Post-Appeals mediation and Fast Track mediation: when a neutral can help close an IRS dispute

The ADR options at a glance

All of these rest on IRC 7123. Section 7123(b)(1) directs procedures for non-binding mediation on any issue unresolved at the end of Appeals procedures or after unsuccessful attempts at a closing agreement or compromise. Appeals encloses Publication 4167, which describes these programs, with its initial contact letter (IRM 8.6.1.2).

Post-Appeals mediation

Rev. Proc. 2014-63 sec. 4.01 sets the timing: “This procedure may be used only after Appeals settlement discussions are unsuccessful and, generally, when all other issues are resolved but for the issue(s) for which mediation is being requested.” Neither side is bound by its earlier settlement positions on the mediated issue (IRM 8.26.5.4).

The mediator facilitates; the parties decide. “The mediator does not have settlement authority and cannot render a decision regarding any issue in dispute.” Mediation also gives Appeals no extra authority: it remains bound by the IRM and published guidance, just as in ordinary settlement (Rev. Proc. 2014-63, sec. 4.02). It is voluntary on both sides: “Mediation will not occur unless both parties agree to participate in the process.” (sec. 7.01).

Timing is unforgiving. Once Appeals closes the case by issuing a notice of deficiency, a notice of claim disallowance or another closing letter, the case is out of Appeals' jurisdiction and no longer eligible (IRM 8.26.5.4). Mediation has to be requested while the case is still open in Appeals.

What can and cannot be mediated

Eligible under Rev. Proc. 2014-63 sec. 4.03: legal issues; factual issues; Compliance and Appeals Coordinated Issues (unless the taxpayer declined to discuss them with the coordinator); early referral issues; issues where competent authority has not yet been requested; failed closing agreement attempts; and certain offer and trust fund issues.

Not eligible (sec. 4.04 and IRM 8.26.5.4.4):

• issues designated for litigation or docketed in any court;
• collection cases other than the listed offer and trust fund issues;
• issues governed by a closing agreement, res judicata or controlling Supreme Court precedent;
• frivolous issues;
• whipsaw issues, including a joint return where both spouses will not join the same mediation or one claims innocent spouse relief;
• cases where the taxpayer did not act in good faith, such as failing to answer document requests or settlement offers, or making only nuisance offers;
• cases previously mediated through Fast Track Settlement or Fast Track Mediation.

Two practical limits from the IRM: “Post Appeals mediation is not the appropriate venue for the presentation and consideration of any new facts or arguments.” (IRM 8.26.5.4), and mediation “is not the place to consider a new issue or to develop an undeveloped or underdeveloped issue” (IRM 8.26.9.2.1).

Offers in compromise. If all facts are known to both sides, mediable offer issues include asset values (including assets held by third parties), dissipated assets, deviation from national or local expense standards, a share of jointly held assets, future income projections, shared living expenses with a non-liable person, and whether retirement contributions are mandatory (Rev. Proc. 2014-63, sec. 5.01). Excluded: ability to full pay on unadjusted figures absent hardship; refusing to amend the offer without a specific disagreement; issues explicitly addressed in IRS guidance or forms (for example, expenses the Form 656 instructions disallow, such as private school tuition); offers in CDP or equivalent hearings; liability previously decided by Appeals; campus-only cases; and offers needing approval above the Appeals Team Manager (sec. 5.02). For cases with liabilities of $50,000 or more, a mediated offer still needs the Counsel opinion required by IRC 7122(b) (IRM 8.26.9.2.1). See offers in compromise and reasonable collection potential.

Trust fund recovery penalty. Mediable issues are responsibility, willfulness, whether a payment was designated to trust fund taxes, and whether deposit records establish a designated payment. Collectibility of the penalty is excluded (sec. 6). Both pre-assessment (Letter 1153) and post-assessment claim cases qualify (IRM 8.26.9.2.2).

Requesting PAM

1. Send a written request to the Appeals Team Manager, with a copy to the Appeals Area Director (Rev. Proc. 2014-63, sec. 7.02).
2. Include: the taxpayer's name, TIN and address (and a contact person if different); the Appeals Officer's or Team Case Leader's name; the periods; a description of each issue with the dollar amount of the adjustment or offer in dispute; and a representation that no issue is excluded.
3. Decision. The ATM consults Appeals' headquarters analyst and generally responds within two weeks. There is no formal appeal of a denial, though the taxpayer may ask for a conference with the ATM, and “The denial of a mediation request is not subject to judicial review.” (sec. 7.03).

The agreement and the session

If approved, the parties sign a written agreement to mediate (Rev. Proc. 2014-63 Exhibit 2 is a model), generally within three weeks, and proceed to mediation within 60 days of signing; unexcused delay can lead Appeals to withdraw (sec. 8.01). The agreement names the issues, participants and session date and prohibits ex parte contacts with the mediator. Each side must bring someone with decision-making authority. The taxpayer must sign a separate IRC 6103(c) consent for disclosures to the mediator and participants; a representative signing under a power of attorney needs authority that clearly covers that consent (sec. 8.03).

The mediator is an Appeals employee trained in mediation, not on the case team, and Appeals pays the cost. The taxpayer may add a non-IRS co-mediator from a roster of neutrals at its own expense (sec. 9.01). Each side submits a discussion summary to the mediator and the other side at least two weeks before the session (sec. 10.01). “The mediation process is confidential.” (sec. 10.02). Either side can withdraw in writing before settlement (sec. 10.04).

Afterward the mediator issues a short report. Agreed issues are closed under normal procedures, often with a Form 906 closing agreement. If there is no agreement, “Appeals will not reconsider the mediated issue(s)”, and a notice of deficiency issues on the unagreed issues, or the case closes under established procedures (sec. 11.02). Mediation is a last step before litigation, not a second round of Appeals.

Fast Track Mediation for collection

FTMC, under Rev. Proc. 2016-57, lets SB/SE Collection and the taxpayer mediate certain offer in compromise and trust fund disputes with an Appeals mediator while the case stays in Collection (IRM 8.26.3.1). “The entire process is estimated to take 30-40 calendar days.” The taxpayer cannot use a non-IRS mediator.

• Eligibility. All other collection issues must be resolved, the disputed issue fully developed, and Collection must have evaluated it, answered the taxpayer's arguments and tried to resolve it. Typical issues mirror the PAM offer list: asset values, dissipated assets, expense standard deviations and joint asset shares (IRM 8.26.3.4).
• Starting it. Collection or the taxpayer can propose FTMC. If Collection agrees, it completes Form 13369, Agreement to Mediate, with the taxpayer's signature. A representative can sign only if the Form 2848 grants authority, in section 5, to consent to disclosure to third parties; otherwise the taxpayer signs. The package includes each side's written summary (not a formal protest) and Collection's RCP or trust fund computation (IRM 8.26.3.3).
• Timing trap. “FTMC neither suspends nor extends the period of time the taxpayer has to request a hearing before Appeals.” FTMC is generally not available once a formal offer rejection letter with appeal rights or a Letter 1153 has issued. If FTMC fails, the taxpayer keeps the regular Appeals route, but a case mediated through FTMC cannot later go to PAM.

Arbitration

IRC 7123(b)(2) states: “The Secretary shall establish a pilot program under which a taxpayer and the Internal Revenue Service Independent Office of Appeals may jointly request binding arbitration” on issues unresolved after Appeals or after failed closing agreement or compromise attempts. Rev. Proc. 2014-63 addresses only non-binding mediation under section 7123(b)(1), and the current IRM 8.26 sections on post-Appeals mediation (8.26.5 and 8.26.9) set out no arbitration procedure. This site has not located a current IRS procedure offering binding arbitration and does not describe one.

Questions practitioners ask