IRS Encourages Fast Track Mediation to Resolve Taxpayer Disputes

Reprinted by permission of The CPA Journal.

Taxpayer representatives interested in a more efficient and possibly less costly way to resolve tax disputes should try the new optional Fast Track Mediation (FTM) program, which will be offered by the Internal Revenue Service beginning in June, 2001. The FTM process originates in Compliance (Examination/Collection) by agreement of the Taxpayer and Compliance to submit the matters in dispute to mediation. Accordingly, neither a formal unagreed report (RAR) nor a formal protest needs to be submitted. The process is very fast and has usually taken less than a month during the current pilot study.

FTM Process

Fast Track Mediation may be used to resolve factual issue disputes involving less than $100,000 of combined tax deficiency for valuations, transfer pricing, and unreasonable compensation and is also available for Offers in Compromise of less than $50,000. Either the Taxpayer or Compliance can initiate FTM by entering into a mediation agreement. The completed agreement is forwarded to Appeals, which will then assign a trained IRS mediator at no cost to the Taxpayer to assist the parties in reaching an agreement. The mediator does not have settlement authority and does not render a decision regarding any issue in dispute. The process is confidential and does not set a precedent for any other matter. If any issues remain unresolved, the Taxpayer will retain all the usual appeals rights. In such cases, it will be assigned to another Appeals Officer. In effect, this gives the Taxpayer another bite at the apple.

The normal commercial mediation procedures are followed prior to and during the mediation (see “A Practical Guide to Mediation for CPAs,” The CPA Journal, June, 1995). Attorneys are not necessary during the mediation. Present are the Taxpayer and/or their representative and the Compliance representative. However, absent an agreement to the contrary, the parties present must have decision-making authority.

Cost and Tax Saving

The IRS has been publicizing FTM and its other alternative dispute resolution (ADR) programs as part of its campaign to become more taxpayer friendly and to save the cost of litigation. One such program was presented on Feb. 20, 2001 by the Association of the Bar of the City of New York and the IRS. Many of the speakers implied that in order to get these programs off to a successful start and to carry out the IRS’s promise to be more taxpayer friendly, IRS representatives would generally be lenient during mediation.

The IRS also offers other opportunities to reduce the cost of tax litigation through ADR once larger cases reach Appeals. (See “New Opportunities to Reduce the Cost of Tax Litigation Through ADR,” The CPA Journal, June, 2000.) The IRS recently advertised for experts to conduct mediation training for its personnel. This indicates that the IRS expects these programs and FTM to become popular with taxpayers and their representatives.

More information about FTM is available on the IRS’ website at www.irs.gov/prod/ind_info/appeals/pub-proc.html.

                       

Philip Zimmerman, CPA

Philip Zimmerman, CPA, practices mediation for the AAA, the New York and New Jersey Courts, the U.S. EEOC and in private practice. MORE >