IRS Expands Alternative Dispute Resolution Opportunities

By Michael P. Dolan, J.D., Washington, DC

Editor: John L. Miller, CPA

The IRS recently expanded access to the fast track resolution program and to Appeals mediation and arbitration procedures. In Announcement 2008-105, the IRS extended the fast track settlement program to certain exempt entities and government entities. In Announcement 2008-111, the Service announced the establishment of a two-year test of mediation and arbitration procedures for offers in compromise and trust fund recovery penalty cases under the jurisdiction of the Office of Appeals.

TEGE Fast Track

The Tax Exempt/Government Entities (TEGE) fast track is modeled closely after Rev. Proc. 2003-40 and Announcement 2006-61, both of which establish fast track procedures for Large and Mid-Size Business (LMSB) and Small Business/Self- Employed (SB/SE) taxpayers. The TEGE pilot of its fast track settlement initiative will run for two years. During that period, entities that have unagreed issues in at least one open period under examination can work with the TEGE and the Office of Appeals to resolve the issue while the case is still in TEGE jurisdiction.

The fast track settlement procedures are available to resolve both factual and legal issues at any time after an issue has been fully developed but before the issuance of a 30-day letter (or its equivalent). The announcement identifies a list of issues that will not be available for fast track; however, a majority of issues that arise during an audit will be eligible for fast track consideration. A taxpayer who is interested in participating in the TEGE fast track settlement program should contact the group manager of the examining agent conducting the audit for any periods under examination. Interested taxpayers should also complete the Application for Fast Track Settlement, a copy of which is included as an attachment to Announcement 2008-105 (

Since fast track issues remain under the jurisdiction of the TEGE division responsible for conducting the examination, any ultimate resolution must be approved by the TEGE. Appeals will assign an officer who has been specifically trained in the fast track program and in dispute resolution techniques. The Appeals officer will assume responsibility for the administrative aspects of fast track, structuring the agenda and ground rules and generally managing the process in a manner designed to identify resolution options. If the Appeals officer identifies a resolution that is acceptable to the taxpayer but is rejected by the TEGE group manager, the matter will be referred to the TEGE area manager. If the area manager agrees with the group manager and rejects the settlement option, the Appeals officer will have no authority to resolve the matter, and the issue will be closed from the fast track process as “unagreed.”

A procedural note: The prohibition against ex parte communications between Appeals officers and other IRS employees (IRS Restructuring and Reform Act of 1998, P.L. 105-206, §1001(a)) does not apply to communications arising in the TEGE fast track process because Appeals personnel are facilitating an agreement between the taxpayer and the TEGE and are not acting in their traditional Appeals settlement role.

The taxpayer and the government reserve the right to withdraw from fast track at any point. If the parties fail to resolve any issue in fast track, the taxpayer still has the right to pursue the dispute through the traditional Appeals process. Any recommended settlement by the fast track Appeals officer will be subject to the same procedures that would otherwise apply to a matter officially under Appeals jurisdiction. The Appeals officer will be subject to any pertinent Internal Revenue Manual (IRM) provisions or other published guidance that dictates or limits how an issue must be considered or may be resolved.

Appeals Mediation and Arbitration

Announcement 2008-111 establishes a two-year test of the mediation and arbitration procedures for offer in compromise (OIC) and trust fund recovery penalty (TFRP) cases under the jurisdiction of the Appeals Office. During the test period, the Appeals officer will offer mediation and arbitration for taxpayers whose appeals are considered in Atlanta, Chicago, Cincinnati, Houston, Indianapolis, Phoenix, San Francisco, or Louisville.

Generally, the provisions of Rev. Procs. 2002-44 and 2006-44, respectively, will apply to mediation and arbitration of OIC or TFRP cases considered under the announced pilot. Announcement 2008-111 includes some limitations on the scope of disputes for which mediation and arbitration are available. As an example, neither mediation nor arbitration is available for cases in which the taxpayer:

  • Has the ability to pay in full based on the unadjusted financial information submitted by the taxpayer; or
  • Has declined to amend or increase the offer without stating any specific disagreement with the valuations or methodology used by Appeals in determining reasonable collection potential.

In addition, mediation is not available for cases in which the taxpayer has already attempted to resolve the matter through fast track mediation. Arbitration is not available for doubt-as-to-liability cases or corporate OIC cases in which the issue to be arbitrated is whether an individual is responsible for a trust fund recovery penalty or personal liability for excise tax assessment.

Offer in compromise issues that will generally be viewed as appropriate for mediation or arbitration include:

  • The value of assets, including those held by a third party;
  • A taxpayer’s proportionate interest in jointly held assets;
  • Projections of future income when the projection is based on calculations other than current income; and
  • The calculation of a taxpayer’s future ability to pay when living expenses are shared with a nonliable person.

Trust fund recovery penalty issues that will generally be deemed appropriate for mediation and arbitration include:

  • Whether a person was required to collect, account for, and pay over income, employment, or excise tax; and
  • Whether a responsible person willfully failed to collect, account for, and pay over such tax or willfully attempted in any manner to evade or defeat the payment of such tax.

In further defining the issues most appropriate for arbitration, Announcement 2008-111, §§5.02(a)–(h), cite more detailed examples of the factually specific factors that are eligible for resolution through arbitration.


John Miller is a faculty instructor at Metropolitan Community College in Omaha, NE. Michael Dolan is with KPMG in Washington, DC, and is the chair of the AICPA Tax Division’s IRS Practice and Procedures Committee. For further information about this column, contact Mr. Miller at

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