If you have reached the tax appeals stage and you are considering making a settlement offer to the Tax Appeals officer, there are certain things to keep in mind. As a general rule, Tax Appeals officers will give serious consideration to any good-faith attempt to settle the matter. A nuisance-value offer will simply be ignored. If you make a good-faith offer that the Tax Appeals officer believes is unacceptable, they may counteroffer or describe some other basis upon which your settlement offer might be accepted. This is true for both docketed and non-docketed cases. When considering a settlement offer, make sure that it covers all contested issues. In an attempt to avoid tax litigation, Tax Appeals officers will try to settle the issues that can be resolved, even if it turns out that there are certain issues which cannot be resolved by your offer.
What are Some of the Different Types of Settlements in Tax Appeals?
In a Tax Appeals situation, there are three different types of settlements:
- mutual concession settlements;
- split-issue settlements; and
- nuisance-value settlements.
A mutual concession settlement is typically seen where there is significant uncertainty about how a case might resolve at trial. In the mutual concession settlement, both the IRS and the taxpayer recognize the strengths and weaknesses of their case, and are willing to make concessions in the interest of settling the matter.
A split issue settlement is a type of mutual concession settlement in which the case, if litigated, would result in a decision entirely in favor of either the government or the taxpayer. In practice, this type of settlement is disfavored and typically only used where there are no recurring issues or related cases. It may be used to settle conflicts pertaining to adjustments to taxable income, tax in controversy, the fraud penalty, or a specific amount of tax. Cases involving the issue of whether a debt is a business or nonbusiness bad debt may also find resolution with a split issue settlement. When a split issue settlement is appropriate and being considered, the Tax Appeals officer must also take into account the impact the settlement may have on later tax years. In more complex cases, there may be numerous issues which are amenable to a split-issue settlement. If that is the case, it is not uncommon for the taxpayer and the IRS to “trade” concessions, with one party fully conceding on one issue, and the other party fully conceding on another issue. However, if this approach is followed, the Tax Appeals officer still has to demonstrate the “hazards of litigation” standard was applied in order to get ultimate approval of the settlement.
A nuisance value settlement is one which is reached between the parties simply for convenience and to avoid the underlying expense of pursuing litigation. It does not take into account the merits of the taxpayer’s or government’s position. As stated above, the IRS takes an official stance that nuisance value settlements are unacceptable.
How a Tax Attorney Can Help with Tax Appeals
Understanding how the Tax Appeals Officer weighs evidence before making a settlement agreement can go a long way to achieving a favorable outcome for the taxpayer. If you think that your tax situation might make you a candidate for an Tax Appeals process, you should consult with an experienced Tax Appeals attorney.
San Diego Tax Lawyer, William D Hartsock has been successfully helping clients with Tax Appeals since the early 1980s. Mr. Hartsock offers free consultations with the full benefit and protections of attorney client privilege to help people clearly understand their situation and options based on the circumstances of their case. To schedule your free consultation simply fill out the contact form found on this page, or call (858) 481-4844.