The IRS has issued final regulations (TD 10030) that significantly impact the resolution of Federal tax controversies by the Independent Office of Appeals (Appeals). These regulations, which implement section 7803(e) of the Internal Revenue Code (Code) as enacted by the Taxpayer First Act of 2019 (TFA), provide essential guidance for tax professionals.

Background and Authority The TFA mandated that the IRS Independent Office of Appeals resolve Federal tax controversies fairly and impartially. The goal of the office is to promote consistent application of tax laws, encourage voluntary compliance, and enhance public confidence. Section 7803(e) of the Code, created by the TFA, directs Appeals to resolve tax controversies without litigation and to generally make the resolution process available to all taxpayers. The final regulations, issued under section 7805(a) of the Code, clarify and formalize these procedures.

Key Changes and Clarifications These final regulations implement section 7803(e) of the Code. The regulations address:

General Availability of Appeals: The Appeals resolution process is “generally available to all taxpayers” to resolve Federal tax controversies. However, the regulations also outline several exceptions.
Definition of Federal Tax Controversy: A Federal tax controversy is defined as a dispute over an administrative determination by the IRS regarding a taxpayer’s tax liability. This includes disputes over income, employment, excise, and estate and gift tax, as well as penalties. It also includes, for example, disputes over the tax-exempt status of organizations and qualified plans.
Additional Matters Treated as Federal Tax Controversies: Certain determinations outside of direct tax liabilities are specifically treated as Federal tax controversies. These include disputes involving:
- Liabilities and penalties outside the IRC (e.g., Bank Secrecy Act penalties)
- Freedom of Information Act (FOIA) requests
- Sanctions of Electronic Return Originators and Authorized IRS e-file Providers
- Arbitrage rebate claims regarding tax-exempt bonds
- Administrative costs under section 7430 of the Code.
- Any other topic the IRS decides to include.
Exceptions to Appeals Consideration: The regulations provide a comprehensive list of 24 exceptions to Appeals consideration. These exceptions are largely based on existing practices, but now codified in regulation. Key exceptions include:
- Frivolous positions and penalties: Appeals will not review cases involving frivolous positions or penalties related to such positions
- Whistleblower awards: Determinations regarding whistleblower awards under section 7623 of the Code are not eligible for Appeals consideration.
- Determinations by other agencies: Determinations made by other agencies, such as the Alcohol and Tobacco Tax and Trade Bureau (TTB), are excluded.
- Privacy Act denials: Denials of access under the Privacy Act are not subject to Appeals review.
- Erroneous return or rejection of an Offer in Compromise (OIC): If the IRS erroneously returns or rejects an OIC as nonprocessable, Appeals review is not available.
- Cases with pending criminal prosecution: Cases with pending criminal prosecution are generally excluded from Appeals review
- Seriously delinquent tax debt certifications: The automated process of certifying seriously delinquent tax debt is not eligible for Appeals consideration
- Cases where Appeals lacks settlement authority: Cases where Appeals lacks the authority to settle, such as after a referral to the Department of Justice, are excluded.
- Cases based on Technical Advice Memorandums (TAMs): Cases based on a TAM issued by an Associate Office of Chief Counsel (Associate Office) involving a denial of tax-exempt status, or employee plan qualification are excluded
Letter rulings: Decisions by an Associate Office on whether to issue a letter ruling, or the content of a letter ruling, are not subject to Appeals review. This includes decisions related to requests for relief under §§301.9100-1 through 301.9100-22 and requests for a change in accounting method. However, the underlying issue may be considered by Appeals if other requirements are met.
Challenges to statutes, regulations, and IRS guidance: Challenges to the constitutionality of a statute or the validity of a regulation or IRS notice or revenue procedure are not reviewed by Appeals unless there is an unreviewable decision from a Federal court. An unreviewable decision is a decision of any Federal court where all appeals have been exhausted or the time to appeal has expired.
Designated for litigation: Cases designated for litigation or withheld from Appeals in Tax Court cases are excluded.
Failure to exhaust administrative remedies: If timely Appeals consideration must be requested before petitioning the Tax Court as a prerequisite to jurisdiction, and the taxpayer failed to make such a request, the matter is excluded from Appeals.
Certified Professional Employer Organization: Denials or revocations of Certified Professional Employer Organization certification are excluded.
Procedural and Timing Rules: The regulations specify that the originating IRS office must complete its review before Appeals consideration. Requests for Appeals consideration must be submitted in the prescribed time and manner, and Appeals must have sufficient time left on the limitations period to consider the matter.
One Opportunity for Appeals Consideration: Generally, taxpayers are limited to one opportunity for Appeals consideration. Exceptions exist for cases remanded by the Tax Court for reconsideration, for taxpayers who participated in an early consideration program without reaching an agreement, or when new information is provided.
Special Rules: The regulations include special rules for cases in which Appeals issued a notice of deficiency without fully considering issues due to an impending statute of limitations. The regulations also clarify that Appeals and Chief Counsel may determine how settlement authority is transferred between the two offices.
Notice and Protest for Denied Requests: If a taxpayer requests Appeals consideration after receiving a notice of deficiency and that request is denied, the IRS must provide a written notice including a detailed explanation of the decision and the procedures for protesting that denial.

Taxpayer First Act of 2019 (TFA) and its impact These regulations are a direct result of the TFA, which aimed to modernize the IRS and improve taxpayer services. Section 7803(e) of the Code, enacted by the TFA, formalized the Independent Office of Appeals. While the TFA mandates that Appeals be “generally available” to all taxpayers, it also grants the Treasury Department and the IRS the discretion to provide reasonable exceptions. This final rule codifies many existing exceptions while adding some new clarifications.

Other Relevant Authorities These regulations are also issued under the authority of section 7805(a) of the Code, which allows the Secretary of the Treasury to create all “needful rules and regulations”. The regulations also cite numerous revenue procedures and other administrative guidance that predate the TFA, demonstrating that many of these policies were already in place prior to these new regulations.

Implications for Tax Professionals These final regulations codify and clarify the procedures for accessing the IRS Independent Office of Appeals. Tax professionals should pay particular attention to:

The definition of a Federal tax controversy to determine if a particular matter is eligible for Appeals consideration.
The list of exceptions to Appeals consideration, which is extensive, and should be carefully reviewed before initiating a request for review.
The special rules for cases involving a Technical Advice Memorandum that was issued by an Associate Office of Chief Counsel.
The limited circumstances under which Appeals can consider challenges to regulations, notices, or revenue procedures
The procedural and timing requirements for submitting a request for Appeals review.
The notice and protest procedures if a request for Appeals is denied following a notice of deficiency.

Conclusion These final regulations provide essential clarity and guidance for navigating the IRS Independent Office of Appeals. Tax professionals who are well-versed in these regulations will be better equipped to advocate for their clients and achieve favorable resolutions to their tax disputes.

Limitations on Appeals Considering the Validity of Statues, Regulations and IRS Guidance

Following the issuance of the Supreme Court’s decision in Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024) advisers may be considering advising clients on taking positions with regard to various IRS guidance that they see as being subject to questions regarding its validity. Loper Bright removed the presumption, known as Chevron deference, that had been given to agency determinations interpreting a provision once a statute had been found to have ambiguity.

Under these final regulations, detailed guidance is provided regarding when the IRS Independent Office of Administrative Appeals will be able to consider positions questioning the validity of regulations, other IRS guidance and even statutes enacted by Congress.

Challenges the Office of Appeals CANNOT Review:

Challenges to the Constitutionality of a Statute: The Office of Appeals will not review any issue based on a taxpayer’s argument that a statute is unconstitutional unless there is a final and unreviewable decision from a Federal court holding that the specific statute is unconstitutional. This means that Appeals won’t be the first forum to consider such challenges. However, they can consider other arguments related to the statute, such as whether it applies to the taxpayer’s specific circumstances. An unreviewable decision is one that can no longer be appealed due to all appeals being exhausted or the time to appeal having expired.
Challenges to the Validity of a Treasury Regulation: Similar to challenges to statutes, Appeals will not review any issue based on a taxpayer’s argument that a Treasury regulation is invalid unless there is an unreviewable decision from a Federal court that invalidates the regulation in whole or the specific provision being challenged. This exception includes both substantive and procedural challenges to the validity of a regulation. However, Appeals can consider whether a regulation applies to a taxpayer’s specific facts and circumstances.
Challenges to the Procedural Validity of a Notice or Revenue Procedure: Appeals will not review arguments 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 deeming it invalid. A procedurally invalid notice or revenue procedure is defined as one that failed to comply with administrative law requirements, such as the notice and comment procedures under 5 U.S.C. 553. As with regulations, Appeals can still consider whether the notice or revenue procedure applies to a taxpayer’s facts.

Reasoning Behind These Restrictions:

Consistency: These exceptions are in place to ensure that determinations about the constitutionality of statutes or the validity of regulations and IRS guidance are made consistently across all taxpayers. A single decision by Appeals only applies to one taxpayer and is not made public, while a final decision from a Federal court is available to all taxpayers and the IRS.
Authority: Questions about the validity of regulations, notices, or revenue procedures involve determinations of general applicability resolved at the highest levels of the Treasury Department and the IRS. Appeals doesn’t have the authority to unilaterally contradict these decisions.
Efficiency: By requiring a court decision, the IRS avoids expending resources to review validity challenges that have not been deemed invalid by a court. This encourages efficiency by ensuring a determination is communicated and applied to all taxpayers.

Important Clarifications:

Not a Complete Ban: These exceptions do not mean Appeals cannot consider a case related to a statute, regulation, or notice/revenue procedure. They simply mean Appeals will not address arguments about the validity of these items unless a court has already made a ruling. Appeals can still consider the application of these items to a taxpayer’s specific situation.
Unreviewable Decision: An unreviewable decision is one from any Federal court (not just a court where the taxpayer resides) that can no longer be appealed, either because all appeals have been exhausted or the time to appeal has expired.

In summary, the Office of Appeals is not the correct forum to initially address challenges to the constitutionality of statutes or the validity of regulations and IRS guidance. The IRS wants to ensure consistency in its application of the tax code, and therefore, requires that a Federal court determine the validity of the tax code, regulations and guidance before Appeals may act.

Analysis prepared with assistance from Notebook LM

TD 10030 can be downloaded from https://public-inspection.federalregister.gov/2025-00426.pdf