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Chief Counsel Directives Manual - Part 35 - Tax Litigation

Actions on Decision

The following material has been extracted from Part 35 of Chief Counsel's Directives Manual. It is here to help you understand what an Action on Decision is, and how and why it is created.


35.12.1.1  (04-05-1995)
Purpose of Actions on Decision

An "Action on Decision" (AOD) is a document issued by the National Office litigation functions regarding whether the Service will follow a significant adverse opinion. Actions on decision may be issued with respect to Tax Court, district court, Court of Federal Claims, bankruptcy court, or appellate court cases. Actions on decision are issued to enhance Service consistency with respect to future litigation or dispute resolution. District Counsel, Appeals, Examination and other Service personnel may settle or pursue cases with the same controlling facts based upon an AOD's recommendation. Actions on decision are not intended to serve as public guidance and are not to be cited as precedent. All AOD recommendations are published in the Internal Revenue Bulletin.

Among the factors in determining whether an AOD should be issued are:

  1. whether the opinion involves an ISP coordinated issue;
  2. the number of cases and amount of revenue affected by the opinion;
  3. the impact of the opinion on regulations, revenue rulings, revenue procedures, and other technical pronouncements;
  4. whether the opinion is inconsistent with legislative history or opinions in other courts;
  5. whether the issue has been lost by the Government in two or more circuits;
  6. whether the case is of first impression;
  7. the likelihood of a future split in the circuits;
  8. whether en banc review in the circuit is sought;
  9. whether the opinion may be limited to its facts;
  10. whether the opinion places an onerous administrative burden on the Service or taxpayers; and
  11. whether the opinion is based on Code sections, regulations or rulings that have been modified or revoked.

When considering publication of an AOD, alternatives, such as regulations, revenue rulings, etc., should also be considered. An EOD expeditiously alerts Service personnel to Chief Counsel's current litigating position and may be relied upon pending issuance of a technical pronouncement. An AOD may also be used in coordination with, or to supplement, technical pronouncements.

35.12.1.1  (04-05-1995)
Recommendations

  1. The recommendation in every action on decision will be summarized as acquiescence, acquiescence in result only , or nonacquiescence. These recommendations will be published in the Internal Revenue Bulletin and Cumulative Bulletin.
  2. Acquiescence means that the Service accepts the holding of the court in a case and that the Service will follow it in disposing of cases with the same controlling facts. It does not indicate approval or disapproval of the reasons assigned by the court for its conclusions.
  3. Acquiescence in result only also means that the Service accepts the holding of the court in a case and that the Service will follow it in disposing of cases with the same controlling facts. However, it indicates disagreement or concern with some or all of the reasons assigned by the court for its conclusions.
  4. Nonacquiescence signifies that, although the division was not appealed or was not reviewed by the Supreme Court, the Service does not agree with the holding of the court and will not follow it nationwide in disposing of other cases. However, as a general rule, with respect to opinions of an appellate court, the Service will follow the holding of the circuit court in case appealable to that circuit due to the binding nature of that opinion in lower courts.
  5. Generally, the recommendation should be explained in the discussion portion of the AOD. Such an explanation should be included, for example, where the Service is seeking other cases to establish a conflict among the circuits, or where the Service anticipates revoking or modifying a regulation or revenue ruling. In a nonacquiescence to a circuit court case, the effect of the Golsen rule or precedent in the circuit must be explained; that is, a statement should be included that the opinion will be followed in that circuit or that it will not be followed since for example, the case can be limited to its unique facts and would not be controlling even in appeals to that circuit.

35.12.2.1  (04-05-1995)
Definition of ''Issue''

The term ''issue'' as used herein means the adjustment or basis for the adjustment upon which the court determined the tax liability of the taxpayer. The term ''issue'' is not necessarily synonymous with the term ''argument'' or ''theory'' and usually does not include subsidiary questions of fact or law which form the basis for the court's holding on the disputed item. The court may reject one or more of the Government's arguments or theories and nevertheless sustain the Government as to the amount of tax liability. Or, the court may render an opinion adverse to Service position, but then reverse itself in an unpublished opinion. In these situations, an action on decision may still be prepared. Although the decision in this situation cannot be appealed by the Service, there may still be a need to issue an AOD to Counsel, Appeals, and Service functions.

35.12.2.2  (04-05-1995)
When Action Prepared and Time Limits for Preparing Action

  1. In Tax Court cases, upon receipt of an adverse opinion in the Field Service Division, the case will be marked ''L'' or ''S'' and will be assigned to the appropriate Field Service branch or Associate office for an adverse opinion review. See 35.13.1.8. At the time appeal of the adverse opinion is considered, the consideration of an action on decision is also considered.
  2. In adverse Tax Court cases, upon receipt of the decision, the Technical Services Section of the Field Service Division will enter ''Loss'' or ''Split'' and the decision date on the CATS CDEC Screen. This will generate an action event [AP0036 DETERMINATION OF NEED FOR AOD] on the ELIS screen and the attorney's suspense report, due 45 days after the date of the decision.
  3. In refund and circuit court cases, the entering of an appeal or certiorari recommendation assignment on CATS does not generate a CATS AOD event. Branch chiefs may manually generate an AOD preparation assignment by inputting AP0040 AOD PREPARATION.
  4. The field office may, but need not, provide an AOD recommendation by memorandum to the Field Service Division.
  5. In Tax Court cases, a preliminary determination whether an AOD should be issued is made at the same time an appeal recommendation is made. If a no appeal recommendation is made, the ''Fagan memo'' will state either that an AOD will not be issued or that the decision has been deferred. See Exhibit 35.12.2-1. A deferred AOD may be appropriate where Service position is unsettled, where a published ruling is contemplated on the issue, or where the decision must await other legal or policy determinations. A copy of the Fagan memo is retained by the Technical Services Section of the Field Service Division.
  6. In refund cases, a preliminary determination whether an AOD should be issued is made at the time an appeal recommendation is made to the Department of Justice. See 35.21.3. This determination should be noted in the legal file.
  7. In circuit court cases, a determination whether an AOD should be issued is made at the time the National Office is notified that the Department of Justice will not petition the Supreme Court for a writ of certiorari. See 35.13.8.3.
  8. Actions on decision will be prepared at the time the decision is final, or such earlier time as it may be determined that the adverse opinion on the issue is not subject to appealed or will not be appealed.

35.12.2.3  (04-05-1995)
When Action Not Prepared

  1. An action on decision is generally not prepared on issues decided favorably to the Government, on issues conceded by the Government, or on insignificant issues decided adversely to the Government. Adverseness is not determined in a legal sense, i.e., subject to appeal, but rather by common parlance, i.e., whether the Service is adversely affected in its legal position by the opinion. For example, the court may rule in favor of the Service on an issue based on an analysis contrary to Service position. Since the deficiency is sustained, an appeal is not possible. Nevertheless, an AOD may be appropriate if the criteria for significance are established.
  2. An action on decision is not prepared for issues which are on appeal, or will be appealed, by the Government. The Government appeal itself indicates the Service's disagreement with the opinion.

35.12.2.4  (04-05-1995)
Related Issues and Cases

  1. The Department of Justice, in prosecuting or defending an appeal, has been embarrassed on some occasions by the publication of an action on decision related to an issue which is on appeal. To avoid compromising such cases, final approval of AOD's will be withheld until completion of litigation of the related issue. It is, therefore, essential that related issues be identified at the time of the preparation of the AOD. Accordingly, the National Office attorney, assigned to prepare the action should prepare, if appropriate, a memorandum on related issues or cases to accompany the proposed action. This memorandum should discuss such issues or cases and their relationship to the issue in the AOD.
  2. Whether issues are ''related'' for purposes of this section must be determined upon all of the circumstances of the case. No all-encompassing definition is possible; the question must be resolved in each case by taking into account any possible prejudice to the Government's position if the action on decision is approved prior to the conclusion of litigation in the related case. If any issue in a case is dependent for its resolution upon the same or similar legal or factual considerations as the issue for which the AOD is issued, the issues should be regarded as related. If there is reasonable doubt whether the issues are related, the matter generally should be resolved by treating the issues as being related.

35.12.2.5  (04-05-1995)
Unresolved Issues

Occasionally, it is necessary to prepare an action on an issue not resolved by the court. This can arise in a case in which the Government has in the pleadings taken alternative positions on the same taxable transaction and the court sustains the Government on one of the alternative positions.

35.12.3.1  (04-05-1995)
Legislative Suggestions and Recommendations for Changes in Regulations or Rulings

  1. During the preparation or review of an action on decision, consideration should be given, where appropriate, to whether there is a need for changes in the regulations or for new legislation. If an amendment to regulations is necessary for the purpose of clarifying the law or facilitating the administration of the issue involved as it may arise in future cases, or to accord with the court's decision if it is to be followed, the attorney should prepare a memorandum describing what changes are needed and the reasons therefor. If the attorney believes that revision of the Internal Revenue Code is necessary, a similar memorandum should be prepared.
  2. If the holding of the court is contrary, in whole or in part, to a technical pronouncement such as a revenue ruling or procedure, consideration must be given to whether the technical pronouncement should be revoked or modified to accord with the court's opinion. If the recommendation is for acquiescence, the discussion portion should state in what manner the litigating position of the office, as stated in the technical pronouncement, is incorrect. An accompanying memorandum should be prepared by the National Office attorney which discusses in greater detail than in the AOD the basis for the conclusion that the technical pronouncement should be modified or revoked.

35.12.4.1  (04-05-1995)
General

  1. When feasible, the action on decision should be limited to two pages. To accomplish this, single spacing rather than double spacing should be used. The document should be neat and well proportioned in appearance. The margins and spacing, within limitations, of various parts of the action, will vary from case to case, depending upon its length. The minimum margin requirements are as follows: The top margin and left margin must be at least 1 inch, bearing in mind the necessity of filing the action in the legal file in such a manner as the punch holes will not be in any part of the written matter. The right margin and bottom margin should not be less than 3 /4 of an inch.
  2. Brevity and efficient use of words is necessary. Excess verbiage must be excised. The AOD should include only facts taken from the court opinion or the public record of the case. The action on decision is not a treatise or complete analysis of the legal issues and facts of the case but is a summary of the issue or opinion and the Service's litigation posture with respect thereto.
  3. The action on decision is typed on a plain sheet of bond paper. After full clearance bond copy will be signed by the Associate Chief Counsel. After being signed, the AOD will be returned to the Technical Services Section of the Field Service Division. The Technical Services Section will forward the AOD for publication in the Internal Revenue Bulletin. After the AOD recommendation appears in the IRB, the Technical Services Section will forward a copy of the AOD to the printer for distribution to Counsel, Appeals and Service personnel and the Freedom of Information Reading Room. After printing, the original will be returned to the branch for inclusion in the legal file.

35.12.4.2  (04-05-1995)
Format of Action on Decision

The format of the action on decision is as shown in Exhibit 35.12.4-1.

35.12.4.3  (02-19-1999)
Instructions for Completing Action on Decision

The following are instructions for each of the numbered components of an action on decision. See Exhibit 35.12.4-1.

  1. When the AOD concerns a refund case, the symbols should be modified to reflect the refund number. For example:

    CC:TL-R-100-88
    DOM:FS:PROC:JJDoe

  2. The date and CC number will be added by the Technical Services Section once the AOD is approved for distribution.
  3. The heading "ACTION ON DECISION" should be centered, typed in all capital letters, and underlined.
  4. Introduce the case name with "Subject:" , consistent with the other introductory headings along the left side of the AOD. Underline the case name. For this purpose, include the first and last names of the lead petitioner in the case name. Do not use "et al.,""et ux.," or otherwise refer to other petitioners. Try to keep the case name short and simple, using abbreviations and saying "Commissioner" rather than Commissioner of Internal Revenue.
  5. On the line or two under the case name put the complete citation, including any prior and subsequent history, as in the sample AOD. Unofficial citations are to be avoided where possible.
  6. For Tax Court cases, or cases originating in the Tax Court, put the Tax Court docket number under the citation.
  7. Each heading should begin with a capital letter, but otherwise should be in lower case letters. The headings should be underlined and followed by a colon.
  8. Start the statement of the issue or issues indented below the heading. End the statement or statements with a period.
  9. Mention only the truly relevant facts. Because AODs are made available to the public, it is important that the facts included in the AOD come exclusively from the court opinion or the public record of the case. Keep the discussion brief; and remember the purpose of the AOD is to alert Chief Counsel, Appeals, and Service personnel to Chief Counsel's current litigation positions. Try to limit the AOD to one or two pages. As a general rule, the last paragraph of the discussion should explain the recommendation.
  10. In all cases, regardless of the court in which the case was decided, the recommendation will be either acquiescence, acquiescence in result only, or nonacquiescence. If nonacquiescence is recommended, the AOD should indicate whether intracircuit litigation is to be pursued.
  11. It has long been the general approach of the Chief Counsel's Office to follow the adverse court of appeals opinion in cases appealable to that court even when we conclude that the opinion is erroneous. This approach provides respect for that court's opinion, maximizes certainty and encourages resolution of cases in that circuit without undue and costly litigation. In the past, Actions on Decision have sometimes neglected to address this issue or have used language which could be confusing as to litigation in the deciding circuit. The standard language is intended to clearly indicate that Service personnel are expected to follow the circuit precedent, unless the case can be distinguished. The language set forth below should appear at the end of the "Discussion" section of all nonacquiescing AODs issued in appellate cases:

    Although we disagree with the decision of the court, we recognize the precedential effect of the decision to cases appealable to the __th Circuit, and therefore will follow it with respect to cases within that circuit, if the opinion cannot be meaningfully distinguished. We do not, however, acquiesce to the opinion and will continue to litigate our position in cases in other circuits.

    This language should not be used, of course, in those very rare circumstances when the Office determines that the issue will continue to be litigated even in the deciding circuit. In those circumstances, the AOD should provide clear directions as to how to resolve cases appealable to that circuit.

  12. Reviewers should initial under the "Reviewers:" heading upon approving the AOD.
  13. All attorney names should be typed in all capital letters; titles should be typed in capital and lower case letters. "Approved:" should be typed directly to the left of the Chief Counsel's name and "By:" should be typed directly to the left of the space where the Associate Chief Counsel will sign the AOD. The Assistant Chief Counsel level reviewers should initial the AOD before it is signed by the Associate Chief Counsel.
  14. The Technical Services Section will stamp this directive on the bottom of the AOD.

35.12.5.1  (04-05-1995)
Review in the Field Service Division

Actions on decision are prepared in the National Office by the attorney who reviewed the briefs or defense letter, or by another attorney who is familiar with the position of the Service on the issues involved. The action is reviewed to determine whether it is in harmony with the statutes, regulations, rulings of the Service, other actions on decision, positions taken by the Chief Counsel in recommendations to the Department of Justice in connection with the litigation of tax cases pending in the United States courts, and with memoranda issued by the National Office concerning the litigating position to be taken with regard to specific issues.

35.12.5.2  (04-05-1995)
Reserved

35.12.5.3  (04-05-1995)
Approval of Actions on Decision

  1. Responsibility for issuing appropriate AOD's will be vested in the Associate Chief Counsel Office with subject matter jurisdiction over the substantive issue addressed in the AOD. Actions on decision will be coordinated with both the technical and the field service functions of the Associate's Office and shall be signed by the Associate Chief Counsel or Deputy Associate Chief Counsel. Associates will fully coordinate issues with implications for other Associate areas prior to approval. If a case involves issues under the jurisdiction of two or more Associates, those Associates will confer and determine which office shall issue the consolidated AOD or whether it will be issued jointly by the offices affected. The formal views of the Commissioner's Office will usually be obtained on issues which affect the administrative operations of the Service.
  2. There will be only one AOD for each case. In general, AOD's will not be issued in any case until litigation of the case is concluded.
  3. A proposed AOD prepared in the Field Service Division will be signed by the preparing attorney and initialed (or signed at his discretion) by the branch reviewer. After the proposed AOD is reviewed and initialed by the Assistant Chief Counsel (Field Service), he or she is to forward it to the Assistant Chief Counsel of the technical division counterpart of the Field Service branch. The Assistant Chief Counsel (or Deputy Assistant) of the counterpart division is to initial the AOD and return it to the Assistant Chief Counsel (Field Service) within twenty-one days, unless changes to the AOD are suggested. The Assistant Chief Counsel (Field Service) is to then forward the AOD to the Associate Chief Counsel (Domestic) for signature. The AOD is to be returned to the initiating branch which will forward the AOD to the Technical Services Section (Rm. 4510) of the Field Service Division for further processing. See 35.12.41 and 35.12.61.

35.12.5.4  (04-05-1998)
Signing of the Action Decision

Following preparation of the action on decision, the National Office attorney will sign in the space provided. The branch reviewer may choose to either initial or sign the AOD. Assistant Chief Counsel level reviewers are to initial the AOD. Reviewers should not date their initials. After the action on decision has received all necessary initials, it will be forwarded to the appropriate Associate Chief Counsel for approval and signature. See 35.12.5.3. The signature reviewer of the action will sign on behalf of the Chief Counsel. See Exhibit 35.12.4-1.

35.12.6.1  (04-05-1995)
Distribution and Publication of Approved Actions

Upon final approval of an action on decision, there will be no advance distribution until publication in the Internal Revenue Bulletin of the action's recommendation (i.e. , acquiescence, nonacquiescence, or acquiescence in result only). After publication of the recommendation in the Internal Revenue Bulletin, the action will be released to the public and distributed to Service personnel within 10 working days. Actions on decisions will be dated at the top with the same date as the Internal Revenue Bulletin in which the recommendation is published. After the AOD recommendation appears in the IRB, the Technical Services Section of the Field Service Division will forward a copy of the AOD to the printer for distribution to Counsel, Appeals, and Service personnel, and the Freedom of Information Reading Room.

35.12.6.2  (04-05-1995)
Inquiries from the Public

  1. The recommendation of any attorney who prepares or considers an action on decision must not be revealed to persons outside of the Service. Third parties are not to be informed who is considering any proposed AOD; nor are third parties to be informed of the individual recommendations, even after the action is approved.
  2. Upon receipt of an inquiry from the public regarding Service position on a final adversely decided issue for which an AOD has not been published, the field office should advise the inquirer to contact the Associate Chief Counsel Office with subject matter jurisdiction over the issue. Even though the field office has been informed of the current Service position regarding the issue, such position may be revised. Therefore, care should be exercised by the field offices at settlement conferences in relying on unpublished positions of the office on adversely decided issues; caution is also required in revealing to the taxpayer at such conference the general position of the office on such issues, as distinguished from the position being taken in the field case.
  3. After publication, the public may generally be informed of the AOD's position on such issues and that copies of such action are available in the Internal Revenue Bulletin.

35.12.6.3  (12-13-1999)
Chief Counsel Notices To Announce Changes In Service Litigating Positions

  1. In order to ensure rapid coordination of Service litigating positions, so that all Counsel offices can act uniformly in handling docketed and nondocketed cases, changes in Service litigating positions will be announced in Notices and be posted electronically through email and to the Intranet once the Intranet is established on a Counsel-wide basis. These Chief Counsel Notices will bear a uniform title: "CHANGE IN LITIGATING POSITION," and will bear a one-year cancellation date in order to permit application of the notice until its replacement by a formal publication of Service position, e.g. , a Revenue Ruling or an AOD. Each Chief Counsel Notice will bear a Chief Counsel Uniform Issue List number to facilitate research of these documents. These Notices, like all Chief Counsel Notices, will be made available to the public through the FOIA reading room.
  2. Each Associate Chief Counsel, where appropriate, may delegate signature authority for these Notices to the Assistant Chief Counsel level. Although the earliest possible coordination of changes in Service litigating positions is intended through Chief Counsel Notices, the orderly preparation, scope and purpose of AODs and LGMs should continue.
  3. Chief Counsel Notices are available on the Chief Counsel Intranet System.

As a result of revisions in the technical or litigating position of the office, it is necessary from time to time to reconsider outstanding actions on decision. Published actions for either acquiescence or nonacquiescence may be affected by new regulations or rulings, changes in existing regulations or rulings, subsequent court decisions, technical or litigation positions taken in letters to the Department of Justice, or other official memoranda. Attorneys in the National Office or in the field, on their own initiative or at the direction of their supervisors, should consider and initiate any appropriate revisions of outstanding actions whenever the need appears. The Department of Justice also may request revisions of published actions in connection with cases involving similar issues which are being litigated by the Department. Such requested revisions should be processed as quickly as is practicable.

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