An Appeals conference is a settlement negotiation conducted by an IRS employee who has authority Examination does not have: the authority to resolve a case based on what would probably happen if it were litigated.

That single difference explains most of what follows. Appeals does not re-audit the return. It evaluates the strength of each side’s position, identifies the uncertainties that would affect a trial outcome, and settles on that basis. A taxpayer who arrives prepared to argue that the examiner was wrong will underperform a taxpayer who arrives prepared to explain why the government could lose.

The conference itself is often relatively informal and may be conducted by telephone, video, correspondence, or in person. It is preceded by the Appeals Officer's independent review of the administrative file. The work that determines the outcome happens before the conference.

What the Independent Office of Appeals Is

Appeals is established by I.R.C. section 7803(e). Its statutory mission is to resolve federal tax controversies without litigation on a basis that is fair and impartial to both the government and the taxpayer, promotes consistent application of the tax laws, and enhances public confidence in their administration. Section 7803(e)(3).

Appeals is separate from the function that developed the case. The employee assigned to your matter did not conduct the examination, did not propose the adjustment, and is not evaluated on sustaining it. Treasury Regulation section 301.7803-2 sets out which controversies Appeals may consider, the categories it may not, the requirement that the originating office complete its work first, and the general rule that a taxpayer receives one opportunity for Appeals consideration of a given issue.

How a Case Reaches Appeals

For an examination dispute, the path runs through the 30-day letter. When the examiner completes the report and the taxpayer does not agree, the IRS issues a letter transmitting the examination report and granting the right to request Appeals consideration. The taxpayer requests Appeals by filing a written protest, or in smaller cases a small case request, within the period the letter specifies.

The protest is submitted to the IRS office identified in the letter, not to Appeals directly. The originating function reviews it first. It may concede, develop the matter further, or prepare a rebuttal, and only then is the file transferred.

Two practical points about that transfer.

Appeals will not accept a case without adequate time on the assessment statute. For a conventional nondocketed examination case, Appeals generally requires at least 365 days remaining on the assessment statute expiration date when the case is received, with narrower periods for certain case types. IRM 8.20.5.3.1.1. Whether to sign a consent extending the statute under I.R.C. section 6501(c)(4) is therefore often the decision that determines whether Appeals consideration is available at all.

Processing takes time. After Appeals receives the file, Account and Processing Support verifies the contents, establishes the case in the Appeals Case Management System, validates and routes it, and the case enters a queue for management review, grading, and assignment. Interest continues to accrue throughout. A taxpayer who expects to owe part of the proposed amount should evaluate a deposit under I.R.C. section 6603, which stops the running of underpayment interest on the remitted amount while preserving procedural flexibility a payment would not.

What the Appeals Officer Actually Does

The Appeals Officer reviews the return, the examination report, the workpapers, the protest, and any rebuttal, and then performs a hazards-of-litigation analysis.

Stated plainly, hazards analysis asks: if this case were tried, what is the realistic range of outcomes, and how confident can either side be? The Appeals Officer weighs the strength of the legal authority, the quality of the evidence, whether witnesses are available and credible, who carries the burden of proof, and whether the controlling appellate circuit has resolved the question. Where substantial uncertainty exists, Appeals may settle on the basis of mutual concessions reflecting the relative strength of the positions. IRM 8.6.4.2.

The analysis is documented in an Appeals Case Memorandum, which frames the issue, states each party's position, analyzes the evidence and law, and explains the settlement rationale. IRM 8.6.2. Understanding that structure is useful, because a protest organized the same way is materially easier for Appeals to work with.

Two consequences follow for the taxpayer.

First, a fifty-fifty factual record is not a fifty-fifty hazard. Burden allocation converts uncertainty into loss for whoever carries it. Tax Court Rule 142(a)(1) generally places the burden on the petitioner. I.R.C. section 7491(a) can shift it on a factual issue where the prerequisites are met, including substantiation, recordkeeping, and cooperation. In a proceeding involving an individual, section 7491(c) places the burden of production on the Commissioner as to penalties, and the Tax Court held in Graev v. Commissioner, 149 T.C. 485 (2017), that this includes producing evidence of compliance with the supervisory approval requirement of section 6751(b)(1) where it applies.

Second, the appellate forum matters. Under Golsen v. Commissioner, 54 T.C. 742 (1970), aff'd, 445 F.2d 985 (10th Cir. 1971), the Tax Court follows a squarely on-point decision of the court of appeals to which the case would be appealable. A favorable decision from a circuit that would never hear the appeal is not a litigation hazard for the government.

Appeals Is Not a Second Examination

This is the most frequently misunderstood feature of the process, and it has practical consequences.

Appeals is a dispute-resolution function. It generally does not develop new evidence or perform investigative work belonging to Compliance. A taxpayer who withholds material documents during the examination in order to spring them on Appeals typically achieves delay rather than advantage: the case may be referred back for the originating function's review, or returned outright for further development.

The regulations reinforce the sequencing. A taxpayer generally has one opportunity for Appeals consideration of a matter. A narrow exception permits another opportunity where the taxpayer provides new factual information and meets the requirements for audit reconsideration or for reconsideration of an issue previously considered by Appeals. Treas. Reg. section 301.7803-2(f). That is a reconsideration mechanism with prerequisites, not a right to hold evidence in reserve.

There is a distinction worth preserving here. New evidence is disfavored. New legal theories supporting an existing issue are not. Appeals may consider alternative legal arguments and additional authorities in evaluating the issue before it. IRM 4.2.1.8.2. Counsel can therefore develop the law aggressively without treating Appeals as a second audit.

Ex Parte Communications, Practically

Rev. Proc. 2012-18 restricts substantive ex parte communications between Appeals and the originating function where they would appear to compromise Appeals' independence. The rules do not forbid all contact, and they are not a general prohibition on IRS employees speaking to one another. Routine administrative communication is not a violation.

The rules also differ once a case is docketed in the Tax Court. Rev. Proc. 2016-22, section 2.03, provides that the ex parte prohibition continues to apply between Appeals and the originating function but does not apply to communications between Appeals and Chief Counsel, who nevertheless share responsibility for preserving Appeals' independence.

The practical point for a taxpayer is narrow: know the posture before asserting an ex parte concern, ask for copies of substantive materials to which you are entitled, and raise independence only when facts support it. An unfounded allegation costs credibility with the person deciding the case.

Nondocketed and Docketed Appeals Are Different Proceedings

A protest belongs to a nondocketed case, meaning no Tax Court petition has been filed. Appeals has settlement authority and the taxpayer's remedy if the case does not settle is a statutory notice of deficiency followed by a Tax Court petition.

Once a petition is filed, the case is docketed and Chief Counsel represents the Commissioner. Rev. Proc. 2016-22 governs the referral of qualifying docketed cases from Counsel to Appeals for settlement consideration; while a referred case is with Appeals, Appeals has sole settlement authority. But the case remains litigation. Counsel continues trial preparation, may participate in settlement discussions in appropriate circumstances, and receives access to documents submitted to Appeals in the docketed case. There is no reason to file a nondocketed protest after a petition. The functional document is a settlement submission or legal memorandum aimed at Counsel and Appeals together.

Access to the File and Preparation

A qualifying specified taxpayer has a statutory right under I.R.C. section 7803(e)(7) to access the nonprivileged portions of the case file concerning disputed issues, generally no later than 10 days before the conference, excluding documents the taxpayer provided to the IRS. The statutory definition is limited to individuals with adjusted gross income not exceeding $400,000 and other taxpayers with gross receipts not exceeding $5 million for the year at issue. Section 7803(e)(7)(C).

Even where the statute does not apply, knowing what Appeals received matters. The file frequently contains workpapers, computations, and factual assumptions that are simply wrong, and a factual premise corrected before the conference is worth more than the same correction made after Appeals has formed a view.

Preparation should produce, for each issue: the question presented, the dispositive facts with a record citation for each, the controlling authorities, the government's best argument, the taxpayer's response, the principal litigation hazards on both sides, and an internal settlement range that is not disclosed.

What the Conference Is Like and How It Ends

Conferences are informal. There is no sworn testimony, no rules of evidence, and no transcript. They are held by telephone, video, correspondence, or in person. The Appeals Officer will have read the file and will test assertions: where is that in the record, what does the contemporaneous document say, which circuit governs, why does the case you cite apply here.

Possible outcomes are a full concession by either side, a settlement of some issues and not others, a split-issue or mutual-concession settlement reflecting litigation hazards, or no agreement.

How the case closes matters as much as the number. Ordinary Form 870-type agreements are generally used where material mutual concessions are not involved. Form 870-AD is generally used for material mutual-concession settlements and carries an Appeals nonreopening pledge, subject to its terms and IRS policy. IRM 8.6.4.4. Form 870-AD is not a statutory closing agreement. Where statutory finality is needed, a closing agreement under I.R.C. section 7121 is available: Form 866 determines the total liability for a period, and Form 906 provides finality as to specified matters. A specific-matter agreement is often preferable where the parties need certainty about basis, character, or valuation without foreclosing unrelated items.

If Appeals does not resolve a nondocketed deficiency case, the IRS issues a statutory notice of deficiency and the taxpayer's next decision is whether to petition the Tax Court within the statutory period.

How Do I Appeal an IRS Audit? · How to Prepare an IRS Appeals Protest · When Should You Hire a Tax Attorney for an IRS Audit? · What Happens If You Miss the Tax Court 90-Day Deadline?

If your case is heading to Appeals or a conference has been scheduled, the preparation that matters happens before the conference date, not during it. For detailed guidance on how to prepare an effective administrative protest to present to Appeals, see How to Prepare an IRS Appeals Protest. Chase Counsel accepts selected federal tax controversy engagements, including matters before the IRS Independent Office of Appeals. Learn more at www.ChaseCounsel.Com/federal-tax-controversy.

This article discusses federal tax procedure generally and is not legal advice for any particular taxpayer. Appeals procedures, settlement authority, and available remedies depend on the type of controversy and its procedural posture.