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MSP #16: Alternative Dispute Resolution (ADR)

The IRS Is Failing to Effectively Use ADR As a Means of Achieving Mutually Beneficial Outcomes for Taxpayers and the Government

TAS Recommendations and IRS Responses



Expand Alternative Dispute Resolution (ADR) to all taxpayers upon request, including at the Compliance level, as well as at the Appeals stage.

IRS RESPONSE TO RECOMMENDATION: Over the years, Appeals has consistently increased the availability of its ADR options, including making SBSE FTS available nationwide in 2013 following the conclusion of a pilot program limited to only eight jurisdictions.  Appeals also expanded PAM to OIC and TFRP cases in 2014 and is planning to expand RAP to all SBSE E&G and LB&I cases (other than Individual International Cases) in 2017.   Appeals does not plan to expand its mediation-based ADR programs to all taxpayers upon request without restriction because not all cases are suitable for mediation.  For example, cases involving whipsaw issues, frivolous issues, docketed issues, issues for which the taxpayer has requested competent authority assistance, cases or issues designated for litigation, or issues for which mediation would be inconsistent with sound tax administration (e.g. issues governed by closing agreements, res judicata, or controlling precedent) are properly excluded from Appeals’ mediation programs.   Additionally, it is appropriate to allow Compliance input into ADR requests because mediation requires the investment of time and personnel, which may be unfeasible in some instances due to resource constraints.  Moreover, systemically generated cases may not involve a Revenue Agent or Revenue Officer with whom to conduct negotiations.  Taxpayers whose cases are ineligible for mediation continue to have an alternative to litigation via the traditional Appeals process. 


TAS RESPONSE: The National Taxpayer Advocate applauds IRS efforts to expand ADR. Nevertheless, if Appeals is committed to achieving a broadly successful ADR program, it must expand ADR availability substantially. In particular, offering ADR to most taxpayers during the Compliance stage of the case would increase usage and yield great benefits. Among other things, ADR at the Compliance stage would help the parties better understand the issues, reach agreement on disputed facts, and settle cases at an earlier stage in the controversy process. Also, just as a meaningful ADR session involves give-and-take, so the IRS should consider relinquishing its effective veto power over ADR availability to encourage substantial usage of the program. To the extent that taxpayers and practitioners sense a power differential in the threshold ability to initiate an ADR proceeding, many will automatically discard such a program as being based on an uneven playing field.


OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A



Publish quarterly data relating to the settlement percentages and the cost-effectiveness of Alternative Dispute Resolution (ADR).

IRS RESPONSE TO RECOMMENDATION: Appeals will explore sharing additional data with taxpayers via outreach presentations to illustrate the benefits of ADR.

Update: Appeals agreed to explore sharing additional data with taxpayers via outreach presentations to illustrate the benefits of Alternative Dispute Resolution (ADR).  Appeals employees continue to mention the benefits of using our ADR programs in outreach presentations as appropriate.  Although we are not sharing settlement percentages in ADR cases at this time, we continue to explore what data about Appeals and ADR will best help taxpayers better understand their options.

CORRECTIVE ACTION: Appeals will explore sharing additional data with taxpayers via outreach presentations to illustrate the benefits of ADR.

TAS RESPONSE: As cited by the National Taxpayer Advocate in this Most Serious Problem, some other agencies, such as the EPA and the Air Force, provide publicly available data on time and cost savings attributable to the use of their ADR programs. If taxpayers and their representatives are consistently and systematically provided with this detailed information, assuming it is positive, they will quickly embrace the IRS’s ADR program. On the other hand, if the data is less-than-compelling, the IRS must figure out why and take decisive steps to make meaningful changes in its ADR program. Comprehensive ADR data should be included in the IRS annual compliance statistics. Sharing such information via public presentations is beneficial but cannot be treated as a substitute for formal reporting.


OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A



Reduce the administrative burdens surrounding Alternative Dispute Resolution (ADR), allow video conferencing where desired by the parties, and examine scenarios in which a redesigned arbitration option can represent an attractive alternative to litigation.

IRS RESPONSE TO RECOMMENDATION: Appeals is exploring options to expand the possibilities for virtual conferences with taxpayers and expects to offer a new option in the near future.  In 2015, Appeals eliminated its Arbitration program due to lack of use.  In the 14 years during which the program was offered, only 16 taxpayers pursued the option with only two reaching agreement.  Based on this experience, there is little, if any, evidence to suggest that arbitration is likely to be an attractive alternative to litigation for taxpayers.   

CORRECTIVE ACTION: Planned expansion of virtual tools for taxpayer conferences.

TAS RESPONSE: The National Taxpayer Advocate applauds the IRS’s goal of facilitating access to ADR through the use of videoconferencing and Virtual Service Delivery (VSD) technologies. She continues to urge the IRS to expand its capacities in both of these areas as it moves forward. These methods of holding Appeals conferences and their availability will be further examined as part of a 2017 Most Serious Problem on the broader subject of in-person Appeals conferences.  At the time the IRS discontinued its post-appeals arbitration program, the National Taxpayer Advocate submitted comments suggesting that the IRS consider the possibility that low taxpayer usage might be a sign of design or operational flaws, rather than an indication that taxpayers were irreconcilably averse to such a program. This issue remains an open question, and a revamped post-appeals arbitration program that effectively addresses previous taxpayer and practitioner concerns about high costs and longer-than-desired delays inherent in the program could still represent an important element within an ADR suite of offerings. Similarly, ADR expansion overall will benefit from a perspective that, in addition to identifying reasons for current under-usage, also affirmatively removes those obstacles and focuses on encouraging taxpayers to take advantage of these programs.


OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A



Establish a separate unit to house IRS personnel assigned exclusively to the Alternative Dispute Resolution (ADR) program.

IRS RESPONSE TO RECOMMENDATION: It is unnecessary and would be inefficient to establish a separate IRS unit, in addition to the Office of Appeals, for ADR. Historically, Appeals has successfully resolved the majority of cases that come to it. Consistent with the statutory mandate of RRA 98, Appeals Officers are trained to be impartial and independent as part of their role in the traditional Appeals process. In addition, all Appeals Officers are offered nationally-recognized mediation training. According to Appeals’ customer satisfaction survey data for FY13 – FY15, taxpayers and practitioners have positive views of Appeals’ independence overall (67% satisfied), ADR overall (70% satisfied) and ADR impartiality (74% satisfied). Appeals continually reviews its policies to ensure that its practices and procedures support and reinforce its independence. Establishing a separate unit to house personnel assigned exclusively to the ADR program would be duplicative with the Office of Appeals.


TAS RESPONSE: The most important number in evaluating the effectiveness of the IRS’s ADR program is 306. This number represents all of the cases resolved via ADR in FY 2016. To expand usage, Appeals must persuade taxpayers and their representatives that they can benefit from the ADR process. As discussed above, Appeals must publish data demonstrating the effectiveness and efficiency of ADR, to the extent that such information exists. Further, taxpayers and their representatives must be presented with a forum for seeking settlement that, in perception and in reality, is independent not only of the IRS, but also of Appeals. A separate unit housing neutrals assigned solely to the IRS’s ADR program would not only highlight its new commitment to ADR, but would proclaim and protect the independence of those neutrals from other portions of the IRS organization. The more taxpayers and their representatives perceive the ADR program as an effective, efficient, and independent vehicle for seeking case settlement, the more likely they are to pursue a widerange of case resolutions through this methodology. Accomplishing this broad usage would havetremendous benefits both for the IRS and taxpayers in terms of reduced proceedings, lowered costs, and improved interactions.


OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A