Service formally establishes appeals arbitration program.

• Author: Manning, Paul

In Rev. Proc. 2006-44, the Service formally established the Appeals Arbitration Program (AAP), under which the IRS and the taxpayer agree to have a third party make a decision about a factual issue that will be binding on both of them.

Background

In Ann. 2000-4, the Service announced that it was establishing a two--year pilot program testing a binding arbitration procedure, effective Jan. 18, 2000. Ann. 2002-60 extended that two-year test for an additional one-year period (ending July 1, 2003). Although no further guidance had been issued until now, the IRS had continued to honor requests for arbitration under Ann. 2002-60. Rev. Proc. 2006-44 for-realizes the AAP and supersedes Anns. 2000-4 and 2002-60.

Availability

The AAP may be used to resolve issues while a case is in Appeals, after settlement discussions are unsuccessful and when all other issues are resolved but for the specific factual issue for which arbitration is being requested.

Arbitration is available only for factual issues, including those unresolved at the conclusion of unsuccessful attempts to enter into a dosing agreement under Sec. 7121. It is not available for:

* Legal issues;

* Cases for which arbitration is not appropriate under 5 USC Section 572 or 575 (which provide the general authority and guidelines for the use of alternative dispute resolution in the administrative process);

* Issues docketed in any court;

* Issues in a taxpayer's case designated for litigation;

* Certain Compliance Coordinated Issues or Appeals Coordinated Issues;

* Issues for which a request for competent authority assistance has been filed under Rev. Proc. 2002-52 (or any successor guidance), including issues in cases submitted to the competent authority under the simultaneous appeals procedure;

* Certain collection cases;

* Issues for which arbitration would not be consistent with sound tax administration;

* Whipsaw issues;

* Frivolous issues, such as (but not limited to) those identified in Rev. Proc. 2001-41;

* Cases in which the taxpayer did not act in good faith during Appeals settlement negotiations; and

* Issues that have been otherwise identified as excluded from the AAP.

Application Process

Either the taxpayer or Appeals may submit a request to arbitrate after consulting with the other party. A taxpayer should submit a request to the appropriate Appeals Team Manager and a copy to the Chief, Appeals, 1099 14th Street, NW, Suite 4200 East, Washington, DC 20005, Attn: Office of Tax...