(Released on 3/9/14)
Many of us in the tax practice world have heard about the Appeals Office within the IRS. The office was established in the late 1920’s, and its independence from the rest of the IRS was firmly established in the IRS Restructuring and Reform Act of 1998. Appeals officers help over 100,000 taxpayers each year resolve their tax disputes with the IRS. The reason why they are so valuable, both to the taxpayer community and to the IRS, is because their job is to settle cases out of court. The vast majority of cases are settled out of court, and the appeals officers help to make that happen.
In any tax dispute, both the taxpayer and the IRS examiner generally think in terms of black and white. Both sides think they are right, so that’s why the dispute exists. The appeals officer is not just another government employee there to tell the taxpayer why the government is right and the taxpayer is wrong, but is trained to look at both sides, realize that court fights are expensive and iffy propositions, and negotiate for a resolution that is fair to both sides.
Doesn’t that sound like a good idea? How about having one in Hawaii? Actually, we do have a law, enacted in 2009, that puts an independent appeals officer in the Department of Taxation. So why haven’t you heard of this person? Because before an actual warm body can be hired, the position has to be created and then funded. Apparently these steps didn’t get completed until 2012. Then someone was hired into the position, but left shortly afterward. So the position is there, but it remains vacant.
Huh? If my board told me to hire someone and I took five years to do it, that someone might have a job but I sure wouldn’t. What is it with our process that takes so long? But I digress.
Much of these facts came into sharper focus this year when the Department of Taxation introduced a bill to change the independent appeals officer’s job description. The bill would have allowed the officer to adjudicate cases. That is, rather than being the person seeking a common middle ground to settle cases, the person would have to assume the role of judge and jury, and then, perhaps, be just another government employee there to tell the taxpayer why the government is right and the taxpayer is wrong. (Haven’t we heard that somewhere before?)
We thought this bill was dead because it had been referred to the Judiciary Committees in the House and Senate and neither Committee thought the bill worthy of a hearing. However, on February 27th the House took extraordinary action to pull the bill out of Judiciary and sent it directly to Finance. A hearing on the bill was held that very day. After a mad scramble to get ourselves and our testimony up to the Capitol in the 15 minutes we had left before the hearing, we, the Department, and some tax attorneys testified on the bill. Our primary concern was that the Department hadn’t really had any track record with the position because no one was in it for any appreciable length of time, and that it really should try to work with this position before radically changing the job description. After hearing the testimony, Finance shelved the bill.
Maybe now the independent appeals officer idea will be given a chance to work in Hawaii. We sincerely hope that it is as effective here as it has been at the federal level and that the backlog of cases before the Boards of Review and Tax Appeal Court might be whittled down as a result.
Tom Yamachika is the Interim President of the Tax Foundation of Hawaii. Mr. Yamachika’s commentary is printed each week in the Maui News, West Hawaii Today, Garden Isle News, and the HawaiiReporter.com.