IRS Announces Two New Appeal Programs – a good sign or bad?

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The IRS has announced the formation of two new appeal programs. This is exciting news because it allows taxpayers more opportunities to be heard by high level, well trained IRS employees with considerable discretion. Unlike most field level IRS employees (especially those that work in call centers) IRS appeals personnel have considerable training and discretion when working on a taxpayer’s case.

Both programs will put into place post-IRS appeals mediation and arbitration. Since most people got those two terms confused, please allow me to explain. Mediation is a method of dispute resolution that focuses on a collaborative approach with no clear “winner” or “loser.” Arbitration is more akin to a court or a trial. The benefits of arbitration is that it is generally much less expensive and faster than waiting for the courts to decide a matter.

The two types of IRS problem scenarios subject to the new IRS appeals programs are in the area of Offer in Compromise and Trust Fund Recover Penalty cases. Either the taxpayer or IRS appeals may request nonbinding mediation. The taxpayer may decline such a request for mediation. IRS appeals will evaluate the taxpayer’s request based upon criteria outlined in Revenue Procedure 2002-44 and Announcement 2008-111.

A request for binding arbitration must be made jointly by the taxpayer and IRS appeals. The new programs do not create any additional authority for settlement for IRS appeals but as a practical matter, I feel that it will help facilitate resolution in many cases.

In a mediation case, the process can help decide both legal and factual issues while the arbitration is limited to factual issues only. In a mediation, the mediator has no authority to legally bind the parties while in arbitration, the decision of the arbitrator is binding upon both parties. However it is important to note that the arbitrator does not have the authority to decide that the Offer in Compromise should be accepted or that the taxpayer is not liable under IRS §6672.

It remains to be seen if the IRS will use these new programs to actively settle cases or if it is yet another method to stonewall, delay and prevent justice to taxpayers. We will see.

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