Most often when we are engaged to represent a taxpayer in an audit we are able to achieve a fair and accurate assessment. That the entire goal of an audit – to determine the actual tax liability due. However, we sometimes encounter a situation in which we are either dealing with an overzealous Revenue Agent, or the Revenue Agent fails to comport with our understanding of the facts and laws surrounding the audited items.
Thus said, we sometimes are forced to appeal their assessment. When dealing with the Appeals Officer they can settle based either upon an analysis and application of the facts and/or law, or due to “hazards of litigation.” In our experience most cases are settled according to the “facts and law” approach. Under this method, the appeals officer will review the facts of the case, potentially gather more facts or date, and apply the law to those facts in order to reach a decision. However, in certain rare situations a settlement can be achieved through the “hazards of litigation” approach. This method is solely described as:
“A fair and impartial resolution is one which reflects on an issue-by-issue basis the probable result in event of litigation, or one which reflects mutual concessions for the purpose of settlement based on relative strength of the opposing positions where there is substantial uncertainty of the result in event of litigation.”
In applying this method the Appeals Officer will determine whether the taxpayer may have a successful outcome in Tax Court. If so, they are more willing to settle the claims. In our opinion the reason for doing so is such that the IRS does not want to create bad case law – for the government. The vast majority of current Tax Court case law is unfavorable to taxpayers. The reason being is that taxpayers often make their appeals either with unfounded arguments, or on a pro se basis, where they are unable to fully articulate their argument before the Court.
