Pennsylvania Tax Appeal Plan Would Boost Fairness, Efficiency

For decades, clients and practitioners have complained that Pennsylvania’s tax appeal process is unnecessarily lengthy, unduly complex, and less than fair—kind of like running a marathon through a maze without a map instead of sprinting point to point.

The current system requires a taxpayer to file a petition with, and have its case heard by, the Board of Appeals, part of the Pennsylvania Department of Revenue. The taxpayer presents evidence and arguments to a hearing officer, who then recommends a decision to the board. The process typically takes about six months.

Some perceive the taxpayer’s lack of direct contact with the arbiter of its case to be unfair. Further, neither BOA hearings nor decisions are a matter of public record. As a result, decisions carry no precedential value, and taxpayers are unaware of the board’s positions on issues.

Increasing Efficiency

Backed in large part by the Pennsylvania Institute of Certified Public Accountants, the General Assembly is considering legislation to improve efficiency of the Board of Finance and Revenue, part of the Pennsylvania Treasury. The plan proposes to allow the BF&R to extend the statute of limitations for good cause and allow parties to pursue mediation.

Senate Finance Chair Scott Hutchinson (R) and House Judiciary Chair Tim Briggs (R) announced they intend to introduce companion bills in their respective chambers.

The good-cause extension aims to help smaller taxpayers who aren’t familiar with procedural nuances of Pennsylvania’s tax appeals system. It also provides that the extension would be granted only when it wouldn’t prejudice the other party.

More significantly, the proposal calls for more formal procedures that could help the parties reach a compromise. The BF&R could appoint one or more settlement officers, who are tasked with conducting settlement conferences.

The settlement officer would have to be an attorney or CPA with “significant experience in a position requiring substantial knowledge of Pennsylvania tax law” and can’t be employed by the DOR or Pennsylvania Treasurer. All information disclosed during a settlement conference would remain confidential. Having a settlement officer serve as a sort of mediator adds an air of fairness that would improve the efficiency of the Pennsylvania tax appeal process.

This proposal would make the process fairer—the settlement officer would provide an impartial and independent view of the issues. It also would make the process more efficient, saving taxpayers and the commonwealth the administrative and financial costs associated with appealing to the Commonwealth Court (the first level at which a record is made).

It further would reduce the backlog of BF&R cases appealed to the Commonwealth Court, where a case typically sits for at least a year before any meaningful settlement discussions occur.

Board of Finance and Revenue

Currently, if a taxpayer isn’t satisfied with the BOA’s decision, they must file a petition within 60 days with, and have its case heard by, the BF&R. Like the Board of Appeals, absent the granting of an extension, this process takes about six months.

While the DOR is under the jurisdiction of the governor, the Pennsylvania Treasurer is an independently elected official. However, the governor appoints two of the three members of BF&R.

The BF&R holds two half-day videoconference hearings per month and one half-day in-person hearing. At each hearing, a taxpayer presents its argument, and the DOR responds, after which the taxpayer may provide rebuttal.

Neither the taxpayer nor the DOR may have any ex parte communications with the BF&R. However, a BF&R briefer is assigned to each case. The taxpayer presents its evidence to the briefer, who drafts a decision for the three members to review, modify if desired, and approve.

The three BF&R members typically have a draft decision prepared at the time of the hearing, and the BF&R typically hears one or two dozen cases in each half-day session. The BF&R generally allows a taxpayer five minutes to present its case but is flexible in allowing a taxpayer the time it needs to present a more complicated case.

Like the BOA, a taxpayer may submit a compromise. Absent extraordinary circumstances, the BF&R will issue an order approving that agreed-upon compromise. Unlike the BOA, BF&R publishes all its decisions and its hearings are open to the public with recordings available online.

Outlook

The proposal takes a step toward improving the fairness and efficiency of the Pennsylvania tax appeal system. That said, its success will depend on the ability of the settlement officer to understand the merits of the parties’ respective arguments and, of equal importance, convey that understanding to the parties.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Mike Semes is of counsel at BakerHostetler and is professor of practice at Villanova University Charles Widger School of Law’s graduate tax program.