IRS Announces Fast Track Mediation Collection Program, Replacing Prior Collections Mediation Program

In Revenue Procedure 2016-57 the IRS has announced a new fast-track mediation program for small businesses and self-employed individuals, replacing the Small Business/Self-Employed Division Appeals FTM program found in Revenue Procedure 2003-41).  The new program, the SB/SE fast-track mediation collection program (FTMC), replaces the old FTM program.

As the IRS explains:

…[T]he IRS is replacing FTM with FTMC. Taxpayer requests for FTM have been infrequent throughout the life of the program, and became increasingly so after Fast Track Settlement (FTS) was implemented nationwide. See Ann. 2011-5, 2011-4 IRB 430 and I.R.S. News Release IR-2013-88 (November 6, 2013). FTS, however, is only available to taxpayers in Examination and does not provide an expedited Appeals alternative dispute resolution opportunity for taxpayers in Collection. Rather than eliminate FTM, the IRS determined that it would replace FTM with FTMC, which will ensure that taxpayers in Collection continue to be afforded an early opportunity for expedited resolution of their cases via mediation, but limited to certain OIC and TFRP issues and cases worked by Collection, as described in section 3 of this revenue procedure. Other alternative dispute resolution programs, such as FTS, remain available to taxpayers whose cases are being worked in Examination. Similar to FTM, FTMC allows taxpayers the opportunity to resolve certain case and issue disputes on an expedited basis with an Appeals mediator acting as a neutral party. Moreover, the Appeals mediator in FTMC, as in FTM, does not have settlement authority and cannot render a decision regarding any issue in dispute.

The program is meant to solve particular disputed issues where the taxpayer and the IRS have resolved all other outstanding issues.  As the procedure notes:

FTMC may be used only when all other collection issues are resolved but for the issue(s) for which FTMC is being requested. The issue(s) to be mediated must be fully developed with clearly defined positions by both parties so the unagreed issues can be resolved quickly (usually within 30 or 40 calendar days). Participation in FTMC is optional for both Collection and the taxpayer.

Since is mediation, the Appeals mediator has no authority at this point to force a settlement—rather the goal is to get the parties to each consent to an agreement by using the Appeals mediator to assist the parties at arriving at such an agreement.

The procedure notes that the following issues are generally appropriate for the use of FMTC:

(1) Legal and factual issues;

(2) The following OIC cases or issues, provided all relevant facts are known by both parties:

a. The value of a taxpayer's assets, including those held by a third party;

b. The amount of dissipated assets that should be included in the overall determination of reasonable collection potential (RCP) (as described in IRM 5.8.5, Financial Analysis);

c. Whether the taxpayer meets the criteria for deviating from national and/or local expense standards;

d. Determination of a taxpayer's proportionate interest in jointly held assets;

e. Projections of future income based on calculations other than current income;

f. The calculation of a taxpayer's future ability to pay when living expenses are shared with a non-liable person;

g. Doubt as to liability cases worked by Collection; and

h. Other factual determinations, such as whether a taxpayer's contributions into a retirement savings account are discretionary or mandatory as a condition of employment;

(3) The following TFRP cases or issues, provided all relevant facts are known by both parties:

a. Whether a person was required to collect, truthfully account for, and pay over income, employment or excise taxes;

b. Whether a responsible person willfully failed to collect, truthfully account for, and pay over such tax, or willfully attempted in any manner to evade or defeat payment of such tax;

c. Whether a taxpayer properly designated a payment to the trust fund portion of the unpaid tax; and

d. Whether the taxpayer provided sufficient corporate payroll records to establish that a corporate tax deposit was in the amount required by Treas. Reg. § 31.6302-1(c) and thus was considered a designated payment to be applied to both the trust fund and non-trust fund portions of the employment taxes associated with that specific payroll.

FMTC is not deemed appropriate for the following issues:

(1) Issues requiring assessment of the hazards of litigation or use of the Appeals mediator's delegated settlement authority;

(2) Cases referred to the Department of Justice;

(3) Cases worked at an SB/SE Campus site;

(4) Collection Appeals Program (CAP) cases;

(5) Collection Due Process (CDP) cases;

(6) Frivolous issues, such as, but not limited to, those identified in Rev. Proc. 2016-2 § 4.04, 2016-1 I.R.B. 102, or any succeeding revenue procedure;

(7) Collection cases in which the taxpayer has failed to respond to IRS communications or failed to submit documentation to Collection for consideration;

(8) The following OIC cases:

a. Cases in which the unadjusted financial information submitted by the taxpayer demonstrates the taxpayer has the ability to pay in full, except where an Effective Tax Administration OIC is based on economic hardship and the assessed liability is less than $250,000. See Delegation Order 5-1, To Accept, Reject, Return, Terminate or Acknowledge Withdrawals of Offers in Compromise;

b. Cases in which the taxpayer declines to amend or increase the offer despite having no specific disagreement with the valuations, figures, or methodology used by Collection in determining RCP;

c. Cases in which the disputed issue is explicitly addressed by IRS guidance or authority, including but not limited to regulations, published guidance, the Internal Revenue Manual, forms or instructions. For example, the Form 656 Offer in Compromise Booklet explicitly states that the IRS will not consider expenses for tuition for private schools, college expenses, charitable contributions, and other unsecured debt payments as part of the OIC expense calculation. Therefore, FTMC is not available with respect to whether any of these expenses will be considered in evaluating the taxpayer's offer; and

d. Cases in which Delegation Order 5-1 requires a level of approval higher than that of the Collection Group Manager;

(9) Issues for which mediation would be inconsistent with sound tax administration; and

(10) Issues that have otherwise been identified in subsequent published guidance issued by the IRS as excluded from FTMC.

The procedure provides that FMTC should be requested after an issue has been fully developed but before Collections has made a final determination on the issue.

The ruling provides the following on how to request FMTC:

(1) Signed Form 13369. To request FTMC, a Form 13369 must be signed by both the Collection Group Manager and the taxpayer, or the taxpayer's authorized representative, if applicable. If the Form 13369 is signed by a person pursuant to a power of attorney (Form 2848, Power of Attorney and Declaration of Representative), the power of attorney executed by the taxpayer must be attached to the Form 13369.

(2) Completing the FTMC request. A FTMC request includes the following:

a. One Form 13369 for all OIC or TFRP issues in a taxpayer's case that are being submitted for FTMC, signed by both parties.

b. The taxpayer's written summary of his or her position with respect to the disputed issues. This summary is not treated as a formal protest, and a formal protest is not required.

c. Collection's written summary of its position with respect to the disputed issues, as well as a full RCP computation for an OIC case, which will generally consist of the Income/Expense and Asset/Equity Tables (IET and AET), or a full trust fund computation in a TFRP case.

The Appeals Team Manager will review the request and decide to approve or decline the request for FTMC.  If approved, the Appeals Team Manager will select the mediator from Appeals employees who have been trained in mediation.  The taxpayer will not be able to select the mediator in this process.

Section 6 of the Revenue Procedure outlines the procedures for the mediation sessions.  Both sides must have at least one person at each session that has decision making authority for the party.

Either party can withdraw from the mediation process at any time prior to a settlement being reached.

The general prohibition with regard to ex parte communications between Appeals employees and other employees found in Section 1001(a) of the Internal Revenue Restructuring and Reform Act of 1998 does not apply in this case.  However, communications with the Appeals mediator initiated by either party outside the mediation session are prohibited.  As the Revenue Procedure provides:

The prohibition prevents the Appeals mediator from receiving information or evidence from one party that the other party is unaware of and is unable to respond to or rebut. This provision does not prevent the Appeals mediator from contacting a party outside the mediation session, or a party from answering a question or request posed by the Appeals mediator outside the mediation session. Upon receiving information from one party, the Appeals mediator must make the information available to the other party so that no party is unaware of or unable to respond to or rebut the information.

Section 7 outlines post-session procedures for both those cases that are resolved and those that are not.  If no settlement is reached, the taxpayer retains his/her right to request a regular Appeals hearing using the traditional Appeals process.

Mediation sessions may not be recorded by either party and any settlement reached through FMTC will not be binding on either party for years or issues not covered by the agreement.  As well, unless provided for in the agreement, neither party may use the settlement as precedent.

Revenue Procedure 2003-41 is obsoleted by this procedure.  The procedure is effective November 18, 2016.