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Fast Track Settlement Now For SB/SE Taxpayers

Today, the Internal Revenue Service (IRS) released Revenue Procedure 2017-25 extending the Fast Track Settlement (FTS) program to Small Business / Self Employed (SB/SE) taxpayers.  The IRS’s SB/SE group serves individuals filing Form 1040 (US Individual Income Tax Return), Schedules C, E, F or Form 2106 (Employee Business Expenses), and businesses with assets under $10 million.

FTS offers a customer-driven approach to resolving tax disputes at the earliest possible stage in the examination process. The program provides an independent IRS Appeals review of the dispute.  Under this approach, the IRS Appeals Officer acts as the mediator and has settlement authority.

The purpose of the program is to reduce the time to resolve cases and to provide the IRS Exam Team with the authority to settle cases based on hazards of litigation (which is generally reserved for IRS Appeals Officers).  FTS has been considered a great success by the IRS and many taxpayers.  The expansion of this successful alternative dispute resolution makes sense in light of the ever-shrinking resources of the IRS.




National Taxpayer Advocate 2016 Report – IRS Appeals and Alternative Dispute Resolution

In its annual report to the US Congress, the Taxpayer Advocate Service (TAS) had a lot to say about IRS Appeals and the (lack of) use of other alternative dispute resolution (ADR) techniques. In this post, we will highlight what the TAS had to say in this area.

IRS Appeals

Undoubtedly, one of the Internal Revenue Service’s (IRS) most successful dispute resolution techniques has been IRS Appeals. Briefly, after the IRS’s Examination Division proposes a tax adjustment, taxpayers have the statutory right to seek an “appeal” of the decision. IRS Appeals is a separate and seemingly independent division of the IRS where one or more appeals officers review the redeterminations and adjustments made by the Examination Division, and attempt to settle the dispute directly with the taxpayer based upon a “hazards of litigation” analysis, much in the same manner as a judge would rule. The TAS acknowledged the success and utility of the IRS Appeals program and mission, but requested that Congress expand the program, giving the IRS the resources it needs to manifest the full intent of the program.

The TAS reported that funding for IRS Appeals has diminished sharply—by about 11 percent from 2013 to 2016, with staff reduced during the same period by 24 percent. In response to shrinking resources, but hobbled by the same duties and similar case load, IRS Appeals has been forced to implement procedures and policies that hamper its long-term mission of providing a fair and impartial review of the Examination Division’s adjustments. The TAS pointed out that these policies have resulted in (1) creating an inhospitable Appeals environment; (2) limiting in-person Appeals conferences; (3) reducing the Appeals officer’s ability to perform a quality substantive review; and (4) failing to protect the rights of taxpayers when conducting collection Appeals hearings. The TAS noted that there has been a large increase of cases docketed in the US Tax Court before seeking an IRS appeal. The TAS believes that docketing a case before it goes to Appeals has added inefficiency and unnecessarily increased the case load of the Tax Court.

The TAS suggested the following solutions:

  1. Expand the locations in which Appeals Officers hear matters. Presently, there are numerous states in which there are no IRS appeals officers. As a result, taxpayers who seek an appeal and request an in-person conference are forced to travel to the states in which an IRS appeals officer is located.
  2. Hold more in-person appeals conferences. The TAS report argues that in-person conferences facilitate the efficient and expeditious settlement of matters.
  3. Revise procedures and policies to allow IRS appeals officers additional discretion and time to undertake factual development and provide more substantive review of matters.

Practice point: We have recently reported about many of the issues facing taxpayers seeking review by IRS Appeals. The TAS confirms our critiques of the system. IRS Appeals is a very good and useful technique that has a high probability of settling cases. Generally, appeals [...]

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Preparing for a Tsunami of International Tax Disputes

Recently, we published a Special Report in Tax Notes International, “Preparing for a Tsunami of International Tax Disputes.”  The article can be accessed here.  While there is near-universal agreement that the number of tax disputes is going to increase, existing international tax dispute resolution processes remain in serious need of improvement. A global consensus must be reached on a process for resolving worldwide tax disputes that appeals to all stakeholders. This article focuses on recent attempts by the Organisation for Economic Development (OECD), United Nations (UN) and international tax community to achieve such a consensus.

In short, the predictability of tax base results is a serious concern for countries and multi-national enterprises alike.  The only realistic solution is to design a dependable and independent treaty-based dispute resolution process that accommodates the needs of all stakeholders. A foundation for this process has been provided by the inclusion of arbitration in both the OECD and UN model income tax treaties and its successful implementation in a few countries. Arbitration and alternative dispute resolution (ADR) have already evolved successfully in nontax government and commercial contexts. As with any such evolution, there have been both positive and negative experiences for countries and private parties. In the realm of international taxation, the development of these processes is in the early stages. It is important for all stakeholders in the tax arena to explore ways of using experiences from non-tax contexts to develop processes that can relieve emerging pressures relating to international taxation. To distinguish the international tax context from others, the new dispute resolution process could be referred to as the International Taxation Dispute Resolution Process (ITDRP), as suggested in the UN Secretariat Paper on Alternative Dispute Resolution in Taxation released on October 8, 2015.

While the development of a successful ITDRP will inevitably take time and will no doubt be contentious, significant advancements have been made in the past few months that suggest it could soon be on the horizon.  These include the initial Base Erosion and Profit Shifting (BEPS) paper on dispute resolution, the January 2015 Dispute Resolution Conference in Vienna, the OECD Action 14 Final Report (released in October 2015) and the UN Secretariat ADR Paper.

Almost all stakeholders in the international taxation community agree that: (i) the number of disputes will increase; (ii) existing dispute resolution processes are in serious need of improvement; and (iii) a global consensus must be achieved so that global tax disputes can be resolved in a way that serves the interests of all stakeholders. In this regard, it may be fortunate for the tax community that it is arriving late to the ADR processes that have evolved in other areas over the past century. As the OECD and UN processes continue to evolve, it is hoped that lessons from these other areas can be drawn upon to develop an ITDRP that serves the interests of all parties.




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