Strategic Considerations to
Defending Tax Disputes
TEI Houston Tax School – May 4, 2017
Kristen Bauer Proschold, Houston
Joy Williamson, Dallas
George Clarke, Washington D.C.
Lifecycle of a U.S. Federal Tax Controversy
• Three critical phases:
• Administrative audit
• IRS Appeals
• Docketing in U.S. courts
• As taxpayers move through the process, more structure/rigor in rules of
engagement with the IRS
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The Theory of Everything - Fundamental
• Theory of your case – Fundamentally frames how to deal with the
Government
• Why you win:
• Develop consistent themes and theory of the case at the
beginning of the audit
• Marshal facts to support your position and blunt the Government’s
position
• Consistently message those themes every response, every
presentation to the, etc.
• Requires knowing your case at the front end, rather than developing
it later
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Audits – Decision Points
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Proving your case
Responding to IRS requests for information
Ensuring Exam hears your case
Closing the audit/managing the statute of limitations
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Audits: Facts
• Proving your case – Know your burden of proof for tax items:
• Notice of Deficiency: Generally presumes the IRS is correct.
Taxpayer typically has the burden of proof
• Be aware of higher burdens of proof, such as “arbitrary, capricious, or
unreasonable”
• Penalties: IRS has burden of proof on production in court
• Burden can shift to IRS
• Summons and other fact gathering issues
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Audits: Limits and Tactics
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Proving your case – If IRS doesn’t ask me about it, can I raise it in Protest,
or at Appeals?
• Limit: AJAC
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AJAC seeks to solidify the administrative record before negotiations
at Appeals
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Raising new facts risks being sent back to Exam for additional audit
Appeals is barred from hearing new facts and new theories not already
included in protest/audited by Exam
Tactic: Affirmatively Set the Record
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Get the facts and positions you need to prove your theory into the
hands of the IRS before audit closes (e.g., affirmative presentations,
Protest, post-protest IDR responses)
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Audits: Reaching the End of the Tunnel
• Managing the statute of limitations – When to say “when”?
• Limit: Section 6501(a) and similar statute of limitations on
assessments, but either have to pay or docket the case
• Considerations:
• Getting to IRS Appeals
• Docketing the case
• Tone and tenor of the Exam team
• Negotiating length
• Limited scope extensions
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Audits: Getting to Yes with Exam
• Settling with Exam (in the CIC program) – Can it be done?
• Consider:
• Coordinated issue?
• Subject of International Practice Units
• Industry
• Dollar amount
• Precedent in the Tax Court, Court of Claims, Circuit Courts of
Appeals
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IRS Appeals: A Fresh Perspective
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Appeals’ Mission – What can Appeals do that Exam cannot?
• Resolve cases based on the hazards of litigation, including:
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Uncertainty as to legal issues
Weight of the evidence if in a court proceeding
Taxpayer’s ability to prove the facts, credibility of witnesses
Probability of court ruling in favor of taxpayer or IRS
Setting the stage:
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RAP or “Regular”
What is Exam’s role
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Understanding the end game: the ACM and post-mortem meeting between Appeals and
Exam
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What about MAP/SAP
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IRS Appeals: A Fresh Perspective
• Appeals’ Mission – What can Appeals do that Exam cannot?
• Limits: AJAC – the record before it
• Considerations:
• Getting a complete, and audited, record in Exam’s hands
• Appeals Coordinated Issues, etc.
• Specialists’ involvement
• Time it takes to get meetings and managing the statute of
limitations
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IRS Appeals: Finding Closure
• Appeals’ Settlements – What’s available for certainty?
• Limits: Knowing who is up the chain of command on the issue
• Types of Resolutions
• MOU
• Form 870-AD
• Form 906
• What about Joint Committee Review?
• Post-Appeals Mediation
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Docketing a Tax Case in U.S. Courts
• Docketing in Court – New eyes, stronger supervision?
• IRS Special Trial Attorneys or DOJ Tax counsel
• Increased rigor in defining the landscape: Rules of Tax Court or Civil
Procedure, Rules of Evidence
• More strict relevance standards
• Supervised factual investigation – through court discovery processes
• Stipulations, ACU, and related venue questions
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Docketing a Tax Case in U.S. Courts
• Docketing in Court – Does this mean a trial, or can I settle?
• Limits: AJAC in Tax Court regarding availability of post-docket
Appeals, counsel discretion, designation issues, future of same
• District court settlement protocols and mediation
• Most cases settle short of trial, but usually the price of admission is
completing some level of discovery
• Circuit Court issues
• Standards
• Best practices
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