Several months have passed since your first contact with the Appeals Officer. You’ve had several calls with her. She’s read your well-written protest. (It’s well-written because you took to heart the first of this five-part series on effective Appeals.) You know about her background, who will attend the pre-conference on behalf of Compliance, and how she will conduct the conference. You’ve even built a good working rapport. (This is thanks to your review of part two of this series.) The Appeals conference is in a few weeks. Here are a few points about how to have an effective conference.

Attitude toward compliance personnel. As we’ve mentioned previously, most Appeals Officers were examiners earlier in their careers. Moreover, the examiners in your case may be acquaintances, former colleagues, or even friends of the Appeals Officer. Be respectful when speaking about the examiner and be courteous in their presence. To the extent you can, challenge the position and not the person. If you must speak strongly, try “The IRS position is baseless and contrary to the statute and published guidance” rather than “The auditor is a(n) [insert your favorite pejorative for a person acting less than intelligent and less than ethical].” Trust us: The latter never works.

Have we ever come across an examiner who merits such pejoratives? Yes, but rarely. If the examiner is off base technically and it should be obvious, let the Appeals Officer discover that herself. Her own opinion is much more persuasive than your invective. You may have to help the Appeals Officer. In a call with her preparing for the conference, you might say something like: “I’m looking forward to the pre-conference. We’ve tried to understand the government’s position but have failed. Perhaps, you’ll be able to get them to explain it clearly.” Of course, only say this if it’s true. If the Appeals Officer responds by saying that the position is easy to understand, then you’ve lost credibility.

How effective is this strategy? On one occasion, the Appeals Officer asked Compliance very pertinent questions and then told them that he would not be able to sustain their position. (He even asked if they had consulted IRS counsel. They hadn’t.) Compliance conceded the case in the pre-conference. We didn’t even have to speak.

We have had less than ethical auditors, but that is extremely rare. If you receive information indicating that an examiner’s ethics are compromised, handle such information like gasoline. It’s powerful, but it could explode in your face. You must have the facts before acting. In one case, an examiner held the taxpayer to an unreasonable burden of proof, despite receiving detailed information proving the taxpayer’s position. In a call before the conferences, we explained to the Appeals Officer where she could find this information. We even met with the Appeals Officer weeks before the conference to walk through the three binders that proved the taxpayer’s treatment of the item. She asked us why the examiner did not accept the extensive documentation. We then carefully and reluctantly told her. We had discovered late in the exam that the examiner had applied for the VP of Tax position at the taxpayer when he was in private practice and that he was denied the position. Many times during the exam, he told the taxpayer that when he was “in industry” he would have ample proof for the examined issues. The Appeals Officer did not immediately react. She went ahead with the conferences as planned. She respectfully listened to Compliance’s presentation and asked about the quality of the taxpayer’s substantiation. Apparently, she did not find his explanation persuasive because in the taxpayer’s conference she conceded the main substantiation in full.

Behavior during the preconference. To this point, we’ve used the singular “conference.” For LB&I cases, there are typically two conferences: a pre-conference meeting between Compliance and Appeals and the Appeals conference between the taxpayer and Appeals. This pre-conference meeting often occurs immediately before the taxpayer’s formal conference. Appeals Officers use this pre-conference to allow Compliance to relate information that may not be in the file, to present exam’s findings, and to answer questions that she may have. The taxpayer is offered an opportunity to attend the pre-conference. Although the taxpayer’s presence is not required, we can’t think of a situation they wouldn’t attend.

This pre-conference proceeding is a result of the prohibition on ex parte communication found in the IRS Restructuring and Reform Act of 1998. Pub. L. No. 105-206, § 3463, 112 Stat. 685. Congress was concerned that examiners and Appeals Officers would have discussions outside of the hearing of the taxpayer. They believed such “ex parte” discussions prejudiced taxpayers – unless the taxpayer had an opportunity to be present. That led to the development of the practice of the pre-conference.

Unless the Appeals Officer says otherwise, the pre-conference belongs to Compliance and the taxpayer should just listen and not speak. Typically, the only questions to the taxpayer are clarifications: “Is that a fair description of the taxpayer’s position?” or “Do you agree with the facts as stated by Compliance?”

As we mentioned in the last article, sometimes Appeals Officers ask for more substantial participation by the taxpayer. They may even ask that Compliance remain in the room during the taxpayer’s presentation. Again, it’s important to know how your Appeals Officer will conduct the conferences well BEFORE the date. 

Between the conferences. The pre-conference and the taxpayer’s conference are held typically on the same day – often back-to-back. We recommend that you incorporate a meaningful break between the two. Use the break to tweak the taxpayer’s Appeals conference presentation to address issues or concerns raised by the Appeals Officer during the pre-conference. How long should you break? It depends on the complexity of issue. On simple issues, 15-30 minutes may be sufficient. When Compliance has a detailed presentation – we’ve had some go for hours including almost 100 slides – an extended lunch break is more appropriate.

Most likely, you’ve prepared a detailed presentation and are ready to give a convincing exposition. Being technically correct is interesting, but it’s often not compelling. An effective advocate must be prepared to address the concerns of the adjudicator – here the Appeals Officer. The pre-conference (and your earlier conversations) are opportunities to understand how she views the issue. Use the break to discuss what you heard and prepare how to weave your responses into your presentation. On occasion, we’ve worked with Appeals Officers who were very prepared and asked very pertinent questions during the pre-conference. It was clear how she viewed the issue. We knew precisely what she wanted to hear. We elected to scrap the presentation – or at least table it – and speak directly to the Appeals Officer’s concerns.

Taxpayer’s presentation. Frankly, this is our favorite part. It’s part advocate, part storyteller, and part director. Who should lead the presentation? Typically, it should be the representative; however, we recommend including several presenters as appropriate. Generally, Appeals Officers like to hear directly from the taxpayer regarding its business or complex industry issues. A well-prepared taxpayer can be very effective. On tax technical matters, the representative should be presenter. If the presentation is long, use several presenters.

Appeals conferences are typically informal with the participants seated around a conference table. The conference is a presentation, not a courtroom-type argument at a lectern. Provide the Appeals Office with slides, talking points, or an outline. We’ve used a projector but found printed materials more effective. They allow the Appeals Officer to take notes and focus on the presenter rather than the projected slides. In turn, they allow the presenter to maintain eye contact with the Appeals Officer and better understand her reaction to the presentation.  On a side note, this is a major challenge for “virtual” conferences. Given the choice, an in-person meeting is preferred. However, when that’s not a choice, the presenter and extended team must be sensitive to the Appeals Officer’s reaction to what she is hearing.

An engaged Appeals Officer will stop the presentation and ask questions. This should be welcomed. Again, answering her concerns is more important than getting through all the slides. Note the questions and her apparent reaction to the response. As we prepare for the next step, it’s important to constantly evaluate the effectiveness of your presentation and the potential for settlement.

In our next installment, we will discuss next steps and how to move the process along to “yes.” This will take persistence.

Article by Mark Mesler and Ethan Vernon