Many taxpayers are surprised by what happens after they file a Tax Court petition. Instead of hearing from a judge, they hear from IRS Appeals. That is by design. The IRS refers most docketed cases to Appeals for settlement, and many of them resolve there.

Understanding the rules for docketed cases tells you how much time you have to settle, who you are negotiating with, and when the case will turn back toward trial.

The governing procedure

Rev. Proc. 2016-22 describes the Appeals process for cases docketed in the U.S. Tax Court. IRM 8.4.1 implements it. It superseded the older Rev. Proc. 87-24.

The general idea: after the IRS Chief Counsel attorney files the answer, a docketed case that Appeals has not already considered is generally referred to Appeals for settlement. Once referred, IRM 8.4.1.5 says Appeals has exclusive settlement authority unless procedures require returning the case to Counsel.

Cases that are not referred

Counsel may decline to refer certain cases or issues, as IRM 8.4.1.5 notes, citing section 3.03 of Rev. Proc. 2016-22. When Counsel declines, it notifies the petitioner, and Appeals does not have settlement authority over that case or issue. The IRM also notes that passport certification cases are not referred to Appeals. If you already had a full Appeals hearing before the notice of deficiency issued, a second referral is less likely; Counsel will handle settlement directly.

How long Appeals keeps the case

This is the most practically important part. IRM 8.4.1.16, citing section 3.07 of Rev. Proc. 2016-22, sets the time frames:

  • Small tax cases, and regular cases with $50,000 or less in dispute per year: Counsel may recall the case after six months. If Counsel does not recall it, Appeals must return it so that Counsel receives it no later than 30 calendar days before the calendar call.
  • All other docketed cases: Appeals returns the case at the earlier of the date Appeals concludes the case is not susceptible to settlement, or within 10 calendar days after the case appears on a trial calendar.

Those deadlines can be extended only if settlement appears reasonably likely and both Counsel and Appeals agree.

Here's the part most people miss: for larger cases, the trial calendar is the trigger. Once your case appears on a calendar, Appeals is supposed to send it back to Counsel within days. If you have been waiting to make your best settlement presentation, the window is closing.

Same standards, sharper focus

Appeals evaluates a docketed case the same way it evaluates any case: on the hazards of litigation. IRM 8.6.4.2.7 says the settlement approach is not affected by the status of the case. What changes is everything around the evaluation:

  • A Chief Counsel attorney is assigned and has reviewed the file to prepare the answer.
  • A trial date is coming, so both sides must think concretely about witnesses and documents.
  • Discovery and the stipulation process are available, which can sharpen the facts.
  • Weaknesses in the IRS's case that seemed abstract in an administrative appeal become real when someone has to prove them in court.

What to bring to a docketed Appeals conference

  1. A settlement memorandum. Short, issue by issue, with the facts, the evidence you would offer at trial, the law, and your assessment of the hazards.
  2. The key documents, organized as you would mark them for trial.
  3. Witness information. Who would testify, about what, and why they are credible.
  4. A computation. What your proposed settlement means in tax dollars for each year, including penalties.
  5. A clear ask. Appeals responds better to a specific proposal than to an invitation to make one.

Docketed Appeals versus a pre-petition protest

If you never protested to Appeals before the notice of deficiency, the docketed referral is your first Appeals review. If you did protest and Appeals issued the notice after failing to settle, you may not get a second Appeals review; Counsel may handle settlement directly. Either way, the core advantage of a docketed case is the same: the IRS must evaluate its case against a real trial date, with an attorney who will have to try it.

A docketed case also keeps assessment and collection of the disputed deficiency on hold under IRC 6213(a) until the Tax Court's decision becomes final. Interest continues to run, so consider whether a deposit under IRC 6603 makes sense while you negotiate.

Documenting the settlement

Docketed cases are not closed by a simple agreement form. They are closed by a decision entered by the Tax Court. IRM 8.4.1.11 says a case is not settled until the petitioner agrees to the terms and will sign a decision document.

The IRM describes who prepares what. Appeals prepares simple decision documents, such as a straightforward deficiency stipulation or a no-deficiency, no-overpayment decision. Counsel prepares more complicated documents, including those involving overpayments, prepayment credits, or jeopardy assessments. A settlement stipulation, which IRM 8.4.1.6 describes as a document filed with the Court memorializing an agreed deficiency, penalty, overpayment, or other issue, may accompany the decision.

Check the computation in the decision document carefully. A settlement agreed in principle can be undone by an arithmetic error, and the decision, once entered, is hard to revisit. IRM 8.4.1.12 notes that Appeals may request IRS computation support (Form 3608) for settlement computations; ask for the computation worksheet if you need to verify it.

If the case does not settle in Appeals

The case goes back to Counsel. That is not the end of settlement. Counsel attorneys settle cases regularly, often after the stipulation process has narrowed the issues, sometimes in the weeks before trial and sometimes at the calendar call itself. The difference is that settlement now runs in parallel with trial preparation, on the schedule in the standing pretrial order.

Practical timing advice

  • Engage Appeals early. Do not wait for the conference to be scheduled before assembling your evidence.
  • Track the trial calendar. Once your case is calendared, larger cases are on a short clock in Appeals.
  • Start informal discovery with Counsel in parallel if facts are disputed. See Branerton and informal discovery.
  • Keep your settlement number realistic. Appeals cannot settle on nuisance value under IRM 8.6.4.2.4, and neither should you expect it.

Let's talk

A docketed case in Appeals is often the best settlement opportunity you will get, and it runs on a fixed clock. If your petition is filed and Appeals has called, call (813) 229-7100. Let's talk.