The Internal Revenue Service (Service) on March 23, 2016, issued Revenue Procedure 2016-22 which clarifies and describes the practices for the administrative appeals process in cases docketed in the United States Tax Court (Tax Court).

Generally, a case becomes docketed in the Tax Court upon the filing of a Petition from a statutory notice of deficiency issued to a taxpayer – commonly referred to as a 90-day letter.

This recent guidance, which updates and supersedes Revenue Procedure 87-24, is intended to facilitate the effective utilization of administrative appeals and achieve an earlier development and disposition of Tax Court cases.

The Revenue Procedure states that the Office of Chief Counsel (Counsel) will refer docketed cases to the Office of Appeals (Appeals) for settlement consideration, subject to certain exceptions, unless either: (1) Appeals issued the notice of deficiency or made the determination that is the basis for the Tax Court’s jurisdiction; or (2) the taxpayer notifies Counsel that the taxpayer wants to forego settlement consideration by Appeals. The most notable exception to the aforementioned rule is where the case or issues within the case has been designated for litigation by the Service. Referral to IRS Appeals will generally occur within 30 calendar days of the case becoming at issue in the Tax Court (Tax Ct. Rule 38), which can be either the date the Answer is filed by Counsel or if a Reply is required by the taxpayer, when the Reply is filed.

The Revenue Procedure also clarifies and limits the role of Counsel when a case is referred to Appeals. Unlike Revenue Procedure 87-24, Revenue Procedure 2016-22 provides that Appeals has sole discretion to determine whether Counsel may participate in any settlement conference and will consider input from the taxpayer on this matter. However, whether or not Counsel participates in the settlement conference, Counsel will continue with trial preparation, which may include, but is not limited to, asking the taxpayer to participate in informal discovery. Thus, trial preparation and settlement discussions with Appeals may be taking place simultaneously. The Revenue Procedure also clarifies that when a case is referred to Appeals for consideration: “Appeals has the sole authority to resolve the case through settlement until the case is returned to Counsel.” To a large extent, this “sole settlement authority” lessens the fear that Counsel will come in at a later date and disrupt or overturn the settlement reached with Appeals.

A couple of caveats in the Revenue Procedure are worthy of mention.

• First, if Counsel determines that the case is needed for trial preparation, Counsel may request that Appeals return the case (including settlement authority) to Counsel before Appeals has completed its consideration of the case.
• Second, Appeals will provide Counsel with access to any documents received by Appeals in a settlement conference with respect to the docketed case – so be careful what you provide to Appeals for settlement purposes. Said documentation may be shared with Counsel for purposes of trial preparation.
• Finally, in evaluating the merits of a docketed case that has been referred to Appeals for settlement consideration, Appeals may obtain advice from Counsel and consider it in conjunction with other factors to reach a basis of settlement. The aforementioned caveats are not necessarily a change from Revenue Procedure 87-24.

If Appeals reaches a settlement with the taxpayer in the docketed case, a stipulated decision document reflecting the proposed resolution will be prepared and forwarded to the taxpayer.

When Appeals prepares the decision document, Counsel may assist with the drafting of the document. By signing the proposed stipulated decision document and returning the document to Appeals, the taxpayer makes an offer to settle the case. Counsel will review the decision document for accuracy and completeness (note the limited review), sign the decision document on behalf of the Commissioner and file the document with the Tax Court. Overall, this new revenue procedure gives more settlement authority to Appeals, assuming that Appeals is willing to use it, and therefore, should result in the more efficient and earlier disposition of docketed Tax Court cases.