Issue resolution and LMSB division appeals.

The Appeals Division that handles taxpayers under the jurisdiction of the Large and Mid-Size Business (LMSB) Division is changing to meet the needs of its customers. The vision of Appeals, according to Daniel Black, National Chief of Appeals, is "to provide premier dispute resolution services that meet our customer needs through a highly skilled and satisfied work force, utilizing innovative approaches, dynamic processes, and interpersonal skills that promote quality business results" (IR-2000-57). To meet this vision, Appeals is introducing new initiatives, as well as focusing on some other existing programs. In either case, it hopes to facilitate the issue-resolution process. In a recent survey, customers were the least satisfied with what they considered a lengthy process. As a result, Appeals has made reducing the time it takes to resolve an appeal a top priority.

MAAP 

To decrease both the cycle time of the Appeals process and the inventory of cases, Appeals introduced the Mutually Accelerated Appeals Process (MAAP); see IR-2000-42. Appeals designed the MAAP initiative to reduce the time it takes to resolve Coordinated Examination Program cases.

MAAP handles cases involving $10 million or more in disputed tax. Under the MAAP initiative, both the taxpayer and Appeals must agree to a specific schedule to resolve all issues. In addition, both parties must agree to add resources, if necessary, to accelerate the pace to meet the schedule. At the beginning of the Appeals process, the taxpayer signs a statement agreeing to try to resolve the issues prior to an agreed-on date. If the taxpayer does not meet the date, a new date will be renegotiated.

The IRS has committed 50 Appeals officers to work on the MAAP initiative. Appeals reviewed the existing cases to determine how adding team members, shifting, workload among current team members or creating new teams might accelerate case resolution. In addition, Appeals reviews all new cases to determine whether MAAP would be the appropriate avenue to accelerate resolution. Appeals decides appropriateness based on a taxpayer's level of cooperation, a case's age and status, and whether the case requires the expertise of an IRS Specialist.

LMSB/Appeals FTDR Program

On Nov. 14, 2001, the LMSB Compliance Division and Appeals jointly introduced the Fast Track Dispute Resolution (FTDR) Program; see Notice 2001-67. The objective of this initiative is to promote issue resolution at the lowest levels within the Service. The program will use Appeals tools while a case is still under Compliance Division jurisdiction. The FTDR Program has several benefits, which include reducing the time and the cost to resolve issues, keeping dispute resolution at the lowest level possible and fostering cooperative relationships between taxpayers and the IRS. Under the LMSB FTDR Program, taxpayers can opt for either mediation or settlement, depending on the circumstances.

FTM. Under Fast Track Mediation (FTM), an Appeals Officer or an Appeals Team Case Leader acts as a mediator to help the parties resolve factual issues. The objective is to facilitate communication and negotiation to reach resolution of the issues between the parties. Under FTM, a hazard-settlement option is not available; the parties cannot reach a settlement based on the hazards of litigation, which would be available if the case were under Appeals' jurisdiction. Under FTM, the parties examine factual issues and reach a voluntary agreement.

FTS. Under Fast Track Settlement (FTS), Appeals may use its settlement authority to achieve a mutually acceptable agreement by the parties. An Appeals Team Case Leader facilitates the resolution of both legal and factual issues. FTS allows both Appeals and taxpayers to assess the hazards of litigation when resolving disputes.

FTDR Program Benefits

There are several key features to the FTDR Program process, including no "hot interest," which act as taxpayer incentives for program participation. Hot interest is the additional two-percent interest that corporations must pay on deficiencies over $100,000 when an issue goes to Appeals. Generally, hot interest begins to accrue 30 days after Compliance issues a 30-day letter. Because the FTDR Program process must take place before issuance of the 30-day letter, hot interest does not begin accruing. Taxpayers in the FTDR Program can enjoy the benefit of having Appeals' tools and settlement techniques available to them while they are still under Compliance's jurisdiction.

Another feature of the program is that the process is relatively fast; the goal is to resolve the issues within 120 days. This is a significant savings of time over the two years it generally takes for the normal procedure, in which an examination and an audit occur sequentially. In addition, instead of multiple computations being completed at both the Compliance and Appeals levels, only one computation is done, saving a significant amount of time for both parties.

The taxpayer and Compliance may also withdraw from the process at any time. Thus, if events do not progress as the parties anticipated, either party could withdraw, and the taxpayer would retain its right to an appeal under the traditional process.

How the Process Works

After Compliance issues Form 5701, Notice of Proposed Adjustment, and the parties fully discuss the issues, either the taxpayer or Compliance may request FTDR. Both parties must agree to use the FTDR Program. It is most appropriate when the issues have been fully developed, the taxpayer has stated its position in writing, and there is a limit to the number of unresolved issues. The taxpayer should provide a written response to Form 5701 as part of the request. After the Team Manager and the taxpayer agree to enter the FTDR Program, they decide whether to use either the FTM or the FTS process, and complete an "LMSB Fast Track Agreement" (a one-page form).

Compliance forwards the paperwork (including the agreement form, Form 5701 and the taxpayer's response) to Appeals within three days. Appeals takes on the case within seven days of receiving the paperwork, contacting the taxpayer within 10 days of its receipt of the paperwork.

Appeals meets with the taxpayer and Compliance to try to reach a settlement. The meeting may be held at Appeals or another site to which the parties agree. The Appeals Officer leads the negotiations with the anticipation that the parties can reach a voluntary agreement. If the case involves litigation hazards, the parties must use the FTS option. When the parties reach an agreement under this option, Appeals exercises its settlement authority to accept a settlement.

If the parties cannot reach an agreement, either may withdraw from the process. The taxpayer may withdraw at any time, by notifying the LMSB Team Manager and the Appeals representative in writing. The Appeals representative or the LMSB Team Manager also may terminate the process if it becomes apparent that meaningful progress toward resolution of the issues is unrealistic. In addition, if an agreement is not forthcoming, Compliance issues a 30-day letter, allowing the taxpayer to prepare a protest to proceed to Appeals. The taxpayer retains all of its usual Appeals rights, because the case is under Compliance's jurisdiction during the FTDR Program process.

The ex parte communications rules do not apply to the FTDR Program, because cases are under Compliance's jurisdiction. Therefore, Appeals may talk to both parties separately about issues prior to their meeting.

The FTDR Program cannot be used for issues that were (1) designated for litigation by Chief Counsel, (2) the subject of a request for competent authority, (3) requested by the taxpayer for a simultaneous Appeal/Competent Authority procedure, (4) outside Appeals' settlement authority (e.g., application of certain international penalty provisions under Chapter 61 of the Code) and (5) part of cases not within the LMSB's jurisdiction.

Pilot Program

A pilot for the LMSB FTDR Program began on Nov. 14, 2001; it will be accepting applications through Nov. 14, 2002. The intent of the pilot program is to test whether an expedited process reduces time and cost to the government and taxpayers. The pilot is open to large and mid-size businesses (i.e., those with assets over $10 million) that currently have at least one open year under examination and at least one issue in dispute. During the pilot, the IRS would like a minimum of one case from each of the five LMSB industry groups participating in FTM, as well as a minimum of one case from each industry group in FTS.

Taxpayers interested in participating in the pilot may contact the Team Manager for their current examination; Jim Fike, LMSB Fast Track Program Manager (at [phone]); or J.W. Wyatt, Appeals Fast Track Acting Program Manager (at [phone]).

The new FTRD Program seems to provide an excellent opportunity for taxpayers to resolve issues with the IRS at the lowest possible level. Taxpayers will benefit from the negotiation skills of Appeals' personnel, as well as their settlement authority in FTS cases. This will allow taxpayers to reap the benefits of Appeals without having to pay the hot interest that generally accrues during the Appeals process.

FROM JAMES A. DOUGHERTY, DIRECTOR, AND TRACEY A. FIELMAN, SENIOR MANAGER, TAX CONTROVERSY SERVICES, WASHINGTON NATIONAL TAX, DELOITTE & TOUCHE LLP, WASHINGTON, DC

Editor's note: Mr. Ely is former chair of the AICPA Relations with the IRS Committee. James Dougherty is the current chair. Ms. Pflieger, Ms. Jacobs and Ms. Gervie are members of the committee. Ms Pflieger is also the immediate past chair.