On July 2, 2014, the IRS released the second phase of reforms to the Appeals' function within the Service as part of continuing efforts under its Appeals Judicial Approach and Culture ("AJAC") Project. The changes outlined in Phase Two of AJAC, which take effect on September 2, 2014, provide guidance for employees trying to resolve various Examination cases worked in Appeals. Proceedings on appeal from taxpayer examination, audit reconsideration, claim and overassessments, innocent spouse relief, and certain penalty-specific cases are among those affected by the AJAC Phase Two guidance.
The AJAC Project is designed to ensure that Appeals takes a "quasi-judicial approach to the way it handles cases, with the goal of enhancing internal and external customer perceptions of a fair, impartial and independent Office of Appeals." Last summer, the IRS released Phase One of AJAC aimed at setting forth general policy changes and revising the Internal Revenue Manual ("IRM") with respect to certain collection functions handled in Appeals. The main thrust of Phase One was clarification as to when Appeals would consider new information provided by taxpayers at the Appeals level during Collection Due Process and Offer in Compromise proceedings. Taxpayers are less able to game the system by simply taking a case to Appeals and providing information not made available to Collection personnel. The Phase One changes also ensure that Appeals will not raise new issues in an investigative function; rather, it is to be the arbiter of fairness and steward of procedural safeguards.
Phase Two of AJAC largely continues in this spirit. Appeals employees presented with new information in examination cases are clearly instructed not to take "investigative actions or perform analysis of new information or new issues." Instead, the case must generally be returned to IRS Examinations for its determination on the supplemental facts. In order to remain independent, direct ex parte communication between Appeals and the unit in which a case originates is generally prohibited. Phase Two clarifies when contact between IRS Appeals and other units is permissible (such as for purely ministerial reasons) and how to prepare case files for return to other IRS functions to avoid improper communication with personnel.
One caveat seen throughout both Phase One and Phase Two of AJAC is that a "new issue" or alternative legal argument raised by a taxpayer is not the same as new information or facts. Nonetheless, the Phase Two guidance instructs Appeals to provide the originating unit of the IRS with an opportunity to examine any new issues. Appeals may generally not raise new issues on its own or re-open issues already agreed upon at the Examination level. Although perhaps the most ambiguous aspect of AJAC, Appeals' consideration of new issues and alternative theories is constrained by the express prohibition under the Phase One guidance that Appeals may not develop new facts to support any novel theory. Thus, the potential for abuse by either taxpayers or the IRS appears limited.
The link to the second AJAC release can be found at http://www.irs.gov/pub/foia/ig/spder/AP-08-0714-0004%20REDACTED%5B1%5D.pdf