When a dispute arises between a taxpayer and the Internal Revenue Service, the crossroads can wind up being the agency’s Independent Office of Appeals.
For many people, Appeals is a place they’ve never heard of. Lost in the haze of government bureaucracy for many taxpayers, Appeals holds a special place in the nation’s tax system.
It’s distinct and separate from the IRS compliance functions that traditionally conduct taxpayer audits. When practitioners or taxpayers protest the results of these examinations, the system is designed for Appeals Officers to look at cases critically based on the record before them. And while the organization is inside the IRS, under law and by design, the office operates independently. That means Appeals doesn’t take the side of IRS compliance operations that conduct audits – or the taxpayer bringing their case in for a second look. Appeals is designed to objectively look at the record developed in examination. It’s designed to ensure fairness in the system, and its existence is a cornerstone of taxpayer rights.
For tax practitioners, many understand the critical importance that Appeals plays in protecting both taxpayers and the administration of the nation’s tax law.
That’s why it’s especially concerning about the fundamental changes taking place in how Appeals operates. And there are growing concerns across the tax community that these changes threaten a vital part of the tax system.
Part of the issue centers on staffing. Overall, the IRS saw dramatic reductions in 2025, but Appeals was hit particularly hard by IRS cuts as 29% of its workforce left last year.
This staffing shortage has been severe, and it’s helped lead to tens of thousands of Appeals cases to stack up—putting incredible pressure on overworked staff.
But there are other issues that raise concerns, and more and more in the tax practitioner community are becoming aware of these. They center on changes taking place in the way Appeals operates.
A prime example can be found in the handling of pandemic-era Employee Retention Credit (ERC) cases. Tens of thousands of these claims were systemically rejected within the agency. Many of these businesses believe the basic facts of their cases were overlooked, which would have made them eligible for ERC. So they have turned to Appeals for help—adding to the flood of cases coming in.
Another factor involving these ERC cases: Appeals’ work has been slowed by receiving underdeveloped cases coming out of IRS compliance functions like the Small Business and Self-Employed (SBSE) division. These incompletely reviewed cases mean that Appeals Officers have been conducting basic substantiation and review work on tax cases—normally done by staff like IRSRevenue Agents. That’s outside of normal, long-established practice; traditionally, that’s the work of IRS compliance groups, not Appeals.
This is a troubling development that stakeholders across the tax community should be concerned about. When Appeals Officers work underdeveloped cases received from IRS business units, it chips away at the independence of Appeals. Such efforts run contrary to the policies and procedures in the Internal Revenue Manual and other agency documents, including those in the Appeals Judicial Approach and Culture (“AJAC”) Project.
The AJAC Project dates to 2013. That critical framework is being abandoned in tens of thousands of cases involving issues like ERC. What’s more, this isn’t simply a failure caused within the Office of Appeals, but instead by the agency’s administrative posture that has been imposed by sending forward underdeveloped cases out of IRS compliance.
Taxpayers and tax administration alike suffer in consequence: Hard-working taxpayers lose the independent review to which they are entitled, and tax administration is hindered by the erosion of independence.
This amounts to mission drift, straying from the core principles that have been ardently supported by Congress. Bipartisan members on the Hill even went so far as to formally add the word “Independent” into the Appeals name in the Taxpayer First Act of 2019.
Despite the concerns, there are reasons for optimism.
IRS CEO Frank Bisignano recognizes there’s a problem. He has already signaled he wants the agency focused on resolving the Appeals backlog. And the IRS has started hiring more Appeals Officers, reducing the disturbing trend from last year. Bisignano and the agency should be applauded for their focus on making progress, but it’s important to do that in a way that’s consistent with the agency’s own standards and the expectations of Congress—as well as safeguarding taxpayer rights.
To accomplish this, the IRS should take immediate steps to revive the principles of the AJAC Project and restore the traditional, quasi-judicial approach needed to ensure an independent Appeals forum.
In addition, the National Taxpayer Advocate should consider designating the systemic administration of ERC refund claim disallowances—and its unfortunate effect on Appeals—as a Most Serious Problem in her 2026 Annual Report to Congress. Recommending immediate corrective action in this area would protect taxpayer rights.
At Frost Law, our colleagues highlighted these concerns in a letter to the IRS and the National Taxpayer Advocate Erin Collins.
Taking these steps would benefit everyone. It will help streamline Appeals’ work in the future. And returning to historically proven processes will protect taxpayer rights.
This approach will help return the critical balance and fairness needed for Appeals—and our tax system.
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Peter Haukebo is a partner at Frost Law who focuses on tax controversy. He has worked extensively on IRS Appeals, including on ERC cases. Haukebo, a frequent speaker, also served for six years as an adjunct professor of law at the University of Maryland Francis King Carey School of Law for six years, where he instructed in the Low Income Taxpayer Clinic.
Terry Lemons is the public relations director at Frost Law, a firm headquartered in metropolitan Washington, DC. Previously, he spent 26 years at the IRS, spending the last 13 as Communications & Liaison chief where he oversaw the agency’s communications operations and outreach to the tax professional community.
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