Remedy for Alleged Unfair Consideration by IRS Appeals is Court’s De Novo Review, Not Invalidating the Notice
A component of the Taxpayer First Act, enacted in 2019, was to rebrand the IRS’s Appeals Office as the IRS Independent Office of Appeals. The function of the rebranded office is to resolve Federal tax controversies without litigation in a manner that is fair and impartial. IRC § 7803(e)(3). In Toscano Holdings, LLC v. Commissioner, T.C. Memo. 2026-90, a TEFRA partnership argued that its right to have its case fairly and impartially considered by IRS Appeals was violated and, as a result, the Notice of Final Partnership Administrative Adjustment (FPAA) issued to the partnership was invalid.
The court rejected the argument that the FPAA was invalid, stating:
- IRC § 7803(e) does not require a hearing with the IRS Independent Office of Appeals as a condition precedent to the IRS’s issuance of a notice.
- For purposes of IRC § 7803(e), neither a revenue agent’s request for a taxpayer to extend the assessment period, nor a revenue agent’s rejection of the taxpayer’s consent months after a consent was requested constituted an “ad hoc additional requirement” within the meaning of SN Worthington Holdings LLC v. Commissioner, 162 T.C. 228 (2024).
- Invalidating a notice is not the remedy for complaints about whether IRS Appeals is fair and impartial under IRC § 7803(e)(3)(B); a remedy is to petition the Tax Court to redetermine the IRS’s determination in a de novo proceeding.
- A challenge under section 706 of the Administrative Procedure Act that agency action was arbitrary and capricious requires a final agency action. A refusal to accept a taxpayer’s request to extend the assessment statute after relying on the taxpayer’s earlier refusal to extend the assessment statute was insufficient to conclude that the lack of pre-notice consideration by IRS Appeals could invalidate the notice.
- Removing a case from IRS Appeals consideration because the appraiser involved in the transaction was criminally indicted was not a ground to invalidate the notice.
Thus, absent substantial evidence of unconstitutional conduct, the Tax Court will not look behind a notice to examine the evidence used, the propriety of the Commissioner’s motives, or the administrative policy or procedure involved in making the determination.
# # #
If you need help resolving a tax dispute with the IRS, please reach out to our team at K. Tyson Law. This article does not establish an attorney-client relationship and should not be construed as applying to a particular tax situation.
October 6, 2026. Written by Kim Tyson, J.D., LL.M.