Legal Definitions - action on decision

An Action on Decision (AOD) is an internal legal document prepared by attorneys within the Internal Revenue Service's (IRS) litigation division. It is submitted to the IRS Chief Counsel and provides a recommendation on how the IRS should respond to a court ruling that went against the government in a tax case. This recommendation advises whether the IRS should accept the court's decision (acquiesce), challenge it further through an appeal, or pursue an alternative course of action.

• Example 1: Recommending Acquiescence

  A small business owner successfully argued in Tax Court that certain software development costs should be immediately deductible, contrary to the IRS's position that they must be capitalized over several years. The IRS litigation team reviews the decision and concludes that the court's reasoning is sound and aligns with evolving industry practices. They draft an Action on Decision recommending that the IRS acquiesce to the decision, meaning they will accept this ruling and potentially update their guidance for similar cases nationwide, rather than challenging it further.

• Example 2: Recommending an Appeal

  A high-net-worth individual won a case in a U.S. District Court, successfully arguing that a complex offshore trust structure was legitimate for tax purposes, despite the IRS's contention that it was a sham designed solely to avoid taxes. The IRS attorneys believe the court misapplied a key legal precedent and that the ruling could set a dangerous precedent for future tax avoidance schemes. They prepare an Action on Decision strongly recommending that the IRS appeal the decision to a higher court, seeking to overturn the unfavorable judgment and protect the government's position on similar tax structures.

• Example 3: Recommending a Limited Response

  A taxpayer successfully argued in a specific circuit's Court of Appeals that a particular type of charitable contribution qualified for a deduction under a novel interpretation of the tax code. While the IRS litigation team acknowledges the court's ruling is legally binding within that circuit, they believe the interpretation is too broad and could lead to widespread abuse if applied nationally. They draft an Action on Decision recommending a "limited acquiescence," meaning they will accept the ruling only for cases within that specific circuit, but will continue to litigate similar cases in other circuits. The AOD might also suggest that the IRS consider proposing legislative changes to Congress to clarify the tax code on this issue, rather than a full appeal or full acquiescence.