In Uncategorized on 09/27/2012 at 20:16

Ex parte communication between Appeals and IRS is a no-no, per Rev. Proc. 2000-43, 2000-2 C.B. 404, which provides Q&As to flesh out the 1998 IRS reorganization act. But when the IRC specifically requires Appeals to talk to IRS, specifically Area Counsel per Section 7122(b), all bets are off. So we learn from Norman Hinerfeld, 139 T. C. 10, filed 9/27/12, Judge Gale writing for Tax Court.

Norm was looking at $471K in TFRPs, which he didn’t contest, from his former corporation Thermacon Industries, Inc. Norm made an OIC of $10K based on collectibility, but when the SO determined his RCP was $74K, he upped the ante accordingly (and he got a second chance, unlike the hapless B.M. Vanmali and Bhari Vanmali; see my blogpost “Give It Your Best Number”, 4/9/12). The kindhearted SO was ready to buy it, but had to get clearance from Area Counsel.

Area Counsel, a nosy sort, discovered that Norm and his loving wife Ruth were being sued by a creditor of Thermacon for having sold substantially all Thermacon’s assets, alleged to have an equity of $2.2 million, to a corporation owned by the aforesaid Ruth and the Hinerfeld offspring, purchase price to be paid in worthless paper.

The SO asks Norm about this, but his answers contradict the answer he filed in the litigation, so the SO suggests the matter be placed in “currently not collectible” status pending the outcome of the lawsuit. Norman doesn’t agree, so the SO’s boss, the Appeals Team Manager (ATM, but the kind who takes money, not gives it), who’s got to approve an OIC, bounces Norm’s proposed OIC and approves a levy.

Norm claims Area Counsel had a prohibited ex parte communication with Appeals. No, says Judge Gale: “Rev. Proc. 2000-43, Q&A-11, 2000-2 C.B. at 406, specifically addresses communications between Appeals and the Office of Chief Counsel. Acknowledging the need for Appeals employees to obtain legal advice from the Office of Chief Counsel, A-11 provides three limitations on communications between Appeals employees and Office of Chief Counsel attorneys: (1) Appeals employees must not communicate with Chief Counsel attorneys who have previously provided advice to the IRS employees who made the determination Appeals is reviewing; (2) requests for legal advice where the answer is uncertain should be referred to the Chief Counsel’s National Office and handled as requests for field service advice or technical advice; and (3) although Appeals employees may obtain legal advice from the Office of Chief Counsel, they remain responsible for making independent evaluations and judgments concerning the cases appealed to them, and Counsel attorneys are prohibited from offering advice that includes settlement ranges for any issue in an appealed case.

“There is no evidence that the Area Counsel attorneys with whom Appeals conferred in this case had previously advised any employee who made the determination under Appeals review; that is, any employee of the Collection Division who made the determination to levy on petitioner’s property. In addition, the administrative record establishes that while SO X disagreed with Area Counsel’s recommendation to reject petitioner’s amended OIC, the decision to reject the OIC was made by ATM Y who, rather than SO X, had the authority to do so. Unlike SO X, ATM Y agreed with Area Counsel’s recommendation to reject. Given the substantial evidence that Area Counsel had marshaled to support the conclusion that petitioner had made a fraudulent conveyance, we are satisfied that ATM Y exercised independent judgment as contemplated in Rev. Proc. 2000-43, supra, when he agreed with Area Counsel’s recommendation.” 139 T. C. 10, at pp. 14-15. (Footnotes omitted).

But Judge Gale points out he isn’t deciding that Norm in fact made a fraudulent conveyance, only that ATM Y had sufficient evidence to bounce Norm’s proposed OIC.

Anyway, IRC 7122(b) requires a letter from Chief Counsel (or delegate, and Area Counsel is a delegate) to be in any file approving an OIC where the amount at issue is more than $50K. So Appeals must consult with Area Counsel and get an OK letter.

And kindhearted SO X’s opinion doesn’t matter, as ATM Y is the decider.

Now in an OIC, a nonliable spouse is not considered, unless a party to a fraudulent conveyance. And while Area Counsel should not reconsider facts determined by Appeals, Area Counsel is charged by the IRM to consider fraudulent conveyance issues.

Judge Gale:  “If anything, this case illustrates not an abuse of discretion by IRS employees but instead the wisdom of requiring the Office of Chief Counsel’s review of fraudulent conveyance issues.” 139 T. C. 10, at p. 23.

Takeaway–When you make a big OIC, Chief Counsel (or delegate) will be watching you.

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