A tax examination is opened. As the taxpayer’s representative you have produced the evidence, cited the law, and pointed to the appropriate conclusion. If you are convinced your position is correct, and the examining agent remains entrenched in a different view, it is beginning to look like your client is now going to be forced to endure yet another delay. It begins to appear you will have resort to a formal protest to Appeals. But there are some procedures you may invoke when it is preferable to expedite closing the case. Before any 30-day letter is issued, you could take steps to immediately advance your case. In fact, when your facts present a compelling case for the conclusion you advocate, the earlier in your case that you make use of two informal procedures, the more likely the case will be resolved favorably and much faster. Those two procedural avenues are manager-conferences and Fast Track Mediation; they should be used at the very earliest appropriate moment possible to advance your client’s best interest.
Procedural Mandate: Managerial Involvement
The Internal Revenue Manual (“IRM”) unequivocally mandates managerial involvement in unresolved disputes. For example, at IRM, Section 4.10.8.10(4) it is written, “Managerial involvement is required in unagreed cases. A field group preliminary (30-day) letter generally should not be issued to the taxpayer unless the manager has contacted the taxpayer and/or representative to attempt to resolve the tax controversies and reach an agreement.” And at IRM, Section 4.10.7.5.3.1(1) IRS employees are instructed, “Taxpayers who disagree with any of the proposed adjustments will be informed of their right to discuss the proposal with the examiner’s group manager.” The opportunity to have these discussions with a manager is required to be extended as soon as the examiner submits to you the detailed proposal setting forth the examiner’s determination. It seems to be a common experience among representatives that they are rarely, if ever, contacted by a manager who is actively seeking to comprehend a dispute in order to resolve the matter at the examination level, despite the clear mandates of the IRM. Furthermore, it seems to be a common experience that representatives are not informed of the right to a manager’s conference until that notice appears in the 30-day letter – a common error by IRS employees that directly breaches the clear mandates of the IRM.
There is no remedy available to you when the IRS issues a 30-day letter without ever having advised you of the right to confer with the examiner’s manager. You are stuck with having to formally protest the determinations and waiting around for a conference with Appeals. Therefore, when the evidence and the law strongly compel the conclusion that the taxpayer’s position should be sustained, your best opportunity to bring the matter to a faster resolution is to involve persons other than an entrenched examiner in the resolution of the controversy. It is up to you to actively insist that examiners promptly deliver the detailed proposal required and described in IRM 4.10.8.10.2. After analyzing the proposal, you must next actively insist upon a manager’s conference. That conference presents an opportunity to go through a dry run where the examiner’s conclusions will be presented to another person for comparison with your own presentation of the evidence, law, and logical conclusions.
Procedural Mandate: Fast Track Mediation (“FTM”)
Do you know about FTM? Has any examiner ever notified you of the taxpayer’s right to FTM? It is becoming my view that many (maybe most) examiners do not know about the IRM provisions concerning FTM and therefore do not provide timely notice of that right – if ever. FTM started as a procedural experiment. IRS leadership is always interested in expediting the process of producing correct conclusions for very good reasons. The pilot programs involving FTM provided a record sufficient to cause the matter to be made a permanent part of the procedural alternatives that can be used to move disputes to faster conclusions. When the procedure was converted from a trial-project to a permanent fixture, the IRS issued Publication 3605. It is a short, clear statement describing FTM, identifying cases eligible for FTM, and stating how to make use of the process.
In addition to Pub 3605, the IRM was augmented by specific mandates to advise taxpayers of their right to FTM. At IRM 4.14.7.5.3.1(2) it is stated, “Examiners are required to inform all taxpayers about the Fast Track Mediation (FTM) program. All examiners must offer taxpayers the opportunity to use FTM on all unagreed cases that meet the criteria as described in Publication 3605 …” In the Examining Officer’s Guide, Unagreed Reports, at “IX. Fast Track Mediation” the IRM expresses, “Fast Tract Mediation was fully implemented on a national basis on June 1, 2002.” It is further stated that “SBSE employees MUST offer taxpayers the opportunity to use FTM on all unagreed cases that meet the criteria. Publication 3605, Fast Track Mediation, explains the process. FTM is not meant to replace the managerial conference, nor does it replace normal Appeal rights.”
Armed with the language of the IRM you will be in a position to seize the advantages of the opportunities available through conferring with managers and through FTM. But if representatives do not assert a taxpayer’s right to each of these informal processes, the opportunity will be lost.
Reasons to use manager’s conferences followed by FTM
As mentioned above, when the elements of the case most persuasively demonstrate that the taxpayer’s position should be sustained and the examiner persists in refusing to concede the point, you do not need to idly await the arrival of a 30-day letter and head for Appeals. Where the client’s best interests will be maximized by achieving a proper resolution in shorter time, you can remove unilateral decision-making power from the examiner and involve the judgment of other persons in the process. In most cases it will be most appropriate to first engage the examiner’s manager. Remember, this should be done before a 30-day letter is issued. Once that letter issues, there is often a strong institutional resistance to withdrawing that 30-day letter. In that situation, you will not likely have much chance of success at convincing a manager to withdraw the 30-day letter that the manager just approved and issued in the name of the Area Director. Therefore, at the earliest stages of the examination, when all evidence and authority supporting the taxpayer’s position have been submitted to the examiner, persist in the request for the examiner to deliver the examiner’s written determinations. If the proposed determination is incorrect, immediately proceed to request a conference with the manager. For every incorrect determination, proceed to discuss the matter with the manager. If conferences with the manager do not produce a correct result, proceed to request that the matter be submitted to FTM. Follow the steps outlined in Pub 3605. And if you encounter any resistance to the exercise of that right, be sure to point to the mandates expressed in the IRM and Pub 3605.
Mediation through FTM is not binding upon either the taxpayer or the examiner. The mediator will be an Appeals Officer who is specially trained in helping the parties to achieve a settlement. Mediation sessions will occur before a 30-day letter is issued. If no acceptable resolution is achieved, a 30-day letter will follow and representatives may then formally protest the determinations. But even if the correct outcome is not produced through the mediation, the process will probably yield some strong benefits. First, the sessions will provide the opportunity to have a “dress rehearsal” – a chance to present your highly organized submission of evidence and authorities that support the taxpayer’s position. Second, you will have obtained a comprehensive look at the examiner’s abilities as a witness. You will be able to detect elements affecting the examiner’s views that were not disclosed in the proposal that was submitted to you. If the examiner harbors erroneous views or assumptions, the mediator’s involvement will likely help uncover those matters. The sessions will provide an opportunity to informally discover flaws and weaknesses in the examiner’s processes and conclusions. In the event such flaws are revealed you should consider reducing everything to writing in the nature of informal interrogatories (call them requests for help in understanding the position) and informal requests for admission. Promptly prepare and mail the requests to the examiner, stating clearly that you are seeking to resolve the dispute and that the examiner’s answers are of critical importance to that process. The process may have the effect of “turning on the light” and producing the correct outcome that you have been seeking. But if the matter proceeds to a 30-day letter, your case will be much more thoroughly informed in all respects; and, you will have been able to assess how the taxpayer’s position is likely to play in a formal protest.
A Strong Caveat:
On the other hand, where the examiner has gathered the facts, applied sound authorities, expressed a position having merit that requires consideration, and has presented all those matters in a timely proposal, a manager-conference and FTM can still operate to expedite an appropriate resolution of the case. But in this situation, where the evidence and authorities are not so absolutely persuasive in support of the taxpayer's position, it is almost an utter waste of time to insist upon a complete concession from the examiner. Where the examiner's determination expresses merit, the intended purpose of the informal resolution procedures is to work toward settlement - not concession. Thus, if an acceptable settlement is produced by the informal processes, taxpayers can much more expeditiously bring the entire controversy to a close. Expedited resolution is the reason why these informal procedures are made part of the process. And where the process produces a settlement that falls within the range of reasonableness, there is not much to be gained by pounding out a set of informal interrogatories.
Where the examiner's position fairly and in detail expresses the facts provided by the taxpayer's own responses to inquiries from the examiner, and the examiner's proposal demonstrates reliance upon appropriate authorities, your interrogatories will have already been answered. The examiner will have completed the task of expressing conclusions and reasons for those conclusions. In those situations, unless there is some compelling and legitimate reason to reject any settlement that emerges from the informal procedures, a representative must evaluate whether to accept the posited resolution or abandon the process and head for appeals on a 30-day letter.
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