B Q EDITED BY PROCEDURE DEPARTMENT Taking Advantage of Second Chances: Considerations and Strategies for IRS Post- Appeals Mediation CHUCK HODGES AND ADITYA SHRIVASTAVA Post-Appeals mediation is generally most effective when the parties attempt to implement the process similarly to a non-tax civil litigation matter. e words of John Wayne may best sum- is article focuses on a brief marize how taxpayers and the IRS view overview and history of post-Appeals post-Appeals mediation: “A man de- mediation; the mediation process as 1 and serves a second chance, but keep an eye outlined in Rev. Proc. 2014-63; on him.” Post-Appeals mediation is all strategies for maximizing the chances about second chances—for the taxpayer of resolving the factual and/or legal and IRS Appeals; but the process can issues in dispute that are le undecided oen run off the proverbial tracks if the at the conclusion of the IRS exam and alternative dispute resolution (ADR) regular Appeals process. 2 technique is not conducted properly and each party is there just to “keep an Brief History and Overview eye on” the adversary without any will- of Post-Appeals Mediation ingness to view his case through a true hazards of litigation lens. Post-Appeals Mediation is a confjdential ADR process mediation can be a useful tool to resolve that fosters the resolution of disputes tax disputes aer unsuccessful negoti- without a trial by allowing a neutral me- ations during the regular Appeals diator to assist the parties in negotiating process. However, this form of tax con- a settlement that addresses the specifjc 3 e troversy mediation is generally most ef- needs and interests of each party. fective when the parties take as many mediator defjnes issues, defuses emo- steps as possible to make the process tions, and suggests possible ways to re- look and feel like mediation in non-tax solve a dispute, but does not render 4 Congress civil litigation matters. judgment regarding any issue. Q 14 J O U R N A L O F T A X A T I O N l J U L Y 2 0 1 8
initially provided statutory authority the ADR process as unfortunately, few send a written request for mediation to for mediation as part of the IRS Appeals taxpayer representatives appear to have the appropriate Appeals Team Manager process in section 3465 of the Internal experience with mediation. If the tax- and send copies of the written request Revenue Service Restructuring and Re- payer reasonably believes the Appeals to the appropriate Appeals Area 8 e request for mediation form Act of 1998 (IRSRRA). Pursuant Officer in charge of its case is no longer Director. to IRSRRA, taxpayers may enter into open to further negotiations, but the should include the taxpayer’s name, tax- nonbinding mediation under Section case could (and should) still be resolved payer identifjcation number, and address; 7123 when both the IRS and taxpayers amicably, the taxpayer could rely on the the name of the Team Case Leader, Ap- have been unsuccessful at entering into advice of e Clash when reaching out peals Officer, or Settlement Officer; the a closing agreement, or to resolve issues to Appeals and asking: “Should I stay or taxable period(s) involved; and a de- 7 Taxpayers should try to aer the conclusion of the Appeals should I go?” scription of the issue for which mediation 9 Mediation will not process. Rev. Proc. 2014-63 provides “stay” as long as possible if the standard is being requested. guidelines relating to mediation and up- dating the previous procedures found Q Mediation will not occur unless 5 rough the in Rev. Proc. 2009-44. both the taxpayer and Appeals agree years, the IRS conducted various medi- to participate in the process. ation pilot programs for issues in exam and then in collection cases. Rev. Proc. 2014-63 consolidates the procedures for mediation of examination and col- Appeals case is moving forward to a occur unless both the taxpayer and Ap- lection cases. possible resolution. Mediation is not an peals agree to participate in the process. 10 alternative to simply speeding up the For that reason, taxpayers must carefully case or getting an entire fresh look. consider when to end the regular Ap- “Should I Stay or So when should a taxpayer consider peals process since post-Appeals medi- Should I Go?” mediation in light of the additional costs ation is not a guarantee. However, a e fjrst question is when should a tax- and time involved? Generally, mediation question arises as to whether post-Ap- payer end the regular Appeals process is advantageous when taxpayers and peals mediation could be more effective and go to post-Appeals mediation. John Appeals are able to agree on many factual in resolving Appeals cases, before me- Wayne and the rock band, e Clash, and legal issues but cannot settle the diation , if mediation could be granted may rarely, if ever, have been mentioned case due to a limited number of primary in most cases. together before now in a tax discussion, issues the parties simply cannot resolve. Before preparing the request, tax- but both have provided valuable con- e disputes could arise based on how payers must determine whether the dis- siderations for when to consider post- the parties view the evidence or the rel- puted issue can be resolved in mediation. Appeals mediation. Oen the decision evant authority. For example, Appeals According to Rev. Proc. 2014-63, me- of when to go to post-Appeals mediation could view the potential testimony of diation is available for the following occurs when the taxpayer and Appeals the taxpayer as biased and unreliable or types of issues: are at a standstill with no possible chance an intercompany agreement in a transfer • Legal issues. of further negotiations, but at least one pricing context as not refmective of arms’ • Factual issues. party believes the involvement by a neu- length. A neutral party could confjrm, • Compliance Coordinated Issues tral party could positively impact the however, that a reasonable trier of fact (CCI) or Appeals Coordinated Is- settlement discussions. e neutral party could fjnd the testimony credible or the sues (ACI). can help the parties reach their own ne- agreement satisfjes the arms’ length stan- • Early referral issue when an agree- gotiated settlement and the authors have dard. In those situations, mediation is ment is not reached, provided the witnessed various tax and non-tax me- a reasonable alternative to costly and NOTES diation sessions in which no one could unpredictable litigation for both parties 1 2014-53 IRB 1014. have predicted the fjnal settlement terms because the mediator can outline hazards 2 The comments, considerations, and strategies at the start of the mediation session. of litigation from a neutral viewpoint. discussed below are for general thought-provok- Either a taxpayer or Appeals may re- ing and discussion purposes to assist readers based on input from a variety of sources and do quest mediation aer consultation with not necessarily reflect the opinions of the au- 6 However, it is rare for Ap- Requesting Mediation each other. thors. 3 Unif. Mediation Act. Prefatory Note (2003). peals to recommend mediation and not Once the taxpayer decides mediation is 4 IRM 35.5.5.4. oen enough, taxpayers are unaware of a viable ADR option, the taxpayer must 5 2009-2 CB 462. 6 Rev. Proc. 2014-63, section 7.01. Chuck Hodges, M.S. (Economics), J.D., LL.M., is a partner in the Tax Practice of Jones Day focusing on 7 “ Should I Stay or Should I Go ”, The Clash (1982). federal tax controversy and litigation matters. Chuck is also an International Tax Editor for the Journal 8 Rev. Proc. 2014-63, section 7.02. of Taxation. Aditya Shrivastava, J.D., is an associate in the Tax Practice of Jones Day focusing on federal 9 Id. at section 7.02(2)(a)-(d). tax controversy and litigation matters as well as taxation of intellectual property. Aditya serves as a 10 Id. at section 7.01. Department Editor for the IRS Rulings column of the Journal of Taxation. Q 15 P R O C E D U R E J U L Y 2 0 1 8 l J O U R N A L O F T A X A T I O N
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