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The Tax Practice of IIT Chicago-Kent College of Law
The Tax Practice of IIT Chicago-Kent College of Law

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litigation hazard, tax appeals, Chicago Tax Attorneys"A fair and impartial resolution is one which reflects on an issue-by-issue basis the probable result in event of litigation, or one which reflects mutual concessions for the purpose of settlement based on relative strength of the opposing positions where there is substantial uncertainty of the result in event of litigation." - Internal Revenue Manual section 8.6.1.3(2). When you've sent a Letter of Appeal to the IRS asking for an administrative review of a decision that was made by the Examination function regarding your tax dispute, the IRS assigns an Appeals Officer to determine of there is a possibility for settling the issue. The mission of the Appeals Officer is to resolve your case in a way that:

  • Avoids litigation;
  • Is "fair and impartial";
  • Will encourage voluntary compliance;
  • Represents the integrity and efficiency of the IRS.

Because the Appeals Officer's mission explicitly includes the objective of avoiding litigation, they'll generally begin the discussion by going over the various ways in which you could settle out-of-court by reaching a compromise that fully embraces any hazards to the government of litigating the issue.

Hazards of Litigation Defined 

What the Appeals Officer is actually determining is a quantitative analysis of:

  • The likelihood that, if the case goes to Tax Court on the liability issues, what are the chances the government will prevail, and what are the chances that the taxpayer will prevail.
  • The cost of litigation to the government is simply not an issue.

Application of the Hazards of Litigation Standard

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