The Internal Revenue Service Independent Office of Appeals’ revived emphasis on alternative dispute resolution (ADR), a move received warmly by taxpayers, theoretically offers more opportunities to resolve tax disputes without the need for litigation. Announced in late March by the newly appointed acting office chief, Elizabeth Askey, several ADR pilot programs are expected to launch by the end of the fiscal year. This comes in the wake of an IRS call for public input on how improvements could be made to the agency’s ADR programs.
However, ADR programs offered by the appeal’s office haven’t been strikingly successful in the past. A report from the Government Accountability Office found that less than half of 1% of all cases reviewed by the Independent Office of Appeals between 2013 and 2022 were resolved through ADR.
The National Taxpayer Advocate’s 2023 annual report to Congress revealed that appeals officers are not required to possess litigation experience. Officers from the IRS’s examination and collection sectors often move up the ranks, and they sometimes struggle in accurately estimating judicial risks, as they typically don’t have to consider such hazards.
For effective implementation of ADR, recruitment ought to emphasize hiring officers with taxpayer representation experience rather than relying solely on internal promotions. Additionally, existing appeals officers need advanced litigation training. Nonetheless, Askey’s appointment brings hope, as she offers a fresh perspective from her private practice experience advocating for taxpayers.
Moreover, enabling appeals officers to exercise wide discretion in mediating disputes involving the IRS is key. The IRS’s past efforts to stifle the independence of the appeals office have undermined the effectiveness of the ADR process. Offering an unrestricted environment for discussing all possible litigation outcomes, not just ones focusing on IRS’s risks, can significantly enhance the potential of ADR in resolving tax disputes.
Undoubtedly, the IRS must also commit to seriously employ ADR programs. For meaningful shifts to occur, it’s crucial that the IRS adopts mediation as the primary route instead of an exception whenever taxpayers demand access to ADR channels. The IRS can demonstrate this commitment by establishing clear standards for declining ADR requests, requiring oversight for declinations, and giving taxpayers a written explanation where they deny access.
Current IRS initiatives such as the Compliance Assurance Process do not provide taxpayers with the right to decline ADR if requested by the IRS. However, the IRS has no similar obligation. With expanded ADR programs, it should grant taxpayers the same privilege to push for mediation.
Askey has a challenging role ahead implementing the enhanced ADR programs. Yet, implementing these suggestions could significantly boost taxpayer confidence in these programs.
Original article can be read on Bloomberg Tax.