Christopher Dykzeul (Deputy City Attorney, San Francisco), Turbulent Times at Treasury: Applying the Appointments Clause to IRS Appeals Officers, 17 Hastings Bus. L.J. 33 (2021) (Honorable Mention, 2019 Tannenwald Tax Writing Competition):
Introduction
When a wealthy drug dealer claims you owe her $20,000 what do you do? Maybe you say “no, there’s been a mistake, you have the wrong person.” But what if the drug dealer remains adamant you owe her the full $20,000? She tells you the only way to convince her to a lesser amount is by taking your claim to her cousin, who is hired and employed by the drug dealer to handle all her money disputes. The obvious problem here is in the relationship between the cousin and the drug dealer. Even if the cousin is a neutral arbitrator, his close relationship to the drug dealer reeks of impropriety. After all, the cousin and the drug dealer are family relatives and may even share financial rapport. Therefore, a person would have good reason to doubt the impartiality of any decision made by the cousin to affirm a debt owed to the drug dealer.
It may seem absurd to liken the IRS to a drug dealer, but the above scenario is comparable to the IRS appeals process. A taxpayer who owes money to the IRS may dispute their debt before an IRS Appeals Officer (AO). However, much like the drug dealers’ cousin, the AO is both hired and employed by the IRS. AOs not only share familial relations with the IRS by being part of the same executive department, the two also share financial and collegial rapport with each other. Thus, regardless if AOs are truly neutral while arbitrating a taxpayer’s appeal, their close relationship to the IRS reeks of impropriety; and even appearances of impropriety are enough to strip away public confidence in the independence of a decision maker.
This paper begins from a simple premise: requiring IRS AOs to be appointed as inferior Officers under the Appointments Clause will effectively mitigate existing appearances of impropriety currently borne by such Officers. Specifically, subjecting AOs to the Appointments Clause relieves notions of impropriety in two ways. First, because the authority to appoint AOs will be given to an external entity, the IRS can no longer "choose the judge in its own cause.” In other words, the IRS cannot be accused of hiring AOs that are sympathetic to agency agendas if AOs are appointed externally. Second, because the power to remove is incident to the power to appoint,5 the IRS can no longer use the prospect of termination to influence AO decisions if AOs are appointed and removed by an external authority. Thus, this paper argues that IRS AOs meet the necessary requirements to be classified as inferior Officers under the Appointments Clause and therefore should be appointed by a Court of law for reasons of impartiality
Determining whether a federal actor is an inferior Officer—and thus subject to the Appointment Clause—entails an in-depth examination of the position they hold, the office within which they work, and the scope of authority assigned to them. Therefore, the following section of this paper discusses the Office of IRS Appeals within which AOs perform their central duties to adjudicate and settle tax liabilities before litigation. Understanding the history and structure of IRS Appeals provides a foundation to better understand the duties and scope of authority assigned to AOs, which is necessary to apply the legal framework of the Appointments Clause. That framework is examined in section three of this paper, which looks at two Court opinions holding AOs outside the purview of the Appointment Clause. Those opinions are contradicted by the Supreme Court’s recent holding in Lucia v. SEC, which builds on prior jurisprudence by clarifying that an Officer, as defined under the Appointments Clause, need only to have final decision making authority “in some instances.” The Supreme Court’s analysis in Lucia is applied to AOs in section four of this paper, and section five provides a series of policy arguments for requiring the application of the Appointments Clause to AOs. Lastly, section six of this paper compares the possible methods to appoint AOs and argues that appointment by the Courts is the most method viable for reasons of impartiality. …
Conclusion
The fairness and independence of the IRS Appeals process is jeopardized so long as the IRS possesses the authority to hire and fire its AOs who were created to be independent adjudicators. Subjecting AOs to the Appointments Clause will mitigate appearances of impropriety by placing authority to hire and fire outside the IRS. Further, AOs are required to be appointed. AOs wield significant authority in issuing final decisions that bind the IRS to settlement agreements with third parties. The Supreme Court’s jurisprudence has long required such appointment, but with the most recent opinion in Lucia, there is little doubt that AOs possess the necessary authority for Officer status and should be appointed as such.
