Mediating with the IRS. Really.
Mediation is an efficient ADR tool in almost all justiciable controversies from commercial contracts to domestic relations. Unfortunately few tax professionals and even fewer taxpayers know that mediation is available as a tool to resolve many tax disputes with the Internal Revenue Service.
Mediation is available in tax disputes under the following situations and authorities:
All four of these mediation procedures differ in the selection and qualifications of the mediator. For IRS administrative appeals disputes, Rev. Proc. 2009-44, Sec. 7, specifies that the mediator shall be an IRS employee selected by the taxpayer and the appeals team manager from a list of trained IRS Mediators.[ii] But, the taxpayer may elect to use a non-IRS co-mediator selected by taxpayer and the appeals team manager from a list of local private, qualified mediators.
For cases pending before the U.S. Tax Court, the mediation process is governed by the Internal Revenue Manual. The mediator is selected by the taxpayer and field counsel. The mediator may be a qualified individual who has no conflict involving representation of the taxpayer. “The mediator should be an expert in the negotiated settlement process. . . . [with] mediation training, previous mediation experience, a substantive knowledge of tax law, or knowledge of industry practices.” Costs may be considered. Costs must be approved for the government and are routinely split between taxpayer and the agency. I.R.M. 188.8.131.52., Paras. 1, 3, 6, and 7.
As a precaution for those cases pending before the U.S. Tax Court, there is no procedure to continue the case from calendar to calendar to permit mediation. Indeed, the Tax Court has no ADR program. However, in the author’s experience, in the one instance in which the taxpayer and district counsel agreed to refer the case back to IRS Administrative Appeals for mediation, the Tax Court readily granted a continuance. The case settled at Administrative Appeals as the parties framed the issues for mediation.
For those cases pending before the U.S. District Court for the Northern District of Georgia, the trial judge may refer a case to mediation. NDGa. L.R. 16.7, E. The neutral mediator is selected either by the judge from lists of three nominees from each party or by the ADR administrator in cases referred to the court-annexed ADR program. NDGa. L.R. 16.7, F, 1. & 2.
All parties may agree to the referral to mediation, or those counsel who desire mediation “may provide the judge with confidential notice, in writing, of that counsel’s desire for ADR.” NDGa. L.R. 16.7, D., 3. In the author’s experience, most trial judges routinely refer all cases, including tax cases, to mediation if either party expresses an interest.
Finally, the United States Court of Appeals for the Eleventh Circuit has implemented a comprehensive mediation program for all civil appeals including tax cases. 11th Cir. R. 33-1. The court normally uses mediators from the Kinnard Mediation Center panel or judges. However, the parties may agree to use a private mediator at their expense provided that the private mediator has been certified as a mediator for five years, has been practicing law for 15 years, and is currently admitted to the Eleventh Circuit.
The Eleventh Circuit’s mediation process centers around an appellant’s civil appeal statement, which includes portions of the record. The mediation program is mandatory for those cases selected by the Kinnard Mediation Center. But either party may request mediation if the case is not initially selected by the center. “Mediations are official court proceedings and the Kinnard Mediation Center circuit mediators act on behalf of the court.” 11th Cir. R. 33-1, (c), (1). Indeed, failure to submit the civil appeal to mediation may subject a party to dismissal. 11th Cir. R. 33-1, (f).
In the author’s experience, mediation of tax matters at the Eleventh Circuit has met with little success. That experience includes cases in which the taxpayer had prevailed at the Tax Court and cases in which the IRS commissioner had prevailed at the Tax Court or at the District Court. That experience would auger well for earlier mediation at the trial court or administrative appeals level.
As in all cases, mediation offers an opportunity to resolve a tax controversy at the earliest stage. Given taxpayers’ inherent distrust of IRS employees as mediators, the best results would flow from mediations in which the taxpayer elects to use an additional private mediator in the administrative appeals mediation under Rev. Proc. 2009-44, or a private mediator entirely in a pending Tax Court case under I.R.M. 184.108.40.206.
In any case, since the mediator cannot be an advocate for either party, the selection of a particular private mediator should not affect the outcome of the mediation other than to ensure, frank, open, and civil discussions with a candid assessment of the issues and the parties positions. In doing so, the mediator must point out the weaknesses of a party’s position in these IRS cases. After all, it is the mediator’s duty to help the parties explore the broadest bases for settlement.
[i] For the benefit of taxpayers unfamiliar with the IRS other than filing yearly tax returns, the Office of Appeals is a special division (normally closely aligned with the District Counsel’s Office) staffed by the most experienced IRS agents in audit and collection. They serve as an administrative appeal body within the IRS. They typically have the authority to settle cases within certain guidelines and may even consider litigation risks.
[ii] According to Dale Veer, Appeals, Tax Policy and Procedure (Collection & Processing), the IRS has trained several hundred mediators. Unfortunately, only 30 cases have been referred for mediation under Ann. 2008-111 for Offers in Compromise and Failure to Pay Payroll Tax Penalty Cases. Of these, some 16 were resolved by settlement and the remainder proceeded to litigation. Telephone interview by author with Dale Veer, April 3, 2012. Mr. Veer invites inquiries from tax practitioners, 651-726-7430.
I.R.S. Rev. Proc. 2009-44
I.R.B. 2008-48, Ann. 2008-111, Extended by Ann. 2011-6.
I.R.M 220.127.116.11, Et. Seq.
NDGa. L.R. 16.7.
11th Cir. R. 33-1