IRS Updates Mediation Procedures

PURPOSE

Revenue procedure 2009-44 updates the mediation procedure for cases in the Appeals administrative process. This revenue procedure expands and clarifies the types of cases that may be mediated in Appeals. Generally, this program is available for cases in which a limited number of legal and factual issues remain unresolved following settlement discussions in Appeals.

SIGNIFICANT CHANGES

This revenue procedure modifies the Appeals mediation program to expand the types of cases that are eligible for mediation while also clarifying the types of cases that are ineligible.

SCOPE OF MEDIATION

.01 In general. Mediation may be used to resolve issues in cases that qualify under this revenue procedure while they are under consideration by Appeals. This procedure may be used only after Appeals settlement discussions are unsuccessful and, generally, when all other issues are resolved but for the issue(s) for which mediation is being requested.

.02 Applicability. Mediation is available for:
(1) Legal issues;

(2) Factual issues;

(3) A Compliance Coordinated Issue (CCI) or an Appeals Coordinated Issue (ACI). (CCI and ACI issues are listed online at www.irs.gov/appeals.) However, a CCI or ACI issue will not be eligible for mediation when the taxpayer has declined the opportunity to discuss the CCI or ACI issue with the Appeals CCI or ACI coordinator during the course of regular Appeals settlement discussions;

(4) An early referral issue when an agreement is not reached, provided the early referral issue meets the requirements for mediation;

(5) Issues for which a request for competent authority assistance has not yet been filed.

(6) Unsuccessful attempts to enter into a closing agreement; and
(7) Offer in compromise and Trust Fund Recovery Penalty cases.

.03 Inapplicability. Mediation will not be available for:
(1) Cases in which mediation is not appropriate under the general statutory authority and guidelines for use of alternative dispute resolution in the administrative process;

(2) Issues designated for litigation;

(3) Issues docketed in any court;

(4) Collection cases, except for certain offer in compromise and Trust Fund Recovery Penalty cases;

(5) Issues for which mediation would not be consistent with sound tax administration, such as, but not limited to, issues governed by closing agreements, by res judicata, or by controlling Supreme Court precedent;

(6) Frivolous issues;

(7) “Whipsaw” issues, such as, but not limited to, issues for which resolution with respect to one party might result in inconsistent treatment in the absence of participation of another party;

(8) Cases in which the taxpayer did not act in good faith during settlement negotiations, such as, but not limited to, cases in which the taxpayer failed to timely respond to document requests or offers to settle, or failed to address arguments and precedents raised by Appeals; and
(9) Issues that have been otherwise identified in subsequent guidance issued by the IRS as excluded from the mediation program.

APPLICATION PROCESS

.01 Mediation is optional. A taxpayer and Appeals may request mediation after consultation with each other.

.02 Filing requirements.
(1) Where to file. To request mediation, the taxpayer should send a written request to the appropriate Appeals Team Manager. The taxpayer should also send copies of the written request to the appropriate Appeals Area Director and to the Chief Appeals, 1099 14th Street, NW, Suite 4200E – East, Washington, DC 20005, Attn: AP:TS:TPP. (See Exhibit 1 of this revenue procedure for a listing of the addresses for each Appeals Area Director.)

(2) Required information.
The mediation request should include:

(a) The taxpayer’s name, taxpayer identification number, and address (and the name, title, address, and telephone number of a person to contact);

(b) The name of the Team Case Leader, Appeals Officer, or Settlement Officer;

(c) The taxable period(s) involved;

(d) A description of the issue for which mediation is being requested, including the dollar amount of the adjustment in dispute; and
(e) A representation that the issue is not an excluded issue listed in the “Scope of Mediation” section above.

.03 Review of Mediation Request. The Appeals Team Manager will confer with the Appeals Office of Tax Policy and Procedure before deciding to approve or deny a mediation request. Generally, the Appeals Team Manager will respond to the taxpayer and the Team Case Leader or Appeals Officer within two weeks after the Appeals Team Manager receives the request for mediation.

(1) Request approved. If Appeals approves the mediation request, the Appeals Team Manager will inform the taxpayer and the Team Case Leader or Appeals Officer and will schedule a conference or conference call that may include a representative from Appeals Tax Policy and Procedure Headquarters to discuss the mediation process.

(2) Request denied. If Appeals denies the mediation request, the Appeals Team Manager will promptly inform the taxpayer and the Team Case Leader or Appeals Officer. Although no formal appeal procedure exists for the denial of a mediation request, a taxpayer may request a conference with the Appeals Team Manager to discuss the denial. The denial of a mediation request is not subject to judicial review.

AGREEMENT TO MEDIATE

.01 Written agreement.
Upon approval of the request to mediate, the taxpayer and Appeals will enter into a written agreement to mediate. The agreement to mediate should:
(a) Be as concise as possible;

(b) Specify the issue(s) that the parties have agreed to mediate;

(c) Contain an initial list of witnesses, attorneys, representatives, and observers for each party;

(d) Identify the location and the proposed date of the mediation session; and
(e) Prohibit ex parte contacts between the mediator and the parties.

.02 Participants.
The parties to the mediation process will be the taxpayer and Appeals. Each party must have at least one participant with decision-making authority attending the mediation session. The agreement to mediate will set forth the procedures by which the parties inform each other and the mediator of the participants in the mediation, and will set forth any limitation on the number, identity, or participation of such participants. In general, the parties are encouraged to include, in addition to the required decision-makers, those persons with information and expertise that will be useful to the decision-makers and the mediator. In this regard, Appeals has the discretion to communicate ex parte with the IRS Office of Chief Counsel, the originating function, e.g., Compliance, or both, in preparation for or during the mediation session. Appeals also has the discretion to have Counsel, the originating function, or both, participate in the mediation proceeding to present the position and views of the IRS, and to rebut representations and arguments made by the taxpayer. Counsel’s participation in this regard is separate from the review function outlined in Section 9.02 of this revenue procedure.

MEDIATION PROCESS

.01 Selection of mediator and expenses. An Appeals employee trained as a mediator will serve as the mediator under this revenue procedure. Appeals will pay all expenses associated with the use of an Appeals mediator. The taxpayer and the Appeals Team Manager will select the Appeals mediator from a list of trained employees who, generally, will be located in the same Appeals office or geographical area as the taxpayer, but will not be a member of the same team that was assigned to the case. Additionally, at the taxpayer’s expense, the taxpayer may elect to use a co-mediator who is not employed by the IRS. The taxpayer and the Appeals Team Manager will select the non-IRS co-mediator from any local or national organization that provides a roster of neutrals. A representative from the Appeals Office of Tax Policy and Procedure may participate in the negotiations to select a non-IRS co-mediator. Criteria for selecting a non-IRS co-mediator may include: completion of mediation training; previous mediation experience; substantive knowledge of tax law; or knowledge of industry practices. A mediator shall have no official, financial, or personal conflict of interest with respect to the parties, unless such interest is fully disclosed in writing to the taxpayer and the Appeals Team Manager and they agree that the mediator may serve.

.02 Appeals personnel as mediators and conflict statement. To address the inherent conflict arising from the Appeals mediator’s status as an employee of the IRS, the Appeals mediator will provide to the taxpayer a statement confirming his or her proposed service as a mediator and stating that (i) he or she is a current employee of the IRS, (ii) a conflict results from his or her continued status as an IRS employee, and (iii) this conflict will not interfere in the mediator’s ability to facilitate the case impartially.

MEDIATION SESSION

.01 Discussion summaries. Each party will prepare a discussion summary of the issues (including the party’s arguments in favor of the party’s position) for consideration by the mediator. The discussion summaries should be submitted to the mediator and the other party no later than two weeks before the mediation session is scheduled to occur.

.02 Confidentiality. The mediation process is confidential. Therefore, all information concerning any dispute resolution communication is confidential and may not be disclosed by any party, participant, observer or mediator except as provided by statute.

.03 Withdrawal. Either party may withdraw from the process anytime before reaching a settlement of the issue(s) being mediated by notifying the other party and the mediator in writing.

POST-SESSION PROCEDURES

.01 Mediator’s report. At the conclusion of the mediation process, the mediator will prepare a brief written report and submit a copy to each party.

.02 Closing procedures. If the parties reach an agreement on all or some issues through the mediation process, Appeals will use established procedures, including preparation of a Form 906, Closing Agreement on Final Determination Covering Specific Matters. For offer in compromise cases with liabilities of $50,000 or more, any settlement or agreement reached through mediation must be reviewed by the Office of Chief Counsel before being finalized.

If the parties do not reach an agreement on an issue being mediated, they may request arbitration for the issue, provided the mediation issue meets the requirements for arbitration. If arbitration is not requested or approved, Appeals will not reconsider the mediated issue(s), and a statutory notice of deficiency will be issued with respect to all unagreed issues (or the case will be processed using established closing procedures if there is no deficiency).

GENERAL PROVISIONS

Use as precedent. A settlement reached by the parties through mediation will not be binding on the parties (or be otherwise controlling) for taxable years not covered by the agreement. Except as provided in the agreement, no party may use such settlement as precedent.

EFFECTIVE DATE
This procedure is effective October 5, 2009, the date this revenue procedure is published in the Internal Revenue Bulletin.

This type of tax problem necessitates the input of a qualified tax attorney. Mitchell A. Port is just such an attorney. Call Mitch at (310) 559-5259.