Announcement 2006-100: Appeals Closing Cases Involving Unsettled Listed Transactions

Announcement 2006-100 provides in relevant part:

"When a settlement cannot be reached by the Office of Appeals in a case that is not docketed in the Tax Court, it is expected that the case will proceed to litigation. The Service wants to ensure that it has fully developed the limited number of unagreed cases that involve listed transactions (within the meaning of Treas. Reg. § 1.6011-4) before it sends a statutory notice of deficiency (or other determination notice triggering litigation rights) to the taxpayer. Consequently, the Service is revising its procedures to provide that when the Office of Appeals and the taxpayer are unable to reach a satisfactory settlement in a nondocketed case involving a listed transaction, the Office of Appeals will close out its consideration, notify the taxpayer, and send the case to the appropriate Operating Division for further handling."

Announcement 2006-100 has created quite a stir. For an interesting discussion see Stranton, IRS Officials Defend New Approach to Appeals, Penalties. Vol. 52 TNT No. 13, p. 222 (December 29, 2006). In the article the statement is made: “Indeed some practitioners view the notice as an end run around discovery rules in court.”

Announcement 2006-100 provides in relevant part:

"When a settlement cannot be reached by the Office of Appeals in a case that is not docketed in the Tax Court, it is expected that the case will proceed to litigation. The Service wants to ensure that it has fully developed the limited number of unagreed cases that involve listed transactions (within the meaning of Treas. Reg. § 1.6011-4) before it sends a statutory notice of deficiency (or other determination notice triggering litigation rights) to the taxpayer. Consequently, the Service is revising its procedures to provide that when the Office of Appeals and the taxpayer are unable to reach a satisfactory settlement in a nondocketed case involving a listed transaction, the Office of Appeals will close out its consideration, notify the taxpayer, and send the case to the appropriate Operating Division for further handling."

Announcement 2006-100 has created quite a stir. For an interesting discussion see Stranton, IRS Officials Defend New Approach to Appeals, Penalties. Vol. 52 TNT No. 13, p. 222 (December 29, 2006). In the article the statement is made: “Indeed some practitioners view the notice as an end run around discovery rules in court.”

There is reason for this concern. It cannot be ignored that the Office of Chief Counsel has been emphatic that, as to Son-of Boss transactions, the IRS will vigorously pursue those taxpayers that did not participate in the settlement initiative. Message being delivered by the IRS: "Concede or be prepared to litigate."

Now it appears that the message the IRS is saying: "Hold it. We need time to prepare the case prior to sending the case for litigation." Private practitioners cannot ignore that the Office of Chief Counsel is highly involved in making sure that the Son-of-Boss cases are properly being developed. Moreover, these teams from the Office of Chief Counsel are further limited in terms number and personnel (i.e. litigators) while the Son-of-Boss cases are numerous (over 500 and some reports say over 1,000). Thus, it is not surprising that the Office of Chief Counsel wants the cases developed when the case is docketed not that the case has to be developed when the case arrives for litigation.

So what is that private practitioners are faced with: Counsel attorneys assisting the revenue agents through a plethora of the Son-of-Boss cases using IDR’s, interviews, possibly summons to develop these cases. In the meantime the private practitioner will not have access to the same information (see section 6103) while the IRS’s attorney has access to multiple years and multiple cases without fear of discovery and can develop the facts as they deem necessary.

Observation: Are we heading for another showdown similar to the Mary Kay Ash problem? In Ash v. Commissioner, 96 T.C. 459 (1991), the IRS successfully modified/overturned Universal Manufacturing Co. v. Commissioner, 93 T.C. 589 (1989), and Westreco, Inc. v. Commissioner, T.C. Memo. 1990-501. Will the Tax Court be sympathetic to the taxpayer?. If a guess was to be ventured – probably not. See Judge Swift’s concurring opinion in Ash v. Commissioner, 96 T.C. at 478 – 481.

Thus under this new policy let the obvious be stated - Leverage is in the facts. The IRS has only only a window of time to develop the facts. Therefore be careful when agreeing to the statute extensions being requested from the IRS as your leverage as to the “keys to the facts” may have been waived away – turned over to the IRS.

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