8.26.9. Post-Appeals Mediation Procedures for Collection Cases

(1) The Internal Revenue Service Restructuring and Reform Act of 1998 enacted IRC 7123(b)(1), which required the Secretary to prescribe procedures under which a taxpayer or Appeals may request non-binding mediation on any Appeals procedures or issues unresolved at the conclusion of an unsuccessful attempt to enter into either a closing agreement under IRC 7121 or a compromise under IRC 7122.

(2) Revenue Procedure 2002-44, 2002-26 I.R.B. 10, was published on July 1, 2002, and formally established the PAM program for non-Collection cases.

(3) Announcement 2008-111, 2008-48 I.R.B. 1224, established a PAM pilot program for Offer in Compromise (OIC) and Trust Fund Recovery Penalty (TFRP) cases. Announcement 2011-6, 2011-4 I.R.B. 433, extended the pilot without changes.

(4) On December 1, 2008, Appeals initiated a two-year pilot program in eight cities for post-Appeals mediation for Offer in Compromise and Trust Fund Recovery Penalty cases. The pilot was extended in January of 2011 before post-Appeals mediation became permanent December 29, 2014.

(1) Revenue Procedure 2014-63, 2014-53 I.R.B. 1014, was published December 29, 2014, superseding previous guidance pertaining to PAM. This revenue procedure created a permanent, nationwide OIC and TFRP PAM program.

(2) IRM 1.2.1.9.1, Policy Statement 8-1, affirms Appeals' commitment to the development and use of alternative dispute resolution (ADR) techniques.

(1) The Policy analyst shown on the Product Catalog page as the originator is the assigned author of this IRM.

(1) Policy, Planning, Quality and Analysis (PPQA) provides trend and data analyses and detailed summary reports for Appeals.

(1) The table below lists common acronyms used in this section:

(1) IRM 8.26.3, Fast Track Mediation for Collection Cases, contains guidance regarding Fast Track Mediation cases.

(1) Mediation is optional for both the taxpayer and Appeals. Appeals is committed to mediation as part of its overall ADR program, but mediation does not provide Appeals any additional settlement authority beyond the traditional Appeals process. Appeals also has a responsibility to ensure its ADR programs and the participating cases and issues are consistent with sound tax administration. For these reasons, not every case or issue is eligible for PAM.

(2) Mediation is available for both legal and factual issues. However, mediation is not the place to consider a new issue or to develop an undeveloped or underdeveloped issue.

(3) Provided all facts are known by both parties, OIC cases or issues that would generally be appropriate for mediation include:

1. The value of a taxpayer’s assets, including those held by a third party

2. The value of dissipated assets and what amount should be included in the overall determination of reasonable collection potential

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

4. A taxpayer’s proportionate interest in jointly held assets

5. Projections of future income based on calculations other than current income

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

7. Certain Doubt as to Liability cases (see also Paragraph (6) below)

8. Other factual determinations, such as whether a taxpayer’s contributions into a retirement savings account are either discretionary or mandatory as a condition of employment

(4) For cases with liabilities of $50,000 or more, any settlement or agreement reached through mediation remains subject to the required legal opinion from the Office of Chief Counsel pursuant to IRC 7122(b). If the OIC requires a legal opinion, Appeals will forward the case to Area Counsel after the conclusion of the mediation process. If Counsel concludes the legal requirements for an offer are not met, the offer may still be accepted by Appeals. See Section 11.03 of Rev. Proc.2014-63, IRM 8.23.4.3.2, Counsel Review of Acceptance Recommendations, and IRM 5.8.8.13, Legal Opinion of Counsel.

(5) Section 4.04 of Revenue Procedure 2014-63 lists types of cases or issues for which mediation will not be available, including:

1. An issue designated for litigation or docketed in any court

2. An issue for which mediation would not be consistent with sound tax administration

   Example: A taxpayer owes $125,000 and is offering $40,000 to settle the tax debt. During negotiations with Appeals, the Appeals Technical Employee (ATE) determined reasonable collection potential (RCP) was $195,000. Part of the overall RCP was a determination by the settlement officer that the taxpayer had net realizable equity in her residence of $30,000 based upon a Fair Market Value of $200,000 (yielding a Quick Sale Value of $160,000) with a prior secured mortgage interest of $130,000. The only issue for which the taxpayer seeks mediation is that she believes her residence has a Fair Market Value of $175,000 (yielding a Quick Sale Value of $140,000 and thus net realizable equity of $10,000 for RCP purposes). The taxpayer and Appeals agree on all other aspects of the RCP calculation. Even though the value of the taxpayer's residence is an issue over which Appeals would generally agree to mediate, it would not be consistent with sound tax administration to do so in this instance because even if Appeals fully conceded its position on the value of the residence, it would not impact the overall determination that reasonable collection potential exceeds the taxpayer's liability.

3. Frivolous issues

4. Cases where the taxpayer did not act in good faith during settlement negotiations, e.g., failed to respond to document requests, failed to respond timely to offers to settle, or failed to address arguments and precedents raised by Appeals

(6) Sections 4.04 and 5.02 of Revenue Procedure 2014-63 further provides that mediation is not available for:

1. Cases in which the taxpayer has the ability to pay in full based on the unadjusted financial information submitted by the taxpayer, except where economic hardship conditions exist

2. 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 Appeals in determining reasonable collection potential

3. Cases in which the disputed issue is explicitly addressed in IRS guidance or established authority

   Example: A taxpayer submitted a PAM request listing the settlement officer disallowing a $150 monthly payment towards a $6,000 unsecured consumer electronics retailer debt. The taxpayer and Appeals agree on all other aspects of the RCP calculation. Payments toward an unsecured debt of this nature is not considered a necessary living expense per IRM 5.15.1, Financial Analysis Handbook, and IRM 5.8.5, Offer in Compromise, Financial Analysis. The instructions in Form 656-B, Form 656 Booklet, Offer in Compromise, also state unsecured debt payments are not generally allowed. Because the issue for which the taxpayer seeks mediation is explicitly addressed in established authority, Appeals would not agree to mediation in this instance.

4. Cases in which the taxpayer has already attempted to resolve the matter through Fast Track Mediation

5. Cases worked solely at an Appeals campus site

6. An OIC submitted as an alternative to collection in a Collection Due Process (CDP) or equivalent hearing case

7. Cases in which the issue of liability was previously determined by Appeals

8. Cases in which IRM 1.2.2.6.1, Delegation Order 5-1 (Rev. 5), To Accept, Reject, Return, Terminate or Acknowledge Withdrawals of Offers in Compromise, requires a level of approval higher than that of the Appeals Team Manager

(7) Taxpayers may request mediation on more than one issue. Depending on the issues for which mediation is requested, Appeals may agree to mediate one and not agree to mediate another.

(1) Mediation is optional for both the taxpayer and Appeals. Appeals is committed to mediation as part of its overall ADR program, but mediation does not provide Appeals any additional settlement authority beyond the traditional Appeals process. Appeals also has a responsibility to ensure its ADR programs and the participating cases and issues are consistent with sound tax administration. For these reasons, not every case or issue is eligible for PAM.

(2) TFRP PAM is available for both legal and factual issues. However, mediation is not the place to consider a new issue or to develop an undeveloped or underdeveloped issue.

(3) Both pre-assessment (Letter 1153) and post-assessment (claim) TFRP cases are eligible for mediation.

(4) Provided all facts are known by both parties, TFRP cases or issues that would generally be appropriate for mediation include:

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

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

3. Whether a taxpayer sufficiently designated a payment to the trust fund portion of the unpaid tax

4. 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. See the Note to IRM 5.7.4.3 (9), Calculating the TFRP.

(5) Section 4.04 of Revenue Procedure 2014-63 lists types of cases or issues for which mediation is not available, including:

1. An issue designated for litigation or docketed in any court

2. Issues for which mediation would not be consistent with sound tax administration, e.g., those which Appeals has no ability to settle, such as arguments based upon something other than responsibility, willfulness or the TFRP amount. Examples include:

   Example: Officer A requested mediation in a proposed TFRP assessment case. During the appeals process, Officer A raised no specific responsibility or willfulness arguments and did not dispute the amount of the proposed TFRP assessment. Officer A's only argument is that Officer B, who did not contest his liability for the TFRP, is more responsible and therefore IRS should go after Officer B instead. Liability for the TFRP under IRC 6672 is based strictly on the merits of each individual's responsibility and willfulness. If Officer A meets the statutory responsibility and willfulness requirements and raises no arguments to dispute such during his appeal, then simply saying someone else is more responsible is not an issue that Appeals has an ability to settle and Appeals will not agree to mediation on this issue.

   Example: Officer C requested mediation in a TFRP claim case arguing that she was not directly involved in making federal tax deposits. The case file, however, shows she was an officer and a shareholder, signed 75% of all checks and almost all of the payroll checks, exercised her authority to determine which creditors would be paid, hired and fired employees; and was fully aware of the unpaid taxes as they accrued. In this instance, Appeals determined that even if it conceded that she wasn't directly involved in making federal tax deposits, the issues of responsibility and willfulness were still well established and there were no hazards of litigation. Even though Appeals would generally agree to mediate specific aspects of responsibility, it would not be consistent with sound tax administration to do so in this instance because the disputed issue doesn't have a sufficient impact on the overall determination of liability under IRC 6672.

   Example: Officer D has requested mediation in a proposed TFRP assessment case. During the appeals process, the Power of Attorney (POA) for Officer D raised no specific responsibility or willfulness arguments and did not dispute the amount of the proposed assessment. The POA's only argument is that IRS should not assess the TFRP because it's not collectible. Nonassertion determinations based upon collectibility are discretionary to Collection under IRM 5.7.5 and are not appealable or subject to mediation. See Revenue Procedure 2014–63, Section 6.02.

3. Frivolous issues

4. Cases where the taxpayer did not act in good faith during settlement negotiations. Examples of this within the context of a TFRP case may include cases in which:

Example	Description	Eligible for Mediation?
1	Taxpayer did not participate in the Appeals process by failing to show up for the scheduled conference and/or failing to respond to the Appeals letter in which the conference date and time were scheduled. Example: After initial review of the TFRP case, ATE Pike sent out a letter scheduling the conference for March 30. The taxpayer was not available when Pike called on March 30 and did not contact Appeals to postpone or reschedule the conference.	No
2	Taxpayer failed to respond to document requests or failed to adequately provide supplemental information or documentary evidence requested by Appeals	No
3	Taxpayer failed to respond timely to offers made by Appeals to settle	No
4	Taxpayer failed to address arguments and precedents raised by Appeals	No
5	Taxpayer clearly refused to submit a Form 4180, Report of Interview with Individual Relative to Trust Fund Recovery Penalty or Personal Liability for Excise Taxes, to Collection	See below for specific examples
5 Example A	The ICS history clearly indicates revenue officer Salmon attempted to secure a Form 4180 interview with Officer A, but the POA for Officer A stated they would not agree to a Form 4180 interview. In this instance, the taxpayer failed to negotiate in good faith and Appeals would not generally agree to mediate.	No
5 Example B	There is no indication in the ICS history or elsewhere of the revenue officer asking the taxpayer for a Form 4180 interview. In this instance, the taxpayer did not fail to negotiate in good faith and thus is eligible for post-Appeals mediation.	Yes
5 Example C	The ICS history indicates revenue officer Salmon and Officer B were scheduled to meet for a Form 4180 interview on May 11. On May 10, Officer B contacted revenue officer Salmon to cancel the meeting because of a personal matter and asked the revenue officer to reschedule the meeting. Revenue officer Salmon agreed but closed the corporate case out three weeks later and recommended assessing the TFRP against Officer B based on the Form 4180 interviews of other officers as well as other information in the file. In this instance, the taxpayer did not fail to negotiate in good faith and thus is eligible for post-Appeals mediation. The revenue officer could have rescheduled a time for the Form 4180 as requested by the taxpayer but independently decided such was not needed.	Yes

(6) Taxpayers may request mediation on more than one issue. Depending on the issues for which mediation is requested, Appeals may agree to mediate one and not agree to mediate another.

(1) Either the taxpayer or Appeals may submit a request for mediation after consulting with the other party.

(2) Publication 4167, Appeals - Introduction to Alternative Dispute Resolution, explains the mediation process and is enclosed with Letter 5576, Appeals Offer in Compromise Acknowledgement and Conference, and Letter 5157, Non-docketed Acknowledgement and Conference.

(3) Per sections 4.01 and 7.02 of Revenue Procedure 2014-63, cases are eligible for mediation while they are under consideration by Appeals; if a written mediation request is received.

(4) Section 7 of Revenue Procedure 2014-63 details the manner in which a taxpayer must formally request mediation. There is no form to complete, but the mediation request must be in writing and generally contain the following:

1. The taxpayer's name, Taxpayer Identification Number (TIN), address, and the name, title, address and telephone number of a person to contact

2. The name of the ATM and/or ATE

3. The tax period(s) involved

4. A description of the issue(s) for which the taxpayer requests mediation with sufficient details for what the taxpayer believes should be used to determine the appropriate settlement amount. For OIC cases, this includes both the specific dollar value for each asset, encumbrance, income or expense item, and the basis by which each specific dollar value was determined. For TFRP cases, this includes sufficient details to support the taxpayer's position as to why he/she is not responsible, actions were not willful, and/or why the TFRP amount should be changed

5. The request for a non-IRS co-mediator, if so desired

6. A representation that the issue is not excluded in Revenue Procedure 2014-63

   Note: A written mediation request received while the case is under consideration by Appeals is considered acceptable even if it doesn't contain all or most of the above information. All required information will be obtained through the standard pre-mediation session process, so Appeals will consider the merits of a written document that specifically asks for mediation. See paragraph (7) below for information on receipt of incomplete mediation requests.

(5) To enable Appeals to determine whether to agree to mediate, the taxpayer needs to:

1. Identify the specific issue(s) he/she disputes

2. Provide the details of his/her position with regard to the disputed issue, including the specific dollar amount or value associated with that position, and

3. Provide the basis or reason(s) for such position

(6) If the taxpayer submits a mediation request before settlement discussions are complete or before Appeals is ready to make a decision on the case, the request is premature but still valid. Revenue Procedure 2014-63 simply requires a written mediation request. Input ACDS feature code 'MD' on the WUNO and fax or email a copy of the mediation request to the Appeals Policy OIC/TFRP PAM program analyst advising in the fax cover or email that the request is premature and settlement discussions are still ongoing. Appeals must hold open the mediation request until settlement discussions are complete.

1. If a settlement is negotiated, have the taxpayer submit a written statement withdrawing the mediation request.

2. If a settlement cannot be negotiated, contact the Appeals Policy OIC/TFRP PAM program analyst to discuss mediation eligibility. See IRM 8.26.9.2.3.2 for full mediation processing procedures.

(7) If the taxpayer submits a mediation request that does not contain sufficient information to convey what issues the taxpayer wants to mediate, the request is still valid per Revenue Procedure 2014-63. Input ACDS feature code 'MD' on the OIC WUNO and fax or email a copy of the mediation request to the Appeals Policy OIC/TFRP PAM program analyst advising in the fax cover or email that you are working with the taxpayer to “perfect” the mediation request. Contact the taxpayer and advise that Appeals does not have enough information to decide whether to agree to mediation and allow no more than 14 days to provide the necessary details outlined in section 7 of Revenue Procedure 2014-63.

1. If the taxpayer provides the necessary details, contact the Appeals Policy OIC/TFRP PAM program analyst to discuss mediation eligibility. See IRM 8.26.9.2.3.2 for full mediation request processing procedures.

2. If the taxpayer does not provide the necessary details, the ATM will first discuss the case with the Appeals Policy OIC/TFRP PAM program analyst. If Appeals Policy concurs, the ATM will issue a letter denying the mediation request and fax or email a copy of the letter to the Appeals Policy OIC/TFRP PAM program analyst..