Announcement 93-144: early referral of issues to appeals and the role of appeals in the competent authority process - Tax Executives Institute IRS Administrative Affairs Committee

Tax Executive, The, March-April, 1994

On January 27, 1994, Tax Executives Institute filed the following comments with the Internal Revenue Service on Announcement 93-144, relating to the procedures for early referral of issues to Appeals and for requesting Appeals involvement in Competent Authority issues. The Institute's comments were prepared under the aegis of the Institute's IRS Administrative Affairs Committee, whose chair is Robert D. Adams of Halliburton Company, and its International Tax Committee, whose chair is Lisa Norton of the Ingersoll-Rand Co. (On January 28, 1994, Mr. Adams testified at an IRS public hearing on Announcement 93-144.)

Tax Executives Institute is pleased to offer the following comments on Announcement 93-144, relating to the procedures for early referral of issues to Appeals and for requesting Appeals involvement in Competent Authority issues. The announcement was published in the December 6, 1993, issue of the Internal Revenue Bulletin (1993-39 I.R.B. 12). A public hearing on the procedures is scheduled for January 28, 1994.

I. Introduction

TEl commends the IRS for developing the Early Referral and Competent Authority procedures set forth in Announcement 93-144. As an organization dedicated to sound tax administration, TEI has long been concerned about the amount of time it takes to process a case through the IRS administrative process and through Competent Authority. The Institute has worked with the IRS on several projects (such as the Accelerated Issue Resolution procedure) that would expedite the process. The time it takes to shepherd a case through Examination and Appeals (and, if necessary, Competent Authority) is a major drain on the resources of the taxpayer and government alike.

The Early Referral procedure outlined in Announcement 93-144 would permit taxpayers to resolve cases more quickly by requesting a specific issue be referred to Appeals for early resolution. Early resolution of a particular issue could make both the taxpayer and the Examination personnel more amenable to resolving other issues involved in the case. In this regard, the inclusion of Industry Specialization issues within the ambit of the Early Referral proposal should prove especially salutary. We also commend the announcement's drafters for confirming that the Early Referral of an issue will not trigger the "hot interest" provisions of section 6621(c). Had the announcement been silent on the issue or reached the opposite conclusion, taxpayers would clearly have been reluctant to invoke the Early Referral procedure.

The Competent Authority procedure would permit taxpayers to request the involvement of Appeals in the competent authority process. This should improve taxpayers' access to Competent Authority in treaty countries, by producing positions more susceptible to agreement by a treaty country's Competent Authority and having the U.S. Competent Authority become involved before the foreign statute of limitations runs.

The Institute believes that, in appropriate cases, the new procedures will advance the IRS's goal of shortening the time required for resolving tax disputes. We applaud the IRS's efforts to enhance the efficiency and effectiveness of these processes.

II. Taxpayer Involvement

in the Process

TEI believes that flexibility should be the hallmark of the procedures. The announcement should clearly state that taxpayers have a choice whether to proceed through the IRS's normal channels or opt for the Early Referral/Competent Authority procedures. Although the announcement delineates the IRS's role in the Early Referral/Competent Authority processes, in some respects it fails to define clearly the taxpayer's role. We recognize that the announcement presages changes to the Internal Revenue Manual which generally governs internal procedures, but recommend that the taxpayer's role be explicitly discussed. We suggest that the Early Referral procedure confirm that once an issue is referred to Appeals, the normal Appeals procedures will apply, with the taxpayer being entitled to meet with the Appeals officer and submit pertinent supplemental material. In addition, with respect to the Competent Authority procedure, we recommend that the procedure specifically provide that the taxpayer has the right to meet with any Appeals personnel who may be involved in formulating the IRS's position paper. Indeed, the taxpayer should be invited to comment on the position paper before it is forwarded to the treaty partner's Competent Authority.

III. Early Referral Procedure

A. Limitations on Use of Procedure. The Early Referral procedure provides that the procedure will initially be limited to Coordinated Examination Program (CEP) cases and will be unavailable in respect of Joint Committee or docketed cases. The reason for instituting the procedure with respect to CEP taxpayers is just as valid for non-CEP taxpayers (especially those on the cusp of CEP-selection criteria): the resolution of cases in an expeditious manner. TEI believes that, if the new procedure successfully reduces the time for resolving disputes for CEP taxpayers, it should be expanded to include nonCEP taxpayers.