Administrative Appeals - See Special Enrollment Exam

1. Which statement correctly describes Appeals' settlement authority?
   Answer: Appeals may consider the hazards of litigation, but a settlement cannot be based merely on avoiding litigation costs or on nuisance value. Appeals is authorized to resolve cases based on the hazards of litigation, meaning the relative strengths and weaknesses of the parties' legal and factual positions. See Treas. Reg. § 601.106. A weak evidentiary position is a legitimate hazard, but a settlement based solely on the cost of litigation or on nuisance value is not a proper basis for settlement. Choice B incorrectly denies Appeals' pre-deficiency settlement authority. Choice C misstates the standard Appeals uses. Choice D incorrectly makes the examining agent's approval controlling.
2. Which statement correctly describes the taxpayer's procedural situation?
   Answer: The taxpayer may request an equivalent hearing; Appeals will consider the collection issue, but collection is not suspended and the outcome is not reviewable by the Tax Court. IRC § 6330(e)(1) suspends collection only for a timely requested CDP hearing, and Treas. Reg. § 301.6330-1(i)(1) provides that a late request within the equivalent-hearing window is considered for an equivalent hearing, not a CDP hearing. Because the taxpayer missed the CDP request period, the available remedy is an equivalent hearing, but the IRS is not required to suspend collection and no Tax Court review is available. Choice A ignores the equivalent hearing right. Choice B describes CDP rights that were lost when the request period expired. Choice D incorrectly attaches the CDP suspension rule to an equivalent hearing.
3. Which of the following is correct regarding the suspension of collection activities during a Collection Due Process proceeding?
   Answer: The proposed levy and the collection limitations period are suspended while the hearing and any Tax Court appeal are pending, the limitations period cannot expire before the 90th day after the final determination, and interest continues to accrue during the suspension. Governing authority: IRC § 6330(e)(1). A timely CDP request suspends the levy actions that are the subject of the hearing and the running of the section 6502 collection limitations period for the period during which the hearing, and any appeal of the determination, is pending, and in no event does the limitations period expire before the 90th day after there is a final determination. The suspension does not stop interest, which continues to accrue on the unpaid tax under IRC § 6601. Choice B states the rule. Choice A misstates the duration: a timely Tax Court petition keeps the levy suspended while the appeal is pending. Choice C misstates the measuring period: the suspension lasts as long as the hearing and any appeal are pending, not a fixed 90 days from the hearing request. Choice D misstates the effect of a timely Tax Court petition: the appeal continues the suspension rather than ending it, and the 90-day minimum runs from the final determination, not from the date the notice of determination is issued.
4. Which of the following is correct regarding a taxpayer's request for an Appeals office conference after an examination of an individual income tax return?
   Answer: The taxpayer generally has 30 days from the date of the 30-day letter to request an Appeals conference, and if no timely request is made, the IRS may issue a statutory notice of deficiency. Governing authority: IRC § 6212 and § 6213(a); IRS Publication 5 (Your Appeal Rights). After an examination, the IRS sends the examination report with a 30-day letter, and the taxpayer generally has 30 days from its date to request an Appeals conference. If no request is made, the IRS may issue a statutory notice of deficiency, after which the taxpayer has 90 days to petition the Tax Court. Choice B states this sequence. Choice A misstates the deadline and the effect of the request: the 90-day letter is the statutory notice of deficiency, and an Appeals request does not extend the Tax Court petition period. Choice C misstates the deadline: the request period is 30 days from the 30-day letter, not 90. Choice D misstates the form: Form 12153 is used to request a collection due process hearing following a lien or levy notice, not to request an Appeals conference after an examination.
5. Which statement correctly describes the taxpayer's options?
   Answer: The taxpayer may petition the Tax Court within 30 days after the notice of determination, and the court may review Appeals' rejection of the offer as part of its review of the determination. IRC § 6330(c)(2)(A)(iii) and (d)(1). A taxpayer may propose an offer in compromise as a collection alternative in a CDP hearing, and may petition the Tax Court within 30 days after Appeals issues its notice of determination; the court's review of the determination includes Appeals' handling of the offer. The decisive fact is that the offer was raised in a CDP hearing. An offer rejected outside CDP may be reviewed by Appeals under IRC § 7122(e) at the taxpayer's option, but that rejection cannot be taken to the Tax Court. Choice B is correct. Choice A is wrong because § 6330(d)(1) gives the Tax Court jurisdiction to review a CDP notice of determination, including the rejection of a collection alternative. Choice C is wrong because it borrows the 90-day deficiency period of § 6213(a); the period to petition from a CDP determination is 30 days. Choice D is wrong because Tax Court review of a CDP determination does not require payment first; paying and suing for a refund is a different remedy.
6. Which of the following is correct regarding judicial review of an Appeals determination in a Collection Due Process case?
   Answer: The taxpayer has 30 days from the date of the notice of determination to petition the Tax Court, which reviews the determination for abuse of discretion except that a properly raised underlying liability issue is reviewed de novo. Governing authority: IRC § 6330(d)(1); Sego v. Commissioner, 114 T.C. 604 (2000). The taxpayer has 30 days from the notice of determination to petition the Tax Court. The Tax Court reviews the Appeals determination for abuse of discretion, except that a properly raised underlying liability is reviewed de novo. Choice C states the rule. Choice B misstates the standard of review: the informal, non-adversarial character of the hearing does not make the entire determination reviewable de novo. Choice A drops the exception and would apply abuse-of-discretion review even to a properly raised underlying liability. Choice D misstates the forum and the nature of the proceeding: CDP appeals go to the Tax Court, and a refund suit in district court would require payment of the assessed tax.
7. Which statement is correct about the request for Appeals review?
   Answer: A formal written protest is required, and it should state the taxpayer's position and be made under penalties of perjury; the current letter is not sufficient. Under IRS Pub. 5, Your Appeal Rights, a case that is not eligible for small-case procedures generally requires a formal written protest. A valid protest should state the taxpayer's position and the grounds for disagreement and must be made under penalties of perjury. The agent's letter lacks those essential elements. Choice B incorrectly waives the protest requirement for represented taxpayers. Choice C incorrectly allows an oral protest to substitute for the required writing. Choice D misstates the effect of Form 870, which waives restrictions on assessment rather than request Appeals review.
8. Is the taxpayer's objection correct?
   Answer: Yes, because the hearing must be conducted by an Appeals officer who has had no prior involvement with the unpaid tax. IRC § 6330(b)(3). A collection due process hearing must be conducted by an officer or employee who has had no prior involvement with respect to the unpaid tax before the hearing, unless the taxpayer waives the requirement. A revenue officer who worked the same account and recommended the levy has prior involvement, so the taxpayer's objection is correct. Choice D is correct. Choice A is wrong because § 6330(b)(3) bars any officer or employee with prior involvement in the unpaid tax, whatever the general separation between Appeals and Collection; Appeals' institutional independence does not cure an individual officer's prior involvement. Choice B is wrong because recommending the levy on this account is prior involvement with respect to the unpaid tax; the statute contains no exception for a recommendation. Choice C is wrong because it adds conditions the statute does not contain: the bar is any prior involvement, not only personal approval of the levy, and supervision by an Appeals manager does not lift it.
9. Which statement about this communication is correct?
   Answer: It is generally prohibited as an ex parte communication between Appeals and another IRS employee regarding the case. IRM 8.6.1.5 (implementing RRA 1998 § 1001(a)(4)) generally prohibits ex parte communications between Appeals employees and other IRS employees about a case without the taxpayer's knowledge or opportunity to participate. Choice D correctly states that the described communication is generally prohibited; the Appeals officer's private request to the revenue agent for a memorandum supporting the proposed adjustment is exactly the type of off-the-record communication the rule targets. Choice A is incorrect because Appeals' access to the case file does not permit a private, substantive consultation with the examining agent. Choice B is incorrect because the prohibition is not overcome merely by limiting the memorandum to factual matters or avoiding a discussion of a settlement position. Choice C is incorrect because the taxpayer and the taxpayer's authorized representative are entitled to notice and an opportunity to participate in substantive communications about the case.
10. Which of the following is correct regarding the duties of an Appeals officer conducting a Collection Due Process hearing?
    Answer: The Appeals officer must verify that the requirements of applicable law and administrative procedure have been met and must weigh the need for efficient collection of tax against the concern that the collection action be no more intrusive than necessary. Governing authority: IRC § 6330(c)(1) and (c)(3). The Appeals officer must obtain verification that the requirements of any applicable law or administrative procedure have been met and, in deciding whether to sustain the collection action, must balance the need for efficient collection of tax against the taxpayer's legitimate concern that the action be no more intrusive than necessary. Choice C states both duties. Choice B misdirects the verification duty to the correctness of the liability, and de novo redetermination occurs only when the taxpayer properly raises the liability and had no prior opportunity to dispute it. Choice A invents a down-payment precondition; no such requirement exists for consideration of a collection alternative at a CDP hearing. Choice D misstates the decisional standard: an unpaid liability does not compel sustaining the action; the officer must apply the statutory balancing test to the administrative record.
11. Which of the following is correct regarding a request for a Collection Due Process (CDP) hearing under IRC § 6330?
    Answer: A timely request filed within 30 days of the notice suspends collection and the running of the collection limitations period, while a request filed after 30 days but within one year permits only an equivalent hearing, with no suspension of collection and no right to Tax Court review. Governing authority: IRC § 6330(a)(3)(B) and (e)(1); Treas. Reg. § 301.6330-1(i)(1)-(2). A taxpayer who requests a CDP hearing within 30 days of the notice is entitled to suspension of the levy action and of the section 6502 collection period while the hearing and any Tax Court appeal are pending, and the collection period cannot expire before the 90th day after the final determination. A request filed after the 30-day period but within the one-year period results in an equivalent hearing only: collection is not suspended and the decision is not reviewable by the Tax Court. Choice A states both halves of the rule. Choice B misstates the consequence of an equivalent hearing, whose decision is not appealable to the Tax Court. Choice C misstates the late-request rule: a request filed within the one-year period does not forfeit all hearing rights; the IRS grants an equivalent hearing. Choice D misstates the effect of an equivalent hearing: it suspends neither the levy action nor the running of the collection limitations period.
12. Which statement best describes the effect of the closing agreement?
    Answer: The agreement is final and binding on both parties and may be reopened only for fraud, malfeasance, or misrepresentation of a material fact. IRC § 7121(b) provides that a closing agreement is final and conclusive on both the taxpayer and the IRS, except upon a showing of fraud, malfeasance, or misrepresentation of a material fact. A later computational or legal error is not one of those exceptions, so the agreement remains binding. Choice A confuses a closing agreement with an unapproved stipulation. Choice B incorrectly allows reopening at the IRS's discretion for any reason. Choice D incorrectly treats the agreement as void for legal error.
13. Which statement is correct about what Appeals will consider?
    Answer: Appeals must consider the installment agreement, but the taxpayer may not challenge the underlying liability because the taxpayer had a prior opportunity to dispute it. IRC § 6330(c)(2)(B) bars a taxpayer from challenging the existence or amount of the underlying tax liability at a CDP hearing when the taxpayer received a statutory notice of deficiency and had an opportunity to dispute it. Here, receipt of the notice and failure to petition the Tax Court close that issue. Under IRC § 6330(c)(2)(A), an installment agreement may be raised as a collection alternative, and under IRC § 6330(c)(3) Appeals must take it into account in making its determination. Choice A incorrectly treats a CDP hearing as reopening the entire liability. Choice C reverses the correct treatment of the two issues. Choice D incorrectly bars consideration of the installment agreement.
14. Which of the following is correct regarding the independence of the IRS Office of Appeals?
    Answer: Appeals personnel are supervised by the Chief of Appeals, who reports directly to the Commissioner, and ex parte communications with other IRS employees are barred only if they would appear to compromise Appeals' independence. Governing authority: IRC § 7803(e)(3); see also IRM 8.1.3.6. The Office of Appeals is independent of the rest of the IRS: Appeals personnel are supervised by the Chief of Appeals, who reports directly to the Commissioner, and ex parte communications between Appeals employees and other IRS employees are prohibited only to the extent they would appear to compromise Appeals' independence; they are not categorically banned. Choice D states the rule. Choice B turns the prohibition into an absolute bar on any contact with examination or collection personnel, which the statute does not impose. Choice C misstates the chain of command and would bar record-development communications altogether. Choice A misstates both the reporting structure and the standard: permitted communications are those that do not appear to compromise independence, not those the Appeals officer simply deems necessary.
15. Which of the following is correct regarding a taxpayer's ability to challenge the existence or amount of the underlying tax liability at a Collection Due Process hearing?
    Answer: The taxpayer may raise the underlying liability at a CDP hearing only if he did not receive a statutory notice of deficiency for the liability and did not otherwise have an opportunity to dispute it. Governing authority: IRC § 6330(c)(2)(B); Treas. Reg. § 301.6330-1(e)(1), Q&A-E2. At a CDP hearing the taxpayer may challenge the existence or amount of the underlying liability only if he received no statutory notice of deficiency for the liability and had no other opportunity to dispute it. A taxpayer who received a notice of deficiency and let the 90-day petition period expire, or who otherwise waived the opportunity, may not relitigate the liability at the hearing. Choice A states the rule. Choice B ties the right to the assessment method; the right turns on the absence of a prior opportunity to dispute, not on how the tax was assessed. Choice C makes the right absolute; a prior statutory notice of deficiency, or any other prior opportunity to dispute, bars the challenge. Choice D imports the pay-and-sue requirements of a refund suit; no payment or claim for refund is required to raise the underlying liability at a CDP hearing.

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