Auditors can ask for legal advice from the IRS's Office of the Chief Counsel. Such written advise is referred to as Field Service Advice, or an FSA.
In a recent tax case, the IRS had issued an FSA in regard to another taxpayer and acted consistently with it as to that other taxpayer. Later, in dealing with the taxpayer (who was a competitor of the prior taxpayer) under similar facts, the IRS disregarded the FSA and in effect treated the taxpayer different from its similarly situated competitor. The taxpayer sought to bind the IRS to the treatment it provided to the competitor, claiming that the IRS could not provide disparate treatment for itself, which treatment was further inconsistent with the previously issued FSA.
The taxpayer sought to rely upon the case of International Business Machines Corp. v. United States, 343 F.2d 914 (Ct. Cl. 1965), cert denied 382 U.S. 1028 (1966). That case involved the failure of the IRS to issue similar private letter rulings on a similar issue at about the same time to two different taxpayers, which case held such disparate treatment was improper.
The U.S. District Court was not swayed by this argument, and found no obligation on the IRS to either treat the similarly situated taxpayers in the same manner nor to apply the FSA to the taxpayer. The IBM case was rejected as precedent, in large part because an FSA is not the same as a private letter ruling. The Court noted the following differences between FSA's and private letter rulings:
-an FSA is issued to IRS field personnel whereas a taxpayer requests a PLR;
-a taxpayer requesting a PLR can rely on it because the ruling is binding on IRS with respect to that taxpayer, but FSAs cannot be relied on by taxpayers because they are not binding on IRS; and
-when taxpayers ask for PLRs they submit information to IRS and they are entitled to have a conference with it, while FSAs are issued without notice to the taxpayer and the taxpayer has no right to a conference with the IRS.
Thus, attempting to bind the IRS to a FSA may be difficult, if not impossible. Nonetheless, FSA's may still be useful in negotiating with the IRS, even if they have no binding effect.
Schering-Plough Corporation v U.S., 100 AFTR2d 2007-5522 (DC NY 12/03/2007).
1 comment:
Let me see if I understand: IBM cries foul in 1965 when the IRS, confronted with the same set of facts, gives out two different PLR's; one favorable to IBM's competitor, one detrimental to IBM. When the IRS Auditor on the IBM case requested an FSA, the Chief Counsel changes it's position.
If that is the case, it seems to me the FSA was is a moot point. It is likely the taxpayer was trying to bind the IRS to the FSA in a desparate attempt to get fair treatment.
The important issue is a prior bad act by the IRS in issuing contradictory PLR's for taxpayers with identical facts. In the name of all that is fair, how can that circumstance be allowed to stand? It's as if the IRS can't be bothered with the bothersome task of applying the U.S. code consistently and the court is agreeing!
What would you do if this was your client?
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