Academic journal article Journal of Accountancy

Pros and Cons of the New IRS Mediation Program

Academic journal article Journal of Accountancy

Pros and Cons of the New IRS Mediation Program

Article excerpt

An alternative to litigation.

In general, a popular alternative to litigation to resolve disputes has been the use of alternative dispute resolution programs (such as arbitration and mediation); however, until recently, such programs and procedures were not available for disputes between the Internal Revenue Service and taxpayers.

As noted in the January "Tax Briefs" (JofA, page 39), the service has expanded the use of mediation in tax disputes. Under a test program ending in October, taxpayers can elect to resolve certain tax controversies with the IRS rather than risk litigation. While this may be helpful to some taxpayers, there are still several issues that must be considered before mediation may be available or appropriate.


This test program will apply only when agreement cannot be reached on an issue after good-faith negotiations in the normal IRS Appeals process have been unsuccessful. In addition, it will be available only for certain factual issues, such as valuation, reasonable compensation or transfer pricing.


The most critical issue is selection of the mediator. The person chosen must be mutually acceptable to all the parties. Co-mediators can be used in any case, and may be suitable for complex issues.

The mediator may be an IRS representative (from the Appeals division) or someone from outside the service. If an IRS employee is chosen, the service bears the full cost; if not, the taxpayer and the IRS share the cost.

At a minimum, the mediator must have previous mediation experience or training. Other criteria for selecting a mediator include substantive knowledge of tax law and industry practices as well as each candidates' travel costs, hourly fees and other expenses. If the parties cannot agree on a mediator, the Federal Mediation and Conciliation Service or the Administrative Conference of the United States may assist; in addition, tax accountants and lawyers with mediation training and experience can be found in CPA firms, law firms and universities.

The mediator must not have an undisclosed (personal, official or financial) conflict of interest with the parties. If one exists, the mediator must fully disclose it to the parties in writing, and the parties must decide whether to allow the mediator to serve. …

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