How to Mediate Your Tax Dispute with the IRS

The IRS provides a way for taxpayers to amicably resolve disputes over back taxes through mediation. Mediation is an informal process in which an impartial third party, known as a mediator, tries to help disputing parties reach an agreement. The process is entirely voluntary and nonbinding, meaning that no one, including the mediator, can force either party to do something they don’t agree to do and cannot impose a decision about the facts or issues in the dispute. The mediator’s role is to facilitate communication and help the parties reach an agreement. Mediation provides a chance for taxpayers to avoid a lengthy appeal process or costly litigation, but it isn’t appropriate in every situation.

There are three types of mediation available to qualified taxpayers: (1) Fast Track Settlement (FTS); (2) Fast Track Mediation (FTM); and (3) Post Appeals Mediation (PAM).

Fast Track Settlement

Fast Track Settlement offers Small Business/Self-Employed taxpayers an opportunity to resolve tax disputes at the earliest possible stage in the examination process. The goal is resolution within 60 days. With FTS, a trained mediator from the IRS Office of Appeals is assigned to help the parties reach an agreement on the disputed issue(s). In addition to using mediation techniques to facilitate settlement discussions, the Appeals mediator may offer settlement proposals and use Appeals’ settlement authority, if needed, to resolve the dispute. Either the taxpayer or the IRS may agree to or deny the Appeals mediator’s settlement proposal.

Certain cases and issues are not eligible for FTS:

Collection cases

Form 1040 taxpayers who have no specific IRS person assigned to their case, such as with a correspondence examination case considered solely by an IRS Campus/Service Center site

Frivolous issues, such as those listed in Notice 2010-33 or successor guidance

Other issues listed in Announcement 2011-5.

Fast Track Settlement is also available to Large Business and International taxpayers. Some different rules apply. The IRS website has more information.

Fast Track Mediation

Fast Track Mediation is for taxpayers in the earliest possible stage in the collection process. The goal of FTM is to reach a jointly agreeable solution between the taxpayer and the IRS within 40 days. The result needs to be mutually agreed to; neither party is required to accept a certain outcome.

Certain cases and issues are not eligible for FTM:

Collection Appeal Program cases

Cases considered by an IRS campus site

Frivolous issues, such as those identified in Notice 2010-33, or any subsequent notice or revenue procedure

Other issues listed in Revenue Procedure 2003-41.

Post Appeals Mediation

Post-Appeals Mediation allows the taxpayer and his/her Appeals Officer or Settlement Officer resolve disputes while the case is still under Appeals’ consideration. It is an extension of the Appeals process in which the mediator assists the parties in resolving the dispute, but not until after good faith negotiations with Appeals have been unsuccessful. A taxpayer can request Post Appeals Mediation if he/she is already in the Appeals administrative process and the case is not docketed in any court. The goal is resolution within 60-90 days.

Certain cases and issues are not eligible for PAM:

Cases considered by an IRS campus site

Issues docketed in any court, designated for litigation, or under consideration for designation for litigation

“Whipsaw” issues, which are issues for which resolution with respect to one party might result in inconsistent treatment without the participation of the other party

Collection cases, except for certain offer in compromise and Trust Fund Recovery Penalty cases as provided for in Revenue Procedure 2014-63

Other issues listed in Revenue Procedure 2014-63.

Mediation can be a good option but isn’t appropriate in every situation. An experienced attorney can help determine whether mediation is the best option and represent the taxpayer’s interests.