Within the IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. , alternatives are available to taxpayers to resolve tax disputes at the lowest possible level. Using the following procedures, taxpayers and the Service may be able to decrease both time and costs to achieve resolution of disputes.
Alternative dispute resolution Procedures for settling disputes by means other than litigation; e.g., by Arbitration, mediation, or minitrials. Such procedures, which are usually less costly and more expeditious than litigation, are increasingly being used in commercial and labor disputes, Divorce (ADR ADR - Astra Digital Radio ) is a set of programs that the Office of Appeals developed to assist taxpayers in resolving tax controversies more efficiently. ADR was originally available only to Coordinated Examination Program (CEP CEP congenital erythropoietic porphyria.
congenital erythropoietic porphyria ) taxpayers and tax disputes greater than $1 million; however, Section 3465 of the Internal Revenue Service Restructuring and Reform Act of 1998 (IRSRRA IRSRRA IRS Restructuring and Reform Act of 1998 '98) directed the IRS to expand it to all taxpayers. The IRSRRA '98 essentially codified cod·i·fy
tr.v. cod·i·fied, cod·i·fy·ing, cod·i·fies
1. To reduce to a code: codify laws.
2. To arrange or systematize. the internally developed appeals procedures to hold the IRS statutorily bound to follow the procedures and make them available to all taxpayers. ADR includes the following procedures: (1) early referral to Appeals, (2) mediation, (3) arbitration, (4) classification settlement program and (5) simultaneous appeal (Competent Authority). Additionally, the Service expanded ADR to include "Fast Track Mediation" and is in the process of developing ADR procedures to comply with IRSRRA '98. To date, some procedures have been published.
Early Referral to Appeals
The IRS recently issued Rev. Proc. 99-29, which outlines procedures for requesting early referral to Appeals, effective for requests filed after July 19, 1999. This procedure allows taxpayers to request that one or more issues under audit be referred to Appeals prior to exam completion. Approved requests follow procedures similar to those for proposed audit adjustments processed at the conclusion of an audit cycle. Early referral may be attractive to taxpayers who know early in the audit that certain issues will not be resolved in the field. One major advantage to early referral is that issues are not subject to the Sec. 6621(c)"hot interest" provisions while under consideration by the Office of Appeals and prior to completion of the exam. Taxpayers faced with issues that will likely go to Appeals may benefit by using early referral, because it speeds up the process of developing the issue in the field. Ultimately, the goal of early referral is to expedite ex·pe·dite
tr.v. ex·pe·dit·ed, ex·pe·dit·ing, ex·pe·dites
1. To speed up the progress of; accelerate.
2. overall resolution of the examination cycle.
Early referral is available for Industry Specialization A career option pursued by some attorneys that entails the acquisition of detailed knowledge of, and proficiency in, a particular area of law.
As the law in the United States becomes increasingly complex and covers a greater number of subjects, more and more attorneys are Program (ISP (1) See in-system programmable.
(2) (Internet Service Provider) An organization that provides access to the Internet. Connection to the user is provided via dial-up, ISDN, cable, DSL and T1/T3 lines. ) issues and Appeals Coordinated Issues (ACI ACI American Concrete Institute
ACI Arch Coal Inc
ACI Airports Council International (formerly Airport Associations Coordinating Council)
ACI Automobile Club d'Italia
ACI American Competitiveness Initiative ). Early referral also applies to unresolved Not completed; not finished; not linked together. See resolve. issues related to an involuntary involuntary adj. or adv. without intent, will, or choice. Participation in a crime is involuntary if forced by immediate threat to life or health of oneself or one's loved ones, and will result in dismissal or acquittal.
INVOLUNTARY. , change in accounting method, employment tax, employee plans or exempt organizations. It is not available for issues designated for litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute.
When a person begins a civil lawsuit, the person enters into a process called litigation. by IRS Chief Counsel. Under Rev. Proc. 99-28, early referral is limited to issues that:
* Can reasonably be expected to result in quicker resolution of the entire case;
* Both the taxpayer and District have agreed to submit for early referral;
* Have been fully developed in the examination process; and
* Are part of a case in which the remaining issues are not expected to be completed before Appeals can resolve the early referral issue(s).
Mediation is a structured negotiation process involving a neutral third-party mediator mediator n. a person who conducts mediation. A mediator is usually a lawyer, or retired judge, but can be a non-attorney specialist in the subject matter (like child custody) who tries to bring people and their disputes to early resolution through a conference. . The process is optional and nonbinding, and is designed to assist parties in reaching their own settlement. Mediation is used only when all traditional appeals methods have been exhausted (i.e., the taxpayer and Appeals are at an impasse im·passe
1. A road or passage having no exit; a cul-de-sac.
2. A situation that is so difficult that no progress can be made; a deadlock or a stalemate: reached an impasse in the negotiations. ). Mediation does not take any rights away from the taxpayer and is a less-costly and quicker alternative to litigation. If, at the conclusion of the mediation process, no resolution is reached, the taxpayer is in the exact position as it was before mediation and may pursue the issue in the courts.
Announcements 95-86 and 97-1 outlined mediation procedures available only to taxpayers in the CEP program. Announcement 98-99 expanded mediation to include non-CEP taxpayers with factual disputes involving an adjustment of $1 million or more. Factual disputes may include valuation, reasonable compensation and transfer pricing Transfer pricing refers to the pricing of goods and services within a multi-divisional organization, particularly in regard to cross-border transactions. For example, goods from the production division may be sold to the marketing division, or goods from a parent company may be . Mediation is not available for any issue designated for litigation or docketed in court, nor for any ISP issue, ACI issue or any issue dealing with an outstanding Competent Authority request. The IRS is currently developing procedures to expand mediation to all taxpayers. In the interim, the Service has informally encouraged taxpayers to request mediation (even if the case involves an adjustment of less than $1 million).
Fast-track mediation is a new concept developed to apply standard mediation procedures at the examination level. Final guidance is expected to be issued in the near future. As outlined in draft procedures, fast-track mediation would provide the opportunity for a taxpayer and Compliance (i.e., Examination or Collection) to negotiate a resolution of factual issues with the assistance of an Appeals Officer. Fast-track mediation would be available to taxpayers as a way to resolve factual differences at the examination level, thus avoiding more costly and lengthier alternatives (such as an appeal or litigation).
Under the draft procedures, fast-track mediation could be used to resolve factual issues such as: valuation; reasonable compensation; transfer pricing; substantiation issues; trust fund recovery penalties; and offers in compromise under $50,000. Issues designated for litigation, ACI or ISP issues, Competent Authority cases, constitutional issues, enforcement actions and offers in compromise over $50,000 would not be eligible for fast-track mediation as proposed. Procedures similar to traditional mediation would apply. Fast-track mediation would be voluntary and would take place at a case manager's closing conference or prior to issuance of an unagreed report. In the event a resolution was not reached, taxpayers would retain the right to request a traditional appeal and could elect to have the same or a different Appeals officer review the case.
The IRS Chief Counsel currently has a voluntary binding arbitration program for factual issues in docketed cases. However, IRSRRA '98 requires the IRS to initiate arbitration procedures for all taxpayers when issues involve factual disputes in nondocketed cases. Guidance on the expanded arbitration procedures is expected to be published soon. The main difference between mediation and arbitration is that arbitration is binding on all parties. It may be attractive in situations in which a taxpayer does not want certain information in a case to be disclosed as part of a public court document (e.g., trade secrets).
CSP (1) (Certified Systems Professional) An earlier award for successful completion of an ICCP examination in systems development. See ICCP.
(2) (Commerce Service P
The Classification Settlement Program (CSP) is intended to reduce taxpayer burden by resolving worker classification issues during the examination process. CSP streamlines the administrative process by using standard closing agreements, to the extent that the taxpayer has satisfied certain reporting consistency requirements under Section 530 of the Revenue Act of 1978. Graduated settlement offers are used depending on the degree to which taxpayers meet the Section 530 requirements. CSP was initiated in March 1996 for a two-year trial period. Recently, however, the Service issued Notice 98-21, extending CSP until further notice.
CSP is voluntary and taxpayers may accept a CSP settlement offer at any time during the examination process. Taxpayers rejecting CSP offers retain their rights to an appeal. As discussed previously, worker classification issues are available for early referral procedures in the event that the taxpayer rejects a CSP offer.
Simultaneous Appeals (Competent Authority)
Simultaneous Appeals consideration in competent authority cases occurs when taxpayers request Appeals to consider an issue at the same time that it is being considered under Competent Authority review. U.S. Competent Authority requests assist taxpayers and the U.S when the actions of the U.S. or treaty country or both may result in taxation contrary to treaty provisions; often, requests seek to relieve economic double taxation. Competent Authority also resolves issues involving residency A duration of stay required by state and local laws that entitles a person to the legal protection and benefits provided by applicable statutes.
States have required state residency for a variety of rights, including the right to vote, the right to run for public office, the determinations, exemption of income from foreign taxation or availability of credits against foreign tax. The Assistant Commissioner (International)--with the assistance of the Tax Treaty Division--administers competent authority issues. If competent authority assistance is granted, the Assistant Commissioner (International) will consult with the appropriate foreign competent authority and attempt to reach a mutual agreement acceptable to all parties.
Rev. Proc. 96-13 contains the procedures for simultaneous Appeals consideration of competent authority issues. The Appeals representative acts as a mediator, per se, consulting with the taxpayer and the U.S. Competent Authority to try to reach a resolution before presenting the issue at hand to the foreign competent authority. Under this procedure, taxpayers are not afforded a fresh review by Appeals if the taxpayer and the U.S. Competent Authority do not reach a resolution under the simultaneous Appeals procedures. The primary benefit of simultaneous Appeals consideration is to expedite the resolution of applicable issues with the U.S. Competent Authority, so as to reach resolution of the issue with the foreign competent authority.
The mission of Appeals is to resolve tax controversies without litigation in a manner both fair and impartial Favoring neither; disinterested; treating all alike; unbiased; equitable, fair, and just. to both the taxpayer and the government. ADR procedures assist the Service and taxpayers in facilitating timely resolution of tax disputes. These procedures are intended to reduce taxpayer burden, increase service to all taxpayers and decrease the cost incurred by both the IRS and taxpayers in dispute resolution matters. Taxpayers are strongly encouraged to evaluate the alternatives available through the use of ADR programs.
Editor's note Editor's Note (foaled in 1993 in Kentucky) is an American thoroughbred Stallion racehorse. He was sired by 1992 U.S. Champion 2 YO Colt Forty Niner, who in turn was a son of Champion sire Mr. Prospector and out of the mare, Beware Of The Cat.
Trained by D. : Mr. Ely chairs the AICPA AICPA
See American Institute of Certified Public Accountants (AICPA). Tax Division's Tax Practice & Procedures Committee. Mr. Dougherty and Ms. Pflieger are members of the committee. Ms. Trompeter is the committee's Technical Manager.
FROM JAMES A. DOUGHERTY, CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. , DIRECTOR, TAX CONTROVERSY, AND CHERIE A. HILL, TAX MANAGER, WASHINGTON
Mark H. Ely, J.D. CPA National Partner-in-Charge of Tax Controversy Technical Services Washington National tax KPMG KPMG Klynveld Peat Marwick Goerdeler (accounting firm)
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