ADR procedures.

• Author: Dougherty, James A.
• Position: IRS-taxpayer disputes

Within the IRS, 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.

Background

Alternative dispute resolution (ADR) 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) taxpayers and tax disputes greater than $1 million; however, Section 3465 of the Internal Revenue Service Restructuring and Reform Act of 1998 (IRSRRA '98) directed the IRS to expand it to all taxpayers. The IRSRRA '98 essentially codified 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 overall resolution of the examination cycle.

Early referral is available for Industry Specialization Program (ISP) issues and Appeals Coordinated Issues (ACI). Early referral also applies to unresolved issues related...