Arbitration and Mediation are tools available for a taxpayer to try to resolve disagreements between the IRS and the Taxpayer. These options can help the taxpayer avoid or cut short what can be a long and costly appeal.
Arbitration is a Method Used by the IRS to Resolve Issues Outside of Court
To understand how arbitration can benefit you, it may help first to understand that tax issues have a ‘factual’ and a ‘legal’ side.
The ‘fact’ side can involve your earnings or your property, for example. The ‘legal, side is about how the IRS regulations apply to the facts of your case.
Generally, taxpayers may request Arbitration for ‘fact’ issues the taxpayer has already appealed to the IRS. Arbitration is also available in the following situations:
- After unsuccessful attempts to enter into a ‘Closing Agreement’ under Section 7121 of the Internal Revenue Code.
- When the IRS has made an ‘Offer in Compromise’ that was not successful in resolving the debt.
- In certain instances of ‘Trust Fund Recovery Penalty’. These are situations in which someone responsible for managing a Trust Fund is held personally liable by the IRS for failure to properly manage that fund.
The Taxpayer and the IRS Can mutually request Arbitration
If negotiations between the taxpayer and the IRS do not resolve the dispute, then the taxpayer and the IRS may agree to request binding arbitration.
One advantage of this arrangement to the taxpayer and to the IRS is flexibility in designing the arbitration process. But not all circumstances can be decided this way. For example, you cannot arbitrate issues requiring legal interpretation (rather than interpreting facts).
Mediation
Mediation is an important part of appealing an IRS decision.
The mediator’s role is to help resolve your tax dispute only after negotiations during the appeal were unsuccessful. The parties can agree to a specialized IRS case mediator, which can keep the mediation costs down. The taxpayer and the IRS however can at their own expense also agree to use a non-IRS mediator.
A taxpayer can use the mediation process if the case has an issue that qualifies for mediation, and is already in the appeals ‘administrative’ process. The ‘administrative process’ means that your case is not already docketed in a court.
Some advantages are that an experienced mediator can help the parties sort out issues and negotiate solutions or a settlement. Also, the mediation decision is not binding on the parties unless the parties mutually agree to accept the decision.
As with arbitration, Mediation is generally to decide ‘fact’ issues.
Some examples are ‘valuation’ and ‘transfer pricing’. And there are no dollar limits on the amount of tax debt that can be resolved by mediation.
As with Arbitration, Mediation is also available:
1) after unsuccessful attempts to enter into a ‘Closing Agreement’ under Section 7121 of the Internal Revenue Code, or;
2) when the IRS has made an ‘Offer in Compromise’ that did not lead to the successful resolution of the tax debt, or;
3) when the IRS is pursuing the Trust Fund Recovery Penalty.
You should also be aware that there are cases NOT eligible for appeal Mediation. One example is when the case has already proceeded to the collection of the tax debt.
Other examples include:
- Situations where the taxpayer is trying to argue a very unreasonable (frivolous) position.
- Or the taxpayer has already acted in bad faith in settlement negotiation with the IRS.
In sum, Mediation is for qualifying situations but is optional and entered into by mutual agreement with the IRS.
You or your tax representative or Appeals Team Case Leader or Appeals Officer with the IRS may request mediation.
Taxpayer Rescue offers experience in Arbitration and Mediation and we are ready to help you obtain the best resolution for your tax matter.
If you have attempted to negotiate your tax debt and have been unsuccessful, call us now for a consultation at 602-123-4567. You also have the option to complete our contact form here → Contact Us. Be sure to describe your situation in detail and a tax professional will contact you soon.
