Proposed Guidance On Ex Parte Communications Between Appeals And Other IRS Functions

Notice 2011-62, 2011-32 IRB, IR 2011-78

In a Notice, IRS has issued a proposed revenue procedure that will amplify, modify, and supersede Rev Proc 2000-43, 2000-2 CB 404, which provides guidance on ex parte communications between Appeals and other IRS functions. IRS stated in an accompanying news release that the updates are necessary because of intervening changes to its business practices, and requested public comments on the proposed updates.

Background. As part of the IRS Restructuring and Reform Act of '98 (RRA '98, P.L. 105-206), IRS was directed to prohibit ex parte communications between appeals officers and other IRS employees to the extent that such communications appear to compromise the independence of the appeals officers. In general, “ex parte communications” means communications between Appeals and another IRS function without the participation of the taxpayer or his representative.

In accord with the directive, IRS issued proposed rules in Notice 99-50, 1999-2 CB 444, then final guidance in Rev Proc 2000-43, 2000-2 CB 404, on ex parte communications.

Among other things, Rev Proc 2000-43 which was issued primarily in question and answer (Q&A) format, provided the following.

(1) Appeals will retain procedures for: (a) returning cases that are not ready for Appeals consideration, (b) raising certain new issues, and (c) seeking review and comments from the originating function with respect to new information or evidence furnished by the taxpayer or his representative;

(2) Appeals will continue to be able to obtain legal advice from the Office of Chief Counsel, subject to certain limitations; and

(3) The Commissioner and other IRS officials responsible for overall IRS operations (including Appeals) may continue to communicate ex parte with Appeals in order to fulfill their responsibilities.

New proposed guidance. In light of various changes made to some of IRS's business practices, new practices adopted since the existing rules in Rev Proc 2000-43 were issued, and overall experience in working with Rev Proc 2000-43, IRS determined that updates were necessary. Also, the revenue procedure has been redesigned from a Q&A format to a narrative format to improve usability. The changes and new features proposed in Notice 2011-62 include:

... a modified definition of “ex parte communication,” which clarifies that it includes any communication between an Appeals employee and employees of other IRS functions without the taxpayer or representative being given an opportunity to participate; (Notice 2011-62, Sec. 2.01(1))

... detailed discussions of the application of the ex parte communication rules to collection due process (CDP) cases, including those that are remanded by the Tax Court; (Notice 2011-62, Sec. 2.03(10))

... an expanded discussion of Appeals' involvement in multifunctional meetings, including that Appeals will no longer participate on issue management teams (IMT) but can be briefed by IMTs, as long as the discussion remains generic rather than case specific; (Notice 2011-62, Sec. 2.04)

... a new discussion on the role of Appeals employees in certain alternative dispute resolution (ADR) programs, which generally provides that since the Appeals employees aren't acting in their traditional settlement roles, the ex parte communication rules don't apply; (Notice 2011-62, Sec. 2.05) and

... a clarification of the remedies available to taxpayers in the event of a breach of the ex parte communication rules, which provides that (i) the ex parte communication rules don't create substantive rights affecting the taxpayer's tax liability or IRS's ability to determine same; and (ii) most breaches can be cured by timely notifying the taxpayer or his representative of the situation and affording an opportunity to respond. (Notice 2011-62, Sec. 2.10)

Comments sought. IRS requested comments on the proposed changes set out in Notice 2011-62. Comments can be submitted via mail, email, or hand delivery by Aug. 18, 2011. (IR 2011-78)

Effective date. The proposed revenue procedure will be effective for communications between Appeals employees and other IRS employees, including Counsel, that take place after the date that it is released to the public. (Notice 2011-62, Sec. 4)

References: For the prohibition on ex-parte communications, see FTC 2d/FIN ¶T-1925 et seq.; United States Tax Reporter ¶76,559.7660.