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November 20, 2006

The IRS’s New Appeals Arbitration Program

IRS Appeals

Houston Tax Attorney

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The IRS Office of Appeals provides a great forum for resolving IRS tax disputes.  While appeals settles a lot of cases, it doesn’t settle them all.  This is where the IRS arbitration program comes in.  It is for those close cases that almost settled, but didn’t.  The IRS recently released Revenue Procedure 2006-44, which sets out the rules for the finalized IRS Appeals Arbitration program.

About IRS Arbitration

The new IRS Appeals Arbitration program provides an avenue to appeal factual issues that could not be resolved by the IRS appeals process.

The program is not available for legal issues, issues that the IRS wants to litigate, and some collection issues. The program is available for factual issues related to rejected offers in compromise and responsible persons for purposes of the trust fund recovery penalty.

The IRS Arbitration Process

Both the taxpayer and the IRS must mutually agree to submit a matter to arbitration.  They also submit the issues and questions for arbitration.  The amounts can also be submitted to limit the amount for consideration.  

The taxpayer may initiate arbitration by submitting a written request, after consulting with the IRS appeals office that is handling the case. The Revenue Procedure specifies that the Appeals Team Manager “will” respond within two weeks.

The IRS Revenue Procedure says that IRS refusal to arbitrate is not subject to judicial review (which may or may not be true).

The Revenue Procedure then says that after the IRS okay’s the request to arbitrate, the parties “will” enter into a written agreement to arbitrate. The Procedure does not specify what happens if the parties cannot agree on the arbitration terms.

The parties can then select an arbitrator, which can be an IRS Appeals Officer from a different appeals office or an outside third party who is registered with “any local or national organization that provides a roster of neutral [arbitrators].” The Revenue Procedure also provides that the IRS and the taxpayer are to pay for the cost of arbitration, regardless of which party prevails.

Considering IRS Arbitration

This new program may be helpful for taxpayers who find themselves unable to get a fair appeals hearing because the IRS appeals officer has failed to comply with our tax laws and/or IRS policy. It will be interesting to see if the IRS uses this program or if in practice, appeals officers simply refuse requests to submit cases to arbitration.

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