RRA98 section 1001(a)(4)
The United States Court of Appeals for the Eighth Circuit ruled on June 8, 2021 in Jason Stewart, Kristy Stewart v. Comm’r of Internal Revenue at Docket No. 19-3786 that the taxpayer was not entitled to a new Appeals hearing because the Revenue Officer included notes and correspondence about a meeting with the taxpayers’ attorney in the official file that was later made available to the Appeals Settlement Officer who ultimately reviewed the case. Over time there has been an attempt to “preserve” the independence of settlement officers in appeals from other parts of the IRS, the Court explains. The IRS Restructuring and Reform Act of 1998 (RRA98), further attempted to secure this goal. Independence generally includes separation of investigation and adjudicative functions. It has been ruled that certain comments and statements, particularly about the credibility or demeanor of a taxpayer or their representative and their level of cooperation, are generally prohibited. In this case, the Revenue Officer appeared unannounced at the taxpayers’ attorney’s office. Notes about the meeting, including comments from the lawyer that he would not supply financial information to the Revenue Officer on request, but would only supply it to IRS Appeals, were included in the file for Appeal’s review. A letter from the Revenue Officer was placed in the administrative file the same day indicating that the lawyer refused to provide financial information and directed the IRS Officer to leave. The taxpayers argued that they should have a new hearing and further that the Collections Division should have ceased any continued pursuit of financial information once the Appeal’s request was submitted. The Court disagreed. Relying on an exception set out in Rev. Proc. 2012-18, the Court ruled that the inclusion of the notes was allowed because they were contemporaneous statements pertinent to consideration of the case. These statements were deemed reminders of the need to get financials and what kind of effort might be required to do so. Additionally, the Court ruled that it was not inappropriate to continue investigation after the filing of a due-process hearing. Rather, the Court ruled that even though Appeals was involved, it would be necessary for the field Revenue Officer to continue to gather financial information and work with the taxpayer, so that the IRS could properly evaluate matters during the Appeal’s hearing.