Final Regulations on IRS Appeals Issued

In 2019, Congress introduced Internal Revenue Code Section 7803(e) that codified the IRS Independent Office of Appeals (Appeals) as an administrative avenue for resolving disputes without going to court, focusing on litigation risks. This process aims to be fair and unbiased for both the IRS and the taxpayer.

On Sept. 13, 2022, the U.S. Department of the Treasury and IRS proposed new regulations under Section 7803(e)(3) to clarify the availability of the Appeals process, subject to 24 exceptions.

After reviewing public feedback and conducting a hearing, the IRS finalized these regulations, maintaining that IRS Appeals would not address regulation validity challenges, with possibly even more challenges due to the Loper Bright case.

Final Regulations

The proposed regulations provided a detailed list of 24 exceptions. The most controversial exception prevents Appeals from considering the validity of regulations, notices or revenue procedures unless already invalidated by an unreviewable court decision.

Commenters emphasized that Appeals should be empowered to consider arguments regarding the validity of Treasury Department regulations, especially in the wake of Loper Bright Enterprises v. Raimondo. Commenters argued that allowing Appeals to evaluate these challenges could reduce unnecessary litigation and enhance consistency in tax administration by addressing concerns early.

The Loper Bright case underscores the importance of scrutinizing regulations, highlighting potential issues with the statutory authority of executive agencies and possibly impacting regulation interpretation and enforcement. Engaging Appeals in these discussions was seen as a way to promote clearer regulatory oversight and give taxpayers an administrative platform to challenge rules they find flawed.

The final regulations became effective on Jan. 15, 2025, and apply to all requests for Appeals consideration received on or after Feb. 14, 2025.

Tips for Navigating the Guidance on IRS Appeals Process

The following tips will help the appeals process go more smoothly.

1. Understand Eligibility for Appeals. Understand what qualifies for an IRS appeal. The regulations define which disputes are eligible, so ensure your case fits the criteria.
2. Be Aware of Exceptions. Familiarize yourself with exceptions that might prevent your case from being considered by Appeals, such as cases that have inadequate time on the limitations period, cases referred to the U.S. Department of Justice and cases involving regulation validity.
3. Meet Procedural Requirements. Adhere to all procedural and timing requirements specified in the regulations. Submit your request to Appeals in the correct format and within the given time frame.
4. Timing and Limitations. Be mindful of time limits and ensure there's enough time before the statute of limitations expires to seek an appeal.
5. Document Your Case. Collect all necessary documents and information and ensure that all relevant documents have been provided to the Exam team (even if not considered) before requesting an appeal. Incomplete submissions can lead to delays or rejections, and new information presented to Appeals will cause the case to be sent back to Exam.

If you have questions, reach out to the authors. Holland & Knight's Tax Controversy and Litigation Practice can help you navigate the process and increase the likelihood of a favorable outcome.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.