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In a tax dispute, is litigation the only answer?

Litigation is never the only answer to a legal problem, and that includes tax disputes. The IRS has just announced a new option for dispute resolution that could reduce the number of cases that go to court: post-appeals mediation. For taxpayers and the government alike, not going to court can save both time and money.

The program is new to most cities, but not to San Francisco. A few years ago, the city was chosen as a pilot site as the IRS tried out mediation and arbitration as alternatives to litigation. The pilot program ran for two years, ending in 2010, and the agency spent the next couple of years reviewing the results. This new program is the product of years of planning.

There may still be room for improvement, of course. For example, not every type of case is eligible for mediation. At this time, only offers in compromise and trust fund recovery cases are eligible, and there are some exceptions within those categories. (We recommend meeting with your attorney to discuss where your case fits in.)

The process is fairly straightforward and mimics the mediation and alternative dispute resolution processes used for other legal matters. It is important to note early in this discussion that mediation can settle a legal issue or a factual issue.

Second, mediation is voluntary for the taxpayer. Either the taxpayer or the IRS Office of Appeals can request it, but the taxpayer is allowed to turn down the agency's invitation.

The basic process is also free of charge to the taxpayer. The IRS will provide a qualified mediator, a specially-trained Appeals officer. The taxpayer may hire, at his or her own expense, an outside mediator to co-lead the session.

The results of the session are not binding, and the IRS mediator hasn't the authority to approve a settlement. Nevertheless, the idea is to allow the two sides to tell their stories to an objective third party who can then help them find common ground. The IRS requires that the entire process take no longer than 90 days.

Just as the IRS does not offer mediation in every case, not every taxpayer dispute is right for mediation. Again, we recommend that anyone with tax trouble consult with an attorney to discuss all of the available options.

Source: Accounting Today, "IRS Expands Post-Appeals Mediation for Offers in Compromise," Michael Cohn, Dec. 12, 2014

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