Overview of IRS Appeals

Jones Day Presents: An Overview of IRS Appeals Judicial Approach & Culture Project (AJAC)

The appeals process remains a critical component in resolving tax disputes with the U.S. federal government. As such, the IRS introduced the Appeals Judicial Approach and Culture ("AJAC") Project to introduce a quasi-judicial approach in the handling of tax controversies.

In the first in a series of videos focusing on tax disputes, Jones Day partner and tax litigator Chuck Hodges discusses the AJAC Project and how it can impact strategies for corporations working to resolve disagreements with the IRS.

Read the full transcript below:

Chuck Hodges:

Over the past few years, the IRS appeals office has implemented what they refer to as the Appeals Judicial Approach and Culture Project, or AJAC. There are a lot of opportunities and challenges for taxpayers when dealing with the AJAC project. And I would like to go over a few of those now. So what is AJAC? It's a group of procedures or rules that appeals is implementing, that returns it to it's quasi judicial process. And why that's invaluable is because that's what appeals is supposed to be. It is supposed to look a lot like an administrative hearing, where the appeals officer tries to resolve a case outside of litigation, but based upon a hazards of litigation standard.

Chuck Hodges:

So what are some of these new procedures or rules? One, no new issues. So, if exam didn't raise the issue, then appeal shouldn't raise the issue. So if the taxpayer is at appeals, based upon a research and development issue, they shouldn't expect appeals to then say, "Well, exam should have raised the transfer pricing issue and we're going to do so now." That's not going to happen. The second one is that, we've all faced this, where for whatever reason, exam makes an adjustment to the taxpayer's tax return, but yet, in an undeveloped way. Maybe they didn't develop the facts. Maybe they didn't develop the law. In years past, when that case got to appeals, appeals would just send it back down to exam for further development. No longer. Now, appeals is going to try to settle that case in light of the undeveloped facts or law as raised by exam.

Chuck Hodges:

The third one, which is probably the one that gets talked about the most under the AJAC project, is now, appeal's ability to invite exam or IRS council to the opening conference of the taxpayers. This makes that opening conference more like a quasi mediation session, and taxpayers need to plan for that. In the end, for this AJAC project to work, the appeals officers are going to have to truly apply in a neutral manner, the hazards of litigation's standard and therefore, reach the same result that would have been reached had this been an administrative hearing.

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