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Pennsylvania amends tax appeals process, authorizes closing agreements
November 2024
In brief
What happened?
Under S.B. 1051, enacted on October 29, 2024, Pennsylvania has enacted changes to the tax appeals process, including providing for a settlement conference process, amending the mail-box rule for petitions for refund, reassessment, or redetermination, and extending the time to appeal a personal income tax assessment or decision of the Board of Appeals. The legislation also provides explicit authority for the Department of Revenue to enter closing agreements. The changes take effect 90 days from enactment (i.e., January 27, 2025).
Why is it relevant?
The legislation provides taxpayers with potential opportunities to resolve tax disputes, including a confidential, informal settlement process for resolving appeals at the Board of Finance and Revenue. Further, the legislation formalizes the ability of the Department of Revenue to enter closing agreements, which can provide taxpayer certainty in issue resolution.
Actions to consider
Taxpayers entering the settlement conference process should be aware of the deadlines for initiating participation and consider the potential strategic value of engaging in that process. Regarding closing agreements, taxpayers should carefully consider the terms, as failure to fulfill the terms of the agreement could void its benefits.
In detail
New settlement conference provisions
The legislation provides for a settlement conference process as part of the Board of Finance and Revenue appeal process.
Observation: While the bill’s fiscal note indicates that the settlement conference process is to replace the compromise authority of tax appeals, it is not clear that there is language that prevents the Department of Revenue from entering compromises according to their current practice. Note that there is also a compromise process at the first level of appeal to the Board of Appeals.
Under this process, each party can request a settlement conference by filing a written request with the petition or within 30 days of the petition being filed. A party may decline participation by notifying the Board of Finance and Revenue within five days of being notified of the settlement conference request. The Board also retains the discretion to direct a settlement conference. Conferences will be held within 60 days of case referral.
Practice before the settlement conference
A party can be represented by any individual of the party’s choosing. The settlement officer is to conduct conferences in an informal manner and with the goal of reaching a resolution. The settlement conference and related settlement conference communications are private proceedings. The settlement officer and each party are required to maintain confidentiality of information exchanged, and views expressed or admissions made during the settlement conference may not be relied on or introduced as evidence in any administrative, judicial, or other proceeding unless agreed to by the parties or required by applicable law.
Settlement conference procedure
The settlement officer does not have the authority to impose a settlement on the parties. If the parties do not agree with the proposed settlement, the settlement officer may continue with facilitation of a settlement between the parties for an additional 30 days. If the parties do come to an agreement, such agreement must be presented to the Board of Finance and Revenue within 10 days of being reached. Settlement agreements are not considered precedent and cannot be appealed.
Closing agreements
The legislation provides that the Department of Revenue is authorized to enter into a written agreement relating to the liability of any person for any tax administered by the Department for any taxable period. Once the agreement is approved by the Department, it is final and may not be reopened by the Department or set aside in any proceeding except on a showing of fraud, malfeasance, or misrepresentation of a material fact. However, the Department may reimpose any suspended amounts of tax, penalties, or interest if the taxpayer fails to comply with the terms of the agreement.
Observation: The Department has maintained that it does not have the authority to enter into closing agreements, so the grant of explicit authority to enter into such agreement could be an effective tool for resolving controversies with the Department going forward.
Mail-box rule
For purposes of filing a petition for refund, reassessment, or redetermination with the Department of Revenue or the Board of Finance and Revenue, a postmark by the US Postal Service includes any date recorded or marked by a delivery service designated by the Secretary of the Treasury as a “designated delivery service” under IRC Section 7502(f)(2). These private delivery services are designated by the Treasury as electronically recording to their databases, kept in the regular course of business, or marking the cover of the package containing any item to be delivered, the date on which such item was given to them for delivery as described under IRC Section 7502(f)(2)(C). A list of private delivery services designated by the Secretary of the Treasury is available here: https://www.irs.gov/filing/private-delivery-services-pds.
Personal income tax assessment appeals
The legislation extends the deadline for taxpayers to appeal a personal income tax assessment from the Department of Revenue with the Board of Appeals or to appeal the decision of the Board of Appeals to the Board of Finance and Revenue from 60 days to 90 days, which may be extended by up to 30 days for cause.
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