Bar News - February 18, 2015
Tax Law: IRS Expands Post-Appeals Mediation for Offers in Compromise
By: Mark Dell’Orfano
Issues Ripe for OIC Mediation
This list highlights some of the issues appropriate for mediation and describe some of the types of OIC cases where mediation is not available. OIC issues that are eligible for mediation include:
- Disputes concerning the value of taxpayer assets, including dissipated assets and assets held by third-parties, in the overall determination of the taxpayer’s reasonable collection potential;
- A taxpayer’s proportionate interest in jointly held assets;
- Projections of future income based on calculations that do not involve current income;
- A taxpayer’s future ability to pay her tax liability when living expenses are shared with a non-liable person;
- Whether a taxpayer meets the criteria for deviating from national or local expense standards; and
- Other fact-specific circumstances. For example, the Revenue Procedure cites mandatory contributions into a retirement savings account as a condition of continued employment as a fact-specific circumstance that qualifies for mediation.
Mediation is not available for OIC cases in which:
- The taxpayer has the ability to pay in full based on the unadjusted financial information submitted by the taxpayer, except when economic hardship exists;
- The taxpayer declines to amend or increase the offer without stating any specific disagreement with the determination of reasonable collection potential;
- The disputed issue is explicitly addressed by IRS guidance or authority;
- An OIC submitted as an alternative to collection in a collection due process hearing case;
- The issue of liability was previously determined by Appeals;
- The case was worked solely at an Appeals Campus/Service Center site; or
- Circumstances where a determination is made by Appeals that acceptance is not in the best interests of the government.
Recently published Revenue Procedure 2014-63 expands nationwide the IRS’s post-appeals mediation program for Offers in Compromise (OIC).
Started as a pilot in 2008, the goal of the program is to more quickly and cost-effectively facilitate agreement between a taxpayer and the IRS on disputed issues of fact or law while an OIC is still under appeals consideration.
Overview of the OIC Process
The OIC process allows a taxpayer, who cannot otherwise pay her full tax liability, to settle her tax debt for less. A description of the OIC process, eligibility, and documentation required to make an offer can be found on the IRS website.
After an OIC has been accepted for filing, it is assigned to a revenue officer for investigation and consideration. The IRS will generally approve an OIC if it is unlikely that a tax liability can be collected in full, and the amount offered reasonably reflects the government’s collection potential. If the taxpayer’s OIC is denied – usually because the taxpayer’s offer is too low – the taxpayer may attempt to remedy the denial directly with the reviewing officer, or request a meeting with the reviewing officer’s manager.
If these steps prove unproductive, and the taxpayer has good grounds to appeal the decision, a formal appeal can be taken with the IRS Office of Appeals within 30 days of denial.
OIC Appeals and Mediation
Once an appeal is filed, the taxpayer’s OIC will be assigned to an appeals officer. While an appeal is still under consideration, disagreements between the taxpayer and the IRS Appeals Office concerning one or more factual or legal issues, which cannot be resolved between the taxpayer and her appeals officer, may qualify for mediation.
Revenue Procedure 2014-63 allows a taxpayer and the Appeals Office to jointly request mediation of issues in dispute, provided that the taxpayer has worked in good faith with the Appeals Office and that all the facts of the case are known to the parties.
The taxpayer applies for mediation by making a written request to the assigned Appeals Officer’s Team Manager. In her application, the taxpayer must provide a description of the issues to be mediated and a representation that no issue has otherwise been identified as an issue excluded from the mediation program. Within two weeks after the Team Manager’s receipt of the taxpayer’s mediation request, the manager must either approve or deny it. If the taxpayer’s request is approved, the taxpayer and the Appeals Office will enter into a written agreement to mediate within 60 days.
Mediation is conducted before an Appeals Office employee trained as a mediator. Optionally, the taxpayer may hire, at her own expense, a non-IRS employee co-mediator. The mediator’s role is to assist in defining the issues in dispute and to promote settlement negotiations between the taxpayer and the Appeals Office.
If the parties reach an agreement through the mediation process, the mediator will prepare Form 906 to document the agreement and close the matter. If the parties do not reach agreement on an issue being mediated, the Appeals Office will not reconsider the mediated issue(s) and the case will be further processed using established closing procedures.
For OIC cases with a tax liability of $50,000 or more, any settlement or agreement reached through the mediation program must be reviewed by the Office of Chief Counsel before being finalized.
Post-appeals mediation allows an excellent opportunity for taxpayers to attempt to resolve disputed matters with the Appeals Office through a facilitated process conducted by subject matter experts.
|Mark W. Dell’Orfano
Mark W. Dell’Orfano is an attorney with the Manchester law firm of Fojo Dell’Orfano. He may be reached at (603) 384-3328 or by email.