Taxpayer Challenges IRS’s “No Extension, No Appeal” Position

The IRS has an Appeals Office, which by federal law is an independent office within the agency. The office is a place to resolve tax controversies without litigation, with the right to appeal to it “generally available to all taxpayers.”

Or maybe not. In July 2018, the IRS notified Hancock County Land Acquisitions that it was auditing their 2016 tax return. In May 2019, with the audit still underway, the IRS asked Hancock to agree to extend the statute of limitations from September 2020 to September 2021, to give the IRS more time for the examination. Hancock declined, unless the extension was needed to give enough time for the case to go to the Appeals Office.

The IRS evidently didn’t like that answer, responding that a case cannot go to the Appeals Office unless it has 20 months remaining on the statute of limitations. (This appears to be a brand new unwritten “rule,” with the IRS website’s fact sheet on the Appeals Office saying only “at least one year”). The IRS said  if the taxpayer didn’t agree to the extension, it couldn’t appeal. So Hancock eventually agreed to the extension, in April 2020.

In May 2020, the IRS issued its report on the audit, declined to process the extension, and said the Appeals Office was not available due to insufficient time remaining. With the IRS considering the matter finished and the Appeals Office closed to them, Hancock sued in federal court on July 25. The lawsuit seeks “the pre-assessment administrative process and remedies that the Defendants are required to generally provide all taxpayers.”

Taxpayers should follow this case closely. Hancock engaged in conservation easement transactions that are legal but have drawn the IRS’s ire lately. However, the methods employed by the IRS here – denying a statutory right of appeal so they can get their way with a taxpayer – affect all taxpayers. Hopefully the court will order the IRS to allow appeals, or at least follow written rules rather than unwritten ones.

The case is Hancock County Land Acquisitions, LLC v. United States, et al., No. 1:20-cv-03096 in the United States District Court for the Northern District of Georgia.