IRS News Release  
February 26, 1997

The Appeals Process: The Relationship Between
Examination & Appeals

The mission of Examination is to determine the correct amount of tax. The vast majority of cases are agreed at the Exam level because the taxpayer agrees with the proposed adjustment or because the return was correct as filed.

Most examination adjustments are straightforward and based on easily discerned facts and clear law and regulations.

The mission and authority of Appeals are different from those of Examination.

Appeals is charged with taking a fresh look at issue/cases in controversy. Appeals considers proposed resolutions that are fair and impartial to both the government and the taxpayer. Settlements may be related to the uncertainty of a factual dispute, or uncertainty as to the interpretation or application of the law to the facts of a case. Appeals has the authority to estimate these "litigation hazards" in negotiating a ■reasonable■ settlement of a case.


  • The IRS examiner and the taxpayer could not agree on the interpretation or application of the law to the facts.
  • The facts in the case are complex, unclear, or in dispute.
  • The law is unsettled and/or complex.


In a recent stratified random sample of cases selected by GAO, the average percentage assessed by the IRS (combined Exam and Appeals) from the entire sample was 31.3%. The sample was broken out into four strata:

  • $75k to $299k made up 49% of the audits and had an assessment rate of 71.7%.
  • $300k to $999k made up 26% of the audits and had an assessment rate of 62.8%.
  • $1 million to $2.999 million accounted for 15.3% of the audits and had an assessment rate of 47.3%. -- $3 million and over accounted for 9% of the audits and had an assessment rate of 23.4%.

The dollars in the largest cases skew the "average" result. As can be seen, 91% of taxpayers have assessment rates far above the statistical "average".

Accordingly, cases over $10 million in dispute account for only 1% of the inventory in Appeals, but 88% of the dollars in dispute. Cases over $1 million are 4% of the inventory, but 95% of the dollars.

Overall assessment rates do not reflect the outcome for most taxpayers and, in our opinion, should not be extrapolated to have some meaning for the population of unappealed cases.

In Appeals' Large Case Quality and Process Review, analysis of a representative sample of cases with $10 million or more in dispute revealed a significant impact on assessments from factors developing after the audit and from computational adjustments. These include:

  • New issues raised by taxpayers
  • Changes in IRS position
  • Credit and loss carrybacks/carryovers
  • Changes in the tax law

Accounting for these factors would increase the assessment rate from 23% to 41% for these cases.

For reasons given above, it is an error to take Appeals' "average" for docketed cases to represent the average case; or to assume that unappealed cases would be conceded or settled at those rates.

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