4.10.28. Designation of Cases for Litigation

(1) Historically, cases designated for litigation have been infrequent. The IRS should continue to use designation infrequently, subject to careful consideration at all levels of the process. Chief Counsel Directives Manual 33.3.6.2.1, Nondocketed Case under the Jurisdiction of an Operating Division, sets out the existing procedures for designating for litigation issues in cases under the jurisdiction of a business operating division (BOD).

(1) The TFA added IRC 7803(e)(5), which provides that if any taxpayer who has received a statutory notice of deficiency (SNOD) requests referral to Appeals and such request is denied, the Commissioner shall provide the taxpayer a written notice with a detailed description of the facts involved, the basis for the decision to deny the request, a detailed explanation of how the basis of such decision applies to such facts, and the procedures for protesting the decision to deny the request. Under the TFA, this process does not apply when the taxpayer’s request is denied because the issue involved is a frivolous position (within the meaning of IRC 6702(c)).

(2) In Delegation Order 30-9 (Rev.2) (April 8, 2024), the Commissioner delegated to the Chief Tax Compliance Officer the authority to deny a taxpayer’s request for referral to Appeals after the issuance of a SNOD in a case designated for litigation, and to provide the taxpayer with the written notice described above. This authority may be redelegated to the BOD Commissioners. The delegation order also delegated to the Chief Tax Compliance Officer the authority to receive, review, and decide a taxpayer’s protest of the decision to deny a request for referral to Appeals after the issuance of a SNOD in a case designated for litigation. This authority may not be redelegated.

(1) The Chief Tax Compliance Officer and Chief Counsel have oversight responsibility for designated cases. Also see IRM 4.10.28.1.2, Authority and IRM 4.10.28.2.2, Procedures for Designating a Nondocketed Case Under the Jurisdiction of a Business Operating Division.

(2) The LB&I Policy Office under the Assistant Deputy Commissioner Compliance Integration is responsible for coordinating updates to this IRM.

(1) The designation of cases for litigation is intended to be an infrequent practice, and subject to approval at the highest levels of both the IRS and Chief Counsel.

(1) The following are commonly used acronyms:

(1) See CCDM 33.3.6, Designating a Case for Litigation.

(1) When an issue under the jurisdiction of a BOD is designated for litigation, a partial agreement may be secured for the non-designated and agreed issues. The taxpayer will not receive a 30-day (or similar) letter with respect to the remaining unresolved issues in the case. Rather, the taxpayer will be issued a SNOD for the unagreed issues. In general, the designation of an issue in a case will not preclude the consideration by Appeals of the remaining issues either before or after the case is docketed. Nor, in general, will designation preclude Appeals from considering and settling the same issue in other cases involving a different taxpayer within its jurisdiction.

(1) A request for designation must be raised through the BOD executive chain as set out below.

1. If the BOD examination personnel and the second-level manager overseeing the case, in coordination and consultation with local Counsel, determine that an issue in the case is appropriate for consideration for designation, they will consult with the Area Counsel (who will consult with other Division Counsel, as appropriate). The Area Counsel and examination personnel will make a reasonable effort to identify other cases presenting the proposed designated issue to allow for IRS-wide strategic coordination. If the Area Counsel concurs that it is appropriate to consider designation, then examination personnel will prepare a written memorandum that sets forth the facts of the case and the factors and justifications that support considering designation of the issue in the case for litigation. This initial request memorandum will be reviewed and approved by the Area Counsel and the first-level executive with jurisdiction over the examination; it will then be forwarded to the applicable second-level executive with jurisdiction over the case (Examination Director), the applicable second-level executive with jurisdiction over the issue (Issue Director), and the appropriate Division Counsel.

2. The Examination Director, the Issue Director and the Division Counsel will consult on the merits of designating the issue for litigation. The Division Counsel will also consult with the appropriate Associate Chief Counsel with jurisdiction over the issue.

3. If the Examination Director and the Division Counsel, after consultation with the Issue Director and the Associate Chief Counsel, conclude that designation for litigation is appropriate, the Division Counsel will prepare the Designation Recommendation Memorandum (DRM) for the Examination Director’s signature and concurrence. The DRM must set forth the rationale for the recommendation. After concurring in the DRM, the Examination Director must notify the taxpayer in writing of the proposed designation, the rationale for the recommendation, and that the matter will be referred to the BOD Deputy Commissioner. The Examination Director’s written notice of the proposed designation will also provide the taxpayer an opportunity to submit its views on the designation recommendation in writing and/or to request a meeting with the BOD Deputy Commissioner and the Division Counsel within 30 days of being notified of the designation recommendation.

4. If, after reviewing the DRM and any additional information provided by the taxpayer within 30 days of being notified of the designation recommendation, the BOD Deputy Commissioner and the Division Counsel conclude that designation is appropriate, they will forward the DRM, any information provided by the taxpayer and any additional information relevant to the recommendation simultaneously to the Chief Counsel and the Associate Chief Counsel with jurisdiction over the issue.

5. Within 5 business days of the date the DRM is forwarded to the Chief Counsel, the Division Counsel will notify the taxpayer that a recommendation for designation has been made and will provide the taxpayer with an opportunity to share its views in writing and/or to request a meeting with the Chief Counsel, within 30 days of the notification that a recommendation has been made to the Chief Counsel. The Associate Chief Counsel will provide the Chief Counsel with written comments on the recommendation within 30 days of receipt of the DRM. If the Chief Counsel does not approve the designation, the examination will continue in the normal course.

6. If the Chief Counsel approves the designation for litigation of the issue in the case, then examination personnel will work on issuance of the SNOD. The Chief Counsel (or designee) will notify the taxpayer within 5 business days of the Chief Counsel’s decision and the taxpayer may then at such time request referral to Appeals, as described below. Alternatively, the taxpayer may wait until receipt of the SNOD to begin the process outlined below.