Alternative Dispute Resolution (ADR) is a legal procedure that allows opposing parties to avoid litigation and reach a mutually acceptable agreement. It has been used to resolve issues in civil matters from divorce to foreclosures. It is being successfully utilized by the Social Security Administration (SSA), the Environmental Protection Agency (EPA), and even the United States Air Force.
The IRS has adopted ADR as a potentially attractive option for those individuals and businesses looking to settle federal tax disputes.
According to IRS spokesperson and Chief of the Independent Office of Appeals, the IRS wants to continue to find “ways to help reduce the times, costs, and administrative burden for taxpayers and the government in resolving tax disputes.”
What are the advantages of ADR? The IRS sees it, at least in some aspects, as a way to “promote issue resolution at earlier stages and decrease the overall time from return filing to ultimate issue resolution.” For taxpayers, any opportunity to avoid litigation is usually advantageous as it saves them the time, stress, and cost of standard administrative or judicial proceedings.
The ADR programs the IRS has available have not been used to their best advantage. In its 2016 Annual Report to Congress, the Taxpayer Advocate Service concluded that the IRS is “underutilizing this potentially valuable tool.” In fact, in that same year, it reported only 306 ADR case receipts for FY 2016.
The IRS has recognized that the ADR system as it stands needs to be improved. To that end, they recently requested input "to improve the administration of these ADR programs and in proposals for other approaches to ADR that can increase the use and efficacy of ADR in the resolution of tax disputes.”
The current ADR options for reaching an agreement with the IRS include:
- Fast Track Settlement (FTS): This is part of the pre-appeals settlement program, meaning it is used during the IRS audit process. Under FTS, an independent appeals mediator assists the taxpayer and the IRS in reaching an agreement on disputed issues, facilitating settlement discussions, and offering settlement proposals. While it was originally designed for large corporate taxpayers, it is now available to small businesses, the self-employed, businesses and individuals with international interests, non-profit organizations and even government entities.
- Fast Track Mediation – Collection (FTMC): As in the FTS program, the taxpayer and the IRS are assisted by an independent appeals mediator to reach a prompt resolution of disputed issues resulting from Offers in Compromise and Trust Fund Recovery Penalties. It is currently not available for certain cases, including Collection Due Process cases and cases worked at a Collection Campus site.
- Rapid Appeals Process (RAP): This program is a pre-appeals conference that utilizes mediation techniques in an attempt to resolve issues while the case is still in appeals’ jurisdiction. Because it is meant to be completed in one conference, it is important for the taxpayer to have researched the issues, have substantiation on hand, and make sure all the issues are thoroughly covered. This is available to most LB&I cases or SB/SE estate and gift cases.
- Post Appeals Mediation (PAM): In cases where appeals settlement discussions don’t yield an agreement, a Post Appeals Mediation may be an answer. It is only available to resolve disputed issues that originate from an IRS audit or IRS tax collection actions. Disputes previously mediated through other ADR programs are ineligible.
Consult tax experts for IRS Alternative Dispute Resolution advice
At the tax group at Robert J. Fedor, Esq., LLC, we provide experienced, skilled representation in IRS disputes, as well as a variety of other legal tax matters. For more information, contact our office or call us at 800-579-0997.