Pennsylvania Reforms Its Tax Appeals Process

On October 29, Pennsylvania enacted S.B. 1051 to make important changes to its tax administrative appeals process. Taxpayers with Pennsylvania tax appeals should consider the bill’s implications for their cases and consider new opportunities to resolve tax disputes. 

Extension for Filing Personal Income Tax Petitions

Under current law, appeals must be filed with the Board of Appeals (BOA), which is the first level of review in the process, within 60 days after the mailing date of the notice of assessment. BOA decisions can be appealed to the Board of Finance and Revenue (BFR), the second level in the process, within 60 days after the mailing date of the notice of decision.

Effective January 27, 2025, for personal income tax assessments only, the bill extends the period to file an appeal from 60 to 90 days with the BOA or to appeal the decision from the BOA to the BFR, which may be extended by additional 30 days for cause. The bill does not provide guidance on what constitutes cause for this purpose.

Settlement Conference Process

S.B. 1051 establishes an option for a settlement conference at the BFR. A settlement conference is a private proceeding in an informal setting designed to expedite and facilitate the resolution of tax controversies. According to the bill’s fiscal note, the settlement conference process replaces the BFR’s authority to consent to a compromise during the tax appeals process but should not affect BOA compromise procedures.

A taxpayer or the Department of Revenue (DOR) must request a settlement conference in writing with its petition for review or within 30 days of filing of the petition. The BFR also can initiate a settlement conference and may approve conference requests after the deadline at its discretion or on showing of good cause. 

Unless the settlement conference is initiated by the BFR, the party making the request must provide a brief description of the dispute and relief requested. Within 10 days of receiving that information, the non-requesting party must file a written response in support of or opposition to the conference. The BFR must decide whether to refer the appeal for settlement within five days of receipt of the response. However, because the process is voluntary, a party can still decline to participate. 

An initial settlement conference must be held within 60 days of BFR referral. Taxpayers may choose a representative, including an accountant, to attend the conference on their behalf.  

Settlement conferences will be held before independent, impartial officers appointed by the BFR. The officers must have substantial knowledge of Pennsylvania tax law and disclose any conflicts of interest as soon as practicable.

A settlement conference and any related communications are private and cannot be introduced as evidence in any other proceeding unless agreed to by the parties. A conference cannot be recorded, even with the parties’ consent. Also, the officer cannot be compelled to testify or divulge any records or become a witness in litigation related to the conference.

If the parties reach an agreement, the BFR is to approve it within 10 days. While the agreement binds the parties and cannot be appealed, it does not create precedent.

If no agreement is reached — even as a result of one party refusing to participate in the process — the BFR will decide the issue on the merits and issue an order within six months of settlement conference termination. 

To monitor the new program’s effectiveness, the state treasurer must report to the General Assembly the number of appeals resolved through the program and associated case statistics. 

Closing Agreements

The bill also enables the DOR and taxpayers to enter closing agreements to address liabilities for any tax administered by the DOR.  

A closing agreement is final and conclusive and cannot be reopened absent a showing of fraud, malfeasance, or misrepresentation of material facts.

The Mailbox Rule

A taxpayer will be deemed to have timely filed a petition for refund or reassessment or any other protest relating to the assessment of tax if the documents are postmarked by the U.S. Postal Service on or before the final day on which the petition must be filed. A postmark by the U.S. Postal Service includes any date recorded or marked by a designated delivery service as described by the Internal Revenue Code.