Federal Tax Controversies and the Appeals Resolution Process

The Taxpayer First Act (“TFA”), which was signed into law on July 1, 2019, makes the most significant changes to administrative procedures since the Internal Revenue Service Restructuring and Reform Act of 1998. In addition to containing significant new taxpayer rights protections, the TFA includes a mandate that the IRS Independent Office of Appeals (“Appeals”) resolve Federal tax controversies fairly and impartially.

 What is a Federal tax controversy? A Federal tax controversy is a dispute of an administrative determination made by the Internal Revenue Service (“IRS”) with respect to a particular person regarding the collection of or liability for taxes. Internal Revenue Code (“IRC”) Section 7803(e), which was created by the TFA, specifically directs Appeals to resolve such tax controversies without litigation on a basis that is fair and impartial, 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.

The IRS recently issued final regulations (see more here: 2025-00426.pdf) that clarify that the definition of Federal Tax Controversy includes disputes over income, employment, excise, and estate and gift tax, penalties as well as disputes over the tax-exempt status of organizations. The final regulations also address certain procedural and timing rules that a taxpayer must meet before Appeals consideration is available.

While the Appeals resolution process is generally available to all taxpayers, practitioners should be aware that exceptions to Appeals consideration do exist. The final regulations provide an exclusive list of 24 exceptions to considerations of Federal tax controversies by Appeals. The exceptions list includes frivolous positions and penalties, whistleblower awards, erroneous return or rejection of an Offer in Compromise, seriously delinquent tax debt certifications, determinations by other agencies, challenges to the constitutionality or the validity of a regulation, IRS notice, or revenue procedure, decisions on the content of or whether to issue a letter ruling, and cases where Appeals lacks settlement authority.

Notwithstanding the above, these final regulations remind us of the IRS’s ongoing commitment to streamline the Appeals process while also promoting fairness and public confidence in the IRS’s dispute resolution mechanisms. The final regulations apply to all requests for consideration by Appeals that are received on or after February 14, 2025.