With its budget in crisis and facing cuts each year, the IRS has attempted to reduce costs where possible. One idea that the IRS is pushing to reduce costs is to hold Appeals conferences remotely through either conference calls or video conferences. Is this a good idea? In short, the answer is no.
The IRS recently changed the Internal Revenue Manual section on IRS Appeals conferences. The revised manual section states that the Service will no longer automatically offer in-person appeals conferences, and that the IRS prefers teleconferences and video conferences over in-person meetings in order to reduce travel expenses and expedite the settlement of cases.
In my view, a large sophisticated entity with complex tax issues should never agree to hold an IRS administrative appeal remotely. I would always insist on face-to-face conferences with the IRS Appeals team.
I am a firm believer that complex negotiations over federal tax issues need to be conducted in person. There are a number of reasons why that is the case, but the number one reason is that it is much, much easier for a person to say no to someone who is not in the room. It is difficult to look someone in the eye across a table and say no. Most individuals like to avoid conflict, and want to be liked. These social norms can be very useful in handling any type of negotiation, including an IRS administrative appeal.
A successful negotiator and tax representative generally has learned how win people over. A friendly, but professional, conversation at the start of an IRS administrative appeal goes a long way to establish the representative’s credibility and likability, and makes subsequent negotiations easier.
Interpersonal dynamics come into play in complex IRS appeals and negotiating settlements of complex tax issues. Most seasoned tax controversy professionals will agree that it is important to be in the room with the IRS when negotiating a settlement of complex tax issues. A good negotiator will observe and read body language such as facial expressions, head nods, folded arms, smiles, or doubtful looks to see how the IRS Appeals team members are responding to her argument. It is frequently necessary to change tactics when the audience is not responding to a position or argument.
It is impossible to read body language in a conference call, and, although you may be able to make some observations in a video conference, it is much harder to read people who are not in the room. In addition, some video technology focuses on whoever is speaking, and others are either left off camera or are moved into a reduced portion of the screen when they are not speaking. An IRS Appeals team generally contains two, three, or more members depending on the complexity of the issue and the need for specialized expertise. It is important when negotiating to observe all members of the IRS Appeals Team and view how they are reacting to the presentation. One member of the Team might be actively engaged and nodding in agreement, while another might have a scowl or look of confusion on his or her face.
A skilled negotiator will read body language, and voice inflections to determine the mood and reaction of the IRS Appeals team members. She will then react, changing course in some instances to react to the body language of her audience and be more persuasive. Being 100 miles away from the IRS Appeals team, on a teleconference or video call simply changes that dynamic making much more difficult to negotiate.
The IRS appears to have provided larger companies with complex tax issues issues an out. The IRM states that the IRS will consider in-person appeals conferences in cases that involved very complex tax issues, or a large number of individuals representing the taxpayer. Large sophisticated companies may have success in insisting on in-person IRS appeals conferences based on a position that there tax issues are too complex to be negotiated remotely, and that they need a number of representatives to attend the appeals conference due to the sophisticated nature of the tax issues that are being appealed.
Large taxpayers with sophisticated tax issues such as transfer pricing, sophisticated securities transactions, cross-border mergers and acquisitions, and other issues should be entitled to have in-person IRS appeals conferences. The issues are too complex to be negotiated remotely, and the stakes for both the taxpayer and the IRS are too high. The IRS needs to rethink its position with respect conducting IRS appeals conferences remotely through teleconferences or video conferences.
Do you have questions about large corporate tax audits? Contact Kevin Johnson