IRS ANNOUNCES ONE-YEAR TRIAL OF MEDIATION PROCEDURE.

Announcement 95-86

SUMMARY: Appeals is conducting a one-year test of a mediation procedure. This procedure will allow taxpayers, in certain cases that are already in the Appeals administrative process and that are not docketed in any court, to request mediation of one or more issues as a dispute resolution technique. Under the procedure, the taxpayer and Appeals will attempt to negotiate a settlement, assisted by an objective and neutral third party who has no authority to impose a decision. These procedures are effective for requests for mediation made during the one-year test period beginning on October 30, 1995.

Under the test, mediation is:

o Optional, with the taxpayer and Appeals negotiating their own settlement and the mediator acting as a facilitator;

o Limited to issues in Coordinated Examination Program (CEP) cases assigned to Appeals Team Chiefs;

o Requested by the taxpayer or Appeals when agreement cannot be reached on an issue after established Appeals settlement discussions are unsuccessful;

o Agreed to by the taxpayer and the Assistant Regional Director of Appeals-Large Case.

OVERVIEW:

The mission of Appeals is to resolve tax controversies, without litigation, on a basis which is fair and impartial to both the Government and the taxpayer. Mediation is an extension of the Appeals process and will enhance voluntary compliance. Mediation is a non-binding process. The mediator will help the parties reach their own negotiated settlement. To accomplish this goal, the mediator will act as a facilitator, assist in defining the issues, and promote settlement negotiations between the parties. The mediator will not have settlement authority in the mediation process and will not render a decision regarding any issue in dispute. The mediator should inform and discuss with the parties the rules and procedures pertaining to the mediation process.

SCOPE OF MEDIATION:

The mediation procedure will attempt to resolve issues while a case is in the jurisdiction of Appeals. This procedure may be used only after Appeals settlement discussions are unsuccessful. Mediation will be appropriate for factual issues, such as valuation, reasonable compensation and transfer pricing issues. The test of the mediation procedure will be limited to issues in CEP cases assigned to Appeals Team Chiefs. In addition, mediation will not be available for:

o An issue that is designated for litigation or docketed in any court;

o An Industry Specialization Program (ISP) issue or an Appeals Coordinated Issue (ACI) [ISP issues are listed in Exhibit 8700-1 and ACI issues are listed in section 8776 of the Internal Revenue Manual]; or

o An issue for which the taxpayer has filed a request for competent authority assistance, or an issue for which the taxpayer intends to seek competent authority assistance. Mediation is also not available for an issue for which the taxpayer has requested the simultaneous Appeals/Competent Authority procedure described in section 8 of Announcement 95-9, 1995-7 I.R.B. 57 or a subsequent revenue procedure. If a taxpayer enters into a settlement with Appeals (including an Appeals settlement through the mediation process), and then requests competent authority assistance, the U.S. competent authority will endeavor only to obtain a correlative adjustment with the treaty country and will not take any actions that would otherwise amend the settlement. See section 7.05 of Announcement 95-9.

MEDIATION PROCESS:

1. Mediation is optional. A taxpayer or an Appeals Team Chief may request mediation after consultation with each other. A written request should be forwarded to the appropriate Assistant Regional Director of Appeals-Large Case (ARDA-LC) to seek approval for mediation.

Request approved - If the ARDA-LC approves the request, the ARDA-LC will promptly inform the taxpayer and the Appeals Team Chief and schedule a conference to discuss the proposed mediation process.

Request denied - If the ARDA-LC denies the request, after concurrence by the Regional Director of Appeals, the ARDA-LC will promptly inform the taxpayer and the Appeals Team Chief. Although no formal appeal procedure exists for the denial of a mediation request, a taxpayer may request a conference with the ARDA-LC to discuss the denial of the mediation request.

Generally, the ARDA-LC will respond to the taxpayer and the Appeals Team Chief within 30 days after the ARDA-LC receives the request for approval of mediation.

2. Agreement to mediate. The taxpayer and Appeals will enter into a written agreement to mediate. The agreement should be as concise as possible. See Exhibit 1, below, for a model agreement to mediate. The ARDA-LC (in consultation with the Appeals Team Chief) will negotiate and sign the agreement to mediate on behalf of Appeals. The following sections describe some of the considerations that the taxpayer and Appeals should take into account in preparing this agreement.

3. Participants. The parties to the mediation process will be the taxpayer and Appeals. Absent an agreement to the contrary, the parties must have participants attending the mediation with decision- making authority. Participants in the mediation may include the taxpayer's counsel or chief financial officer, the Appeals Team Chief, the ARDA-LC or other appropriate persons. Each party must notify the mediator and the other party two weeks before the mediation regarding the participants on their mediation team. See Exhibit 2, below for a model participants list.

4. Selection of mediators, in general. The taxpayer and the ARDA-LC (in consultation with the Appeals Team Chief) will select a mediator. The test of mediation procedure for Appeals seeks to include cases using both non-IRS and Appeals personnel as mediators. Appeals' decision to mediate may depend upon the taxpayer's acceptance of an Appeals mediator. See sections 5, 6, and 7 below, regarding who can be a mediator. Co-mediators can be used in any case, and may be suitable for the most complex issues. If the taxpayer and the ARDA-LC cannot agree on a mediator, they may agree to a procedure to be used to select a mediator. In addition, the taxpayer and the ARDA-LC may seek the assistance of the Federal Mediation and Conciliation Service (telephone number (202) 606-5445) or the Administrative Conference of the United States (telephone number (202) 254-7020) in selecting a mediator. In obtaining the services of a mediator, the Internal Revenue Service (IRS) will follow all applicable provisions of the Federal Acquisition Regulation. A mediator shall have no official, financial, or personal conflict of interest with respect to the parties, unless such interest is fully disclosed in writing to the taxpayer and the ARDA-LC, and they agree that the mediator may serve. See 5 U.S.C. section 573.

5. Appeals personnel as mediators, conflict statement and expenses. The taxpayer and the ARDA-LC may select an Appeals representative to be the mediator. The Appeals mediator shall be from another Appeals office or region, or from National Office Appeals. The ARDA-LC from the region in which the case is located will coordinate with the ARDA-LC from the region in which the proposed mediator is located. Due to the inherent conflict that results because the Appeals mediator is an employee of the IRS, Appeals will provide to the taxpayer a statement confirming the employee's proposed service as a mediator, that the person is a current employee of the IRS and that a conflict results from that mediator's continued status as an IRS employee. The written agreement to mediate shall include this statement. If an Appeals mediator (or Appeals co-mediator) is selected, National Office Appeals will pay the expenses associated with the Appeals mediator (or co-mediator).

6. Non-Internal Revenue Service mediator, expenses. The taxpayer and the ARDA-LC may agree on a mediator from outside the IRS. If a non-IRS mediator or co-mediator is selected, the taxpayer and National Office Appeals will share expenses equally.

7.Criteria for selection of mediators. Criteria for selecting a mediator or co-mediator may include completion of mediation training, previous mediation experience, a substantive knowledge of tax law, or knowledge of industry practices. Criteria may also include the projected travel costs, hourly fees and other expenses, which will be considered subject to rules and regulations for Government procurement.

8. Issues covered. The agreement to mediate shall specify the issue(s) to be mediated by the parties. Each party will prepare a discussion summary of the issues for consideration by the mediator. The discussion summaries should be submitted to the mediator and the other party two weeks before the mediation session is scheduled to begin.

9. Site, date, agenda. The agreement to mediate should identify the location and the proposed date of the mediation session. The parties should attempt to select a site near the taxpayer's office or an Appeals office. The parties should also agree upon an agenda in consultation with the mediator.

10. Confidentiality. The mediation process is confidential. As part of the agreement to mediate, the taxpayer will acknowledge in writing that the mediator, the persons invited to participate in these procedures by the taxpayer, and those persons the IRS invites to participate, may have access to all the taxpayer's return or return information pertaining to the issues being considered, pursuant to I.R.C. section 6103 and the regulations thereunder, particularly I.R.C. sections 6103(c), and 6103(n) and the regulations thereunder. See Exhibit 3, below for a model consent and acknowledgement form regarding the disclosure of returns and return information. IRS employees involved in any way in the mediation process, the outside mediator and any person under contract to the IRS that the IRS invites to participate will be subject to the confidentiality and disclosure provisions of the Internal Revenue Code, including I.R.C. sections 6103, 7213, and 7431. IRS employees, the taxpayer, the outside mediator, and persons invited to participate by the IRS and the taxpayer shall not voluntarily, or through discovery or compulsory process, disclose any information regarding the mediation process or any communication made during the mediation process, including the settlement terms, except as provided in 5 U.S.C. section 574.

11. Section 7214(a)(8) disclosure. Under I.R.C. section 7214(a)(8), IRS employees must report information concerning violations of any revenue law to the Secretary. The agreement to mediate will state this requirement and the parties will acknowledge this duty.

12. Disqualification. The mediator will be disqualified from representing the taxpayer in any pending or future action that involves the transactions or issues that are the particular subject matter of the mediation. This disqualification extends to representing any other parties involved in the transactions or issues that are the particular subject matter of the mediation. Moreover, the mediator's firm will be disqualified from representing the taxpayer and any other parties involved in the mediation in any actions that involve both the same taxable year and the transactions or issues that are the particular subject matter of the mediation.

The mediator's firm will not be disqualified from representing the taxpayer or any other parties in an action that involves the same transactions or issues that are the subject matter of the mediation, provided that such action relates to a different taxable year and the firm through screening procedures precludes the mediator from any form of participation in the matter and does not apportion to the mediator any part of the fee therefrom. While the mediator may not receive a direct allocation of the fee from the taxpayer in the matter for which the screening procedures are in effect, the mediator will not be prohibited from receiving a salary, partnership share or corporate distribution established by prior independent agreement. The mediator and his or her firm are not disqualified from representing the taxpayer in any matters unrelated to the transactions or issues that are the particular subject matter of the mediation.

These procedures only apply to representations on matters before the IRS.

13. Withdrawal. Either party may withdraw from the process at any time prior to reaching a settlement of the issues to be mediated by notifying the other party and the mediator in writing.

14. Mediator's report. At the conclusion of the mediation process, the mediator will prepare a brief written report and submit a copy to each party. See Exhibit 4, below for a model mediator's report.

15. Appeals procedures apply. If the parties reach an agreement on all or some of the issues through the mediation process, Appeals will use established procedures, including preparation of a specific matters closing agreement (Form 906). Delegation Order 236, 1991-1 C.B. 313, regarding rollover or recurring issues may apply to settlements resulting from the mediation process. If the parties do not reach an agreement on an issue being mediated, Appeals will not reconsider it. Appeals will continue to consider settlement of all other issues that were not the subject of mediation. See Statement of Procedural Rules, 26 C.F.R. section 601.106.

16. Use as precedent. A settlement reached by the parties through mediation shall not serve as an estoppel in any other proceeding. Such settlement may not be considered in any factually unrelated proceeding and may not be used as precedent.

17. Effective Date. These procedures are effective for requests for mediation made during the one-year test period beginning on October 30, 1995.

For further information contact: Thomas C. Louthan, Director, Office of International, TEFRA, and Dispute Resolution Programs, National Office Appeals, (202) 401-4098 (not a toll-free number).

EXHIBIT 1:

MODEL AGREEMENT TO MEDIATE

1. The Mediation Process. The mediation will be an extension of the Appeals process to help [NAME OF TAXPAYER] and Internal Revenue Service - Appeals (the PARTIES) reach their own negotiated settlement of the issues to be mediated. See (2) below for the participants in the mediation process. To accomplish this goal, the mediator will act as a facilitator, assist in defining the issues and promote settlement negotiations between the PARTIES. The mediator will inform and discuss with the PARTIES the rules and procedures pertaining to the mediation process. The mediator will not have settlement authority and will not render a decision regarding any issue in dispute. The PARTIES will continue to have settlement authority for all issues considered under the mediation process.

2. Nature of Process, Withdrawal. The mediation process is optional. The participants in the mediation session from [NAME OF TAXPAYER], will be X, [Title]; and from APPEALS, will be Y, Assistant Regional Director of Appeals (Large Case)[ARDA-LC] and Z, Appeals Team Chief. The PARTIES must have participants attending the mediation session with decision-making authority.

Each PARTY:

(a) may involve other appropriate persons in the mediation;

(b) must notify the mediator and the other PARTY two weeks before the mediation session regarding participants on their mediation team; and

(c) may withdraw from the process at any time prior to reaching a settlement of the issues to be mediated by notifying the other PARTY and the mediator in writing.

3. Selection of Mediator, Costs. X and Y, by mutual agreement, will select a mediator. The mediator may be a non-IRS individual or an Appeals representative, with previous mediation training or experience. Co-mediators can also be selected. A mediator shall have no official, financial, or personal conflict of interest with respect to the parties, unless such interest is fully disclosed in writing to the parties, and they agree that the mediator may serve. See 5 U.S.C. section 573. Should X and Y be unable to agree on a mediator, they may seek the assistance of the Administrative Conference of the United States, the Federal Mediation and Conciliation Service or other organizations regarding the selection of a mediator. The costs of a non-IRS mediator or co-mediator will be shared equally by the taxpayer and National Office Appeals, subject to applicable rules and regulations for Government procurement. If an Appeals mediator or co- mediator is selected, National Office Appeals will pay the expenses associated with the mediator (or co-mediator). Due to the inherent conflict that results because the Appeals mediator is an employee of the IRS, Appeals will provide to the taxpayer a statement confirming the employee's proposed service as a mediator, that the person is a current employee of the IRS and that a conflict results from that mediator's continued status as an IRS employee.

4. Issues to be Mediated. The mediation session will encompass the following items at issue in the IRS audit of [NAME OF TAXPAYER]'s federal tax returns:

a) Issue #1

b) Issue #2

5. Submission of Materials. Each PARTY will present to the mediator a separate written summation not to exceed 20 pages (exclusive of exhibits consisting of pre-existing documents and reports) regarding the items in issue. The mediator will have the right to ask either PARTY for additional information before the mediation session if deemed necessary for a full understanding of the issues to be mediated. A copy of the information a PARTY gives to the mediator will be provided simultaneously to the other PARTY.

6. Proposed Schedule. Subject to the approval of the mediator, the mediation session will be conducted according to the following schedule:

           Submission of            A DATE WHICH IS TWO WEEKS BEFORE

8. Confidentiality. The mediation process will be confidential. [NAME OF TAXPAYER] acknowledges that the Mediator and the other persons invited by the PARTIES to participate in the mediation, will have access to all of [NAME OF TAXPAYER]'s return or return information pertaining to the issues being mediated pursuant to I.R.C. sections 6103(b), 6103(c) and 6103(n) and the regulations thereunder. (See attached Consent to and Acknowledgement of Disclosure of Return and Return Information.) IRS employees involved in any way in the mediation process, and any person under contract to the IRS that the IRS invites to participate, will be subject to the confidentiality and disclosure provisions of the Internal Revenue Code, including I.R.C. sections 6103, 7213 and 7431. IRS employees, [NAME OF TAXPAYER ], the outside mediator, and persons invited to participate by the PARTIES in the mediation shall not voluntarily, or through discovery or compulsory process, disclose any information regarding the mediation process or any communication made during the mediation process, including the settlement terms, except as provided in 5 U.S.C. section 574.

9. I.R.C. Section 7214 (a)(8) Disclosure. The PARTIES to this agreement acknowledge that IRS employees involved in this mediation are bound by the I.R.C. section 7214 (a)(8) disclosure requirements concerning violations of any revenue law.

10. No Record. There will be no stenographic record or tape recording of the mediation process.

11. Report by Mediator. At the conclusion of the mediation session, the Mediator will issue a brief report to the PARTIES identifying each issue described in section 4, above, and whether the PARTIES either agreed to resolve or did not resolve the issue.

12. Appeals Procedures Apply. If the mediation process enables the PARTIES to reach agreement on the issues, established Appeals procedures will apply. Delegation Order 236, 1991-1 C.B. 313, regarding rollover or recurring issues may apply to settlements resulting from the mediation process. If the PARTIES cannot reach agreement on an issue being mediated, Appeals will not reconsider it. Appeals will continue to consider settlement of all issues that were not the subject of mediation.

13. Precedential Use. A settlement reached by the parties through mediation shall not serve as an estoppel in any other proceeding. Such settlement may not be considered in any factually unrelated proceeding and may not be used as precedent.

 INTERNAL REVENUE SERVICE,          NAME OF TAXPAYER

MODEL MEDIATION PARTICIPANTS LIST

Case Name:

Submitted By: _________________________________________

Date: _________________________________________________

To avoid the possibility of a last-minute disqualification of the mediator(s), each party to the mediation must advise the other party and the mediator(s) of the name of all persons, firms, and companies involved in this matter. This form must be sent to the other party and to the mediator(s) two weeks before the mediation session.

Please list below all participants attending the mediation, including witnesses, consultants, and attorneys.

       NAME                AFFILIATION           ADDRESS

MODEL CONSENT TO AND ACKNOWLEDGEMENT OF DISCLOSURE OF RETURN AND RETURN INFORMATION

Pursuant to I.R.C. section 6103(c) and the regulations thereunder, I, _______________________________________, on behalf of _____________________________________, (hereafter Taxpayer) authorize the Internal Revenue Service to disclose to __________________________________, a person the Taxpayer has invited to participate in the Taxpayer's mediation with the Internal Revenue Service, all of the Taxpayer's returns and return information, within the meaning of I.R.C. sections 6103(b)(1)-(2), pertaining to the issues being mediated.

Taxpayer also acknowledges that the Internal Revenue Service may disclose Taxpayer's returns and return information to an outside mediator or to persons the Internal Revenue Service may invite to participate in the Taxpayer's mediation, pursuant to I.R.C. section 6103, including I.R.C. section 6103(n).

Taxpayer realizes that, without this consent to disclosure, Taxpayer's returns and return information would be confidential and disclosable only as authorized by Title 26.

I certify that I am the Taxpayer's _______________________, and that I have the authority to execute this consent to disclosure on the Taxpayer's behalf.

     Taxpayer's Name: _____________________________________

MODEL MEDIATOR'S REPORT

The parties below agreed to mediate their dispute on MONTH DATE, 19XX (copy attached). The parties attended a mediation session on MONTH DATE, 19XX and agreed to settle the following issues:

 ISSUE:

The following issues discussed in the mediation session were not resolved:

 ISSUE: