IRS encourages fast-track mediation

By Philip Zimmerman

Taxpayer representatives interested in more efficient and possibly less costly ways to resolve tax disputes should try the new optional fast-track mediation (FTM) program that the IRS will begin offering in October 2001. The FTM process originates in the compliance department (examination/collection) when the taxpayer and Compliance agree 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 during the pilot study usually took less than a month.

FTM process. Taxpayers can use FTM to resolve factual issue disputes involving less than $100,000 of combined tax deficiency for valuations, transfer pricing, and unreasonable compensation. It also is available for offers in compromise of less than $50,000. Either the taxpayer or Compliance can initiate FTM by entering into a mediation agreement, which is then forwarded to Appeals, where it is assigned to a trained IRS mediator at no cost to the taxpayer. The IRS mediator assists the parties in reaching an agreement but does not render a decision regarding any issue in dispute. The process is confidential and does not set precedent. If any issues remain unresolved, the taxpayer will retain the usual appeals rights. Such cases will be assigned to another Appeals officer, in effect giving the taxpayer another chance.

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. The mediator meets with the compliance representative and the taxpayer, her representative, or both. Absent an agreement to the contrary, the parties present must have decision-making authority.

Cost and tax savings. The IRS, as part of its campaign to become more taxpayer-friendly and avoid litigation, has been publicizing FTM and its other alternative dispute resolution (ADR) programs. One such program was presented on February 20 by the Association of the Bar of the City of New York and the IRS. To get these programs off to a successful start and to promote the IRS’s taxpayer-friendly message, many of the speakers implied that the IRS representatives would generally be lenient during mediation.

The IRS also offers other opportunities to reduce tax litigation through ADR after larger cases reach the appeals department (see “New Opportunities to Reduce the Cost of Tax Litigation Through ADR,” The CPA Journal, June 2000). The IRS recently sought experts to conduct mediation training for its personnel, perhaps indicating that the IRS expects these programs and FTM to become popular with taxpayers and their representatives.

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