Tax disputes can be complex affairs that span years and involve numerous taxpayers, often with highly technical issues that require expert testimony for resolution.
Mediation can save time and money when it comes to disputes. Unfortunately, however, mediation may not always be suitable in every circumstance.
Identifying the Issues
Mediation offers taxpayers an effective and expeditious method for resolving their tax disputes quickly and cost-effectively, which can avoid lengthy appeals processes or litigation proceedings. But in order to make use of this option, it’s crucial that taxpayers understand its process and are aware of what to expect during mediation sessions.
At the outset of mediation, the mediator will collaborate with both parties to identify key issues and facilitate settlement negotiations. Furthermore, their neutral presence allows calm discussion to take place and helps both parties explore alternatives.
At the conclusion of this step, both parties will gain a clear understanding of all key issues at stake in their dispute. At their expense, taxpayers may select and hire an external mediator; provided National Office Appeals agree on a process for selecting their mediator and submit a participant list at least two weeks in advance of scheduled mediation session dates.
Developing a Plan
IRS has implemented pilot programs designed to make it easier for taxpayers to resolve tax disputes, including Fast Track Mediation – Collection (FTMC), which uses an independent appeals mediator to assist taxpayers and the IRS reach prompt resolution on issues pertaining to Offers in Compromise or Trust Fund Recovery Penalties; and Rapid Appeals Process (RAP), which utilizes pre-appeals conferences incorporating mediation techniques.
A mediator helps both parties identify issues and facilitate settlement negotiations during mediation sessions, in an effort to settle tax controversies without litigation while increasing voluntary compliance. An agreement to mediate must be signed by both the taxpayer and Appeals representative; it should include a list of participants with decision-making authority who will attend mediation.
Prior to mediation, both taxpayer and Appeals must prepare and submit position papers on any disputed issues to the mediator – our Larson & Company tax adviser can assist in this regard.
Negotiating a Solution
Tax mediation serves the goal of reaching an amicable settlement between taxpayers and governments, with mediators working towards transparency, accountability, fairness and impartiality throughout the process. By humanizing relationships and creating a collaborative atmosphere for decision making to occur more easily.
Each party prepares and submits to both their mediator and other party a discussion summary of issues to be mediated two weeks prior to setting a mediation date. An agreement to mediate should specify its site, date, and agenda in consultation with their mediator.
At each mediation session, decision makers from both taxpayer and Appeals should attend with the goal of resolving all outstanding issues quickly and amicably at that time. ARDA-LC will review and negotiate participation lists with each party involved to ensure all necessary participants attend the mediation session.
Finalizing the Agreement
Early Mediation is a voluntary process designed to facilitate collaborative dispute resolution between the Department and taxpayer. Although mediators do not have settlement authority, they will aid in the identification and resolution of issues as well as facilitate negotiations for settlement agreements. A taxpayer may opt to have professional representation present during mediation sessions while the mediator may conduct sessions between all parties or in caucuses with only taxpayer representatives and Tax Division representatives present.
An agreement to mediate should identify those attending with decision-making authority and require each party to provide a list no later than two weeks prior to the date of mediation.
Tax mediation works best when both parties involved have an intent to settle their case peacefully and collaborate on finding an agreeable resolution without recourse to traditional appeals processes or expensive litigation. Reach out to a Larson & Company tax advisor today and determine whether this solution could work in your situation.