IRS Appeals Office Seeks to Improve Taxpayer Dispute Resolution Programs

Internal Revenue Service (IRS) building in Washington on Oct. 16, 2023. (Madalina Vasiliu/The Epoch Times)

The appeals office of the IRS will offer new taxpayer programs aimed at dispute resolution and focus on increasing awareness of such initiatives after an earlier government report said that dispute resolution programs were being poorly managed.

The IRS’ Independent Office of Appeals released its “Focus Guide” for fiscal 2024 year on Friday, highlighting the areas it seeks to improve to help taxpayers “resolve tax disputes in a fair and impartial manner without the need for litigation,” according to a Dec. 8 press release by the agency. One of the focus areas is the alternative dispute resolution (ADR) programs, which uses an IRS mediator to resolve tax disputes between taxpayers and the agency.

Over the past two decades, the IRS has offered taxpayers four principal post-filing ADR options. The Appeals office now intends to offer new ADR programs in a pilot test phase. In addition, the office intends to “increase awareness” about such programs among taxpayers.

“ADR programs can be important tools for resolving tax disputes efficiently without litigation in a way that is fair and impartial to taxpayers and the government,” said the IRS.

The Appeals office’s announcement comes after a May 31 report by the U.S. Government Accountability Office (GAO) criticized the agency for poorly managing these programs.

The use of ADR programs fell by 65 percent between fiscal years 2013 and 2022, the report said. To complicate matters, the IRS doesn’t have enough data to understand why this happened.

For instance, the IRS doesn’t collect data on how many taxpayer requests for ADR are rejected. It also doesn’t know the costs and time involved in using these programs.

GAO speculates that a potential reason why ADR use has declined could be taxpayers not seeing any benefits from using them.

The tax agency has not yet monitored taxpayers’ experience with ADR. The lack of this information means that the IRS is unable to assess how it can improve a taxpayer’s use of such programs, the report stated.

GAO had made eight recommendations to improve ADR programs, including collecting data on what happens to taxpayer requests to use ADR, establishing clear objectives for the programs, and analyzing data collected from ADR assessments to improve performance.

The study was conducted after the National Taxpayer Advocate “reported that the use of ADR programs has steadily declined, while resolving disputes through the IRS appeals process is taking longer. GAO was asked to review how IRS manages its ADR programs.”

ADR Programs

The four principal post-filing ADR programs offered by the Appeals office are:

• Fast Track Settlement (FTS): Available for taxpayers who are large or international businesses, small businesses or self-employed individuals, and tax-exempt and government entities. An independent Appeals mediator will seek to get the taxpayer and the IRS to agree on disputed issues, facilitating the settlement of such disputes.
• Fast Track Mediation - Collection (FTMC): Available for some collection cases. It aims to resolve taxpayer disputes resulting from Offers in Compromise and Trust Fund Recovery Penalties.
• Rapid Appeals Process (RAP): Under this program, the Appeals office tries to mediate with taxpayers to resolve issues while the jurisdiction of the case is still with the office.
• Post Appeals Mediation (PAM): This program is for situations when settlement discussions become unsuccessful and strong disputes remain. “Cases for which tax disputes have been previously mediated through a different ADR program, such as through FTS, are ineligible for PAM.”

In July, the IRS invited public input on ways to improve the dispute resolution programs. The agency accepted public comments until Aug. 29.

“The IRS is greatly interested in examining ways to help to reduce the time, costs, and administrative burden for taxpayers and the government in resolving tax disputes,” Andy Keyso, chief of the Independent Office of Appeals, said at the time.

Transformation and Digitization

According to Mr. Keyso, the IRS intends to transform the agency in a way as to resolve the taxpayers’ disputes “at the earliest possible stage.”

“We’re looking forward to restructuring the alternative dispute resolution process this year to help achieve that objective, and we look forward to continuing to provide taxpayers an impartial administrative forum for resolving tax disputes without litigation.”

In the coming year, the Appeals office expects to do the following:

• Promote digital platforms to improve how taxpayers communicate with the Appeals office.
• Promote paperless processes and other modernization efforts.
• Help taxpayers achieve “tax certainty” as early as possible during the dispute process. Tax certainty means that the taxpayer can quickly and accurately determine the amount of taxes they owe.
• Expanding taxpayer access to in-person conferences and video conferences if they do not live near an Appeals office.

The office is currently working to ensure that taxpayers can easily communicate with the agency digitally. It is now sending letters to taxpayers, detailing the Secure Messaging option available to them through which disputes can be raised.

As part of its modernization process, the Appeals office is pushing paperless processing to “reduce the overall life cycle of an Appeals case.”

“Appeals’ participation in IRS transformation and modernization efforts is critical to effectively and efficiently serving taxpayers,” said Deputy Chief of Appeals Liz Askey.

“By leveraging technology, we can reduce cycle time and improve both the taxpayer and employee experience.”