The IRS Appeals Process—Case Method and Tax Clinics

Author:

Christine Bauman, Ph.D., CPA
Assistant Professor
University of WisconsinMilwaukee
Milwaukee, WI

Editor's note: For more information about this column, contact Dr. Bauman at cbauman@uwm.edu or (414) 229-5737.

To familiarize graduate tax students with the IRS Appeals process, faculty can make use of both case method and tax clinics. These two teaching tools educate students about the real world of handling cases before the Service. Because an understanding of the Appeals function is critical in settling a tax case, students benefit from the practical experience received during their graduate programs.

Case Method

Appeals plays a significant role in the protection of taxpayer rights, as it has the authority to settle disputes between taxpayers and operating divisions within the Service. It offers taxpayers a final administrative opportunity to resolve tax matters before proceeding to the judicial process. As a teaching tool, the case method allows students to appreciate the effort that Appeals puts toward compromise when settling cases. For several years, Appeals officers have assisted faculty in the development of cases used to familiarize graduate tax students with IRS practice and procedures. On request, Appeals officers have willingly and enthusiastically participated.

In a typical case, students write a protest, perform electronic tax research and discuss positions with an Appeals officer. To complete a case assignment, students receive a Revenue Agent Report (30-day letter), a copy of an examiner's report, IRS Pub. 5, "Your Appeals Rights and How to Prepare a Protest If You Don't Agree," and a list of case requirements. Cases cover a variety of topics.

Case facts are taken from actual IRS examinations and subsequent appeals. Faculty alter cases significantly to meet educational needs. At the same time, cases are typical situations in which an IRS Examiner and a taxpayer argue exclusively about the law, settling the case on facts not previously considered.

Written protests and mock appeals hearings improve students' skills in written and oral communication, negotiation and critical thinking. They also help students to develop professional confidence.

For case resolution purposes, faculty encourage students to look for a compromise rather than a victory. Their goal is to help students to be creative in developing the facts, while, at the same time, not contradicting them. Cases are either "close-ended" (which includes information on relevant primary authority) or "open-ended" (in which students locate relevant authority). Most students prefer open-ended cases.

During mock appeals hearings, faculty evaluate students on their ability to present a case, negotiate positions and ultimately compromise. Small groups participate in mock appeals conferences, in which IRS procedures come into play at every stage. For example, if students do not have a power of attorney, they cannot participate in the mock hearing until they execute a formal power of attorney.

Following mock appeals hearings, students discuss with an Appeals officer the different strategies used in settling the case. The Appeals officer describes the hazards of litigation and reviews considerations affecting final settlement. Throughout the case, students exhibit frustration in trying to find an exact answer. In the end, they learn the power of negotiation and compromise in settling the client's case.

Tax Clinic Method

A second method of teaching students about the Appeals process, as well as other IRS procedures, is the use of tax clinics. Tax clinics provide students with practical experience in handling tax cases and in dealing with taxpayers. Tax cases can involve correspondence audits, 30-day letters and collection matters. Tax clinics are directed by faculty members who supervise and train students to represent and assist taxpayers in disputes before the Service. There are limits on the amount of any tax controversy considered for any tax year; it cannot exceed the amount specified in Sec. 7463 (currently, $50,000).

Although law schools have used tax clinics for many years to teach tax practice and procedures, only a handful of business schools and accounting programs have adopted them. However, a new IRS grant opportunity provides encouragement for other institutions to create tax clinics aimed at serving low-income taxpayers in tax controversies. As a service, tax clinics are a valuable learning opportunity for both faculty and students; they enrich the teaching and learning environment by integrating a meaningful community-based service with academic studies.

Method. For either course credit or on a voluntary basis, students work on actual tax controversies. They receive extensive training on tax research and IRS practice methods, and obtain first-hand experience in resolving tax problems. As part of their tax clinic training, students participate in discussions with Service representatives from Examination, Taxpayer Education and the Taxpayer Advocate's office. Students spend a lot of time on IRS procedures, including how to practice before the IRS, ethical responsibilities, examination of returns and the appeals process. Students process a case from beginning to end, meeting with taxpayers, reviewing tax problems, corresponding with the Service and performing tax research.

Tax clinic grant opportunities. Section 3601 of the Internal Revenue Service Restructuring and Reform Act of 1998 added Sec. 7526. Section 3601 authorizes the IRS (subject to fund availability) to make grants of up to $100,000 as a matching fund for the development, expansion or continuation of low-income-taxpayer clinics. Qualified organizations must have a clinic or refer clients to a clinic that represents low-income taxpayers in controversies with the IRS and that operates programs to inform individuals for whom English is a second language about their tax rights and responsibilities under the Code. Under IRS guidelines, at least 90% of taxpayers who are either represented by, or referred to, a tax clinic cannot have incomes that exceed 250% of the poverty guidelines published by the U.S. Department of Health and Human Services.

Law, business and accounting schools may qualify for the program. The grant program, now in its fourth year, continues to expand. In fiscal year 2000, 102 organizations received a total of $6 million under the program. Grant recipients represent nonprofit organizations and accredited academic institutions from 38 states and the District of Columbia. However, business schools and accounting programs comprise only a small fraction of the grant recipients. For instance, the University of WisconsinMilwaukee, School of Business is one of only two organizations in Wisconsin that received grants to set up a low-income tax clinic, and the only educational institution in the state to do so. IRS Pub. 3319, "LITC Grant Application Package and Guidelines," provides information about applying for a grant.

Summary

Tax cases and tax clinics are excellent teaching tools that provide students with practical experience in tax controversy and IRS practice and procedures. Both approaches allow students and Service personnel to have valuable interactions; instructors have positive interactions with IRS personnel through case development and tax controversy resolution, as well. The ultimate goal of both methods is to enrich the teaching and learning environment with practical experience.