Draft Fast Track Mediation Procedure.

August 8, 1999

On August 8, 1999, Tax Executives Institute submitted the following comments regarding the Internal Revenue Service's request for comments on the agency's draft Fast Track Mediation Procedure. The Institute's comments took the form of a letter from TEl President Lester D. Ezrati to Thomas C. Louthan, Director of the IRS's Alternative Dispute Resolution and Customer Service Programs.

This letter responds to your request for comments on the draft Fast Track Mediation Procedure. The procedure implements a new program designed to expeditiously resolve cases at the compliance level. The process involves an Appeals Officer acting as a mediator with no settlement authority and takes place between the taxpayer and IRS compliance function at a neutral site. Unlike the mediation procedure set forth in Announcement 98-99, the procedure is not limited to taxpayers in the Coordinated Examination Program (CEP) or to factual issues involving an adjustment of at least $1 million that are already in the Appeals administrative process.

Tax Executives Institute has long supported Appeals' mission to resolve tax controversies without litigation. The draft mediation procedure is a logical extension of the Appeals process and should complement the procedures previously initiated. The Institute applauds the IRS's efforts to implement the mandate of the IRS Restructuring and Reform Act that mediation procedures be made more widely available to all taxpayers.

The draft procedure would be available for factual issues such as valuation, reasonable compensation, substantiation, transfer pricing, trust fund recovery, and offers in compromise less than $50,000. It would not be available, however, in respect of docketed cases, Industry Specialization Program (ISP) issues, or Appeals Coordinated Issues (ACI).(1) TEI believes the scope of the mediation procedure should be broadened even further.

First, TEI believes that there is no sound reason for limiting the procedure to non-docketed cases. We recognize that there may be more time pressures on Appeals and taxpayers with respect to docketed cases. Given the speed and flexibility of the mediation process, however, the mediation procedure may actually facilitate the resolution of docketed cases before trial. Because of the voluntary nature of the procedure, the IRS could simply decline to use mediation if time were a factor in a particular docketed case. Mediation has been successfully used in civil cases to reduce crowded court dockets, and there is no reason it should not apply in tax cases.

Moreover, we believe that mediation can be effectively used to resolve ISP and ACI issues. To foster the IRS's goal of uniformity, the ISP or ACI specialist could be made a part of the IRS's negotiating team. Again, the voluntary and non-binding nature of the mediation procedure should afford the IRS ample protection from being whipsawed or otherwise disadvantaged in any particular case.

In sum, the more opportunities taxpayers and the IRS have to resolve their disputes (including refund claims) outside the courtroom, the better. The draft procedure should accord taxpayers and the IRS maximum flexibility in structuring the mediation arrangement to fit their particular needs.

TEI is pleased to have the opportunity to offer its comments on the draft procedure. If you have any questions, please feel free to contact me at [phone] or Mary L. Fahey of the Institute's legal staff at [phone]; [e-mail].

(1) The draft procedure also states that it is unavailable for "issues with legal hazards" or that "contain legal hazards" -- terminology that may cause confusion. We understand that these terms will be clarified to refer to the "hazards of litigation."