What. The Internal Revenue Service on December 1, 2008 made an important announcement for tax exempt organizations interested in a quick, quiet and cost-effective resolution of their tax disputes. The IRS formulated a new alternative dispute resolution program for TEGE taxpayers that will allow them to have an Appeals Division independent mediator intervene in a disagreement while the case is still at the examination level. This new procedure is patterned after the very successful Fast Track Settlement Program introduced in 2003 for LMSB taxpayers.
The new program will cover disputes of both factual and legal issues, can be initiated by the taxpayer any time after the issue is “fully developed” and before a 30-day letter is issued, and is designed to be quick: 60 days is the target to resolve the dispute. The program will be a 2-year pilot.
The 2003 LMSB Fast Track program has been consistently lauded as a good one by the corporate community. It has a high success resolution rate (well above 80%) and significantly cuts the cycle time that is required to take a case through the conventional Appeals process. Corporate taxpayers especially like the program as it brings Appeals into the case at an early stage—it is often said that the Appeals independent mediator “parachutes” into the dispute with exam.
Technically, TEGE taxpayers had a Fast Track program that was launched as a broader pilot for SBSE taxpayers in 2006. However, the main focus of this pilot program was SBSE taxpayers and TEGE’s use of it was limited “depending on the circumstances and operational needs of the case”. This SBSE program also had (and still does have) geographical limitations as the pilot only covers nine regions. The new TEGE program announced December 1 is dedicated entirely to exempt organizations and has no geographical or other limitations on its availability.
How and When. Once the issue is fully developed and the taxpayer submits an application and provides a written position paper, the case can be submitted to Fast Track for resolution. The Appeals officer trained in mediation parachutes in and acts to facilitate discussion and resolution of the disputed issue(s). The mediator can use his/her Appeals settlement authority and make recommendations based on hazards of litigation but it is exam and the taxpayer that must agree on the result. As noted, the entire process is not expected to take more than 60 days.
If the process is not successful, then the taxpayer can invoke the traditional dispute resolution procedures such as taking the case to Appeals. Also if the case is not resolved at Appeals, then the taxpayer can invoke either the post-Appeals Mediation Program or the Post-Appeals Arbitration Program.
Caplin & Drysdale’s Bottom Line. Announcement 2008-105 is an excellent tax administration pronouncement by the IRS and one that exempt organizations should seriously consider when they are embroiled in a dispute at the conclusion of their examination. It is broad in scope and covers both legal and factual issues; it allows for intervention by Appeals at a much earlier stage of the dispute resolution process; and importantly it is a totally confidential process.
This article is designed to give general information on the developments covered, not to serve as legal advice related to specific situations or as a legal opinion. Counsel should be consulted for legal advice.