Resolution of Federal Tax Controversies by the Independent Office of Appeals, 55934-55952 [2022-19662]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 87, Number 176 (Tuesday, September 13, 2022)]
[Proposed Rules]
[Pages 55934-55952]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-19662]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[REG-125693-19]
RIN 1545-BP72


Resolution of Federal Tax Controversies by the Independent Office 
of Appeals

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing on 
proposed rulemaking.

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SUMMARY: This document contains proposed regulations relating to the 
IRS Independent Office of Appeals' resolution of Federal tax 
controversies without litigation and relating to requests for referral 
to that office following the issuance of a notice of deficiency to a 
taxpayer by the IRS. The proposed regulations reflect amendments to the 
law made by the Taxpayer First Act of 2019. The proposed regulations 
apply to all persons that request to have a Federal tax controversy 
considered by that office. This document also provides a notice of a 
public hearing on these proposed regulations.

DATES: Written or electronic comments must be received by November 14, 
2022. Outlines of topics to be discussed at the public hearing 
scheduled for November 29, 2022, must be received by November 14, 2022. 
If no outlines of topics are received by November 14, 2022, the public 
hearing will be cancelled.

ADDRESSES: Commenters are strongly encouraged to submit public comments 
electronically. Submit electronic submissions via the Federal 
eRulemaking Portal at www.regulations.gov (indicate IRS and REG-125693-
19) by following the online instructions for submitting comments. Once 
submitted to the Federal eRulemaking Portal, comments cannot be edited 
or withdrawn. The Department of the Treasury (Treasury Department) and 
the IRS will publish for public availability any comment to its public 
docket. Send paper submissions to: CC:PA:LPD:PR (REG-125693-19), Room 
5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, 
Washington, DC 20044.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Keith L. Brau at (202) 317-5437 (not a toll-free number). Concerning 
submissions of comments or the public hearing, Regina Johnson, 
preferably at [email protected] or (202) 317-6901 (not a toll-free 
number).

SUPPLEMENTARY INFORMATION:

Background

I. Overview

    This document contains proposed amendments to the Procedure and 
Administration Regulations (26 CFR part 301) to implement section 
7803(e) of the Internal Revenue Code (Code). The proposed amendments 
(proposed regulations) relate to the resolution by the IRS Independent 
Office of Appeals (Appeals) of Federal tax controversies without 
litigation, including guidance regarding requests for referral to 
Appeals following the issuance of a notice of deficiency. (References 
in this preamble to ``Appeals'' include references to the former Office 
of Appeals where appropriate.)
    Since its establishment by the IRS in 1927, Appeals' mission has 
been to resolve Federal tax controversies without litigation on a basis 
that is fair and impartial to both the Government and the taxpayer.\1\ 
In doing so, Appeals has independently considered disputed 
administrative determinations made by the IRS in administering and 
enforcing the internal revenue laws arising from the IRS's examination 
or collection activities with respect to a particular taxpayer, and 
attempted to resolve those disputes without litigation. See House TFA 
Report, at 29. Appeals generally considers whether to resolve Federal 
tax controversies without litigation based on the likelihood of either 
the taxpayer's or the IRS's position prevailing if the Federal tax 
controversy was resolved before a court. When Appeals resolves a 
Federal tax controversy, it does so through an administrative 
settlement of the matter.
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    \1\ See H.R. Rep. No. 39 Part 1, 116th Cong., 1st Session (House 
TFA Report), 28-29, fn. 4 (2019). The House TFA Report states that 
Appeals was established and has operated under the general authority 
of the Secretary of the Treasury or her delegate (Secretary) 
provided by section 7805 of the Code to interpret the Code, and the 
authority of the Commissioner of Internal Revenue (Commissioner) 
provided by section 7803 to, among other things, ``administer, 
manage, conduct, direct, and supervise the execution and application 
of the internal revenue laws or related statutes and tax conventions 
to which the United States is a party,'' and by section 7804 to, 
among other things, ``employ such number of persons as the 
Commissioner deems proper for the administration and enforcement of 
the internal revenue laws, and the Commissioner shall issue all 
necessary directions, instructions, orders, and rules applicable to 
such person.'' Sections 7803(a)(2)(A) and 7804(a).
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    The IRS Restructuring and Reform Act of 1998 (RRA), Public Law 105-
206 (112 Stat. 685, 689 (1998)) directed the Commissioner to 
restructure the IRS by establishing and implementing an organizational 
structure that ensured an independent appeals function within the IRS. 
Although the Code did not mandate the existence of an independent 
office within the IRS, provisions of the Code have required the 
independent administrative review of certain administrative 
determinations, such as section 6159 regarding terminating an 
installment agreement, sections 6320 and 6330 regarding notice and an 
opportunity for a hearing before a levy or upon the filing of a notice 
of lien, and section 7122 regarding rejections of an offer in 
compromise (OIC).
    For decades the Internal Revenue Manual (IRM) has contained the 
mission statement of Appeals (Appeals Mission Statement), which is ``to 
resolve [Federal] tax controversies, without litigation, on a basis 
which is fair and impartial to both the Government and the taxpayer and 
in a manner that will enhance voluntary compliance and public 
confidence in the integrity and efficiency of the Service.'' See IRM

[[Page 55935]]

8.1.1.1(1) (10-01-2016) (regarding accomplishing the Appeals mission).
    On July 1, 2019, the President signed into law the Taxpayer First 
Act of 2019 (TFA), Public Law 116-25 (133 Stat. 981 (2019)). Among 
other things, the TFA added new section 7803(e) to the Code. New 
section 7803(e)(1) establishes the IRS Independent Office of Appeals 
``to codify the role of the independent administrative appeals function 
within the IRS.'' See House TFA Report, at 29. New section 7803(e)(2) 
provides rules regarding the appointment, duties, qualifications, and 
compensation of the Chief of Appeals who is to supervise and direct 
Appeals, including that the Chief of Appeals is appointed by and 
reports directly to the Commissioner. In connection with expressly 
setting forth the role of Appeals, the TFA codified in new section 
7803(e)(3) the Appeals Mission Statement, with the additional duty of 
resolving Federal tax controversies on a basis that ``promotes a 
consistent application and interpretation of, and voluntary compliance 
with, the Federal tax laws.'' See section 7803(e)(3)(B).
    To meet Appeals' mission, new section 7803(e)(6)(A) provides that 
all IRS employees working within Appeals are to report to the Chief of 
Appeals. In addition, new section 7803(e)(6)(B) provides the Chief of 
Appeals with the authority to obtain legal assistance and advice from 
the staff of the IRS Office of the Chief Counsel (Chief Counsel) with 
regard to cases pending at Appeals, which, to the extent practicable, 
is to be provided by Chief Counsel staff who were not involved in 
advising the IRS employees directly working on the case prior to its 
referral to Appeals or in preparation of the case for litigation. See 
House TFA Report, at 30.
    The remainder of this Background describes new sections 7803(e)(4) 
and 7803(e)(5), which are the primary focus of the guidance provided in 
the proposed regulations.

II. General Availability of the Appeals Resolution Process

    Section 7803(e)(4) of the Code, also enacted by the TFA, provides 
that ``the resolution process [to resolve Federal tax controversies] 
shall be generally available to all taxpayers.'' For example, a 
taxpayer who does not resolve the taxpayer's deficiency case with the 
IRS examiner assigned to the case usually will receive a 30-day letter 
of a proposed determination of tax liability that provides the position 
of the IRS regarding the taxpayer's Federal tax controversy. Generally, 
receipt of the 30-day letter triggers an opportunity for the taxpayer 
to request that Appeals consider the taxpayer's Federal tax 
controversy.
    As an alternative to having a court decide Federal tax 
controversies without litigation (or without further litigation if the 
taxpayer has petitioned the United States Tax Court (Tax Court)) and to 
facilitate Appeals' function, Appeals uses one or more dispute 
resolution methods to settle Federal tax controversies. The Appeals 
dispute resolution methods may include, but are not limited to, a 
conference, correspondence, and certain Appeals-provided alternative 
dispute resolution services. These alternative dispute resolution 
services include fast-track settlement, fast-track mediation, post-
Appeals mediation, Rapid Appeals Process, or early referral of issues 
to Appeals.
    The most frequent type of Federal tax controversy involves a 
taxpayer disputing a liability that is subject to deficiency procedures 
under section 6212. In many of these cases the taxpayer requests an 
Appeals conference after the IRS has made a determination of the 
taxpayer's liability and sent a preliminary (30-day) letter to the 
taxpayer. In another group of cases, the taxpayer has received a notice 
of deficiency and filed a petition in the Tax Court, after which the 
docketed case may be forwarded to Appeals for consideration.

III. Limitation on Access to the Appeals Resolution Process

    As discussed in more detail in section I.C. of the Explanation of 
Provisions, the TFA did not require that the IRS grant all requests for 
Appeals to consider any dispute regarding a Federal tax controversy. 
The Secretary of the Treasury or her delegate (Secretary) may provide 
exceptions that allow the IRS to deny requests for Appeals 
consideration of a Federal tax controversy. In general, it has been the 
historic practice of the Treasury Department and the IRS to publish 
limitations on the access to the Appeals resolution process in IRS 
guidance such as regulations, revenues procedures, and the IRM.
    Although the TFA does not prohibit the IRS from denying requests 
for Appeals consideration for Federal tax controversies, the TFA did 
add new section 7803(e)(5) to the Code. After the enactment of the TFA, 
the IRS must follow the special notification procedures set forth in 
section 7803(e)(5) if a taxpayer who is in receipt of a notice of 
deficiency requests to have the Federal tax controversy referred to 
Appeals and that request is denied. In such a case, the IRS is required 
to provide the taxpayer a written notice containing a detailed 
description of the facts involved in the controversy, the basis for the 
decision to deny the request, a detailed explanation of how the basis 
for the decision applies to such facts, and the procedures for 
protesting the decision to deny the request.

Explanation of Provisions

    Proposed Sec. Sec.  301.7803-2 and 301.7803-3 would implement 
section 7803(e) as explained in sections I and II of this Explanation 
of Provisions, respectively. Proposed Sec.  301.7803-2 implements 
section 7803(e)(3) and (4) regarding the resolution of Federal tax 
controversies by Appeals. Proposed Sec.  301.7803-3 implements the 
special notice procedures of section 7803(e)(5) to be followed by the 
IRS upon denying taxpayer requests to have Federal tax controversies 
referred to Appeals for those taxpayers in receipt of a notice of 
deficiency.

I. Appeals Resolution of Federal Tax Controversies Without Litigation

A. Proposed Sec.  301.7803-2(a): Functions of Independent Office of 
Appeals
    As previously mentioned in the Background, in addition to 
establishing the IRS Independent Office of Appeals in section 
7803(e)(1) to codify the role of the independent administrative appeals 
function and providing rules in section 7803(e)(2) regarding the 
supervision of Appeals by the Chief of Appeals, the TFA codified in 
section 7803(e)(3) the Appeals Mission Statement to resolve Federal tax 
controversies with respect to taxpayers without litigation.\2\ Section 
7803(e)(3) provides that ``[i]t shall be the function of [Appeals] to 
resolve Federal tax controversies without litigation on a basis which 
(A) is fair and impartial to both the Government and the taxpayer, (B) 
promotes a 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].'' These 
functions are consistent with the historical functions of Appeals prior 
to the enactment of the TFA. As further indication that Congress 
intended Appeals to generally maintain its functions as they existed at 
the time the TFA was enacted, the legislative history provides that 
``Independent Appeals is intended to perform functions similar to those 
of the current Appeals.'' See House TFA Report, at 30. Accordingly,

[[Page 55936]]

proposed Sec.  301.7803-2(a), consistent with the statutory text of 
section 7803(e)(3), provides that Appeals resolves Federal tax 
controversies without litigation on a basis that is fair and impartial 
to the Government and the taxpayer, promotes a consistent application 
and interpretation of, and voluntary compliance with, the Federal tax 
laws, and enhances public confidence in the integrity and efficiency of 
the IRS.
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    \2\ The TFA's codification of the Appeals Mission Statement was 
generally consistent with Appeals Mission described in the Internal 
Revenue Manual at the time the TFA was enacted. IRM 8.1.1.1(1) (10-
1-2016).
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B. Proposed Sec.  301.7803-2(b): Consideration of Federal Tax 
Controversies by Appeals Generally Available to All Taxpayers
    Section 7803(e)(4) provides that the Appeals resolution process 
described in section 7803(e)(3) to resolve Federal tax controversies 
without litigation ``shall be generally available to all taxpayers.'' 
Proposed Sec.  301.7803-2(b)(1), consistent with the statutory text of 
section 7803(e)(4), provides that the Appeals resolution process is 
generally available to all taxpayers to resolve Federal tax 
controversies.
    The statute does not define the term ``Federal tax controversy.'' 
Consistent with the excerpts of the House TFA Report described in the 
Background, proposed Sec.  301.7803-2(b)(2) defines a ``Federal tax 
controversy'' as a dispute over an administrative determination with 
respect to a particular taxpayer made by the IRS in administering or 
enforcing the internal revenue laws, related Federal tax statutes, and 
tax conventions to which the United States is a party (collectively 
referred to as internal revenue laws) that arises out of the 
examination, collection, or execution of other activities concerning 
the amount or legality of the taxpayer's income, employment, excise, or 
estate and gift tax liability; a penalty; or an addition to tax under 
the internal revenue laws. Under these proposed regulations, Appeals 
generally continues to resolve a Federal tax controversy based on the 
likelihood the taxpayer's or the IRS's position with respect to the 
administrative determination made by the IRS would prevail if the 
Federal tax controversy was resolved by a court, as it did before 
enactment of the TFA. In doing so, Appeals continues to independently 
consider disputed administrative determinations made by the IRS in 
administering or enforcing the internal revenue laws with respect to a 
particular taxpayer arising from the IRS's examination, collection, or 
execution of other activities with respect to the particular taxpayer 
and attempts to resolve the disputes without litigation.
    Consistent with the practice of Appeals prior to the enactment of 
the TFA, the Appeals resolution process is also available to persons 
who seek review of certain administrative determinations made by the 
IRS with respect to such persons that do not directly involve their tax 
liabilities, penalties, or additions to tax. Even though such matters 
are not within the definition of a Federal tax controversy in proposed 
Sec.  301.7803-2(b)(2), proposed Sec.  301.7803-2(b)(3) provides that 
disputes over administrative determinations made by the IRS with 
respect to a particular person regarding the listed topics are treated 
as a Federal tax controversy. Appeals consideration of such 
administrative determinations made by the IRS is consistent with the 
historical functions of Appeals prior to the enactment of the TFA, 
which Congress intended to codify in section 7803(e)(3). Specifically, 
the legislative history states: ``Independent Appeals is intended to 
perform functions similar to those of the current Appeals.'' See House 
TFA Report, at 30. For example, Appeals considers determinations 
involving initial or continuing tax exemption or foundation 
classification of particular organizations, and initial or continuing 
qualification of particular employee plans, unless the issue underlying 
that determination is addressed by Chief Counsel through a technical 
advice issued by the office of an Associate Chief Counsel (Associate 
Office). See proposed Sec.  301.7803-2(b)(3)(iv) and (v); sec. 12.01 of 
Rev. Proc. 2022-2 (2022-1 I.R.B. 120) (relating to use of technical 
advice); Sec.  601.106(a)(1)(v)(a) of the Statement of Procedural Rules 
(26 CFR part 601) (same). In addition to the topics listed in proposed 
Sec.  301.7803-2(b)(3)(i) through (vii), proposed Sec.  301.7803-
2(b)(3)(viii) includes any other topic that the IRS determines can be 
considered by Appeals. This proposed rule, therefore, allows Appeals to 
consider administrative determinations made by the IRS with respect to 
a particular person that are not Federal tax controversies within the 
meaning of proposed Sec.  301.7803-2(b)(2) but that Appeals has 
historically considered and attempted to resolve without litigation. 
Based on its limited resources, the only disputes that are not Federal 
tax controversies as defined in proposed Sec.  301.7803-2(b)(2) that 
Appeals has historically considered and continues to consider are those 
categories of disputes with respect to a particular person specified in 
proposed Sec.  301.7803-2(b)(3)(i) through (vii). This proposed rule 
also allows the addition of new categories of administrative 
determinations made by the IRS with respect to a particular person that 
in the future may become evident as appropriate to fulfill the function 
of Appeals. See proposed Sec.  301.7803-2(b)(3)(viii).
C. Proposed Sec.  301.7803-2(c): Exceptions to Consideration by Appeals
    When the TFA was enacted, the Appeals resolution process was 
subject to exceptions and requirements that could limit use of that 
process. Congress recognized these limits, and the statute and 
legislative history demonstrate that the IRS retains discretion to have 
appropriate limits following the statutory codification of the role of 
an independent appeals function within the IRS (that is, Appeals). As 
mentioned previously, section 7803(e)(4) provides that ``[t]he 
[Appeals] resolution process . . . shall be generally available to all 
taxpayers.'' Section 7803(e)(4) (emphasis added). In choosing to use 
the words ``generally available'' in section 7803(e)(4), Congress made 
clear that the statute does not impose an unqualified requirement that 
the Appeals resolution process become a forum for any dispute with the 
IRS.
    In addition to the statutory language of section 7803(e)(4), the 
House TFA Report also reflects the intention of Congress that the 
Treasury Department and the IRS retain after the enactment of the TFA 
their historical discretion to determine whether the resolution of 
particular types of disputes is appropriate for the Appeals resolution 
process, or the discretion of the IRS to determine whether a particular 
Federal tax controversy is appropriate for the Appeals resolution 
process:

    Independent Appeals is intended to perform functions similar to 
those of the current Appeals. Independent Appeals is to resolve tax 
controversies and review administrative decisions of the IRS in a 
fair and impartial manner, for the purposes of enhancing public 
confidence, promoting voluntary compliance, and ensuring consistent 
application and interpretation of Federal tax laws. Resolution of 
tax controversies in this manner is generally available to all 
taxpayers, subject to reasonable exceptions that the Secretary may 
provide. Thus, cases of a type that are referred to Appeals under 
present law remain eligible for referral to Independent Appeals.

See House TFA Report, at 30-31 (emphasis added).
    The House TFA Report also explains that Congress knew the existing 
backdrop of Appeals exceptions when it passed the TFA: ``The Committee 
is aware that the Code does not currently require that all taxpayers be 
provided an opportunity to contest an administrative

[[Page 55937]]

decision in Appeals, although most taxpayers are afforded that 
opportunity.'' See House TFA Report, at 29. The House TFA Report noted 
some of the existing exceptions:

    Exceptions occur, and include cases in which inadequate time 
remains on the limitations period for assessment and collection or 
those in which the only arguments raised by the taxpayer are 
frivolous positions. Similarly, if a case has reached a point at 
which litigation is initiated, the availability of consideration by 
Appeals may be limited. First, authority to settle cases referred to 
the Department of Justice for defense or initiation of litigation 
rests solely with that Department. Therefore, such cases are not 
eligible for referral to Appeals. The terms under which a case 
pending in the [United States Tax Court] may be referred to Appeals 
are described in published guidance that centralizes the decision to 
withhold a case from Appeals to assure consistent standards are 
applied.

See House TFA Report, at 29 (footnotes omitted). The footnote to the 
last quoted sentence cites the guidance in Rev. Proc. 2016-22 and Sec.  
601.106 of the Statement of Procedural Rules (26 CFR part 601) that 
sets out some of these exceptions, stating: ``Exceptions to the general 
rule in favor of requiring Appeals consideration include cases that are 
withheld in the interests of sound tax administration, among other 
reasons.'' See House TFA Report, at 29, fn. 8.
    Proposed Sec.  301.7803-2(c) sets forth the exceptions to 
consideration of a Federal tax controversy by Appeals. These 
exceptions, which are listed in proposed Sec.  301.7803-2(c)(1) through 
(24), generally predate the enactment of the TFA. The proposed 
exceptions to consideration by Appeals involve Federal tax 
controversies, or issues arising in these controversies, that are 
excepted from consideration by Appeals and matters or issues that are 
otherwise ineligible for consideration by Appeals because they are not 
Federal tax controversies as defined in proposed Sec.  301.7803-2(b)(2) 
nor treated as Federal tax controversies in proposed Sec.  301.7803-
2(b)(3). To the extent that a matter or issue not eligible for 
consideration by Appeals is present in a case that otherwise is 
eligible for consideration by Appeals, the ineligible matter or issue 
will not be considered by Appeals in the resolution of the case.
    The Treasury Department and the IRS request comments on the scope 
and rationale for the exceptions described in proposed Sec.  301.7803-
2(c)(1) through (24). To the extent any of the proposed exceptions may 
differ from prior Appeals practice, comments are requested on the 
effects of such differences and whether the objectives of such 
exceptions could be accomplished by alternative means while still 
allowing Appeals to function in accordance with section 7803(e)(3). 
Comments are also requested on whether any additional exceptions to 
Appeals consideration are warranted.
1. Frivolous Positions
    Proposed Sec.  301.7803-2(c)(1) provides that Appeals consideration 
is not available for an administrative determination made by the IRS 
with respect to a particular taxpayer in which the IRS rejects a 
frivolous position, which includes any case solely involving the 
failure or refusal of the taxpayer to comply with the tax laws because 
of frivolous moral, religious, political, constitutional, 
conscientious, or similar grounds. A frivolous position includes a 
position the IRS has identified as frivolous for purposes of section 
6702(c) of the Code (regarding listing of frivolous positions). A list 
of positions that the IRS has determined to be frivolous under section 
6702(c) can be found in Notice 2010-33 (2010-17 I.R.B. 609 (April 26, 
2010)). Proposed Sec.  301.7803-2(c)(1) codifies the pre-TFA practice 
of the IRS of denying the request of a taxpayer for Appeals resolution 
of frivolous arguments, including cases based solely on frivolous 
moral, religious, political, constitutional, conscientious, or similar 
grounds.
    This approach is also consistent with the restriction in section 
7803(e)(5)(D), also added by the TFA, that the notice and protest 
procedures under section 7803(e)(5) do not apply to an Appeals referral 
request if the issue is frivolous within the meaning of section 
6702(c). Appeals consideration of frivolous positions would facilitate 
the abuse of the tax system by allocating IRS and Appeals resources to 
a secondary review of positions that have already been designated as 
frivolous. Similar existing restrictions precluding the consideration 
of frivolous positions by Appeals can be found in Sec.  601.106(b) of 
the Statement of Procedural Rules (26 CFR part 601) (regarding appeal 
procedures not extending to cases involving solely the failure or 
refusal to comply with tax laws because of frivolous moral, religious, 
political, constitutional, conscientious, or similar grounds), IRM 
5.14.3.3(1) (10-20-2020) (relating to installment agreement requests 
made to delay collection action), and IRM 8.22.5.5.3 (11-08-2013) 
(relating to frivolous issues).
2. Penalties Related to Frivolous Positions and False Information
    Similarly, proposed Sec.  301.7803-2(c)(2) provides that Appeals 
consideration generally is not available regarding a penalty assessed 
by the IRS with respect to a particular taxpayer for asserting a 
frivolous position, making a frivolous submission, or for providing 
false information. Examples of such penalties include sections 6702 
relating to frivolous tax submissions and 6682 relating to false 
information with respect to withholding. See IRM 8.11.8.2(1), (3) (10-
28-2013) (relating to a section 6702 penalty for frivolous tax 
submissions); IRM 8.22.8.10.4(1) (08-26-2020) (relating to a frivolous 
tax submission penalty under section 6702 and a false Form W-2, ``Wage 
and Tax Statement,'' penalty under section 6682). These penalties are 
immediately assessable. The IRS notifies the taxpayer of the penalty 
assessment and makes a demand for payment. See sections 6703(b), 
6671(a), and 6682(c) (relating to penalty assessment). A taxpayer 
seeking judicial review must first pay the entire penalty and then file 
a claim for refund with the IRS within two years of the date of 
payment. These penalties are designed to deter frivolous behavior or 
improper conduct by a taxpayer. If Appeals does not consider the merits 
of the taxpayer's frivolous position, it follows that Appeals should 
not consider the IRS's assessment of the penalty with respect to the 
taxpayer as well.
    Similarly, under proposed Sec.  301.7803-2(c)(2) Appeals 
consideration is not available regarding the IRS's assessment of a 
penalty with respect to a particular taxpayer who submits false 
information. Appeals consideration of an administrative determination 
made by the IRS to impose a penalty that stems from the particular 
taxpayer's improper conduct of submitting false information would be 
inconsistent with the purpose of the penalty, which is designed to 
disincentivize the taxpayer from engaging in this improper conduct and 
to encourage voluntary compliance.
    Although penalties assessed by the IRS under sections 6702 and 6682 
with respect to particular taxpayer generally are excepted from Appeals 
consideration, proposed Sec.  301.7803-2(c)(2) recognizes that Appeals 
may obtain verification that the assessment of the penalties with 
respect to a particular taxpayer complied with sections 6203 (relating 
to method of assessment) and 6751(b) (relating to approval of 
assessment) of the Code in a collection due process (CDP) hearing. See 
section 6330(c)(1), section 6330(c)(4)(B), and IRM 8.22.8.10.4(1) and 
(11) (relating to Appeals review of certain limited issues in a CDP 
action). Appeals also may consider a non-

[[Page 55938]]

frivolous challenge to an administrative decision made by the IRS in 
assessing a penalty under section 6702 or section 6682 with respect to 
a particular taxpayer in a CDP hearing. An example of such a non-
frivolous argument that Appeals could consider is the argument that a 
section 6702 penalty was erroneously assessed by the IRS because the 
return the taxpayer filed does not fall within section 6702. For 
instance, if a taxpayer properly reported the taxpayer's income tax 
liability but included a statement objecting to pay the amount of 
reported liability that would otherwise go to the military and as a 
result the taxpayer is assessed a section 6702 penalty, Appeals could 
consider the taxpayer's non-frivolous argument that the IRS erroneously 
assessed the penalty because the return filed does not fall within 
section 6702.
3. Whistleblower Awards
    Proposed Sec.  301.7803-2(c)(3) provides that Appeals consideration 
is not available for any administrative determination made by the IRS 
under section 7623 relating to awards to whistleblowers. The IRS 
Whistleblower Office provides awards of up to 30 percent of the amount 
recovered in tax enforcement actions to individuals who provide 
credible evidence of tax fraud to the IRS. A whistleblower files a 
claim providing information of alleged tax fraud involving a taxpayer. 
The IRS Whistleblower Office notifies the whistleblower that it has 
received the claim, that it will use the information to determine 
whether to pursue an investigation, and that it will inform the 
whistleblower as to whether the information meets the criteria for 
paying an award. If the IRS Whistleblower Office subsequently evaluates 
the whistleblower's claim and determines that it does not meet the 
criteria for an award, Appeals consideration is not available to the 
particular whistleblower for the administrative determination made by 
the IRS under section 7623. Proposed Sec.  301.7803-2(b)(2) defines a 
Federal tax controversy as a dispute over an administrative 
determination with respect to a particular taxpayer made by the IRS in 
administering or enforcing the internal revenue laws, related Federal 
tax statutes, and tax conventions to which the United States is a party 
(collectively referred to as internal revenue laws). An administrative 
determination made by the IRS is only with respect to a particular 
taxpayer and arises out of the examination, collection, or execution of 
other activities concerning the amount or legality of the taxpayer's 
income, employment, excise, or estate and gift tax liability; a 
penalty; or an addition to tax under the internal revenue laws. In a 
whistleblower case, the whistleblower's Federal tax liability is not at 
issue and Appeals is not reviewing a determination by the IRS in its 
examination, collection, or execution of other activities with respect 
to the whistleblower's Federal tax liability. Consequently, a 
whistleblower claim does not fall within the definition of a Federal 
tax controversy, and it is excepted from Appeals consideration 
consistent with Appeals' pre-TFA procedures. See sec. 4 of Rev. Proc. 
2016-22 (2016-15 I.R.B. 577) (relating to practices for the 
administrative appeals process in Tax Court). It also is not treated as 
a Federal tax controversy under proposed Sec.  301.7803-2(b)(3), which 
identifies certain matters with respect to a particular person subject 
to Appeals review that do not arise from the examination, collection, 
or execution of other activities concerning a taxpayer's Federal tax 
liability or directly involve the taxpayer's Federal tax liabilities, 
penalties, or additions to tax.
4. Administrative Determinations Made by Other Agencies
    Proposed Sec.  301.7803-2(c)(4) provides that Appeals consideration 
is not available for an administrative determination issued by an 
agency other than the IRS. An example is a determination by the Alcohol 
and Tobacco Tax and Trade Bureau (TTB) concerning an excise tax 
administered by and within the jurisdiction of TTB. Such taxes include 
an excise tax imposed by Chapter 32 (relating to firearms and 
ammunition); by Subtitle E (relating to alcohol, tobacco, and certain 
other excise taxes); or by Subchapter D of Chapter 78 (relating to U.S. 
possessions) of the Code, to the extent it relates to Subtitle E. This 
exclusion relating to the excise taxes administered by the TTB is 
currently found in Sec.  601.106(a)(3) of the Statement of Procedural 
Rules (26 CFR part 601). Proposed Sec.  301.7803-2(c)(4) is consistent 
with the statute and the definition of a Federal tax controversy in 
Sec.  301.7803-2(b)(2) because the Appeals resolution process is 
available only for consideration of administrative determinations made 
by the IRS with respect to a particular taxpayer. Neither section 
7803(e) nor the House TFA Report refers to any agency other than the 
IRS or contemplates Appeals consideration of a decision by any agency 
other than the IRS. See House TFA Report, at 31. Similarly, Sec.  
301.7803-2(b)(2) defines a Federal tax controversy as a dispute over an 
administrative determination with respect to a particular taxpayer made 
by the IRS in administering or enforcing the internal revenue laws, 
related Federal tax statutes, and tax conventions to which the United 
States is a party (collectively referred to as internal revenue laws). 
An administrative determination made by the IRS is only with respect to 
a particular taxpayer and arises out of the examination, collection, or 
execution of other activities concerning the amount or legality of the 
taxpayer's income, employment, excise, or estate and gift tax 
liability; a penalty; or an addition to tax under the internal revenue 
laws. Appeals therefore will not consider an administrative 
determination of a tax that is not administered by or within the 
jurisdiction of the IRS.
5. Taxpayer Assistance Order
    Proposed Sec.  301.7803-2(c)(5) provides that Appeals consideration 
is not available for a decision made by the IRS not to issue a Taxpayer 
Assistance Order (TAO) under section 7811 of the Code (relating to 
TAOs) with respect to a particular taxpayer if the taxpayer submits a 
request for Taxpayer Advocate Service assistance. This clarification in 
the proposed rule is consistent with the general definition of a 
Federal tax controversy in proposed Sec.  301.7803-2(b)(2) because the 
Office of the Taxpayer Advocate (commonly referred to as the Taxpayer 
Advocate Service) is an independent part of the IRS, and its decision 
not to issue a TAO is a process separate and distinct from an 
administrative determination made by the IRS with respect to a 
particular taxpayer that arises out of the examination, collection, or 
execution of other activities concerning the amount or legality of the 
taxpayer's income, employment, excise, or estate and gift tax 
liability; a penalty; or an addition to tax under the internal revenue 
laws.
6. Material To Be Deleted From a Written Determination
    Proposed Sec.  301.7803-2(c)(6) provides that Appeals consideration 
is not available for any decision by the IRS concerning material to be 
deleted from the text of a written determination with respect to a 
particular taxpayer pursuant to section 6110 of the Code (relating to 
public inspection of written determinations) unless the written 
determination is otherwise being reviewed by Appeals. Appeals did not 
consider these types of matters before the TFA was enacted, and these 
proposed regulations continue this exception. See sec. 4 of Rev. Proc. 
2016-22. Like whistleblower awards, disputes

[[Page 55939]]

under section 6110 do not involve the type of controversy that Appeals 
has traditionally handled, that is, reviewing an administrative 
determination made by the IRS with respect to a particular taxpayer 
that arises out of the examination, collection, or execution of other 
activities concerning the amount or legality of the taxpayer's income, 
employment, excise, or estate and gift tax liability; a penalty; or an 
addition to tax under the internal revenue laws. A section 6110 dispute 
does not involve the resolution of a Federal tax controversy but rather 
is a dispute limited to whether particular information in a written 
determination to be issued by the IRS to the taxpayer is information 
that must be redacted before the written determination is released to 
the public as required by section 6110.
    Proposed Sec.  301.7803-2(c)(6) permits a disagreement concerning 
material to be deleted under section 6110 from the text of a written 
determination to be taken up at an Appeals conference that is otherwise 
scheduled regarding a taxpayer's determination. If Appeals is already 
considering the substantive content of the determination, minimal 
resources and time would be required to also review the redactions. See 
sec. 13.04 of Rev. Proc. 2022-5 (2022-1 I.R.B. 256) (relating to exempt 
organization and private foundation status). This review would not 
require the analysis of an entirely new dispute by Appeals, which would 
require significant resources.
7. Denials of Access Under the Privacy Act
    Similarly, proposed Sec.  301.7803-2(c)(7) provides that Appeals 
consideration is not available for any dispute regarding a 
determination of the IRS resulting in denial of access under the 
Privacy Act (5 U.S.C. 552a(d)(1)) (relating to access to records) to a 
particular person. Like a dispute involving section 6110, a dispute 
involving the denial of access under the Privacy Act does not involve 
the type of controversy that Appeals has traditionally handled. Rather 
than involving a controversy regarding an administrative determination 
made by the IRS with respect to a particular taxpayer that arises out 
of the examination, collection, or execution of other activities 
concerning the amount or legality of the taxpayer's income, employment, 
excise, or estate and gift tax liability; a penalty; or an addition to 
tax under the internal revenue laws, such a dispute involves whether 
the Privacy Act prevents disclosure of records. In addition, 5 U.S.C. 
552a(d)(2) and (3) creates administrative review rights for an agency's 
refusal to amend a record accessed under the Privacy Act, but there is 
no similar statutory authority to obtain administrative review, 
including by Appeals, of a denial of access under the Privacy Act. 
Rather, 5 U.S.C. 552a(g) provides that a civil action may be brought in 
certain cases.
8. Issues Settled by a Closing Agreement
    Proposed Sec.  301.7803-2(c)(8) provides that Appeals consideration 
is not available for any issue that the IRS and a particular taxpayer 
have resolved in an agreement described in section 7121 of the Code 
regarding closing agreements and for any decision by the IRS to enter 
into or not enter into such agreement. Proposed Sec.  301.7803-2(c)(8) 
further provides that Appeals may consider the question of whether an 
item or items are covered by a closing agreement, and how the item or 
items are covered. Closing agreements are binding on the IRS and the 
taxpayer in accordance with section 7121. Under section 7121(b), a 
closing agreement between the IRS and a taxpayer is final unless fraud, 
malfeasance, or misrepresentation of a material fact can be shown; the 
case cannot be reopened as to the matters agreed upon or the agreement 
modified by any officer, employee, or agent of the United States. 
Therefore, any issue that is resolved by a closing agreement under 
section 7121 is statutorily precluded from being considered by Appeals.
9. The IRS Erroneously Returns or Rejects an OIC
    According to section 7122(f) of the Code, if an OIC is not rejected 
within 24 months after submission, it shall be deemed to be accepted. 
An offer under section 7122 will not be deemed to be accepted if it is 
rejected or returned as nonprocessable or no longer processable within 
the 24 months. See sec. 1.07 of Notice 2006-68 (2006-31 I.R.B. 105 
(July 31, 2006)) (relating to OICs). Proposed Sec.  301.7803-2(c)(9) 
provides that Appeals consideration is not available when the IRS 
erroneously returns or rejects a taxpayer's OIC submitted under section 
7122 as nonprocessable or no longer processable and the taxpayer 
requests Appeals consideration on the basis that the OIC should be 
deemed to be accepted under section 7122(f). This exception includes, 
for example, the claim that the IRS's mistaken rejection or return was 
in bad faith. Because the IRS returned or rejected the offer without 
making a determination regarding the OIC, there is no administrative 
determination made by the IRS for Appeals to review.
10. Criminal Prosecution Is Pending Against Taxpayer
    Proposed Sec.  301.7803-2(c)(10) provides that Appeals 
consideration is not available for a Federal tax controversy with 
respect to a taxpayer while a criminal prosecution or a recommendation 
for criminal prosecution is pending against the taxpayer for a tax-
related offense other than with the concurrence of Chief Counsel and 
the Department of Justice, as applicable. Appeals consideration 
therefore may be temporarily unavailable, and it may come later if the 
other requirements in proposed Sec.  301.7803-2 are met. This proposed 
exception to Appeals consideration avoids any interference or even the 
appearance of any interference with a criminal prosecution or an 
investigation that has been recommended for criminal prosecution. A 
similar existing exception can be found in Sec.  601.106(a)(2)(vi) of 
the Statement of Procedural Rules (26 CFR part 601) (relating to the 
exclusion of review while a recommendation for criminal prosecution is 
pending).
11. Branded Prescription Drug Fee and Health Insurance Providers Fee
    Proposed Sec.  301.7803-2(c)(11) provides that consideration by 
Appeals is not available for issues relating to the allocation among 
different fee payers of the branded prescription drug fee found in 
section 9008 of the Patient Protection and Affordable Care Act (PPACA), 
Public Law 111-148 (124 Stat. 119 (2010)), as amended by section 1404 
of the Health Care and Education Reconciliation Act of 2010 (HCERA), 
Public Law 111-152 (124 Stat. 1029 (2010)), and the health insurance 
providers fee found in section 9010 of PPACA, as amended by section 
10905 of PPACA, and as further amended by section 1406 of HCERA. The 
Further Consolidated Appropriations Act, 2020, Division N, Subtitle E, 
section 502, Public Law 116-94 (133 Stat. 2534 (2019)), repealed the 
section 9010 fee for calendar years beginning after December 31, 2020 
(fee years after the 2020 fee year). Thus, Appeals will not consider 
issues involving the branded prescription drug fee and the section 9010 
fee because these disputes do not involve tax issues with respect to a 
particular taxpayer, but issues concerning how a statutory fee is 
allocated amongst multiple fee payers.
    Each allocated fee in sections 9008 and 9010 (when it was in 
effect) has a built-in corrections process that allows

[[Page 55940]]

fee payers an opportunity to address errors and other problems before 
the final fee is determined. Allowing the regular Appeals process to be 
available with respect to one fee payer would be inconsistent with the 
process of calculating the allocated fees, under which adjusting one 
fee payer's fee affects the fees payable by all other fee payers. 
Comparatively, the built-in corrections process allows for each fee 
payer's liability to be determined in a relatively short time. Appeals 
consideration therefore is not appropriate given the nature of the 
allocated fee process and the impracticality of, and lack of time for, 
Appeals consideration. Furthermore, the regulations provide that all 
fee determinations by the IRS are final. See 26 CFR 51.7(d) (relating 
to the finality of the branded prescription drug fee calculation 
process) and 26 CFR 57.6(c) (relating to the finality of the health 
insurance providers fee calculation process). Proposed Sec.  301.7803-
2(c)(11) promotes efficient and fair tax administration and enforcement 
of the internal revenue laws, leading to the consistent resolution of 
issues and conserving IRS and taxpayer resources.
12. IRS's Automated Process of Certifying a Seriously Delinquent Tax 
Debt
    Proposed Sec.  301.7803-2(c)(12) provides that consideration by 
Appeals is not available for the certification or issuance of a notice 
of certification of a seriously delinquent Federal tax debt of a 
particular taxpayer to the Department of State (State Department) under 
section 7345 of the Code (relating to the revocation or denial of a 
taxpayer's passport in the case of serious tax delinquencies). The IRS 
relies on automated systems to identify every electronic taxpayer 
record on an individual's account with an unpaid assessed tax liability 
that is not statutorily excepted from the definition of seriously 
delinquent tax debt or otherwise in a category excluded from 
certification. Once all eligible unpaid liabilities have been 
identified, the systems aggregate the amount of unpaid liabilities. If 
the total is more than the statutory threshold, the taxpayer is 
identified as having a seriously delinquent tax debt, and the relevant 
transaction code is posted to the electronic taxpayer records. The 
Commissioner of the IRS's Small Business/Self-Employed Division then 
certifies that the identified individuals each have a seriously 
delinquent tax debt, and the IRS sends a list of all certified 
individuals to the State Department. The taxpayer receives Notice 
CP508C, ``Notice of certification of your seriously delinquent Federal 
tax debt to the State Department,'' informing the taxpayer to contact 
the IRS at the phone number in that notice to request reversal of the 
certification if the taxpayer believes the certification is erroneous.
    The sole remedy of a taxpayer who believes that a certification is 
erroneous or that the IRS incorrectly failed to reverse a certification 
because the tax debt is either fully satisfied or ceases to be a 
seriously delinquent tax debt is to file a civil action in court under 
section 7345(e). Although a taxpayer can challenge the certification in 
a Federal district court or the Tax Court, the taxpayer cannot 
challenge the underlying liabilities because the amounts of the 
liabilities that constitute a seriously delinquent tax debt are not at 
issue in the certification process. See Ruesch v. Commissioner, 154 
T.C. 289 (2020). In a docketed case, Appeals consideration is not 
appropriate given the automated nature of the IRS's process for 
identifying and certifying individuals with seriously delinquent tax 
debts and because the certification of a taxpayer will have been 
verified by the assigned Counsel attorney in answering the docketed 
case. Consequently, there are no issues for Appeals to consider. An 
existing exception similar to this proposed rule can be found in Notice 
2018-01 (2018-2 I.R.B. 299 (January 16, 2018)) (relating to revocation, 
limitation, or denial of a passport in the case of certain tax 
delinquencies).
13. Issues Barred From Consideration in CDP Cases
    Proposed Sec.  301.7803-2(c)(13) provides that consideration by 
Appeals is not available for any issue that is statutorily prohibited 
from being considered during a CDP hearing in accordance with section 
6320 regarding notice and opportunity for a hearing upon the filing of 
a notice of lien, section 6330 regarding notice and opportunity for a 
hearing before levy, the corresponding regulations, or any other 
administrative guidance related to CDP hearings. For example, in a CDP 
case a taxpayer is precluded from requesting relief under section 66 
relating to community property and section 6015 relating to relief from 
joint and several liability on a joint return if the Commissioner has 
already made a final determination as to spousal defenses in a 
statutory notice of deficiency or final determination letter. See 
Sec. Sec.  301.6320-1(e)(2), 301.6330-1(e)(2); Sec. Sec.  301.6320-
1(e)(3) Q&A-E4, 301.6330-1(e)(3) Q&A-E4. In this example, a taxpayer 
may request relief, and receive a second final determination, only if 
one of the exceptions provided in Sec.  1.6015-5(c) (relating to effect 
of a final administrative determination) or IRM 25.15.17.7 (03-05-2019) 
(relating to issuing second preliminary and final determinations for 
the same relief request) apply. In another example, if a taxpayer 
received a prior CDP notice under section 6320 or 6330 for the same tax 
liability and taxable period, the taxpayer has had an opportunity to 
dispute the existence and amount of that liability and may not 
challenge it in a subsequent CDP hearing, regardless of whether the 
taxpayer requested a CDP hearing in response to the prior notice. See 
Sec. Sec.  301.6320-1(e)(3) Q&A-E7, 301.6330-1(e)(3) Q&A-E7. The 
Procedure and Administration Regulations (26 CFR part 301) provide that 
a taxpayer whose CDP hearing request is untimely is not entitled to a 
CDP hearing under section 6320 or section 6330 but may receive an 
``equivalent hearing.'' See Sec. Sec.  301.6320-1(i)(1), 301.6330-
1(i)(1). Proposed Sec.  301.7803-2(c)(13) also applies to equivalent 
hearing requests.
14. Authority Over the Matter Rests With Another Office
    Proposed Sec.  301.7803-2(c)(14) provides that consideration by 
Appeals is not available for any case, determination, matter, decision, 
request, or issue with respect to a particular taxpayer that Appeals 
lacks the authority to settle. There is no reason for Appeals to expend 
resources considering a Federal tax controversy that it cannot 
ultimately resolve.
    Proposed Sec.  301.7803-2(c)(14)(i) through (v) provides a non-
exclusive list of examples illustrating this rule. Appeals does not 
have authority to resolve an issue with respect to a particular 
taxpayer in a docketed case after a referral has been made to the 
Department of Justice. For instance, Appeals lacks the authority to 
settle a tax claim in a bankruptcy court where the taxpayer has filed a 
petition in the bankruptcy court and objected to the Government's proof 
of claim and requested that the court determine tax liability. Section 
7122(a) provides that settlement authority resides with the Department 
of Justice after a referral is made.
    Appeals also lacks authority over decisions that are delegated 
exclusively to other offices within the IRS. For example, Appeals 
cannot consider a competent authority case under a United States tax 
treaty that is within the exclusive authority of the United

[[Page 55941]]

States Competent Authority. The term Competent Authority is defined in 
U.S. tax treaties as the Secretary or her delegate. The Secretary has 
delegated this authority to the Commissioner, who has redelegated it to 
the Commissioner of the Large Business and International (LB&I) 
Division of the IRS, the Deputy Commissioner of LB&I, and specified 
officials within LB&I with respect to particular matters. See IRM 
1.2.2.5.11 (06-09-2021) (Delegation Order 4-12 (Rev. 4)). The United 
States Competent Authority has exclusive authority over a competent 
authority issue it accepts for consideration or a competent authority 
resolution that was previously accepted by the taxpayer. Therefore, 
Appeals generally does not have authority to review these matters. See 
sec. 6.04(1) of Rev. Proc. 2015-40 (2015-35 I.R.B. 236) (regarding 
procedures for requesting competent authority assistance under U.S. tax 
treaties).
    In another example, Appeals lacks authority over the discretionary 
decision of the Commissioner or the Commissioner's delegate whether to 
rescind a section 6707A penalty for a non-listed reportable 
transaction. See section 6707A(d) (relating to the Commissioner's 
authority to rescind the penalty); Sec.  301.6707A-1(e) (relating to 
rescission authority); and IRM 8.11.7.6.8(2) (10-29-2013) (relating to 
rescission requests).
    Similarly, Appeals lacks authority over an issue when a requesting 
spouse seeks relief under section 6015 relating to relief from joint 
and several liability on a joint return and a nonrequesting spouse is a 
party to a docketed case in the Tax Court and does not agree to 
granting full or partial relief under section 6015. See Chief Counsel 
Notice 2013-011 (June 7, 2013) (relating to litigating cases that 
involve claims for Innocent Spouse relief under section 6015). As 
explained in Chief Counsel Notice 2013-011, the IRS, which includes 
Appeals, is legally prohibited from providing section 6015 relief or 
settling with the requesting spouse if the non-requesting spouse is a 
joint petitioner or an intervenor in a Tax Court case and is not a 
party to the settlement. See Corson v. Commissioner, 114 T.C. 354 
(2000). In that case, authority to resolve the issues rests solely with 
the Tax Court.
    Appeals also lacks authority over a criminal restitution-based 
assessment under section 6201(a)(4) of the Code relating to certain 
orders of criminal restitution and restriction on challenge of 
assessment.
15. Certain Technical Advice Memoranda
    Proposed Sec.  301.7803-2(c)(15) provides that Appeals 
consideration is not available for certain adverse actions related to 
the initial or continuing recognition of tax-exempt status, an entity's 
classification as a foundation, the initial or continuing determination 
of employee plan qualification, or a determination involving an 
obligation and the issuer of an obligation under section 103. The 
proposed exception regarding the recognition of tax-exempt status, 
foundation classification, plan qualification determination, or 
determination involving an obligation and the issuer of an obligation 
under section 103 applies only if the adverse action is based upon a 
technical advice memorandum (TAM) issued by an Associate Office before 
an appeal is requested. Appeals may request that the Associate Office 
reconsider the TAM. See sec. of 12.01 Rev. Proc. 2022-2 regarding 
Appeals submitting a proposed disposition of an issue contrary to a TAM 
as a request for a new TAM.
    A TAM is advice furnished by an Associate Office in a memorandum 
that responds to any request for assistance on any technical or 
procedural legal question involving the interpretation and proper 
application of any legal authority that is submitted in accordance with 
an applicable revenue procedure. See Rev. Proc. 2022-2 (defining the 
term ``Associate office'' and explaining when and how an Associate 
Office provides technical advice, conveyed in technical advice 
memoranda). Chief Counsel has jurisdiction over legal questions. See 
section 7803(b)(2). If a TAM is furnished concerning an organization's 
exempt status or foundation classification, or concerning an employee 
plan's status or qualification, Chief Counsel's decision with respect 
to those issues is the final position of the IRS and therefore excepted 
from Appeals consideration. See Sec.  601.106(a)(1)(v)(a); IRM 
8.1.1.2.1(1)(c.) (02-10-2012) (relating to exceptions to Appeals 
authority). Accordingly, an IRS field office must process the 
taxpayer's case in accordance with the conclusions in the TAM. See sec. 
12.01 of Rev. Proc. 2022-2. Similarly, if a TAM provides conclusions 
involving an obligation and the issuer of the obligation under section 
103, the field office must apply the conclusions to the issuer and any 
holder of the obligation unless a new TAM is issued on behalf of the 
holder for the same issue addressed in the initial TAM. See sec. 12.01 
of Rev. Proc. 2022-2. As in the guidance referenced in this paragraph, 
proposed Sec.  301.7803-2(c)(15) provides that when these issues and 
determinations are the subject of a TAM from an Associate Office, they 
are excepted from Appeals consideration because Chief Counsel has 
exclusive authority to resolve these issues.
16. Technical Advice From an Associate Office in a Docketed Case
    For the same reasons as explained in section C.15. of this 
Explanation of Provisions, proposed Sec.  301.7803-2(c)(16) provides 
that Appeals consideration is not available for any case docketed in 
the Tax Court if the notice of deficiency, notice of liability, or 
final adverse determination letter is based upon an Associate Office 
TAM in that case involving an adverse action described in Sec.  
301.7803-2(c)(15). Like the exception in proposed Sec.  301.7803-
2(c)(15), the exception in proposed Sec.  301.7803-2(c)(16) relates to 
the initial or continuing recognition of tax-exempt status, an entity's 
classification as a foundation, the initial or continuing determination 
of employee plan qualification, or a determination involving an 
obligation and the issuer of an obligation under section 103. When 
these issues and determinations are the subject of a TAM from an 
Associate Office, they are final and excepted from Appeals 
consideration. See Sec.  601.106(a)(2)(iii) (relating to an exception 
if a notice of deficiency, notice of liability, or final adverse 
determination letter is based upon specified ruling or technical 
advice); sec. 12.01 of Rev. Proc. 2022-2.
17. Letter Rulings Issued by an Associate Office
    Proposed Sec.  301.7803-2(c)(17) provides that Appeals 
consideration is not available for a decision by an Associate Office 
whether to issue a letter ruling or the content of a letter ruling. A 
taxpayer requests a letter ruling by submitting a request that meets 
the requirements of the revenue procedure that describes the letter 
ruling process, which is updated annually. The most recent update is 
Rev. Proc. 2022-1.
    As explained in section 2.01 of Rev. Proc. 2022-1, a letter ruling 
is a written determination issued to a taxpayer by an Associate Office 
in response to the taxpayer's inquiry, filed prior to the filing of 
returns or reports that are required by the tax laws, about its status 
for tax purposes or the tax effects of its acts or transactions. A 
letter ruling interprets the tax laws and applies them to the 
taxpayer's specific set of facts. An Associate Office issues a letter 
ruling

[[Page 55942]]

when appropriate and in the interest of sound tax administration. A 
voluntary request for a letter ruling is not an administrative 
determination that is part of the IRS's compliance function. The 
taxpayer is not required to file a return consistent with the letter 
ruling. The letter ruling program is not designed to present a position 
of the IRS for Appeals to consider. The program is designed instead to 
provide taxpayers with information regarding whether the IRS will 
accept a position to be taken on the taxpayer's return. An exception 
similar to the exception in proposed Sec.  301.7803-2(c)(17) already 
exists in section 10.02 of Rev. Proc. 2022-1.
    However, proposed Sec.  301.7803-2(c)(17) provides that the subject 
of the letter ruling may be considered by Appeals if all other 
requirements in proposed Sec.  301.7803-2 are met. For example, assume 
that a taxpayer submits a letter ruling request pursuant to Rev. Proc. 
2022-1 and an Associate Office issues a letter ruling adverse to the 
taxpayer's request. If the taxpayer files a tax return contrary to the 
adverse letter ruling and a Federal tax controversy arises that 
involves the subject of the adverse letter ruling, Appeals could 
consider the subject of the letter ruling in the dispute if all other 
requirements in proposed Sec.  301.7803-2 are met.
18. Challenges Alleging That a Statute Is Unconstitutional
    Proposed Sec.  301.7803-2(c)(18) provides that Appeals 
consideration is not available for any issue based on a taxpayer's 
argument that a statute violates the United States Constitution unless 
there is an unreviewable decision from a Federal court holding that the 
cited statute is unconstitutional. An argument that a statute violates 
the United States Constitution includes an argument that a statute is 
unconstitutional on its face or as applied to a specific person. For 
purposes of the proposed regulations, an unreviewable decision is a 
decision that can no longer be appealed to any Federal court because 
all appeals in a case have been exhausted or the time to appeal has 
expired and no appeal was filed, such as a final determination under 
section 7481 of the Code. Once there is an unreviewable decision, no 
further action can be taken in the case by any court. In fulfilling its 
function of considering hazards of litigation based upon the 
possibility that an administrative determination made by the IRS with 
respect to a particular taxpayer would be reversed in a court 
proceeding, Appeals may consider such an unreviewable decision. 
Proposed Sec.  301.7803-2(c)(18) further provides that this exception 
does not preclude Appeals from considering a Federal tax controversy 
based on arguments other than the constitutionality of the statute, 
such as whether the statute applies to the taxpayer's facts and 
circumstances, and settling the Federal tax controversy weighing the 
likelihood a court would agree with the position of the taxpayer or the 
Government.
    Appeals is not an appropriate forum to consider constitutional 
challenges to Federal tax statutes. Whether the actions taken to enact 
a Federal tax statute comport with the Constitution is initially 
determined by Congress and the President. Questions regarding the 
constitutionality of a duly enacted statute are determinations of 
general applicability resolved at the highest levels of the Treasury 
Department and the IRS, in consultation with the Office of Legal 
Counsel of the Department of Justice. Such a determination is not 
appropriate for Appeals to consider.
    In addition, one of the statutory duties of Appeals is to resolve 
cases on a basis that ``promotes a consistent application and 
interpretation of, and voluntary compliance with, the Federal tax 
laws.'' See section 7803(e)(3)(B). A Federal court's unreviewable 
decision is a determination by the judicial branch on the merits of the 
constitutional challenge that may reject the determinations made by 
Congress, the President, the Treasury Department, or the IRS with 
regard to the constitutionality of a Federal tax statute, thereby 
providing a basis for Appeals to consider constitutional challenges to 
the Federal tax statute that is the subject of the taxpayer's dispute. 
Unlike a Federal court's unreviewable decision, which is publicly 
available to all taxpayers, an Appeals resolution relates only to a 
single Federal tax controversy and, by law, the outcome generally can 
only be communicated by the IRS to the taxpayer. Any constitutional 
determination with respect to a Federal tax law should be communicated 
and applied consistently to all taxpayers. Accordingly, the Treasury 
Department and the IRS believe that it would be inappropriate for 
Appeals to consider challenges to the constitutionality of a statute in 
the absence of an unreviewable decision from a Federal court holding 
the statute to be unconstitutional.
    The Treasury Department and the IRS request comments on this 
proposed exception.
19. Challenges Alleging That a Treasury Regulation Is Invalid
    Proposed Sec.  301.7803-2(c)(19) provides that Appeals 
consideration is not available for 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. As explained previously, an unreviewable decision is a 
decision that can no longer be appealed to any Federal court. As with 
the exception for constitutional challenges, this exception does not 
preclude Appeals from considering a Federal tax controversy based on 
other arguments. For example, Appeals may consider whether the Treasury 
regulation applies to a taxpayer's facts and circumstances and resolve 
the Federal tax controversy by weighing the likelihood a court would 
agree with the position of the taxpayer or the Government.
    Questions regarding the validity of a Treasury regulation are 
determinations of general applicability resolved at the highest levels 
of the Treasury Department and the IRS. Sections 7801 through 7805 of 
the Code vest with the Secretary, the Commissioner, and other Treasury 
Department officials the authority to administer the internal revenue 
laws, including the power to promulgate regulations. Pursuant to these 
provisions of the Code and 31 U.S.C. 321(b), the delegated authority to 
prescribe Treasury regulations is held by the Assistant Secretary of 
the Treasury for Tax Policy (Assistant Secretary for Tax Policy) and 
the General Counsel for the Department of the Treasury (Treasury 
Department General Counsel). See Treasury Directive 18-02 (9-4-1986) 
and Treasury Order 107-03 (01-30-1978). The process of reviewing and 
approving Treasury regulations before they are published is extensive 
and involves senior officials in numerous offices within the Treasury 
Department, the IRS, and sometimes other Federal agencies. See IRM Part 
32.1 (Chief Counsel Regulation Handbook) for a description of the 
process for drafting regulations. Before a regulation is published in 
the Federal Register it must be approved by the Associate Chief Counsel 
responsible for drafting the regulation; a Deputy Chief Counsel; the 
Deputy Commissioner for Services and Enforcement; multiple individuals 
in the Treasury Department's Office of Tax Policy, including the 
Assistant Secretary for Tax Policy; the Treasury Department's Office of 
General Counsel;

[[Page 55943]]

the Office of the Executive Secretary; and, in some cases, the 
Secretary of the Treasury.
    In light of the extensive review and approval procedures at senior 
levels in both the Treasury Department and the IRS, we believe that it 
would be inappropriate for Appeals to consider arguments regarding the 
validity of Treasury regulations in the absence of an unreviewable 
Federal judicial decision holding the regulation invalid. In the 
absence of an unreviewable Federal judicial decision holding a Treasury 
regulation invalid, Appeals consideration of such arguments would also 
be inconsistent with the delegation of the Secretary's authority to 
prescribe regulations to the Assistant Secretary for Tax Policy and to 
the Treasury Department General Counsel. Furthermore, unlike the 
authority to apply the tax laws to a specific set of facts, which, for 
example, is redelegated to the examination function within the IRS to 
facilitate examination of a particular taxpayer, the authority and 
function to promulgate regulations rests with the Assistant Secretary 
for Tax Policy and the Treasury Department General Counsel. Such a 
determination would not be appropriate for Appeals to consider until 
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.
    Treasury regulations are generally submitted for notice and comment 
under the Administrative Procedure Act and have the force and effect of 
law once a Treasury decision containing such regulations is published 
in the Federal Register. Consequently, Treasury regulations are binding 
on the Treasury Department, the IRS and the public, including all 
Treasury Department and IRS employees. This means that Treasury 
Department and IRS employees must follow the regulations until they are 
revised, removed through the notice and comment process, or invalidated 
by subsequent legislation or an unreviewable decision of a Federal 
court. As an office within the Treasury Department and the IRS, these 
requirements apply to Appeals and its employees.
    In addition, as with constitutional challenges to a statute, a 
determination with respect to the validity of a regulation should be 
communicated and applied consistently to all taxpayers. Unlike a non-
public Appeals settlement, an unreviewable decision by a Federal court 
is available to all taxpayers and the IRS regarding the validity of a 
Treasury regulation. A settlement before Appeals is specific to a 
taxpayer and cannot be disclosed by the IRS unless an exception to 
section 6103 of the Code applies. Furthermore, unlike most Appeals 
analysis, which weigh litigation hazards in applying the law to 
specific facts, considering the validity of a regulation does not 
involve taxpayer specific facts. A Federal court's unreviewable 
decision is a determination by the judicial branch on the merits of the 
validity challenge that may reject the determinations made by other 
levels of the Treasury Department or the IRS with regard to the 
validity of a Treasury regulation, thereby providing a basis for 
Appeals to consider a regulation's validity. Accordingly, the Treasury 
Department and the IRS believe that it would be inappropriate for 
Appeals to consider challenges to the validity of a Treasury regulation 
unless a Federal court has rendered an unreviewable decision holding 
that the regulation is invalid.
    The Treasury Department and the IRS request comments on this 
proposed exception.
20. Challenges Alleging That a Notice or Revenue Procedure Is Invalid
    Proposed Sec.  301.7803-2(c)(20) provides that Appeals 
consideration is not available for any issue based on a taxpayer's 
argument that an IRS notice or revenue procedure published in the 
Internal Revenue Bulletin is procedurally invalid unless there is an 
unreviewable decision from a Federal court invalidating the notice or 
revenue procedure. An unreviewable decision is a decision that can no 
longer be appealed to any Federal court, as explained previously. 
However, this proposed rule would not prevent Appeals from considering 
the likelihood that a court would agree or disagree with the 
interpretation of the tax law asserted by the taxpayer, even though it 
may differ from the interpretation described in a notice or revenue 
procedure. Additionally, the proposed rule would not prevent Appeals 
from considering a Federal tax controversy based on arguments other 
than the validity of a notice or revenue procedure. For example, 
Appeals may consider whether the notice or the revenue procedure 
applies to the taxpayer's facts and circumstances and resolve the 
Federal tax controversy weighing the likelihood a court would agree 
with the position(s) of the taxpayer or the Government.
    Similar to Treasury regulations, the process for drafting and 
publishing notices and revenue procedures is extensive. See IRM Part 
32.2 (Chief Counsel Publication Handbook) for a description of the 
process for drafting published guidance, including notices and revenue 
procedures. Notices and revenue procedures are approved within the 
Treasury Department's Office of Tax Policy, involve numerous policy and 
implementation determinations, and involve the coordination and 
agreement of many offices within the Treasury Department, the IRS, and 
sometimes other Federal agencies. The approval process includes 
consideration of administrative law requirements applicable to such 
guidance. Furthermore, unlike the application of the tax law to a 
specific set of facts and circumstances during, for example, an 
examination, procedural determinations regarding notices and revenue 
procedures must be approved at high levels within the Treasury 
Department and are not specific to the facts of a particular case. 
Ultimately, whether an IRS notice or revenue procedure is invalid is a 
determination of general applicability resolved at the highest levels 
of the Treasury Department and the IRS. Such a determination thus would 
not be appropriate for Appeals to consider. Furthermore, 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, should be communicated and applied consistently. As 
with constitutional and regulation validity challenges, an unreviewable 
decision of a Federal court is the appropriate means of making 
information accessible to all taxpayers and the IRS regarding whether a 
notice or revenue procedure was prescribed in accordance with 
applicable Federal law. A settlement before Appeals is specific to a 
taxpayer and cannot be made available to other taxpayers. A Federal 
court's unreviewable decision is a determination by the judicial branch 
on the merits of the validity challenge that may reject the 
determinations made by other levels of the Treasury Department or the 
IRS with regard to the validity of an IRS notice or revenue procedure, 
thereby providing a basis for Appeals to consider the validity of an 
IRS notice or revenue procedure. Accordingly, the Treasury Department 
and the IRS believe that it would be inappropriate for Appeals to 
consider challenges alleging that a notice or revenue procedure is 
procedurally invalid unless a Federal court has rendered an 
unreviewable decision holding the notice or revenue procedure to be 
invalid.

[[Page 55944]]

    The Treasury Department and the IRS request comments on this 
proposed exception.
21. Case or Issue Designated for Litigation or Withheld From Appeals
    Proposed Sec.  301.7803-2(c)(21) provides that Appeals 
consideration is not available for any case or issue designated for 
litigation, or withheld from Appeals consideration in a Tax Court case, 
in accordance with guidance regarding designating or withholding a case 
or issue. Designation for litigation means that the Federal tax 
controversy, comprising an issue or issues in a case, will not be 
resolved without a full concession by the taxpayer or by decision of 
the court. The ability to designate a case for litigation or withhold a 
Tax Court case from Appeals existed long before section 7803(e) was 
added to the Code. See, e.g., sec. 3.03 of Rev. Proc. 2016-22 and IRM 
33.3.6 (12-10-2010) (relating to designating a case for litigation). 
See also NHQ-04-0521-0003 (5-24-2021) (interim guidance on designation 
of cases for litigation). Chief Counsel will not refer to Appeals any 
case or issue that has been designated for litigation.
    Also, Chief Counsel will withhold from Appeals a Tax Court case or 
one or more issues in a Tax Court case if Chief Counsel determines 
referral is not in the interest of sound tax administration. For 
example, Chief Counsel may decide not to refer a Tax Court case to 
Appeals when the Tax Court case involves a significant issue common to 
other cases in litigation for which it is important that the IRS 
maintains a consistent position or when the Tax Court case is related 
to a case over which the Department of Justice has jurisdiction after 
referral to the Department of Justice for prosecution or defense.
    While the role of Appeals has been to review the IRS's and the 
taxpayer's positions and consider issues based on the likelihood that 
the IRS's or the taxpayer's position would prevail if it were resolved 
by a court, the processes described earlier allow Chief Counsel to 
strategically manage its cases, fulfilling Chief Counsel's role of 
ensuring a consistent application and interpretation of the internal 
revenue laws and aiding in the development of the tax law. See section 
7803(b)(2)(E). These processes are intended to serve the tax 
administration interests of the IRS and taxpayers by improving 
taxpayers' understanding of and voluntary compliance with the internal 
revenue laws, leading to more effective and fair IRS enforcement. 
Unlike an Appeals resolution, a judicial decision in designated or 
withheld cases will provide notice to all taxpayers of any development 
in the law, leading to the early resolution of issues and conserving 
IRS and taxpayer resources.
22. Appeals Issued the Determination That Is the Basis of the Tax 
Court's Jurisdiction
    Proposed Sec.  301.7803-2(c)(22) provides that except as provided 
in proposed Sec.  301.7803-2(f)(1) (regarding when the Tax Court 
remands a CDP case for reconsideration), Appeals consideration is not 
available for any case docketed in the Tax Court if the notice of 
deficiency, notice of liability, or other determination was issued by 
Appeals officials. Examples of the cases subject to proposed Sec.  
301.7803-2(c)(22) include a case under sections 6320 or 6330, section 
6404 (relating to abatement of interest), section 7428 (relating to 
declaratory judgment on the classification of specified organizations), 
section 7476 (relating to declaratory judgment on qualification of 
certain retirement plans), section 7477 (relating to declaratory 
judgment on the value of certain gifts), or section 7479 (relating to 
declaratory judgment on the eligibility of an estate with respect to 
installment payments under section 6166 (regarding the extension of 
time for payment of estate tax where the estate consists largely of an 
interest in a closely held business)). This proposed rule is reflected 
in Rev. Proc. 2016-22. See secs. 3.01 and 4 of Rev. Proc. 2016-22. 
Under the proposed rule, Chief Counsel will not refer a docketed case 
to Appeals if Appeals previously reviewed the case and issued the 
correspondence stating its determination. A taxpayer whose case has 
been reviewed by Appeals cannot request a duplicative or second 
opportunity to have the same case reviewed by Appeals. It would be a 
redundant exercise and a significant mismanagement of time and 
resources for the IRS and Appeals to allow a taxpayer to request 
consideration by Appeals if Appeals already has considered the same 
matter.
23. Appeals Consideration Is a Prerequisite to the Jurisdiction of Tax 
Court
    Proposed Sec.  301.7803-2(c)(23) provides that subsequent Appeals 
consideration is not available when timely Appeals consideration itself 
is a prerequisite to Tax Court jurisdiction over an issue. To meet the 
statutory jurisdictional requirements in cases in which exhaustion of 
administrative review is a prerequisite to the Tax Court's 
jurisdiction, and such administrative review includes consideration by 
Appeals, Appeals consideration must be requested before a petition is 
filed in the Tax Court. Such a case is excluded from Appeals at the 
docketed stage because the taxpayer failed to take advantage of the 
earlier administrative opportunity to request Appeals review. Failure 
to request prior Appeals consideration will constitute a failure to 
exhaust available administrative remedies and the failure cannot be 
cured while the case is docketed.
    Proposed Sec.  301.7803-2(c)(23) lists some examples of such cases. 
Appeals consideration must be requested before a petition is filed in 
the Tax Court regarding a declaratory judgment request under section 
7428 relating to declaratory judgments on the classification of 
specified organizations. See section 7428(b)(2) (regarding exhaustion 
of administrative remedies prior to seeking declaratory judgment 
pursuant to section 7428); sec. 10.05 of Rev. Proc. 2022-5 (regarding 
the same). Other examples are cases to which section 7476(b)(3) applies 
regarding exhausting administrative remedies prior to seeking 
declaratory judgment pursuant to section 7476 relating to declaratory 
judgment on qualification of certain retirement plans. See Sec.  
601.201(o)(6)(i) of the Statement of Procedural Rules (26 CFR part 601) 
(regarding the same); section 7477(b)(2) (regarding exhausting 
administrative remedies prior to seeking declaratory judgment pursuant 
to section 7477 relating to declaratory judgment on the value of 
certain gifts); see Sec.  301.7477-1(d)(4)(ii) (regarding the same).
24. An Administrative Determination To Deny or Revoke a CPEO 
Certification
    Proposed Sec.  301.7803-2(c)(24) provides that Appeals 
consideration of an administrative determination made by the IRS to 
deny or revoke a Certified Professional Employer Organization (CPEO) 
certification is not available because the IRS has established another 
independent review process to review the determination. It is excepted 
from Appeals consideration because review by Appeals would be 
duplicative when a non-Appeals office has an established process to 
independently review the matter. The CPEO certification procedures 
established the IRS Office of Professional Responsibility (OPR) as the 
independent reviewer of the IRS's decision to deny or revoke a CPEO 
certification. The CPEO program under sections 3511 (relating to the 
rules for CPEOs) and 7705 (relating to the definition of CPEOs) of the 
Code involves the certification of a

[[Page 55945]]

Professional Employer Organization as having met certain tax status, 
background, experience, business location, financial reporting, 
bonding, and other requirements described in statutes and regulations. 
An applicant for certification that received a notice of proposed 
denial of certification can request review by OPR. Current procedures 
are in Rev. Proc. 2016-33 (2016-25 I.R.B. 1034). A CPEO that received a 
notice of suspension and proposed revocation of certification can also 
request review by OPR. Current procedures are in Rev. Proc. 2017-14 
(2017-3 I.R.B. 426).
D. Request for Comments on Other Exclusions
    The list of exclusions in proposed Sec.  301.7803-2(c) does not 
include certain exclusions from Appeals review currently provided in 
the IRM. The Treasury Department and the IRS are evaluating whether 
these items, which relate to requests for relief under Sec. Sec.  
301.9100-1 through 301.9100-22 of the Procedure and Administration 
Regulations (9100 relief) and requests for a change in accounting 
method, should be included on the list.
1. 9100 Relief
    The IRM currently provides that Appeals consideration is not 
available for a decision issued by an Associate Office regarding 9100 
relief relating to a request for an extension of time for making an 
election or other application for relief where the decision is 
reviewable by a court under an abuse of discretion standard. See IRM 
8.6.3.11(4) (10-06-2016) (relating to procedures if Appeals conclusion 
is contrary an IRS position) and IRM 8.6.3.11(4) (10-06-2016) (relating 
to extension of time for making certain elections). Under this rule, 
Appeals will not settle any case or matter contrary to the Associate 
Office's decision to deny the extension request, nor will Appeals 
consider any hazards of litigation based upon the possibility that 
Chief Counsel's denial of the 9100 relief would be reversed in a court 
proceeding. The 9100 relief regulations provide that the decision to 
grant taxpayers an extension to make a regulatory election is left to 
the Commissioner's discretion. See Sec.  301.9100-1(c) (regarding 
Commissioner's discretion to grant an extension to make a regulatory 
election). The Commissioner has delegated this authority to Chief 
Counsel.
2. Changes of Accounting Method
    Section 1.446-1(a)(2) of the Income Tax Regulations provides that 
no method of accounting is acceptable unless, in the opinion of the 
Commissioner, it clearly reflects income. See section 446(b). Rev. 
Proc. 2015-13 (2015-5 I.R.B. 419) provides the automatic and non-
automatic procedures to obtain the consent of the Commissioner to 
change a method of accounting. Section 11.02 of Rev. Proc. 2015-13 
states that the Associate Office will deny a request to make a change 
in method of accounting if the requested change would not clearly 
reflect income or would otherwise not be in the interest of sound tax 
administration.
    The IRM currently provides that Appeals consideration is not 
available for a decision issued by an Associate Office regarding a 
change of accounting method where the decision is reviewable by a court 
under an abuse of discretion standard. See IRM 8.6.3.3(2) (10-06-2016) 
(relating to procedures if Appeals conclusion is contrary to Service 
position) and IRM 8.6.3.10(3) (10-06-2016) (relating to change in 
accounting practice or method). Thus, Appeals will not settle any case 
or matter contrary to the Associate Office's decision to deny the 
method change, nor will Appeals consider any hazards of litigation 
based upon the possibility that a court would reverse Chief Counsel's 
denial of the request for a change in accounting method.
    When a taxpayer receives a letter ruling approving a change in 
method of accounting, the IRS and the taxpayer typically enter into a 
consent agreement regarding the change. The terms of the consent 
agreement are binding on the IRS and the taxpayer and are not subject 
to Appeals consideration. See IRM 8.1.1.2.1(1)(d.) (02-10-2012) 
(relating to some exceptions to Appeals authority).
3. Comments Requested
    The Treasury Department and the IRS request comments on whether 
items relating to requests for changes in methods of accounting and 
requests for 9100 relief should continue to be excluded from Appeals 
review. In addition to general comments, comments are specifically 
requested on the following:
    A. whether the binary nature of decisions regarding 9100 relief and 
changes in method of accounting make these decisions unsuitable for 
Appeals review,
    B. whether a different review standard should apply if Appeals 
considers 9100 relief or changes of accounting method, and
    C. what impact would Appeals review of 9100 relief and changes in 
accounting method have on later years that are not before Appeals?
E. Originating Office Has Completed Its Review
    Proposed Sec.  301.7803-2(d)(1) provides a prerequisite requirement 
that a taxpayer must meet before Appeals may consider the taxpayer's 
Federal tax controversy. Appeals consideration of a matter or issue is 
appropriate only after the originating IRS office has completed its 
action on the Federal tax controversy and issued a final administrative 
determination or a proposed administrative determination that is 
accompanied by an offer for Appeals consideration. This requirement is 
necessary because a case or issue is not ready for Appeals 
consideration until the originating IRS office has completed its 
factfinding and developed a position. If the originating office has not 
set out its position, there is no administrative determination made by 
the IRS with respect to the particular taxpayer for Appeals to 
consider. If the originating office has not set out its position 
regarding the Federal tax controversy, the request for Appeals 
consideration is premature and the taxpayer may request Appeals 
consideration after the originating office has set out its position if 
the other requirements in proposed Sec.  301.7803-2 are met.
    Circumstances in which Appeals consideration is premature arise in 
many contexts. For example, Appeals consideration is premature if a 
taxpayer petitions the Tax Court in a deficiency case under section 
6213(a) and raises for the first time a claim for relief under section 
6015. Because the issue was first raised in litigation, the IRS does 
yet not have a position regarding the taxpayer's eligibility for relief 
under section 6015. In another example, a taxpayer files a claim with 
the IRS for abatement of interest under section 6404 and after 180 days 
pass without a determination, the taxpayer files a petition with the 
Tax Court. Appeals consideration would be premature before the IRS has 
considered the merits. Another example is a relevant new issue raised 
during Appeals consideration for which the originating office has not 
set out its position. Similarly, Appeals consideration is premature if 
during an examination a decision is made to return an OIC that was 
submitted by the taxpayer. In yet another example, as part of an 
examination the IRS requests documents that the taxpayer does not 
provide, and the IRS refers the matter to the Department of Justice to 
bring a summons enforcement action. An administrative determination 
regarding the taxpayer's liability has not been made by the IRS. The 
decision to bring a summons enforcement action is part of

[[Page 55946]]

the process that leads to an administrative determination that will be 
made by the IRS, and Appeals consideration would be premature because 
the position of the originating office has not been set out.
    Proposed Sec.  301.7803-2(d)(2) provides that the requirement that 
the originating office must have completed its review will be treated 
as satisfied when the person requests to participate in an Appeals 
early consideration program and such request is granted. Where 
administrative guidance permits the originating office to engage 
Appeals prior to completing its action on the case, Appeals may 
consider the controversy under the terms of that administrative 
guidance. For example, Appeals may consider the Federal tax controversy 
in mediation under a fast track settlement program or early 
consideration of some issues under an early referral program. These 
programs existed prior to the TFA. See, e.g., Rev. Proc. 2003-40 (2003-
25 I.R.B. 1044) (relating to mediation under the LB&I Division Fast 
Track Settlement Program), as modified by Rev. Proc. 2015-40 (regarding 
procedures for requesting competent authority assistance under U.S. tax 
treaties); Rev. Proc. 99-28 (1999-29 I.R.B. 109) (relating to early 
consideration of some, but not all, issues in case under Early Referral 
Program). These programs promote a more efficient disposition of a 
taxpayer's case by leading to the early resolution of issues or 
developing or narrowing the issues in dispute.
F. Procedural and Timing Requirements Are Followed
    Proposed Sec.  301.7803-2(e) provides the procedural and timing 
requirements that a taxpayer must meet before Appeals may consider the 
taxpayer's Federal tax controversy. Specifically, proposed Sec.  
301.7803-2(e) provides that a request for Appeals consideration must be 
submitted in the time and manner prescribed in applicable forms, 
instructions, or other administrative guidance and that all procedural 
requirements must be complied with for Appeals to consider a Federal 
tax controversy. These proposed requirements existed prior to the 
enactment of the TFA. An example of specific procedural requirements 
are the special claim procedures for penalties under sections 6694(b), 
6700, and 6701. For instance, a CP 15 Notice and Demand letter is sent 
to a promoter upon assessment of the penalties advising the promoter of 
the special claim procedures pursuant to section 6703(c). Section 
6703(c)(1) allows the promoter to pay at least 15 percent of the amount 
of the penalty within 30 days and file a claim for refund of the amount 
paid. If the claim for refund is disallowed and a written request for 
Appeals consideration is received timely, Appeals may consider the 
claim for refund in the same manner as any other claim for refund. The 
special claim procedures, including the requirement to pay at least 15 
percent, are part of the required claims process. Appeals review is 
unavailable to a claimant unless the claimant follows the special claim 
procedures.
    Another example of procedural requirements is the refund procedures 
under section 6402. Appeals review is unavailable to a claimant that 
submits a claim for refund under section 6402 unless the claimant 
follows the required claims procedures in section 7422(a) regarding the 
requirement to file an administrative claim according to IRS procedures 
before filing suit and Sec. Sec.  301.6402-2 and 301.6402-3 regarding 
general procedures for making a claim for a refund of income tax. To 
promote compliance and an orderly process, the proposed rule would 
ensure that the taxpayer complies with statutory and regulatory 
requirements and Appeals has sufficient information to consider the 
taxpayer's claim.
    In addition, proposed Sec.  301.7803-2(e) provides that there must 
be sufficient time remaining on the appropriate limitations period for 
Appeals to consider the matter, as provided in administrative guidance. 
Consideration of a case by Appeals can take a significant amount of 
time. Appeals needs to correspond with the taxpayer and in some cases 
the IRS office that made the administrative determination or proposed 
administrative determination, understand and evaluate both parties' 
legal arguments, in some cases negotiate with the taxpayer, and make a 
determination. This all must be completed with sufficient time for an 
assessment to be made if a settlement cannot be reached. If there is 
insufficient time remaining on the assessment limitations period, 
Appeals will not have time to conduct an independent review before the 
period expires. This requirement was in place well before the TFA was 
enacted and is necessary for tax administration. See, e.g., IRM 
8.20.5.3.1.3(1) (03-01-2016) (relating to cases not accepted by 
Appeals); IRM 8.21.2.3(2)b (10-15-2014) (same). Similarly, proposed 
Sec.  301.7803-2(e) also provides that in a case docketed in Tax Court, 
if Chief Counsel has recalled the case from Appeals or, if not 
recalled, Appeals has returned the case to Chief Counsel so that it is 
received by Chief Counsel prior to the date of the calendar call for 
the trial session, further consideration by Appeals will not be 
available if there is insufficient time for such consideration. See 
sec. 3.07 of Rev. Proc. 2016-22.
G. One Opportunity for Consideration by Appeals
    Proposed Sec.  301.7803-2(f)(1) provides that if a Federal tax 
controversy is eligible for consideration by Appeals and the procedural 
and timing requirements are followed, a taxpayer generally has one 
opportunity for Appeals to consider such matter or issue in the same 
case for the same period or in any type of future case for the same 
period. According to proposed Sec.  301.7803-2(f)(1), Appeals has 
considered a Federal tax controversy if the Federal tax controversy was 
before Appeals for consideration and Appeals issued a determination or 
made a settlement offer, decided the Federal tax controversy was not 
susceptible to settlement, or the person who requested consideration 
failed to respond to Appeals' communications and as a result of that 
failure Appeals issued or made a determination. Appeals also has 
considered a Federal tax controversy if the taxpayer notifies Chief 
Counsel or the IRS that the taxpayer wants to discontinue settlement 
consideration by Appeals or requests to transfer settlement 
consideration of a Federal tax controversy that is currently before the 
Tax Court from Appeals to Chief Counsel. Additionally, a taxpayer with 
a Federal tax controversy who previously failed to respond to Appeals' 
communications with respect to that Federal tax controversy is treated 
as having had a prior opportunity for Appeals consideration. This 
proposed rule is intended to deter and not reward nonresponsive 
taxpayers and to avoid wasting Appeals resources.
    Appeals therefore generally will consider a Federal tax controversy 
only once. A taxpayer whose Federal tax controversy has been reviewed 
by Appeals cannot request a duplicative or second opportunity to have 
it reviewed by Appeals. Neither section 7803(e) nor its legislative 
history indicates that Congress intended for a taxpayer whose case 
already has been considered by Appeals to have multiple opportunities 
for Appeals consideration. It would be duplicative to allow a taxpayer 
to request consideration by Appeals if Appeals already has considered 
the same matter. This one-bite-at-the-apple rule is a practical, 
longstanding rule that existed prior to the TFA. See secs. 3.01 and 4 
of Rev. Proc. 2016-22.
    There are several exceptions to this proposed rule. Proposed Sec.  
301.7803-

[[Page 55947]]

2(f)(1) provides an exception to the proposed general rule where the 
Tax Court remands a CDP case for reconsideration. This exception to the 
general rule accounts for the Tax Court's ability to remand CDP cases 
for further Appeals consideration. Proposed Sec.  301.7803-2(f)(2) 
provides an exception for a taxpayer that participated in an Appeals 
early consideration program but did not reach an agreement with 
Appeals. See, e.g., Rev. Proc. 99-28 (1999-29 I.R.B. 109) (relating to 
early consideration of some, but not all, issues in case under Early 
Referral program); Rev. Proc. 2003-40 (2003-25 I.R.B. 1044) (relating 
to the Large Business and International Division Fast Track Settlement 
(FTS) program), as modified by Rev. Proc. 2015-40 (2015-35 I.R.B. 236) 
(regarding procedures for requesting competent authority assistance 
under U.S. tax treaties); Rev. Proc. 2017-25 (2017-14 I.R.B. 1) 
(relating to the Small Business/Self-Employed Division FTS program); 
Rev. Proc. 2016-57 (2016-49 I.R.B. 707) (relating to the FTS program 
for certain collection cases and issues); and Announcement 2012-34 
(2012-36 I.R.B. 334) (relating to the Tax-Exempt and Government 
Entities Division FTS program). It also provides an exception for a 
taxpayer that may be able to request post-Appeals mediation under the 
terms of administrative guidance after a traditional appeal if no 
agreement was reached between the taxpayer and Appeals. See, e.g., Rev. 
Proc. 2014-63 (2014-53 I.R.B. 1014) (relating to Appeals mediation).
    The exception to the general rule in proposed Sec.  301.7803-
2(f)(2) that carves out early consideration programs is a critical part 
of these programs. As previously mentioned, these fast track and early 
consideration programs promote a more efficient disposition of a 
taxpayer's case by leading to the early resolution of issues or 
developing or narrowing the issues in dispute. If a taxpayer who 
unsuccessfully participated in one of these programs was unable later 
to have Appeals consider the taxpayer's case, it is unlikely the 
taxpayer would take advantage of these programs. Similarly, post-
Appeals mediation promotes a more efficient disposition of a taxpayer's 
case.
    Proposed Sec.  301.7803-2(f)(2) also provides an exception to the 
general rule in proposed Sec.  301.7803-2(f)(1) for taxpayers who 
provide new information to the IRS and who meet the conditions and 
requirements for audit reconsideration or for reconsideration of 
liability issues previously considered by Appeals. Appeals may consider 
the new information. See IRM 8.7.7.17 (12-17-2019) (relating to audit 
reconsideration cases); IRM 8.7.7.16 (12-17-2019) (relating to 
reconsideration of claims for liabilities previously considered by 
Appeals).
H. Special Rules
    The following are proposed special rules.
1. Appeals Reconsideration
    Proposed Sec.  301.7803-2(g)(1) provides a special rule that 
notwithstanding the exception in proposed Sec.  301.7803-2(c)(22), if 
Appeals issued a notice of deficiency, notice of liability, or other 
determination, without having fully considered one or more issues 
because of an impending expiration of the statute of limitations on 
assessment, Appeals may choose to have Chief Counsel return the case to 
Appeals for full consideration of the issue or issues once the case is 
docketed in the Tax Court. This is a longstanding rule that existed 
prior to the enactment of the TFA and can be found in section 3.02 of 
Rev. Proc. 2016-22. The proposed rule promotes the efficient 
disposition of cases by leading to the early resolution of issues and 
developing or narrowing the issues in dispute.
2. Coordination Between Chief Counsel and Appeals
    Proposed Sec.  301.7803-2(g)(2) provides a special rule that 
Appeals and Chief Counsel may determine how settlement authority in a 
Federal tax controversy that is before the Tax Court will be 
transferred between the two offices. For example, to promote a more 
efficient disposition of a case in the Tax Court, the case may be 
transferred from Chief Counsel to Appeals or from Appeals to Chief 
Counsel by agreement between them. This is a longstanding practice that 
has been used to efficiently manage resources and respond to 
developments in litigation. Details regarding this practice are most 
recently described in Rev. Proc. 2016-22. In another example, if Chief 
Counsel determines that the case is needed for trial preparation, Chief 
Counsel may request that Appeals return the case (including settlement 
authority) to Chief Counsel before Appeals has completed its 
consideration of the case. See sec. 3.08 of Rev. Proc. 2016-22. 
Ensuring adequate time to prepare for trial is pragmatic and beneficial 
to taxpayers and Chief Counsel attorneys. Chief Counsel also may delay 
forwarding a case to Appeals when Chief Counsel anticipates filing a 
dispositive motion (for example, a motion for summary or partial 
summary judgment, or a motion to dismiss for lack of jurisdiction), in 
which case Chief Counsel will retain the case until the Tax Court rules 
on the motion. See sec. 3.04 of Rev. Proc. 2016-22. Allowing Chief 
Counsel and Appeals the flexibility to respond to the needs of specific 
Federal tax controversies promotes the efficient disposition of a 
taxpayer's case, including developing or narrowing the issues in 
dispute.

I. Applicability Date

    These regulations are proposed to apply to all requests for 
consideration by Appeals that are received on or after the date 30 days 
after a Treasury Decision finalizing these rules is published in the 
Federal Register. The Treasury Department and the IRS request comments 
on the proposed applicability date.

II. Requests for Referral to Appeals Following Issuance of a Notice of 
Deficiency

A. Notice and Protest
    If a taxpayer received a notice of deficiency authorized under 
section 6212, section 7803(e)(5) requires the Commissioner to explain 
the basis for denying an Appeals referral request and provide 
procedures to protest the denial. Proposed Sec.  301.7803-3(a) 
implements section 7803(e)(5) and provides that if any taxpayer 
requests Appeals consideration of a matter or issue and the request is 
denied, the Commissioner or the Commissioner's delegate must provide 
the taxpayer a written notice that provides a detailed description of 
the facts involved, the basis for the decision to deny the request, a 
detailed explanation of how the basis for the decision applies to such 
facts, and the procedures for protesting the decision to deny the 
request if the requirements of proposed Sec.  301.7803-3(a) are met. 
These requirements are listed in proposed Sec.  301.7803-3(a)(1) 
through (5).
1. Notice of Deficiency
    Proposed Sec.  301.7803-3(a)(1) provides that the taxpayer must 
have received a notice of deficiency authorized under section 6212 for 
the notice and protest procedures to apply.
2. Frivolous Positions
    Proposed Sec.  301.7803-3(a)(2) requires that, for the notice and 
protest procedures to apply, the taxpayer's issue must not involve a 
frivolous position. This proposed requirement follows from the 
restriction on Appeals access in proposed Sec.  301.7803-2(c)(1), which 
makes Appeals review unavailable for frivolous positions. Also, 
pursuant to section 7803(e)(5)(D),

[[Page 55948]]

the protest procedures under section 7803(e)(5) do not apply to an 
Appeals referral request if the issue is frivolous. Like the exception 
in proposed Sec.  301.7803-2(c)(1), this proposed rule prevents 
taxpayers from continuing to propose frivolous arguments. Allowing a 
taxpayer to protest the IRS's decision to deny the taxpayer's request 
for Appeals consideration of frivolous positions would result in wasted 
IRS time and resources.
3. Multiple Requests for Referral to Appeals
    Proposed Sec.  301.7803-3(a)(3) requires that the taxpayer must not 
have previously requested Appeals consideration for the same matter or 
issue in a taxable year or period for the notice and protest procedures 
to apply. Thus, when a taxpayer already has requested Appeals 
consideration and filed a valid protest under section 7803(e)(5), the 
notice and protest procedures in proposed Sec.  301.7803-3(a) do not 
apply if the taxpayer submits another Appeals referral request 
concerning the same matter or issue in a taxable year or period. It 
would be redundant to allow the taxpayer to submit multiple referral 
requests and protests under section 7803(e)(5), including when the 
taxpayer's prior protest was either rejected or allowed in a final 
decision by the Commissioner or the Commissioner's delegate.
4. Previous Appeals Consideration
    Except as provided in proposed Sec.  301.7803-2(f)(2), proposed 
Sec.  301.7803-3(a)(4) provides that for the notice and protest 
procedures to apply, Appeals must not have previously considered the 
matter or issue in a taxable year or period that is the subject of the 
request and determined that it could not be settled. This requirement 
follows from the prerequisite in proposed Sec.  301.7803-2(f), which 
provides that Appeals will consider a Federal tax controversy only 
once. Since a taxpayer receives only one opportunity for Appeals 
review, it would be redundant to allow a taxpayer to submit a protest 
under section 7803(e)(5) if Appeals already has considered the same 
matter or issue in a taxable year or period and decided that it could 
not be settled or a settlement offer was rejected.
5. Notice of Deficiency With More Than One Matter or Issue
    Proposed Sec.  301.7803-3(a)(5) requires that if the notice of 
deficiency for which the taxpayer requests Appeals consideration 
includes more than one matter or issue in a taxable year or period, the 
taxpayer must request referral and submit all matters or issues sought 
for Appeals consideration at the same time. This proposed rule will 
ensure the efficient use of Appeals' time and resources and help to 
prevent unnecessary delays and potential abuse. For example, without 
this proposed rule, a taxpayer in a case with three issues could 
potentially seek sequential Appeals consideration for each issue 
separately, thereby wasting Appeals' time and resources, creating 
unnecessary delay, and abusing the referral process. Such a piecemeal 
approach, if allowed, also would undermine the one-bite-at-the-apple 
rule in proposed Sec.  301.7803-2(f)(1).
6. Applicability Date
    The regulations in this section are proposed to apply to all 
relevant requests for consideration by Appeals that are received on or 
after a Treasury Decision finalizing these rules is published in the 
Federal Register.

Statement of Availability of IRS Documents

    For copies of recently issued revenue procedures, revenue rulings, 
notices, and other guidance published in the Internal Revenue Bulletin, 
please visit the IRS website at https://www.irs.gov.

Special Analyses

    This regulation is not subject to review under section 6(b) of 
Executive Order 12866 pursuant to the Memorandum of Agreement (April 
11, 2018) between the Treasury Department and the Office of Management 
and Budget regarding review of tax regulations.
    In accordance with the Regulatory Flexibility Act (5 U.S.C. 601 et 
seq.) it is hereby certified that these proposed rules will not have a 
significant economic impact on a substantial number of small entities.
    The proposed rules affect any person who would like to have a 
Federal tax controversy considered by Appeals, including any small 
entity. Because any small entity could potentially request 
consideration by Appeals, these proposed regulations are expected to 
affect a substantial number of small entities. However, the IRS has 
determined that the economic impact on small entities affected by the 
proposed rules would not be significant.
    The proposed rules provide procedural and timing requirements for 
consideration by Appeals. The proposed rules also establish the general 
availability of consideration by Appeals and exceptions to that 
consideration. The procedural requirements, timing requirements, and 
the vast majority of the exceptions to consideration by Appeals already 
exist in previously established guidance regarding Appeals. The 
proposed regulations also provide rules regarding certain circumstances 
in which a written explanation will be provided regarding why Appeals 
consideration was not provided. None of the proposed rules affect 
entities' substantive tax liability nor do they affect the process that 
Appeals follows when it considers an eligible Federal tax controversy. 
Any significant economic impact on small entities will result from the 
application of the substantive tax provisions and will not be as a 
result of the proposed regulations. Accordingly, the Secretary hereby 
certifies that the proposed rules will not have a significant economic 
impact on a substantial number of small entities. The Treasury 
Department and the IRS invite comment from members of the public about 
potential impacts on small entities.
    Pursuant to section 7805(f) of the Code, this notice of proposed 
rulemaking has been submitted to the Chief Counsel for the Office of 
Advocacy of the Small Business Administration for comment on its impact 
on small business.

Comments and Public Hearing

    Before these proposed amendments to the regulations are adopted as 
final regulations, consideration will be given to comments that are 
submitted timely to the IRS as prescribed in the preamble under the 
ADDRESSES section. The Treasury Department and the IRS request comments 
on all aspects of the proposed regulations, particularly circumstances 
where Appeals consideration is not available. Any electronic comments 
submitted, and to the extent practicable any paper comments submitted, 
will be made available at www.regulations.gov or upon request.
    The public hearing is being held by teleconference on November 29, 
2022, beginning at 10 a.m. EST. Requests to speak and outlines of 
topics to be discussed at the public hearing must be received by 
November 14, 2022. If no outlines are received by November 14, 2022, 
the public hearing will be cancelled. Requests to attend the public 
hearing must be received by 5:00 p.m. EST on November 22, 2022. The 
telephonic hearing will be made accessible to people with disabilities. 
Requests for special assistance during the telephonic hearing must be 
received by November 22, 2022. Announcement 2020-4, 2020-17 I.R.B. 1, 
provides that until further notice, public hearings

[[Page 55949]]

conducted by the IRS will be held telephonically. Any telephonic 
hearing will be made accessible to people with disabilities.

Drafting Information

    The principal author of these proposed regulations is Keith L. Brau 
of the Office of the Associate Chief Counsel (Procedure and 
Administration). Other personnel from the Treasury Department and the 
IRS participated in their development.

List of Subjects in 26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, the Treasury Department and the IRS propose to amend 
26 CFR part 301 as follows:

PART 301--PROCEDURE AND ADMINISTRATION

0
Paragraph 1. The authority citation for part 301 is amended by adding 
entries for Sec. Sec.  301.7803-2 and 301.7803-3 in numerical order to 
read, in part, as follows:

    Authority:  26 U.S.C. 7805.
* * * * *
    Section 301.7803-2 also issued under 26 U.S.C. 7803.
    Section 301.7803-3 also issued under 26 U.S.C. 7803.
* * * * *
0
Par. 2. Sections 301.7803-2 and 301.7803-3 are added to read as 
follows:


Sec.  301.7803-2  Appeals resolution of Federal tax controversies 
without litigation.

    (a) Function of Independent Office of Appeals. Appeals resolves 
Federal tax controversies without litigation on a basis that is fair 
and impartial to both the Government and the taxpayer, promotes a 
consistent application and interpretation of, and voluntary compliance 
with, the Federal tax laws, and enhances public confidence in the 
integrity and efficiency of the Internal Revenue Service (IRS).
    (b) Consideration of a Federal tax controversy by the Independent 
Office of Appeals--(1) In general. The Appeals resolution process is 
generally available to all taxpayers to resolve Federal tax 
controversies.
    (2) Definition of Federal tax controversy. For purposes of this 
section, a Federal tax controversy is defined as a dispute over an 
administrative determination with respect to a particular taxpayer made 
by the IRS in administering or enforcing the internal revenue laws, 
related Federal tax statutes, and tax conventions to which the United 
States is a party (collectively referred to as internal revenue laws) 
that arises out of the examination, collection, or execution of other 
activities concerning the amount or legality of the taxpayer's income, 
employment, excise, or estate and gift tax liability; a penalty; or an 
addition to tax under the internal revenue laws.
    (3) Other administrative determinations treated as Federal tax 
controversies. Notwithstanding the definition of a Federal tax 
controversy in paragraph (b)(2) of this section, disputes over 
administrative determinations made by the IRS with respect to a 
particular person regarding the following topics are treated as Federal 
tax controversies for purposes of this section:
    (i) Liabilities and penalties administered by the IRS that are 
outside the Internal Revenue Code (Code), such as a liability or 
penalty pursuant to section 5321 of title 31 of the United States Code 
(relating to civil Report of Foreign Bank and Financial Accounts or 
Bank Secrecy Act penalties);
    (ii) A request under the Freedom of Information Act (5 U.S.C. 552);
    (iii) Application to become, or the sanction of, an Electronic 
Return Originator or Authorized IRS e-file Provider;
    (iv) The initial or continuing qualification of an organization as 
exempt from tax under section 501(a) (relating to tax-exempt 
organizations) or section 521 of the Code (relating to tax-exempt 
farmers' cooperatives), or as an organization described in section 
170(c)(2) of the Code (relating to charitable organizations); the 
classification or reclassification of an organization's foundation 
status under section 509(a) of the Code (relating to private 
foundations); and the classification of an organization as a private 
operating foundation under section 4942(j)(3) of the Code (relating to 
an operating foundation);
    (v) The qualification of an employee plan;
    (vi) An IRS proposed determination to a bond issuer that interest 
on an obligation the bond issuer previously issued is not tax-exempt 
under section 103 of the Code (relating to interest on State or local 
bonds), that an issue of bonds fails to qualify for the tax credits for 
the bondholders or direct payments to the issuer with respect to the 
bonds under provisions of the Code applicable to tax-advantaged bonds, 
or that denies a claim for recovery of an asserted overpayment of 
arbitrage rebate under section 148 of the Code (relating to arbitrage) 
with respect to tax-exempt bonds or under section 148 as modified by 
relevant provisions of the Code with respect to other tax-advantaged 
bonds;
    (vii) Administrative costs under section 7430 of the Code (relating 
to awarding of costs and certain fees); or
    (viii) Any other topic that the IRS has determined can be 
considered by Appeals.
    (c) Exceptions to consideration by Appeals. The following are 
Federal tax controversies that are excepted from consideration by 
Appeals or matters or issues that are otherwise ineligible for 
consideration by Appeals because they are neither a Federal tax 
controversy nor treated as a Federal tax controversy under paragraph 
(b)(3) of this section. If a matter or issue not eligible for 
consideration by Appeals is present in a case that otherwise is 
eligible for consideration by Appeals, the ineligible matter or issue 
will not be considered by Appeals during resolution of the case. The 
exceptions are:
    (1) An administrative determination made by the IRS rejecting a 
position of a taxpayer that the IRS has identified as frivolous for 
purposes of section 6702(c) of the Code (regarding listing of frivolous 
positions) and any case solely involving the taxpayer's failure or 
refusal to comply with the tax laws because of frivolous moral, 
religious, political, constitutional, conscientious, or similar 
grounds.
    (2) Penalties assessed by the IRS under section 6702 (relating to 
frivolous tax submissions) or section 6682 of the Code (relating to 
false information with respect to withholding) or any other penalty 
imposed for a frivolous position or false information. Appeals, 
however, may obtain verification that the assessment of the penalties 
complied with sections 6203 (relating to method of assessment) and 
6751(b) (relating to approval of assessment) of the Code in a 
collection due process (CDP) hearing under sections 6320 (relating to a 
hearing upon filing of a notice of lien) and 6330 (relating to a 
hearing before levy) of the Code. Appeals also may consider a non-
frivolous substantive challenge to a section 6702 or section 6682 
penalty in a CDP hearing.
    (3) Any administrative determination made by the IRS under section 
7623 of the Code (relating to awards to whistleblowers).
    (4) An administrative determination issued by an agency other than 
the IRS, such as a determination by the Alcohol and Tobacco Tax and 
Trade Bureau (TTB) concerning an excise tax

[[Page 55950]]

administered by and within the jurisdiction of TTB.
    (5) A decision made by the IRS not to issue a Taxpayer Assistance 
Order (TAO) under section 7811 of the Code (relating to TAOs).
    (6) Any decision made by the IRS concerning material to be deleted 
from the text of a written determination pursuant to section 6110 of 
the Code (relating to public inspection of written determinations) 
unless the written determination is otherwise being considered by 
Appeals.
    (7) Any denial of access under the Privacy Act (5 U.S.C. 
552a(d)(1)).
    (8) Any issue resolved in an agreement described in section 7121 of 
the Code (regarding closing agreements) that the taxpayer entered into 
with the IRS, and any decision made by the IRS to enter into or not 
enter into such agreement. Appeals may consider the question of whether 
an item or items are covered, and how the item or items are covered, in 
a closing agreement.
    (9) A case in which the IRS erroneously returns or rejects an offer 
in compromise (OIC) submitted under section 7122 of the Code (relating 
to compromises) as nonprocessable or no longer processable and the 
taxpayer requests Appeals consideration to assert that the OIC should 
be deemed to be accepted under section 7122(f).
    (10) Any case in which a criminal prosecution, or a recommendation 
for criminal prosecution, is pending against the taxpayer for a tax-
related offense, except with the concurrence of the Office of Chief 
Counsel or the Department of Justice, as applicable.
    (11) Issues relating to allocation among different fee payers of 
the branded prescription drug and health insurance providers fees in 
section 9008 of the Patient Protection and Affordable Care Act (PPACA), 
Public Law 111-148 (124 Stat. 119 (2010)), as amended by section 1404 
of the Health Care and Education Reconciliation Act of 2010 (HCERA), 
Public Law 111-152 (124 Stat. 1029 (2010)), and section 9010 of PPACA, 
as amended by section 10905 of PPACA, and as further amended by section 
1406 of HCERA.
    (12) A certification or issuance of a notice of certification of a 
seriously delinquent Federal tax debt to the Department of State under 
section 7345 of the Code (relating to the revocation or denial of a 
passport in the case of serious tax delinquencies).
    (13) Any issue barred from consideration under section 6320 or 
section 6330 of the Code, Sec. Sec.  301.6320-1 and 301.6330-1, or any 
other administrative guidance related to collection due process 
hearings or equivalent hearings.
    (14) Any case, determination, matter, decision, request, or issue 
that Appeals lacks the authority to settle. The following is a non-
exclusive list of examples:
    (i) A case or issue in a case that has been referred to the 
Department of Justice.
    (ii) A competent authority case (including a competent authority 
resolution previously accepted by the taxpayer) under a United States 
tax treaty that is within the exclusive authority of the United States 
Competent Authority.
    (iii) A decision of the Commissioner of Internal Revenue or the 
Commissioner's delegate to not rescind a section 6707A penalty for a 
non-listed reportable transaction.
    (iv) A request for relief under section 6015 of the Code (relating 
to relief from joint and several liability on a joint return) when the 
nonrequesting spouse is a party to a docketed case in the United States 
Tax Court (Tax Court) and does not agree to granting full or partial 
relief under section 6015 to the requesting spouse.
    (v) A criminal restitution-based assessment under section 
6201(a)(4) of the Code (relating to certain orders of criminal 
restitution and restriction on challenge of assessment).
    (15) An adverse action related to the initial or continuing 
recognition of tax-exempt status, an entity's classification as a 
foundation, the initial or continuing determination of employee plan 
qualification, or a determination involving an obligation and the 
issuer of an obligation under section 103. This exception applies only 
if the tax-exempt recognition, classification, determination of 
employee plan qualification, or determination involving an obligation 
and the issuer of an obligation under section 103 is based upon a 
technical advice memorandum issued by an Office of Associate Chief 
Counsel before an appeal is requested.
    (16) Any case docketed in the Tax Court if the notice of 
deficiency, notice of liability, or final adverse determination letter 
is based upon a technical advice memorandum issued by an Office of 
Associate Chief Counsel in that case involving an adverse action 
described in paragraph (c)(15) of this section.
    (17) A decision by an Office of Associate Chief Counsel regarding 
whether to issue a letter ruling or the content of a letter ruling. The 
subject of the letter ruling may be considered by Appeals if all other 
requirements in this section are met. For example, if an Office of 
Associate Chief Counsel issues an adverse letter ruling to a taxpayer, 
the taxpayer cannot immediately appeal the issuance of the adverse 
letter ruling. If the taxpayer subsequently files a return taking a 
position that is contrary to the letter ruling and that position is 
audited by the IRS, Appeals can consider that Federal tax controversy 
if all other requirements in this section are met.
    (18) Any issue based on a taxpayer's argument that a statute 
violates the United States Constitution unless there is an unreviewable 
decision from a Federal court holding that the cited statute is 
unconstitutional. For purposes of this paragraph, an argument that a 
statute violates the United States Constitution includes any argument 
that a statute is unconstitutional on its face or as applied to a 
particular person. This exception does not preclude Appeals from 
considering a Federal tax controversy based on arguments other than the 
constitutionality of a statute, such as whether the statute applies to 
the taxpayer's facts and circumstances. For purposes of this section, 
the term unreviewable decision is a decision of a Federal court that 
can no longer be appealed to any Federal court because all appeals in a 
case have been exhausted or the time to appeal has expired and no 
appeal was filed. Once there is an unreviewable decision no further 
action can be taken in the case by any Federal court.
    (19) 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. This exception does 
not preclude Appeals from considering a Federal tax controversy based 
on arguments other than the validity of a Treasury regulation, such as 
whether the Treasury regulation applies to the taxpayer's facts and 
circumstances.
    (20) 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. This exception does not 
preclude Appeals from considering a Federal tax controversy based on 
arguments other than the validity of a notice or revenue procedure, 
such as whether the notice or revenue procedure applies to the 
taxpayer's facts and circumstances.
    (21) Any case or issue designated for litigation, or withheld from 
Appeals consideration in a Tax Court case, in

[[Page 55951]]

accordance with guidance regarding designating or withholding a case or 
issue. For purposes of this section, designation for litigation means 
that the Federal tax controversy, comprising an issue or issues in a 
case, will not be resolved without a full concession by the taxpayer or 
by decision of the court.
    (22) Any case docketed in the Tax Court if the notice of 
deficiency, notice of liability, or other determination was issued by 
Appeals unless the exception in paragraph (f)(1) of this section 
(regarding when the Tax Court remands a CDP case for reconsideration) 
applies.
    (23) A case in which timely Appeals consideration must be requested 
before a petition is filed in the Tax Court because exhaustion of 
administrative review, including consideration by Appeals, is a 
prerequisite for the Tax Court to have jurisdiction, and the taxpayer 
failed to timely request Appeals consideration. For example, Appeals 
consideration must be requested before a petition is filed in the Tax 
Court regarding a declaratory judgment request under sections 7428 
(relating to declaratory judgment on the classification of specified 
organizations), 7476 (relating to declaratory judgment on qualification 
of certain retirement plans), or 7477 (relating to declaratory judgment 
on the value of certain gifts) of the Code.
    (24) An administrative determination made by the IRS to deny or 
revoke a Certified Professional Employer Organization certification.
    (d) Originating office has completed its review--(1) In general. 
Appeals consideration of a matter or issue is appropriate only after 
the originating IRS office has completed its action on the Federal tax 
controversy and issued an administrative determination or a proposed 
administrative determination accompanied by an offer for consideration 
by Appeals. If the originating office has not completed its action 
regarding the Federal tax controversy, the request for Appeals 
consideration is premature. Appeals may consider the Federal tax 
controversy if the taxpayer requests consideration after the 
originating office's action is complete and if all requirements in this 
section are met.
    (2) Exception for early consideration programs. Where 
administrative guidance permits the originating office to engage 
Appeals prior to completing its action regarding the Federal tax 
controversy, Appeals may consider the Federal tax controversy under the 
terms of that administrative guidance, such as mediation under a fast 
track settlement program or early consideration of some issues under an 
early referral program.
    (e) Procedural and timing requirements are followed. A request for 
Appeals consideration of a Federal tax controversy must be submitted in 
the time and manner prescribed in applicable forms, instructions, or 
other administrative guidance. All procedural requirements must be 
complied with before Appeals will consider a Federal tax controversy. 
In addition, there must be sufficient time remaining on the appropriate 
limitations period for Appeals to consider the Federal tax controversy, 
as provided in administrative guidance. In a case docketed in the Tax 
Court, if the Office of Chief Counsel has recalled the case from 
Appeals or, if not recalled, Appeals has returned the case to the 
Office of Chief Counsel so that it is received by the Office of Chief 
Counsel prior to the date of the calendar call for the trial session, 
further consideration by Appeals will not be available if there is 
insufficient time for such consideration.
    (f) One opportunity for consideration by Appeals--(1) In general. 
If a Federal tax controversy is eligible for consideration by Appeals 
and the procedural and timing requirements are followed, a taxpayer 
generally has one opportunity for Appeals to consider such matter or 
issue in the same case for the same period or in any type of future 
case for the same period, unless the Tax Court remands for 
reconsideration in a collection due process case. Appeals has 
considered a Federal tax controversy if the Federal tax controversy was 
before Appeals for consideration and Appeals issued a determination or 
made a settlement offer, Appeals decided the Federal tax controversy 
was not susceptible to settlement, or the person who requested 
consideration was issued and failed to respond to Appeals' 
communications and as a result of that failure Appeals issued or made a 
determination. Appeals also has considered a Federal tax controversy if 
the taxpayer notified the Office of Chief Counsel or the IRS that the 
taxpayer wanted to discontinue settlement consideration by Appeals or 
requested to transfer from Appeals to the Office of Chief Counsel 
settlement consideration of a Federal tax controversy that is currently 
before the Tax Court.
    (2) Exceptions. Notwithstanding paragraph (f)(1) of this section, 
taxpayers retain the opportunity for a traditional appeal after 
participating in an early consideration program as described in 
paragraph (d)(2) of this section if no agreement was reached between 
the taxpayer and the IRS originating office. Taxpayers may be able to 
request post-Appeals mediation under the terms of administrative 
guidance after a traditional appeal if no agreement was reached between 
the taxpayer and Appeals. Notwithstanding paragraph (f)(1) of this 
section, taxpayers who provide new information to the IRS and who meet 
the conditions and requirements for audit reconsideration or for 
reconsideration of issues previously considered by Appeals may have an 
opportunity for Appeals consideration.
    (g) Special rules. The following special rules apply to this 
section:
    (1) Appeals reconsideration. Notwithstanding the exception in 
paragraph (c)(22) of this section, if Appeals issued a notice of 
deficiency, notice of liability, or other determination without having 
fully considered one or more issues because of an impending expiration 
of the statute of limitations on assessment, Appeals may choose to have 
the Office of Chief Counsel return the case to Appeals for full 
consideration of the issue or issues once the case is docketed in the 
Tax Court.
    (2) Coordination between Office of Chief Counsel and Appeals. 
Appeals and the Office of Chief Counsel may determine how settlement 
authority in a Federal tax controversy that is before the Tax Court is 
transferred between the two offices.
    (h) Applicability date. This section is applicable to requests for 
consideration by Appeals made on or after October 13, 2022.


Sec.  301.7803-3  Requests for referral to Appeals following the 
issuance of a notice of deficiency.

    (a) Notice and protest. If any taxpayer requests consideration by 
Appeals of any matter or issue eligible for consideration by Appeals 
under section 7803(e)(5) of the Internal Revenue Code (Code) (relating 
to limitation on designation of cases as not eligible for referral to 
Appeals) and the request is denied, the Commissioner of Internal 
Revenue or Commissioner's delegate shall provide the taxpayer a written 
notice that provides a detailed description of the facts involved, the 
basis for the decision to deny the request, a detailed explanation of 
how the basis for the decision applies to such facts, and the 
procedures for protesting the decision to deny the request if the 
requirements of paragraphs (a)(1) though (5) of this section are met:
    (1) Notice of deficiency. The taxpayer received a notice of 
deficiency authorized under section 6212 of the Code (relating to 
notice of deficiency).
    (2) Frivolous positions. The issue involved is not a frivolous 
position

[[Page 55952]]

within the meaning of section 6702(c) of the Code (regarding listing of 
frivolous positions).
    (3) Multiple requests for referral to Appeals. The taxpayer has not 
previously requested consideration by Appeals, pursuant to section 
7803(e)(5), of the same matter or issue in a taxable year or period.
    (4) Previous Appeals consideration. Appeals has not previously 
considered the matter or issue in a taxable year or period that is the 
subject of the request and determined that the matter or issue could 
not be settled or a settlement offer was rejected, except as provided 
in Sec.  301.7803-2(f)(2) with respect to a taxpayer participating in 
an early consideration program.
    (5) Notice of deficiency with more than one matter or issue. If the 
notice of deficiency for which the taxpayer requests Appeals 
consideration includes more than one matter or issue in a taxable year 
or period, the taxpayer must request referral for Appeals consideration 
and submit all such matters or issues at the same time.
    (b) Applicability date. This section is applicable to relevant 
requests for consideration by Appeals made on or after [insert date of 
Treasury decision finalizing these rules is published in the Federal 
Register].

Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2022-19662 Filed 9-9-22; 11:15 am]
BILLING CODE 4830-01-P