The IRS issued final regulations (T.D. 10030) on Tuesday that address resolution of federal tax controversies by the Independent Office of Appeals. The regulations include 24 exceptions to consideration of controversies by Appeals.

The final regulations generally follow the proposed regulations (REG-125693-19) issued in October 2022, with a few modifications.

The independent Office of Appeals was created by the Taxpayer First Act of 2019, P.L. 116-25. Its purpose, as described in Sec. 7803(e)(3), is to resolve federal tax controversies without litigation on a basis that "(A) is fair and impartial to both the Government and the taxpayer, (B) promotes consistent application and interpretation of, and voluntary compliance with, the Federal tax laws, and (C) enhances public confidence in the integrity and efficiency" of the IRS.

The final regulations provide that while the appeals resolution process is generally available to all taxpayers to resolve federal tax controversies, exceptions exist to consideration of a federal tax controversy by Appeals, and final regulations provide an exclusive list of 24 exceptions, almost all of which, according to the preamble to the regulations, existed before the enactment of the Taxpayer First Act.  The final regulations also address certain procedural and timing rules that a taxpayer must meet before Appeals consideration is available.

The preamble to the regulations stated that the IRS received "several" comments regarding the exceptions to consideration of controversies by Appeals and the specific exceptions that received the greatest number of comments were Exception 19 and Exception 20. 

Exception 19 says that Appeals cannot consider any issue based on a taxpayer's argument that a Treasury regulation is invalid unless there is an unreviewable decision from a federal court invalidating the regulation as a whole or the provision in the regulation that the taxpayer is challenging. Exception 20  says Appeals cannot consider any issue based on a taxpayer's argument that a notice or revenue procedure published in the Internal Revenue Bulletin is procedurally invalid unless there is an unreviewable decision from a federal court holding it to be invalid.

The IRS rejected most of the comments to Exceptions 19 and 20. However, the IRS revised the language of both the exceptions to clarify that Appeals may consider arguments based on whether a statute applies to the taxpayer's facts and circumstances. The IRS also added a definition of the term "procedurally invalid" to Exception 20, defining that term to mean "any determination regarding whether a notice or revenue procedure failed to comply with administrative law requirements, such as notice and comment under 5 U.S.C. 553."

The regulations apply to all requests for consideration by Appeals that are received on or after Feb. 14, 2025.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.