crucial between the uh appeals officer and the
taxpayer, especially when it's a pro set taxpayer that it's
already has some anxiety about about the process.
Absolutely. Communication is crucial and I like the idea of
telling the story to our friend. You know, we would tell details
that would sort of give the color of the story when you're
talking to our friend. Now Norma IRS compliance and customer
service representatives in the wage and Investment division use
the reasonable Cause assistant or RCA almost exclusively. How
does appeals approach differ?
I hear this from taxpayers a lot. Um, some computer program
it's making the decision or there's an I I cannot speak of
an investment or um customer service use of the RCA tool. But
in collection revenue officers are required to use RCA when the
taxpayer requests relief for certain penalties due to
reasonable cost and it's under Internal Revenue manual. In
appeals, they use of a computer application such as the.
RCA goes against our mission to provide a meaningful opportunity
for taxpayers to present their case appeals. Employees don't
have access to this tool, either exam or appeals collection. We
have no use for for such a system, it's irrelevant.
I'm just gonna. I'm gonna jump in here, Amy, just because I
can't hold myself back. And I think that I think that point is
so critical that Norman made. I was listening with great
interest over the last 15 minutes as we talked about, you
know, things are often not black and white or, you know, there
may be facts you haven't thought of. It's the Union paying out
checks at 11:30 or the police officer who, you know, it was
uninformed about the law to think that you'd be able to come
to appeals and everything would be black
and white and a reasonable cause assister can give the
answer in all cases is not realistic. This is why people
come to appeals is for us to listen to them and to listen to
the unique facts of their situation. I'm so pleased to
hear everyone mentioning that here and watching the the
comments in the chats as people who appeals officers who
recognize that and say I like to think it's called an appeals
hearing because listening is the first thing we do right. So I
appreciate that there are appeals officers do that and
think about.
What are the facts that are unique to this taxpayer and how
does that, uh, weigh in on the reasonable cause determination?
Thanks, Amy, back to you.
Sure. I thank you for chiming in, Andy. It's such an important
point. That's that's why it was a question phrased the way it
was, just to make the point, you know, this is this has no place
in appeals.
You want to be sure that it's not perceived as having a place
in appeals. So moving on the the Supreme Court decision in Boyle
states that the failure to make a timely filing of a tax return
is not excused by the taxpayers reliance on an agent and such
reliance is not reasonable cause for late filing. Jessica, I'm
going to tee this one up to you first, what legal or factual
hazards exist when considering the scope of oil?
Well, up until recently I would say boil was pretty much the
standard and and appeals did give great weight to it. Now
that's not to say that you know anybody that tried to come in
with a late filing penalty or something who had relied on a
third party gotta know it definitely wasn't. But there was
some weight given there. You know, that's that's the whole
thing about you know those litigating hazards, if this
taxpayer goes forward will they be successful.
But again, this goes back to that telling the taxpayer
telling their story, what were their individual facts and
circumstances.
And was that really, you know if you rely on it, if you rely on
on a third party for a filing due date?
We want to understand what was behind that reliance.
You know, I've seen, I've seen people that, you know, they'll
come in with five years of tax returns and in their letter of
protest they will say, you know, my accountants told me for all
these years that I had no filing requirement, but then I got this
SFR notice because my Social Security taxable. Those are the
kinds of individual facts and circumstances that while
accounts management or customer service may not take into
account. They they do carry great weight here in appeals as
they should because in those circumstances.
That reliance was absolutely, you know.
The taxpayer that Reliance was was acceptable and we have to
give weight to that and we have to propose a settlement in those
cases.
So, um, I'm interested in what Christine and and Melissa have
seen out there, because I know I that's just one example, but I'm
sure there's dozens of others.
I think you hit the nail right on the head, Jessica, which is
when I have a client come to me and say somebody told me that I
didn't have to file this, my answer is always who was that
person and what did they know? And those were the things that
I'm trying to get across to the appeals officer. I mean, I've
had clients come to me saying I relied, I relied, and they tell
me what their reliance was. And I'm like, I'm not putting that
forward. That's not, you know, saying that you told your
neighbor that you had some money and your neighbor.
But I don't worry about, like, that's not what we talk about
when we look at the neonatology criteria, right. And. And So
what I'm trying to do when I address that issue, and I always
very proactively try to distinguish my cases that I
believe in from Boyle, which is this isn't someone who gave the
account the information and said here's the e-filing
authorization, just file it by the deadline for me. You know,
this is someone who went to an accountant, said, hey, I got
this money from my mom.
In Poland and the accounts that don't worry about it, that's a
gift. It's not taxable. You have no filing obligation. Well that
is good reliance and what I do is try to make sure that I again
can back those things up. Look if I can get something from the
return preparer, that's wonderful. They often and and I
think this is something that I would note as a practitioner
point to you all is that when I go to a return prepare that has
screwed something up.
I usually can't get them to put that in writing. So, so I, you
know, I try to get something for my client to do e-mail your
return preparer. Do you have something to show that you gave
them the right information by the right amount of time? But
you know, where I would try to bring kind of my practitioner
perspective to to your lens is sometimes, especially when we're
dealing with a practitioner who didn't do their best work, it's
hard for me to get anything out of them to prove that.
To you. So just asking for a little bit of grace and
understanding on that point.
I would echo that, umm and we we did have this situation arise in
in a case that that just settled a couple days ago and you know
going to the preparer and.
Trying to get copies of their.
Their records showing when they tried to e-file and what the
what the reject code was right for all the returns.
So we were able to show that the taxpayer had attempted to file,
that the e-file had attempted to to be filed on time and and the.
Umm.
That the taxpayers sun had later come in and attempted to e-file
it. It turned out that the e-file had not worked because
the sun had already filed and claimed himself and not as a
dependent.
And um, so you could kind of see in the records what was going on
there?
Of course it's, you know, it's still the taxpayers obligation
to file by the deadline, but I think sometimes the records do
show there was a story there and he was trying to get his son to
amend so that he could then file correctly, right, claiming the
dependent.
Um, so I think that was just helpful context for for our
discussions. But the the advent of e-filing has definitely
complicated things. I know we were going to talk a little bit
about some of the litigation. It's it's I think less clear now
when you have a preparer who who did try to e-file on time there
was the the Haynes opinion from the 5th Circuit.
Which basically said, well, if the preparer is the agent of the
taxpayer, we have to look at whether the preparers actions
were reasonable, whether the preparer exercised ordinary
business care and prudence. And in that case the preparer had
not gotten a reject notice from the IRS.
And so that case was remanded for for the court to determine
whether the preparers actions arose to reasonable cause right
and that case was then settled.
So there is some uncertainty there and it's it's it's again
like all the other penalty the issues I think it's just so fact
and circumstances dependent.
And it it is definitely a challenge to try to get those
records and the cooperation of the preparer, but but we do try.
Often our clients are a little more successful than we are, I
think. So I think Norma, your your approach of talking to the
tax preparer and then sending them off to A to collect what
they can is a great one.
Jessica, I know you were looking at the Haynes litigation too. I
don't know if you had anything to add about the e-filing issue.
You know, I have and and you know, like I said earlier, you
know, you figured Boyle was settled law. Well, we found out
that nothing is settled law anymore.
So, you know, it's something that we're going to keep an eye
on because we do have, you know, the remand from the 5th Circuit.
Um, Northern District of California, there's a spot as
where Spottiswood versus US and that court actually upheld.
You know and I think for a long time in appeals, especially with
electronic filing returns, you know, we were looking for that
e-mail that, you know either the acceptance or rejection and if
you didn't get either one of those, you know, appeals was
kind of leaning towards if you didn't get a rejection or you
didn't get an acceptance, then you need to consider that the
return was not filed.
But in in reading some of the comments and reading some of the
people that were weighing into this Haynes decision.
You know one of them.
He made a really interesting point that the fact that a
return was rejected from electronic filing.
Doesn't that in and of itself say that the service received?
The return.
And that they need to do something to try to perfect that
because they do that with a paper returns. If somebody
forgets to sign, they'll send, they'll give them you know a
3045 day. For them to come in & that return before they
reject it. And so I thought that comment was absolutely was
really interesting because well what do we do? Do we if we just
reject it, the service just rejects it. Is that enough?
Shouldn't they, you know specify you've got a 10 day window to
get this in or you know something along those lines. So
I think.
Especially with respect to electronic returns, I think
we're going to have to watch the courts closely over the next few
years because I do think we're going to see a shift.
I think that's right. More to come on that issue for sure.
So there's a perception that reasonable cause is very
difficult for a taxpayer to show. Is that perception fair?
Why or why not?
Christine, do you have thoughts here?
I think that perception is.
Shared, you know, by my clients and I think it's fair, it is a
pretty high bar.
Um.
I mean.
I think it is very difficult for a taxpayer to show, especially
if the taxpayer.
Doesn't have good counsel or doesn't have good knowledge of
what the standard is and isn't able to present their case
effectively. It's especially difficult for those taxpayers.
But but I I certainly have you know, many, many clients who
want to, who don't want to pay the penalty, who do have facts
that rise to reasonable cause. So it it does require.
It does require that they.
Did the best that not just did the best that they could, but
they really did everything that they could to try to comply.
Um.
And it's.
It's it's a tricky question because there is some
inconsistency in the case law. So you do sometimes see very
sympathetic taxpayers with like you know a 40 year compliance
history. That's perfect. And who explains to the court how they
kept all their tax documents and how they met with their preparer
and.
Um, there, there are some cases out there where the court is
very sympathetic to taxpayers especially with good compliance
history and so, so you never know for sure if if you might be
more successful in litigation, but I think ordinary business
care and prudence.
It can be tough and it can be tough for.
For people who rely on preparers without necessarily having.
Having a good reason to do so, right? Or or perhaps you should
have checked up to see if they actually followed through.
Um.
Many of my clients just have a lot going on in their lives and
so generally that's a very difficult.
Um, it depends on what is going on in their life, right? So, for
example, clients who were homeless, we've been able to
successfully get abatement there. But many situations with
financial stress and interpersonal stress don't quite
rise to that level.
But I don't know what what others think. I'd be curious to
hear from Melissa.
And Norma and Jess.
Also true for my clients, Christine, in different ways.
And I think that all kind of keeps going back to the same
theme that a lot of us have been talking about, about really
taking the time to listen and understand the situation of the
taxpayer. And if they're doing a bad job of telling you, then to
give them the sort of advice that Norma suggests, like tell
think about telling a friend and write that all down for me,
because I think that is helpful. And look, I tried to do all of
these things the right way, and sometimes I don't do them the
right way.
And so if you know, if I am before you with the case or if
another practitioner is before you with the case and you see
something and you're like I that's not adding up, tell me
what really went on there. Like please do push back because a
lot of times, you know, I don't always do my job perfectly too.
I leave things out. I don't think of an angle that you're
looking at. I didn't think to ask the client a question about
something that's not adding up for you. Tell me to go get the
answers for you because I'm certainly going to do
everything.
Try to make your job easier.
We do hear the comment from people that reasonable cause is
impossible to get. Don't waste your time.
I hear it a lot from clients. I hear it a lot from other
practitioners. I think there's a handful of things that go behind
that. One is because you're all human. There are some appeals
officers that are harder than others, and that is just the
nature of the game. The other, I think, and again, I go back to
some of the comments I made in the beginning about how critical
your role is.
I can almost always, if I have a client who has a story and I'm
not telling clients who have lousy stories to go, go and
waste your time. Or at least I try not to. But if I have a
client who has a story, I'm always telling them at the
beginning. Look, this is not a slam dunk. What you know, I see
a lot of conversation in the chat and we've talked about some
case. This is what the case says. You know, the individual
taxpayer story is quite often not squarely addressed in any
case law.
And that's particularly for those of you who stay with us
for the next hour, the case in the international information
return space and.
You know where you can be helpful and this is what I try
to explain to my clients is you may be expecting 100%
concession.
And that's probably not going to happen. But what you will get in
appeals is someone who can sit and consider your story,
consider the state of the tax law and see that there is risk
to the government and say let's agree to split this on some
level and I think that.
Practitioners could do a better job of explaining that to our
client.
Right. That like unless you've got a fantastic slam dunk story,
which some taxpayers do, I would like more of those. You know,
you're probably not going to get a full concession but.
If what you're getting is a 60% concession because your story is
pretty good but there's still some chance the government could
prevail, you should consider that a positive, you should
consider that a win. And I think that you know one as a
practitioner, I I try to do that and and educate my clients on
that. But the other half of that is especially if you're dealing
with prose clients to say.
Look, This is why I've reached this number. I think you've got
a lot of valid points. I've heard them. They're good. I
understand why you acted the way you did. I see some problems in
your case. If a judge were to hear this, I think they might
consider those against your case. And So what I'm willing to
do here is settle in on this basis. And that's why I think
that conveying that sort of decision making will help
clients to understand that is still a win because their
alternative.
It's going to court, spending more time, energy and money and
maybe losing all of it.
Jessica Norma any sort of final thoughts on this point? Yeah, I
mean the the one thing with reasonable cause and this is
just a pet peeve. It's why I don't like reasonable cause
assister.
Because a lot of cases that we do get an appeals, you'll see
where a taxpayer absolutely had reasonable cause from one date
to another date.
And then things got a little bit more iffy. You know, maybe for a
month or two after that reasonable cause. Her sister is
an all or nothing proposition.
And that's, that's to its detriment because you know when
we get those cases, yeah, for the, you know, you might have
filed this nine months late.
For the first six months based on everything that we've talked
about or everything that you've shared?
It was reasonable that you were late during that time.
And so, but the following three months maybe not so much. So,
you know, you offer, you know a 60% concession.
That's something I wish the service did more. I wish they
would not consider it an all or nothing proposition, and I think
that's why taxpayers don't like it. I think that's why reps
don't like reasonable causes, Sister, because there is
nobody's going to fit within that small box.
So I.
That for me. That's why I think reasonable cause has that
perception.
And I do hope that when taxpayers come to appeals that
they see that now we we want to look at everything and and we're
going to, we're going to settle appropriately based on yes,
there was a reasonable this time factor here.
Thank you, Jessica. So I this came up briefly a little bit
earlier in the panel, but let's let's talk for a few more
minutes about the impact of COVID-19 on penalty appeals.
I think Jessica mentioned we are seeing COVID years in appeals
and we are applying the COVID penalty relief just as we would
any other form of administrative relief that's available. Melissa
and Christine, you know in what ways did COVID-19 result in non
compliance. You know how are you seeing like what, what were the
business disruptions like and how did they impact the regional
cost factors in the case since you're seeing?
So Christine, I'll leave kind of the the personal individual tax
to you because I think you probably have seen a lot more of
that and very compelling ways from a business perspective. And
and I think some people have the view that like well businesses
had to operate, they should have gone on operating. These aren't
individuals dealing with their own taxes. I kind of, I always
try to remind people that businesses, although the Supreme
Court may say otherwise, are not people, there's actual people,
people.
Who are running these businesses and those people, who are the
ones who are affected by the pandemic? So I mean during the
pandemic.
I was working at Ernst and Young and so in the national tax
department, and so you can imagine the number of questions
and penalties that I saw flowing up to me. And a lot of them were
companies and a lot of them had stories like the controller had
very severe depression during the COVID pandemic from
isolation.
Couldn't do his or her job. They found out that that person had
stacks and stacks of forms just sitting at their desk and only
once they were back in person, once they started receiving
notices that they realized something was wrong, right?
That's that's an individual person not being able to do
their job because of something, and that could be within cover
or not. I'm just remembering that particular example you know
someone else asked for for a concrete example of.
Just actually an entity that I sit on the board for now, not at
the time of non compliance just to be clear.
And they are, uh, sort of a mutual aid function. They they
try to go into communities and help communities help each
other. Well, in one year during COVID, they went from being a
$50,000 organization to a $600,000 organization because of
the need and because of the level of donations that they
received to do the important work that needed to be done
during COVID. Food, vaccines, information about health masks.
What happened was they went from the 990 postcard threshold to
the full 990 threshold in one year. They didn't have the
ability, they didn't have the people in house to even
understand that, and they didn't have the accounting systems
track set up to track all of the information that was necessary
to fill out, fill out the full 990 we spent. And I was the one
like shepherding this. So I'm telling you the truth, I
promise. We spent close to a year trying to get all that
information together to file an accurate.
And if I don't get that abated at the service center, then I'm
going to be before one of you on it. But these are some of the
COVID related real life stories that aren't just related to
individuals but but affect businesses.
Thank you, Melissa. Christine, we'd love to hear your take on
on.
Sort of the impact on individuals that you work with.
I'm sure we.
All individual have our own stories of folks in our lives
who's whose families and lives were just disrupted by COVID.
Um, there was more than usual instability, right among the
lowest income workers.
Lot of confusion about unemployment, like the whole
mess of unemployment systems.
Not basically breaking down.
Not being able to handle the influx of claims, not being
able, not being set up to handle pandemic unemployment. That the
new program where people who were formerly self-employed
could get unemployment, the systems that the states had,
just couldn't handle it.
And couple that with all of the fraud. So we saw quite, quite a
few people who got 1090 nines for benefits that they never
received.
Some people who got.
Who got checks for benefits that they never applied for and then
sent the check back and still got it 1099. The next year there
was just chaos and some of those systems that were trying to help
people.
Umm.
And I think there were, there were also some folks who who
lost lower paying wage jobs.
Um, who then maybe had some self-employment or some gig work
or some, you know, sales on Etsy and so that that is very.
A difficult time when you have somebody who was formerly a W2
employee and becomes a 1099 independent contractor. That
comes with a lot of tax traps for people who are not.
Um, who don't have the experience or the knowledge
about estimated payments? And how do you keep track of your
finances? So you certainly saw those cases too.
The folks who just didn't didn't understand that as soon as you
start.
Creating a product and selling it, even if it's part time while
you're watching your children, you have a business in the eyes
of the government and you need to keep records as if it were a
business.
Um, but certainly, I think it just exacerbated all of the
normal confusion and fear that people have about about taxes
and paperwork and the government.
That makes sense. Thank you. Now, Andy and Liz, I did not
leave as much time as I had hoped for sort of a debrief of
the text chat and any attendee questions. Is there anything
you'd like to share sort of impressions that the reaction or
question we might be able to answer?
In our final 2 minutes.
Liz, you wanna go first?
Because um.
A question about, I think this is interesting, you know,
balancing taxpayer service with our judicial approach in appeals
and can you can somebody from appeals maybe speak to, you
know, sort of what is the level of factual development we can
undertake here in appeals in these penalty cases?
I'm going to say that there's not supposed to be asking for
documents. That appeals, I guess, is the question.
So, so that delicate line that we balance on.
Is we're not asking, we're not investigating, we are asking for
things that corroborate the taxpayers statements.
That's that's that balance. Yes, we're, we're we, we maintain our
independence. But if the taxpayer says, you know, I had a
financial hardship or I relied on somebody, us asking for that
information is not investigatory. It is just asking
them to provide a little bit more detail and I think that's
the balance that we've used.
That's helpful.
A few comments as as you all were the panel was talking about
um, uh, COVID cases. And I know I'd heard some comments from
practitioners myself about hey, a lot of CPA offices were in
really bad shape during the COVID. They couldn't find
employees. You know, their employees were ill or were at
home. You know, they had these longtime clients trying to
comply and the CPA firm just could not keep up. I think it it
puts a finer point on a lot of what you all have been focusing
on about you know, you as appeals officers, we can't just
say, Oh well, Boyle.
That you know, in boil the taxpayer lost, so therefore
taxpayer you lose, right? As was pointed out time and time again
over the last hour, you know the taxpayers facts are not likely
to be found in the decided case law somewhere. It's on us as
appeals officers to use our judgment right to think through
and say what is the appropriate answer here. And that's why
things like reasonable cause assister are not just the crutch
we can rely on, it is on us to know the state of the law.
And to think about it and think about the surrounding
circumstances where it's whether it's COVID-19 or otherwise that
give rise to whatever the non compliance was here that led IRS
to impose the penalty, right. And appreciate the efforts that
all of our appeals officers make each day to #1, listen to the
taxpayer. And the number two, think about the scenario that's
being presented and #3 use your judgment on these issues. I
really enjoyed this panel, Amy, and all participants in.
Talking through that aspect of the penalty and relief and and
and I would note too when we talked about first time
abatement earlier and I saw some comments in the text chat about
first time abatement. I do think we and appeals have an
obligation to keep an eye out. Should have first time Abate had
been applied in compliance and somehow was missed. We rely on
practitioners to bring things to our attention. Not too long ago
practitioners told us you know the penalty handbook or part 20
and 21 say this but part 8 the appeals IRM is different.
We're inconsistent. It says this and you know that was brought to
our attention by practitioners and we were able to clarify part
eight of the IRM on that. So I appreciate the role of
practitioners, Melissa and Christine, and being with us
here on things like this today, but also your willingness to
bring issues to our attention where you think we're missing
something too. I think all of the feels finds that very
helpful. Thank you. Back to you, Amy. Thank you, Andy. I'll just
echo Andy's. Thanks.
Um, it has been wonderful having you with us today, Melissa and
Christine, Jessica and Norma. You all did a fantastic job. You
shared very thoughtful insights, and I know I learned a lot
personally from the discussion today.
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