IRS Announces Two New Appeals Programs

The Internal Revenue Service today announced a two-year test of two programs: the post-Appeals mediation and arbitration procedures for Offer in Compromise (OIC) and Trust Fund Recovery Penalty (TFRP).

Beginning Dec. 1, 2008. for a two-year test period, Appeals will offer post-Appeals mediation and arbitration for OIC and TFRP cases for taxpayers whose appeals are considered at the Appeals office in Atlanta, Ga.; Chicago, Ill.; Cincinnati, Ohio; Houston, Texas; Indianapolis, Ind.; Louisville, Ky.; Phoenix, Ariz.; and San Francisco, Calif.

Under these two alternative dispute resolution programs, the taxpayer or Appeals may request nonbinding mediation. The taxpayer may decline Appeals’ request for mediation. Appeals will evaluate a taxpayer’s request for mediation based on the criteria detailed in Revenue Procedure 2002-44 and Announcement 2008-111. A request for binding arbitration must be made jointly by the taxpayer and Appeals. The mediation and arbitration procedures do not create any additional authority for settlement by Appeals.

During the test period, Appeals employees will advise the taxpayer of the availability of these alternative dispute strategies and the deadline for timely requesting such strategies when a rejection of an OIC is sustained or a proposed TFRP assessment is sustained. An OIC submitted during Collection Due Process (CDP) as an alternative to a Collection action is not eligible for these alternative dispute resolution strategies during the test period.

The Post-Appeals mediation process is available for both legal and factual issues. The mediator’s role is to facilitate settlement negotiations so the parties can reach their own agreement. The mediator does not have settlement authority over any issue.

The Arbitration procedure is available for factual issues only. The arbitrator’s role is to hear both sides of a disputed issue and then render a decision on the specific factual issue being arbitrated. This decision is binding on both parties. However, the arbitrator does not have the authority to decide that the offer in compromise itself must be accepted or that a person is/is not liable for the TFRP under § 6672. Neither party may appeal the decision of the arbitrator or contest the decision in any judicial proceeding.

Complete procedures for initiating a request for post-Appeals mediation or arbitration are in Announcement 2008-111. The agency will seek appropriate Offer in Compromise and Trust Fund Recovery Penalty cases for both post-Appeals mediation and arbitration during the two-year test period in order to evaluate the effectiveness of alternative dispute resolution for these cases.

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OIC? You have a better chance of getting a foul ball at a baseball game

I get incensed by the false advertising of companies that state that they can get you "pennies on the dollar"- as if it was dependent on the skill of that practitioner. Another false advertising claim by these companies is the statement, "it is your last chance to get rid of your tax debt." This one could not be farther from the truth. These companies are referring to the IRS Offer in Compromise program. In fact, this program has been with the IRS for about 60 years, with no end proposed by Congress, the US Treasury, or the IRS.

Now, your chances of an Offer- Doubt as to Collectibility (this is the one that they are advertising), are quite small. In fact, by conservative standards, the chances are about 1 in 714 for those who owe taxes.

Compare that with your chances of catching a foul ball at a baseball game: 563 to 1

The fact is that the Offer in Compromise is a rarely used form of resolving your debt. There are many other options you need to explore with a competent tax professional.