Alabama Tax Tribunal to Issue Proposed Regulations on July 31

State & Local Tax Alert: Alabama Edition

Client Alert

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Last spring, the Alabama Legislature passed the landmark Alabama Taxpayer Fairness Act, Act # 2014-146, the modified successor to a bill long known as the Alabama Taxpayers’ Bill of Rights II (“TBOR II”). Although the lengthy legislation provides a number of procedural protections for Alabama taxpayers, its most significant feature is the creation of an independent tax tribunal, known as the Alabama Tax Tribunal (“ATT”).

Beginning October 1, 2014, taxpayers will have the ability to appeal most final assessments issued by the Alabama Department of Revenue (the “Department”) or by local taxing jurisdictions (or their contract auditing firms) to the ATT. Although local taxing authorities can opt out of the ATT’s jurisdiction, our understanding is that the majority of those authorities, including those represented by Revenue Discovery Systems (RDS/Alatax), intend to remain under the ATT’s jurisdiction.

The ATT will hear taxpayers’ appeals from final assessments of most tax types (other than ad valorem property taxes and municipal business license taxes), challenges to the Department's proposed adjustments to a taxpayer’s net operating loss carryovers, denied refund claims, and finally, any preliminary assessment entered by the Department or a local jurisdiction that is not made final or withdrawn within five years from the date of entry.

The ATT replaces the Department’s current Administrative Law Division (“ALD”) and transfers both the personnel and equipment to a newly-formed, independent state agency under the executive branch. All cases presently pending before the ALD will be transferred to and handled by the ATT. Earlier this summer, Governor Bentley appointed the ALD’s longstanding Chief Administrative Law Judge, Bill Thompson, as the first Chief Judge of the ATT, thus assuring a smooth transition from the ALD.

Since being appointed Chief Judge, Judge Thompson has been busy drafting a set of regulations that will govern the procedures to be followed in appeals filed with the ATT. In drafting the regulations, Judge Thompson wisely requested input from a variety of interested parties, including the Alabama State Bar, the Department’s Legal Division, the Alabama Society of CPAs, and self-administered local jurisdictions and their contract auditing firms.

Members of our firm were among the group of interested parties from whom Judge Thompson sought informal comments while drafting the regulations. In our opinion, the proposed regulations are thorough, fill in several gaps in the Act, and address a number of key provisions, including filing appeals with ATT, the conduct of hearings before the ATT, protective orders, and appeals from preliminary and final orders issued by the ATT. The proposed regulations make it clear that taxpayers will receive fair and impartial hearings before the ATT in a relatively informal manner, just as they do now before the ALD.

Because the ATT provisions more closely parallel the American Bar Association’s Model State Administrative Tax Tribunal Act than did the counterpart provisions in TBOR II, both taxpayers and taxing authorities are granted broader powers of discovery than under current law. Some small businesses and individual taxpayers, CPAs and other non-attorney taxpayer representatives, and local jurisdictions had—what we believe were—natural concerns regarding how discovery would affect the proceedings before the ATT. Recognizing these concerns, Judge Thompson drafted the proposed regulations in such a way that “discovery can only be used with the prior approval” of the ATT. The regulations require parties to make reasonable efforts to voluntarily and informally exchange information and evidence before requesting formal discovery. According to the proposed regulations, formal discovery shall only be allowed in the discretion of the tribunal judge upon a showing that good-faith efforts to informally obtain information by voluntary methods have failed.

The proposed regulations, which are subject to the rulemaking requirements of the Alabama Administrative Procedure Act, will be published in the Alabama Administrative Monthly on July 31. Taxpayers and other concerned persons can submit comments on the proposed regulations for approximately 35 days. Judge Thompson will thereafter make any changes he deems appropriate, and then certify the regulations for final adoption. Review a copy of the Alabama Tax Tribunal's proposed regulations here. However, please feel free to contact any Alabama member of our SALT Practice Team or email the Alabama Department of Revenue’s Administrative Law Division if you have any questions or comments regarding the proposed regulations.