Appealing excise tax assessments

From an NTEA member We appealed a tax assessment for Section 4051 excise tax, but the appeals officer assigned to our case seems unwilling to consider our position. We cited several Internal Revenue Service (IRS) rulings and court cases supporting our interpretation of the law, and there doesn’t appear to be any contrary decisions. Please give us some suggestions on how we should proceed. The IRS Appeals Office is supposed to review your case without bias in favor of the examining agent's position. See Treasury Regulation Section 601.106(f)(1). In addition, the Appeals Office is supposed to "give serious consideration to an offer to settle a tax controversy on a basis which fairly reflects" the hazards of litigation if the case went to court. See Treasury Regulation Section 601.106(f)(2). However, appealing an excise tax assessment is an informal process, and gives the appeals officer a lot of discretion. At times, such discretion creates the frustrating situation you now face. Here are a few options to consider. Put it in writing As noted above, the appeals process is informal — most communication between the appeals officer and the taxpayer is by telephone. Although relevant cases likely were cited and discussed in your initial written protest (assuming your case is not being processed under the small case request procedure), it may be helpful to give the appeals officer complete copies of all rulings in support of your position. In addition, you may want to highlight relevant portions of those rulings, and provide a brief summary — two or three sentences — and a simple statement applying them to your case. During telephone conversations, important details and subtleties can be lost, and both sides may make quick conclusions. Summarizing your arguments in writing increases the likelihood that the appeals officer fully understands and considers your position. Talk to a supervisor You may ask your officer's supervisor to review the case and/or assign a new officer. However, this option has substantial risks. If your request is denied, you will have to deal with the same officer, who may be even less inclined to consider your position. In addition, even if your request is granted, a new appeals officer may consult with the former officer on your case. Seek technical advice Technical advice is published by the IRS National Office (similar to a private Letter Ruling) "in response to any technical or procedural question that develops during any proceeding on the interpretation and proper application of tax law, tax treaties, regulations, revenue rulings, notices, or other precedents…to a specific set of facts." See Revenue Procedure 2004-2, Section 3. You may request that the appeals officer seek technical advice from the National Office. If the request is denied, you may appeal beyond the local office to the area appeals director. If the area director denies your request, you may seek review — but not an appeal — of that decision by the appeals director. See Revenue Procedure 2004-2, Sections 7.02, 7.03. Even if your technical advice request is denied, the appeals and review process may provide some benefits. Initiating the request may motivate your appeals officer to act more reasonably to avoid review of the issue. Also, after examination of your request, the appeals director or the area appeals director may informally advise the officer that your position warrants serious consideration. On the other hand, if a technical advice request were granted, the National Office would resolve the dispute, and the conclusion reached generally would govern the subsequent disposition of your case at the appeals level. See Revenue Procedure 2004-2, Section 14. The best option for you to pursue depends on a variety of factors specific to your case. Before making a decision, you should carefully review with your tax adviser all the options discussed here, as well as others that may be available to you based on the nature of your situation. IMPORTANT NOTE: This document reflects the FET as of 8/26/2004. Transactions prior to this time may be subject to different rules because of changes in the FET Regulations, Statutory Amendments and IRS Rulings issued subsequent to the time of such earlier transactions. Similarly, transactions entered into after 8/26/2004 may be subject to different rules. It is, therefore, essential that users of the outline consult with their tax advisers before relying upon it. Also, users should recognize that IRS Letter Rulings referred to in these materials are binding only on the taxpayers to whom they were issued and only serve as an indication of the IRS's position on any issue.

Appealing excise tax assessments

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