In Rev. Proc. 2016-57 the IRS announced a new fast track mediation specifically designed for collection cases (FTMC). The program will allow taxpayers with issues in offer in compromise (OIC) cases and trust fund recovery penalty (TFRP) cases to go to a mediator in Appeals to try to resolve an issue in their case which could provide the basis for overall resolution if the parties could reach agreement on that issue. I do not know how much demand exists for this type of mediation, but the effort to provide mediation in these fact intensive situations seems like an idea worth trying.
The Rev. Proc. points out that fast track mediation for SBSE cases has existed as a possibility since 2000 and the program included collection cases; however, mediation occurred in only a small number of collection cases. In 2011 the IRS introduced fast track settlement for examination cases but that initiative did not include collection cases. The idea for use of Appeals in FTMC does not include giving the Appeals employee settlement authority but rather to have them serve as a mediator acting as a neutral party to assist the taxpayer and the collection function in reaching agreement on a point of dispute.
Collection and Appeals will jointly administer the FTMC program. Because SBSE handles all of the collection cases for the IRS, taxpayers falling into any of the stovepipes into which the IRS divided itself in 2000 can use FTMC. The IRS envisions that FTMC will take place “when all other collection issues are resolved but for the issue(s) for which FTMC is being requested. The issue(s) to be mediated must be fully developed with clearly defined positions by both parties so the unagreed issues can be resolved quickly.” To use FTMC, both the IRS and the taxpayer must agree. Neither party can force the procedure on the other.
The Rev. Proc. provides a list of issues in OIC and TFRP cases for which it contemplates FTMC use. It does not state whether the list provides the exclusive opportunities for use of FTMC but the manner in which the Rev. Proc. is written makes me believe that engaging in FTMC for issues not on this list will rarely, if ever, occur. For OIC the list includes the following issues:
- Valuing the taxpayer’s assets, including those held by third parties;
- Determining the amount of dissipated assets that the IRS should include in the reasonable collection potential (RCP) calculation;
- Deciding whether the facts warrant a deviation from the national or local expense standards;
- Determining the taxpayer’s proportionate interest in jointly held property;
- Projecting the amount of future income based on projections other than current income;
- Calculating the taxpayer’s future ability to pay when the taxpayer lives with and shares expenses with a non-liable person;
- Evaluating doubt as to liability cases worked by Collection, e.g., a case involving TFRP; and
- A catch-all provision that uses as an example whether a taxpayer’s contributions to a retirement savings account are discretionary or mandatory.
The TFRP list includes the following issues:
- Whether the person meets the test as a “responsible person” of the business that failed to pay over the trust fund taxes;
- Whether the person willfully failed to pay over the collected taxes or willfully attempted to evade or defeat the payment; and
- Whether the taxpayer properly designated a payment.
The Rev. Proc. explains when FTMC will not apply:
- To determine hazards of litigation or use the Appeals Officer’s settlement authority;
- For cases referred to the Department of Justice (remember that once a case is referred to the Department of Justice settlement authority resides with the DOJ and while DOJ case refer a matter back to the IRS to obtain the views of the IRS, DOJ has total control of the outcome of the case);
- For cases worked at an SB/SE Campus site (because almost all OIC cases are worked at campus sites in Brookhaven and Memphis, I assume that this statement in the Rev. Proc. does not apply to the OIC units but the Rev. Proc. does not make this 100% clear. To my knowledge TFRP cases are worked by Revenue Officers assigned to field units and this restriction would not have much impact on TFRP cases. So, I am having trouble understanding what this restriction covers)
- To cases in the Collection Appeals Program (OIC cases should not use the CAP program and TFRP cases would only get to the CAP program after the assessment of the TFRP and not before the determination of the liability exists. So, this exclusion would not seem to have much impact);
- To Collection Due Process cases (this restriction could have a significant impact in the OIC context because many practitioners submit offers during the CDP process. I prefer to submit offers during a CDP case over submitting them outside of CDP. It is not clear to me why the IRS would exclude offers submitted during a CDP case unless it assumes that the Appeals employee assigned to the CDP case could or would serve this function. My experience is that the Appeals employee plays a relatively tradition role in CDP cases and does not get involved during the consideration of the offer by the offer unit. To the extent that having a mediator provides a useful function, it seems that the mediator could assist in an offer arising during a CDP case just as the mediator could assist in other offers);
- To cases in which the IRS determines the taxpayer has put forward a frivolous issue whether or not the issue makes the list in Rev. Proc. 2016-2 (this makes sense given that either party can nix the use of a mediator and the IRS position here just puts down a marker that it will not go to mediation on something it considers frivolous);
- To cases in which the taxpayer has failed to respond to IRS communications or to submit documentation (the IRS does not want to use FTMC to allow the taxpayer to stall);
- To OIC cases involving Effective Tax Administration offers except in limited circumstances, to cases in which the taxpayer refuses to amend the offer yet provides no specific disagreement, to cases in which the IRS has explicit guidance and to cases in which Delegation Order 5-1 requires a level of approval higher than a group manager (almost all of these exceptions involving reasons for which the IRS would not agree to FTMC on an individual case basis and just set out markers so the taxpayer would know in advance);
- To cases where FTMC use would not be consistent with sound tax administration; and
- To issues otherwise excluded in subsequent guidance.
A taxpayer can request FTMC after full development of an issue and before Collection makes its final determination. The IRS has created Form 13369 for use in requesting this process. Both the taxpayer and the IRS must sign the firm in order to invoke the procedure. In addition to the form the taxpayer submits a written summary of their position with respect to the disputed issues and the IRS will submit a written summary as well. Once the parties have prepared the form and the statements, Collection sends the package to the appropriate Appeals office. The Appeals office decides whether to accept the case for FTMC. The taxpayer must consent to disclosure of their tax information to participants in the mediation and does this in signing the Form 13369.
The Rev. Proc. goes on to describe the manner of the mediation as well as the post-mediation process. If the mediation succeeds, it should allow the OIC or the TFRP case to move forward to resolution by removing a roadblock to agreement. If it does not succeed, the taxpayer still retains the right to appeal the denial of the OIC or to appeal the proposed determination of the TFRP. In this regard, the mediation seems to have little downside for the taxpayer except to the extent the denial of the mediation is perceived to have solidified the view of Appeals and keep the taxpayer from having a productive Appeals conference at a later stage. Because I have never used mediation, I have no basis for forming an opinion of the likely success of this new process. Perhaps those who have used it in the Examination context can comment on how it might work in these two specific collection situations. I suspect that training of IRS employees to spot situations in which it might assist and to have open minds about using the process will have a high impact on its success. If the employees considering OICs or TFRP assessments would prefer to move the case to Appeals in a more traditional manner than to have a mediator from Appeals intervene in their cases, the program will not succeed.