IRS Could Better Manage Dispute Resolution Programs, GAO Says

[Editor's Note: This document was updated June 7, 2023, to reflect changes to a sentence on page 10.]

TAX ENFORCEMENT

IRS Could Better Manage Alternative Dispute Resolution Programs to Maximize Benefits

Report to the Chairman, Subcommittee on Tax, Committee on Ways and Means,
House of Representatives

May 2023

Highlights

What GAO Found

The Internal Revenue Service (IRS) offers six alternative dispute resolution (ADR) programs providing mediation to expedite resolution and avoid lengthy traditional appeals and litigation processes. ADR can potentially benefit both IRS and taxpayers by reducing the time and costs to resolve disputes while increasing certainty for taxpayers in meeting their tax obligations.

From fiscal year 2013 to 2022, IRS used ADR programs to resolve disputes in less than half of one percent of all cases reviewed by its Independent Office of Appeals, which is responsible for tracking and implementing all IRS ADR programs. During that period, use of ADR fell by 65 percent. Beyond these data on ADR usage, IRS does not have the data necessary to manage the ADR programs, such as data on taxpayer requests to use ADR; IRS' acceptance or rejection of those requests; and the results from using ADR, including rate of resolution, time, and costs. Although IRS does not know definitively why ADR usage has declined, potential reasons include that taxpayers do not perceive the benefits of using ADR, according to IRS officials.

IRS is missing opportunities to use several management practices for its ADR programs to help increase taxpayers' willingness to use ADR as well as maximize the programs' benefits. IRS does not have clear and measurable objectives for its ADR programs that contribute to achieving IRS's strategic goals and objectives, such as its ability to resolve disputes over specific tax issues and reduce the investment of time and money to do so. IRS does not analyze data to assess whether ADR is achieving benefits such as resolving disputes over specific tax issues and reducing the investment of time and money to do so. IRS has not regularly monitored the taxpayer experience with ADR to address problems in real-time. Absent this information, IRS cannot assess how to improve taxpayers' willingness to use ADR as well as their experience in resolving tax disputes. In addition, IRS cannot take action on these missed opportunities to maximize ADR benefits because IRS has not established specific responsibilities and related tasks for consistently managing all elements of the ADR programs.

---

Table of Contents

Letter

Appendix I Other Government Agencies' Management of Alternative Dispute Resolution Programs

Appendix II Objectives, Scope, and Methodology

Appendix III Descriptions of Internal Revenue Service Alternative Dispute Resolution Programs

Appendix IV Focus Group Discussions with Taxpayer Representatives

Appendix V Dispute Systems Design Principles

Appendix VI Comments from the Internal Revenue Service

Appendix VII GAO Contact and Staff Acknowledgments

Tables

Figures

Abbreviations

ABA	American Bar Association
ACDS	Appeals Centralized Database System
ACUS	Administrative Conference of the United States
ADR	Alternative Dispute Resolution
AICPA	American Institute of Certified Public Accountants
The Act	Administrative Dispute Resolution Act
DSD	Dispute Systems Design
IRM	Internal Revenue Manual
IRS	Internal Revenue Service
IRS Appeals	Independent Office of Appeals
Kenya	Kenya Revenue Authority
LB&I	Large Business and International
Michigan	Michigan Department of Treasury
NAEA	National Association of Enrolled Agents
New York	New York Bureau of Conciliation and Mediation
NTA	National Taxpayer Advocate
PAM	Post Appeals Mediation
RAP	Rapid Appeals Program
SB/SE	Small Business/Self-Employed
TE/GE	Tax Exempt/Government Entities
TEI	Tax Executives Institute
United Kingdom	United Kingdom’s His Majesty’s Revenue and Customs

---

May 31, 2023

The Honorable Mike Kelly
Chairman
Subcommittee on Tax
Committee on Ways and Means
House of Representatives

Dear Chairman Kelly,

Each year, thousands of disputes arise between taxpayers and the Internal Revenue Service (IRS) over billions of dollars in additional recommended taxes from audits of tax returns and tax debts pursued for collection by IRS.¹ IRS eventually resolves most of these disputes over taxes without litigation through negotiations with taxpayers in its Independent Office of Appeals (IRS Appeals). This resolution process can take years and hundreds of staff hours for disputes over large tax amounts because of the complex issues involved.

With the aim of helping to reduce the time, costs, and taxpayer burden in resolving disputes, IRS has offered alternative dispute resolution (ADR) programs to certain groups of taxpayers. These programs could resolve tax disputes without having to go through the full appeals processes or litigation. However, our 1997 report on related ADR initiatives raised concerns and made recommendations to help ensure they were effective.² Also, according to a 2016 report by the National Taxpayer Advocate (NTA), IRS was resolving a very small and steadily declining proportion of cases through these alternatives.³

Furthermore, a January 2023 NTA report pointed to the declining quality of service to taxpayers during the appeals process as one of the most serious problems in IRS.⁴ The report noted various service barriers and that taxpayers have been experiencing increasing delays in reaching resolution through IRS Appeals since 2017.⁵ NTA reported that on average taxpayers now can expect IRS Appeals to take about a year to resolve disputes.

You asked us to review issues related to IRS's management of ADR programs. This report (1) describes IRS's ADR programs, (2) analyzes available data on the use and performance of IRS's ADR programs, and (3) assesses how IRS could enhance its ADR programs to better achieve desired results. In addition, this report describes how some other federal agencies, state tax agencies, and tax agencies in other countries manage their ADR programs.

To describe IRS's ADR programs, we reviewed the programs' processes and potential benefits. We also compared ADR processes to IRS's traditional stages for resolving tax enforcement disputes.⁶To describe and assess the available data on ADR use and performance, we collected and analyzed IRS data on the number, characteristics, and results of ADR cases. We then compared the results to similar data for all cases closed by IRS Appeals for fiscal years 2013 to 2022. We collected data from the IRS Appeals Centralized Database System (ACDS) and reviewed the data to determine whether information was attributable to ADR programs. To assess the reliability of electronic data, we performed reviews. These reviews included checks to determine that no data were missing and that the data values provided to us did not include obvious errors. We found the data to be reliable for describing the use of certain ADR programs. We compared the data to ADR program estimated timelines stated in the Internal Revenue Manual (IRM).

To assess how IRS could enhance its ADR programs to better achieve desired results, we identified federal program management criteria, such as discussed in our body of reports on federal evidence-based policymaking and in federal internal control standards.⁷ We also conducted a literature search to identify criteria for dispute resolution systems, including ADR. We identified dispute systems designs (DSD) principles as criteria for designing and evaluating dispute systems and adapted selected DSD principles identified in a study of Australia's tax dispute resolution system.⁸ We shared the criteria with IRS officials and other knowledgeable parties. No one suggested changes to our plan to apply the criteria. We applied the criteria to IRS's administration of its ADR programs to assess how well IRS managed them to achieve desired results and maximize potential value.

To identify potential enhancements to increase taxpayer usage and satisfaction with IRS's ADR programs, we conducted five focus groups with tax professionals who represent taxpayers in disputes with IRS. We recruited focus group participants from four associations that represent tax professionals. Focus group participants included tax lawyers and tax professionals who represent companies before IRS.⁹ The groups ranged in size from three to six participants, with a total 25 participants. We designed our focus groups to gather in-depth information on the experiences and perspectives of representatives of taxpayers using ADR programs to resolve disputes with the IRS. The data we collected reflect those of the taxpayer representatives who participated in our focus groups. The findings from our focus groups are nongeneralizable.

To describe ADR practices that other federal agencies, state tax agencies, or agencies in other countries use to manage ADR programs, we conducted a literature search and contacted knowledgeable organizations to identify these various entities and their practices. We identified agencies that use ADR programs to resolve either tax disputes or other disputes with members of the public. We also identified agencies that were described in academic literature. Using this and other information, such as diversity in agency size, function and geography and input from knowledgeable groups, we selected nine non-IRS agencies for review. We interviewed knowledgeable officials at these agencies and analyzed the literature search results to summarize the practices we identified. Appendix I provides the results of our work at these non-IRS agencies that use ADR programs.

For a more detailed discussion of our methodology, see appendix II. We conducted this performance audit from November 2021 to April 2023 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Background

Various types of disputes can arise between a taxpayer and IRS during an audit or collection action. For example, a taxpayer may assert that IRS made an incorrect decision based on a misinterpretation of the law or facts during an audit or inappropriately acted to collect the taxes owed.

The first stage for resolving such disputes involves the audit or collection officials (i.e., the enforcement staff) working directly with the taxpayer to try to resolve the issue once they determine a taxpayer disagrees with their position.¹⁰ This resolution attempt may involve multiple interactions by telephone or correspondence. Enforcement staff review any new information submitted by the taxpayer as they attempt to resolve audit or collection matters.

If enforcement staff and the taxpayer cannot reach agreement, the taxpayer may take the dispute to the second dispute resolution stage, IRS Appeals.¹¹ The enforcement unit forwards the appeal request and documentation from the taxpayer along with the documentation for the proposed enforcement action.

The appeal process involves multiple steps. IRS Appeals reviews the differing taxpayer and IRS positions, for example, on taxes to be owed or collected. It then offers a conference in which taxpayers have the opportunity to present their position. Once IRS Appeals concludes its review of the facts of the case presented by each side and considers potential hazards of litigation, it communicates a proposal to settle the dispute to the taxpayer.¹²

If the taxpayer and IRS cannot agree on a resolution through the traditional appeals process, the third dispute resolution stage is litigation. In this stage, the taxpayer seeks resolution in federal court, if eligible.¹³

The Administrative Dispute Resolution Act (the Act) set the stage for increased use of ADR in federal agencies.¹⁴ The Act requires each federal agency to adopt a policy that addresses the use of alternative means of dispute resolution. It also directs the head of each agency to designate a senior official to be the dispute resolution specialist to implement the policy. The act provided that training for the dispute resolution specialist and other employees involved in implementing the agency's ADR policy should encompass the theory and practice of negotiation, mediation, arbitration, or related techniques. The act also authorized using a neutral third party in dispute resolution proceedings.

Mediation is a common ADR technique used in the federal government, as well as state and international tax administration agencies. Mediation involves a neutral third party assisting disputants in negotiating an agreement. The mediator generally has no independent authority and does not render a decision. Instead, the mediator acts as a facilitator to guide discussion between the disputing parties. Mediators may focus on enabling conversation among the parties, direct the process, provide advice, and give recommendations to resolve the dispute. Mediators use a variety of techniques to manage negotiations, such as listening actively, managing impasse and heightened emotions, and working with parties to create and evaluate settlement proposals, among others.

In a 2016 report, the National Taxpayer Advocate noted that mediation can provide several potential benefits. These benefits include increasing the efficiency and timeliness of case resolutions, protecting taxpayer rights, reducing taxpayer burden and cost, encouraging voluntary compliance, and economizing scarce tax agency resources.¹⁵ The report further noted that mediation can also improve satisfaction among disputants with the outcome or manner in which the dispute is resolved and improve the taxpayer experience with IRS.

IRS’s ADR Programs Intend to Avoid the Traditional Appeals and Litigation Approach to Resolving Disputes

IRS's ADR programs are intended to offer taxpayers and IRS the opportunity to resolve disputes more quickly and at a lower cost by having an IRS Appeals technical employee act as a mediator to facilitate discussions over the disputes.¹⁶ If these discussions resolve the disputes, both taxpayers and IRS can avoid more time-consuming and costly traditional appeals and litigation dispute stages.

IRS has established three broad types of ADR programs including Fast Track programs, the Rapid Appeals Program, and Post Appeals Mediation programs.¹⁷ Each type has a unique access point within the traditional stages to resolve disputes with mediation before, during, and at the end of its traditional appeals process (see simplified depiction in fig.1).

Note: This is a simplified, linear depiction of the flow of disputes to be resolved through the Internal Revenue Service's processes. Disputes may be resolved at the traditional stages or through Alternative Dispute Resolution (ADR). Not all disputes go through each of the stages. If an ADR program does not resolve a dispute, it may return to the traditional stages.

IRS has three Fast Track programs: Large Business and International (LB&I) Fast Track Settlement, Small Business/Self-Employed (SB/SE) Fast Track Settlement, and Collection Fast Track Mediation.¹⁸ The LB&I and SB/SE Fast Track Settlement programs generally provide the taxpayer an opportunity to mediate with IRS audit staff when certain types of disputes arise over tax issues within the jurisdiction of those divisions.¹⁹ The Collection Fast Track Mediation program offers the taxpayer an opportunity to mediate with IRS collection staff when disputed issues arise in collections. If any Fast Track program does not resolve a disputed issue, the taxpayer may choose the traditional IRS Appeals process to settle disputes.

The Rapid Appeals Program allows the taxpayer, enforcement staff, and IRS Appeals officer to have a working conference at the beginning of the appeals process using mediation in an attempt to resolve certain types of disputed issues.²⁰ If the Rapid Appeals Program does not resolve all of the disputed issues, the taxpayer may choose the traditional IRS Appeals process to attempt to settle disputes for the remaining issues.

The Post Appeals Mediation programs include two types — one for collection disputes and one for examination disputes.²¹ These two programs allow the taxpayer and IRS Appeals to work with a mediator to attempt to resolve disputes while the case is under Appeals' consideration. If Post Appeals Mediation programs do not resolve all disputed issues, the taxpayer may proceed to litigation.²² Appendix III has more information on the ADR programs.

IRS Data Collection Is Insufficient to Analyze and Address Low ADR Program Use

IRS Data Show Low and Declining Use of ADR Programs

From fiscal years 2013 through 2022, data from the Appeals Centralized Database System (ACDS) show that use of ADR programs fell by 65 percent. ADR use peaked in fiscal year 2014 and declined in every subsequent fiscal year (see fig. 2).²³ An increase in Fast Track cases from SB/SE accounted for the rise in ADR cases in fiscal year 2014.²⁴ While IRS Appeals officials said they were uncertain of the cause of the increase, SB/SE officials said the peak may have resulted from the roll-out of Fast Track Settlements programs in 2013.²⁵

Note: Data on ADR usage includes Fast Track Settlement for Large Business and International, Small Business/Self-Employed, and Tax Exempt/Government Entities; Fast Track Mediation for Collections; and the Rapid Appeals Program and Post Appeals Mediation. Data describe cases that closed in that fiscal year.

For context, IRS Appeals closed more than 948,000 cases of all types from fiscal year 2013 through 2022 while closing almost 2,500 cases that used at least one ADR program — less than half a percent of all closed IRS Appeals' cases. Furthermore, ADR usage has decreased more than the overall decline in IRS Appeals' cases (see fig. 3).

Note: Data describe cases that closed in that fiscal year

IRS officials said decreased taxpayer demand explains the decline in use of some ADR programs. SB/SE officials said that a 2016 study they conducted found taxpayers saw no advantage to some ADR programs over the traditional appeals process. However, IRS officials said that neither SB/SE nor other IRS divisions have more recent data to confirm this or any other reason for the decline. For example, officials from IRS Appeals and SB/SE said they do not have data to show how often IRS declined a taxpayer's request for an ADR program. LB&I officials said they have such data but have not used them or other data to identify trends in these taxpayer requests and better understand the cause of the decline in ADR usage. LB&I officials said they planned to undertake such analysis but SB/SE officials told us they did not intend to further research the decline in usage because of a lack of relevant data.

In our five focus groups with taxpayer representatives, we asked participants about their satisfaction with ADR and what factors most influenced decisions on whether to pursue ADR. IRS's willingness to participate in ADR was among the most commonly occurring themes across the groups. While these findings from our focus groups cannot be generalized to explain why ADR usage declined since fiscal year 2013, they do provide rich context and detailed insights into the ADR experiences of the taxpayer representatives that participated in our groups.²⁶ Based on our analysis, some of the additional themes described by participants in a majority of the focus groups follow.

• In five of five focus groups, participants stated that they believed that IRS staff, particularly for audit disputes, did not always participate in ADR programs in good faith. In four focus groups participants stated that they believed IRS staff did not show willingness to move from their position on the tax owed. This factor is a disincentive to pursue use of ADR. For example, one participant said, “We had . . . a person here . . . that would offer ADR, Post-Appeals Mediation, but really wasn't interested in pursuing it. There was a benefit to them in the system of saying that they had offered it . . . ” The participant concluded “there was clearly room for a settlement. And somebody . . . wanted to tick the box that they had offered ADR, but they didn't really want to play.” Similarly, several participants in five of the six groups said that their interest in ADR was related to how willing IRS audit staff were to sincerely participate.

• In three of our five focus groups, participants referred to difficulties or confusion about using ADR and how the programs worked. Group participants discussed difficulties accessing ADR programs and said IRS provided little assistance or information. In three of five groups, participants said they were confused about how to access ADR programs. A participant in one focus group cited experiences in which IRS audit and collections staff were unfamiliar with the ADR programs being requested. The participant described applying for an ADR program. “You initiate the mediation by sending a written request as appropriate to a manager . . . I had to send that to the team manager with a copy to the appropriate area director . . . I just remember talking to the area director about it, who called and said like 'why are you sending this to me? What is this?'” In a subsequent interview, a taxpayer representative from another association described a similar experience.

• In all five groups, participants described being unable to resolve the dispute. In two groups, a participant said the IRS Appeals officer serving as an ADR mediator blocked a settlement to which the auditor and taxpayer had agreed. One participant said, “We had a recent experience where we went into Fast Track, agreed on a resolution with exam. And after the conference, the Appeals officer said 'no.' They weren't going to recommend or approve it because they didn't feel it was the right resolution. Which was shocking given their role is supposed to be to mediate a resolution between the two parties.”

In response to these quotes, IRS officials said that without knowing the details of the related disputes, the participants' examples could be misleading. They also said that Appeals' procedures dictate the ultimate authority to approve resolution of disputes. Regardless, the participants' quotes provide insights into the ADR experiences of the taxpayer representatives who participated in our focus groups.

Conversely, a theme in all focus groups was that participants were more likely to pursue ADR when they perceived that the IRS was willing to participate and sought to find a resolution. See appendix IV for additional details on the results from the focus groups.

IRS's Data Collection Does Not Allow Differentiation of Certain ADR Cases from Other Appeal Cases

IRS Appeals is responsible for tracking ADR programs. Appeals stores and tracks its data, including data on ADR cases, in the ACDS. ACDS describes the number of days needed to close the case and the cases’
closing disposition, such as whether the case was fully resolved, partially resolved, or not resolved, among other data.

However, IRS Appeals officials told us that data for three ADR programs — the Rapid Appeals Program and Post Appeals Mediation programs for examination and collection cases — are comingled with data in the traditional appeals process.²⁷ Therefore, ACDS cannot segregate the data for the more than 620 cases in the Rapid Appeals and Post Appeals Mediation programs from fiscal years 2013 through 2022. For example, IRS officials said ACDS cannot distinguish these cases from other appeal cases on the amount of tax dollars in dispute, IRS staff time charged, or whether the disputed issues achieved resolution. As a result, we consider Rapid Appeals and Post Appeals Mediation data to be unreliable for analysis of time, case closing disposition, or tax dollars in dispute. Our focus group discussions indicated that these are important factors influencing taxpayers' decisions whether to pursue using ADR.

IRS Appeals officials said that to access such data would only be possible through a manual review of relevant case files because ACDS does not disaggregate data by particular activities or programs indicated by feature codes. Officials said that resource constraints have led IRS to keep ACDS operating in its present capacity, or make only those changes necessary to meet new legislation. They said that in recent years IRS has not had the resources to adapt the system to the needs of particular programs, such as ADR. Officials stated that IRS Appeals will potentially be able to capture additional data when it implements the proposed Enterprise Case Management system. However, this system will not be available to IRS Appeals until, at the earliest, the second half of 2024. When we asked IRS Appeals officials if they could implement a temporary means of collecting disaggregated ADR data, they said that IRS Appeals does not have the ability to use temporary, ad-hoc methods to identify and collect data attributable to ADR Programs.

IRS's Strategic Plan for fiscal years 2022 through 2026 directs the agency to improve its analytical capabilities to drive evidence-based decision-making.²⁸ Additionally, IRS policy stipulates that officials have useful information necessary to ensure that their programs are effectively managed.²⁹ For example, the stated objectives and potential benefits of ADR programs include reducing taxpayer burden, case cycle time, IRS staff burden, and IRS resource needs, as well as resolving tax disputes.³⁰ The need to have and evaluate quality information that reflects program objectives is reiterated in federal internal control standards.³¹ Without this information, IRS Appeals has limited ability to make evidence-based decisions that could help improve ADR.

IRS Does Not Track ADR Requests and Denials

IRS Appeals officials said ACDS also does not track how many taxpayers requested ADR requests were denied access to ADR by the IRS enforcement staff. Specifically, if LB&I or SB/SE staffs reject a taxpayer request for ADR, IRS Appeals officials said ACDS does not record the taxpayer request or IRS rejection.³² Participants in all five focus groups said that these IRS rejections were frustrating. In two cases, participants were particularly frustrated by rejections when IRS staff had suggested that the taxpayer request ADR.

IRS accepts or rejects a taxpayer's request for ADR. When reviewing a taxpayer's request, the IRM directs officials to consider certain exclusionary criteria (see appendix III for a description of some criteria). These criteria may apply to specific case conditions, such as whether a case has already been docketed for litigation. However, some exclusionary criteria are broad and involve IRS discretion in determining whether a taxpayer's request for ADR should be approved.³³

IRS officials said that while requests for ADR are only rejected according to these criteria, they do not have data to confirm this for SB/SE disputes. While LB&I does have the means to digitally track when a taxpayer has requested Fast Track, LB&I officials said they do not track the number of occurences when such requests were denied and as a result LB&I officials have not shared such data with IRS Appeals. IRS officials provided the following reasons.

• LB&I. Officials said that while they tracked taxpayer requests for Fast Track, they do not specifically track or identify when requests were rejected. LB&I officials said they have not yet analyzed or used any program data because of changes in management of the program since 2019. Officials said that staff have been assigned to determine how best to use the Fast Track data during fiscal year 2023.

• SB/SE. Officials said all rejections of requests for Fast Track are to be made in compliance with IRS's exclusionary criteria. SB/SE officials said territory managers are to concur with rejections of requests outside of these criteria. However, SB/SE did not have data to support these statements.

Without documenting and tracking ADR request and rejection data, IRS cannot accurately assess taxpayer demand for ADR or determine trends, such as whether rejected ADR requests have commonalities. Nor can IRS determine and remediate any gaps in taxpayers' knowledge of the ADR process, among other analyses, and better achieve ADR objectives.

IRS Appeals Can Report Some Data for Fast Track Programs 

ACDS data can be used to describe certain case data for the Fast Track programs, including the final disposition of closed cases and the number of days needed to close cases.³⁴ On average, Fast Track cases appear to be fully resolved at a higher rate than all IRS Appeals cases.³⁵ While more than 77 percent of Fast Track cases were fully resolved, 59 percent of all cases closed by IRS Appeals were closed as fully resolved or agreed (see fig. 4).³⁶

Because cases subject to Fast Track may be different from those that were not — such as in terms of tax issue or case complexity — we are limited in how we can compare these two groups of cases.³⁷ As a result, it is not currently possible without a manual case file review to know whether Fast Track cases would have been just as likely to be resolved without the use of the ADR program.

Note: “Fully resolved” cases include those labelled as “fully resolved” and “agreed” in Appeals Centralized Database System data. Data describe cases that closed in that fiscal year.

IRS Appeals data indicate that some Fast Track programs took more days to close on average, than the timelines estimated by the Internal Revenue Manual. IRS officials said they could not explain the discrepancy without reviewing the details of individual case files. Table 1 compares the days spent to close Fast Track programs to these estimated timelines.

Note: Data describe cases that closed from fiscal years 2013 to 2022.

In addition, the days to close Fast Track took less time on average than closing all appeals cases (see fig. 5). As discussed above, a number of factors may impede direct comparison between cases subjected to Fast Track to cases that only use the traditional appeals' process, such as differing tax issues.³⁸ On average from fiscal years 2013 through 2022, all IRS Appeals cases took almost 279 days, or more than 9 months. During the same period, Fast Track cases took almost 83 days, or less than 3 months.

Note: Data describe cases that closed in the fiscal year.

IRS Does Not Use Some Management Practices that Could Help Maximize ADR's Value

Some ADR Programs Do Not Have Clear, Measurable Objectives

According to federal standards for internal control, management should define objectives clearly in specific and measurable terms to enable the identification of risks and define risk tolerances.³⁹ Clearly defined objectives enable management to identify, analyze, and respond to risks to achieving those objectives. Measurement allows for the assessment of performance toward achieving objectives.

We identified objectives for four of the six ADR programs, although some of the objectives were not stated in measurable terms. We were not able to locate objectives for the other two ADR programs — Examination Post Appeals Mediation and Collection Post Appeals Mediation.⁴⁰

Four of the six ADR programs — LB&I Fast Track Settlement, SB/SE Fast Track Settlement, Collection Fast Track Mediation, and Rapid Appeals Program — have similar Internal Revenue Manual (IRM) statements on a common objective to resolve tax disputes at the lowest level without sacrificing the quality and integrity of IRS determinations. Two of these four — LB&I and SB/SE Fast Track Settlement programs — also have objectives that generally align with each other and include some measurable terms.⁴¹ For example, they both refer to using settlement authority, reducing time for cases, and reducing taxpayer burden. In addition, the Rapid Appeals Program has an objective on more timely dispute resolution. The Collection Fast Track Mediation objective refers to providing an opportunity to use mediation to resolve disputes.

IRS makes statements in other parts of the IRM that could imply other objectives for some ADR programs. However, it is unclear whether the statements are intended to be objectives because they are not labeled as such. For example, under a heading titled, “Collaborative Process,” for the Rapid Appeals Program, the IRM says the program is designed to reduce taxpayer burden and cycle time, among other things. Although some of these intended results are similar to objectives stated in the IRM for the two Fast Track Settlement programs, their usefulness is limited because the IRM does not label them as program objectives for purposes of identifying risks, assessing performance, and taking steps to help achieve the objectives.

Similarly, the IRM states that Collection Fast Track Mediation is to help taxpayers resolve certain collection disputes without the need to formally appeal a rejection determination, and it may allow expedited resolution for an isolated disagreement. However, this statement is within a general description dealing with an aspect of the program. Such a statement could imply objectives to reduce time or cost for the taxpayer by not having to formally file an appeal, but does not clearly label these potential outcomes as objectives with related measures to assess performance.

In addition, IRS publications and IRS.gov website pages for various ADR programs include statements that could imply objectives for some ADR programs. For example, the website for Collection Fast Track Mediation says that benefits of the program may include speedier case resolution, lower costs, and more flexibility. These benefits could imply objectives that can be measured, such as reduced resolution time or cost savings from using ADR.

According to IRS officials, IRS does not separately state objectives for ADR programs apart from the traditional appeals dispute resolution process because ADR programs are part of IRS Appeals' statutory mission, which is to resolve tax disputes without litigation in a fair and impartial manner. Even so, IRS has chosen to state other objectives for four ADR programs. Also, the three Fast Track programs are designed to allow disputes to be resolved under the jurisdiction of IRS enforcement programs by using an Appeals' mediator rather than the traditional appeals process.

Without clearly stated ADR program objectives in measurable terms, IRS cannot readily identify, analyze, and respond to risks to achieving ADR objectives or establish measures to assess program performance in achieving objectives.

ADR Program Objectives Do Not Clearly Align with IRS's Strategic Goals and Objectives

Leading performance practices for federal agencies include aligning activities and core processes with strategic goals to reinforce these connections for staff and create a greater focus on results.⁴² In addition, dispute systems design principles call for systems to be aligned and reflected in the organization's mission, vision, and values.⁴³ A key way to make these connections and improve the likelihood of achieving an agency's mission is to clearly align program objectives with agency-wide strategic goals and objectives.

For the most part, we did not find documentation linking ADR program objectives with IRS's strategic goals. IRS's fiscal years 2022-2026 strategic plan identifies a strategy to reduce taxpayer burden by decreasing the time between filing and issue resolution. This is to support IRS's strategic goal on enforcing the tax law and its strategic objective on improving operations to effectively and efficiently identify and address noncompliance. However, IRS does not link its ADR objectives to this strategy, strategic goal, or objective. For example, one ADR program (LB&I Fast Track Settlement) program has an objective that directly shares some of the language of this strategy. However, IRS does not clearly document the program's link to the plan's strategy or goals to reduce taxpayer burden and improve tax enforcement operations.⁴⁴

IRS has not clearly linked ADR program objectives to strategic goals and objectives because of IRS's rationale for not creating separate ADR objectives, as stated above. Without ADR program objectives that clearly link to IRS strategic goals and objectives, IRS is missing an opportunity to integrate ADR results into achieving IRS's mission, including agency-wide goals on improving operations to address noncompliance and reduce taxpayer burden.

IRS Does Not Analyze Data on the Use and Results of ADR to Assess Program Performance and Make Decisions

As we have reported in a body of work on performance management, decision makers need evidence about whether federal programs and activities are achieving intended results.⁴⁵ Such evidence can help identify and correct problems and improve programs. In addition, IRS's strategic plan includes a goal and an objective on using data to drive evidence-based decisions and improve operational outcomes.

IRS does not analyze data on the use and results of ADR to assess the performance of ADR programs and identify potential improvements. For example, we found no analysis of what types of disputes achieved a higher rate of resolution, such as by the dollar amounts and the types of tax issues being disputed.⁴⁶ Participants across our focus groups talked about taxpayer usage being driven by such factors. Furthermore, IRS has not analyzed aspects of ADR program performance, such as the number or rate of:

• taxpayer requests to use ADR (to indicate interest in using ADR);

• IRS staff offering ADR (to indicate IRS staff openness to using ADR);

• IRS rejections of taxpayer requests to use ADR (to indicate possible challenges to using ADR); or

• disputes resolved through ADR (to indicate effective use of ADR).

IRS regularly produces reports on ADR programs that show the number of cases received, in process, withdrawn, and closed overall and with an agreement.⁴⁷ The reports also have statistical data on the average days to settle disputes and close cases, as well as the average hours spent for closed cases in those time periods. Because the data cover only 3 fiscal years, the data are limited for identifying longer-term trends such as the 8-year decline in ADR usage through fiscal year 2022. Furthermore, IRS officials did not provide evidence on how they used these data to assess the performance of ADR programs in achieving objectives and make changes to improve performance, if appropriate.

IRS does not analyze the data in its ADR reports to assess or make decisions to improve ADR performance because IRS does not have sufficient data on ADR usage and results to do such analyses, according to IRS officials. Nor had IRS established procedures or measures for analyzing ADR performance, such as a rate at which disputes are resolved through ADR. LB&I officials provided examples of the limited trend analyses of the above report data for its Fast Track Settlement program. However, they had no examples of analyzing the data to make decisions about performance or possible improvements. They said they plan to start analyzing data in the reports during fiscal year 2023. SB/SE officials said they were unaware of the reports and asked IRS Appeals to send them.

IRS Does Not Monitor the Quality of the Taxpayer Experience with ADR

Improving the customer experience in receiving federal government  services is one of three priorities in the President's Management Agenda.⁴⁸ In addition, the IRS Fiscal Year 2022-2026 Strategic Plan includes goals on improving the taxpayer experience. Two of the four strategic goals in the IRS strategic plan cite commitments to provide quality services and transform IRS operations to improve the taxpayer experience. Furthermore, IRS officials said IRS policy encourages Appeals to survey its customers and expand ADR test programs to enhance taxpayer service.⁴⁹ According to a 2021 report on federal agency use of ADR, seeking and incorporating valuable feedback from stakeholders is one of the central principles of dispute systems design.⁵⁰

However, IRS does not systematically assess taxpayer satisfaction or experience with ADR. IRS Appeals last asked about ADR in its customer satisfaction surveys in fiscal year 2018. According to officials, IRS Appeals has a limited number of questions available when designing customer satisfaction surveys. They said that IRS Appeals added a question to the survey in 2019 but it involved a non-ADR program.

Participants in our focus groups i identified factors that affect their decisions on whether to pursue ADR and their ADR satisfaction, both positively and negatively. The following factors are among those that participants discussed most frequently across multiple groups:⁵¹

• Quality of the IRS mediator: Participants in four of five groups reported mixed experiences with mediators. They commented favorably on the the mediators, to include mediators' skills in helping disputants understand the strengths and weaknesses of each position and seek a common ground. However, participants in two of the four groups also noted experiences in which they believed mediators did not help disputants to seek common ground. Participants in one of the groups asserted that mediator training could be improved or that some mediators act as neutrals ineffectively.

• Speed of resolving issues through ADR: Participants across all five groups said that when ADR works, it is much faster than traditional appeals.⁵² As an example, one participant said instead of 6 months or more, a dispute can be resolved through ADR in about 3 months, and that the mediation sessions are often 1 to 2 days.

• Changes in taxes owed or paid: Participants in three of five groups cited this as a positive factor. For example, they explained that ADR provided a better result than was expected or that was at least as good as what would have been achieved with an appeal.

• Limited types of cases that meet IRS's approval to use ADR: Participants in all five groups said many opportunities to use ADR to resolve disputes are lost, including those due to IRS's denial of taxpayer requests.

The dispute systems design principles say a dispute system should be fair and perceived as fair, as well as foster a culture that welcomes good faith dissent.⁵³ However, participants across four of the five focus groups said that IRS enforcement staff would not move from their position during ADR mediation on the tax owed.⁵⁴ This factor is a disincentive to pursue use of ADR. For example, participants said that enforcement staff may offer or agree to use ADR but do not negotiate. They offered several potential reasons for IRS staff not being willing to negotiate. These reasons include staff being convinced of the correctness of their position or following input from others, such as IRS subject experts or legal advisers. In two of these four focus groups, participants said that when IRS enforcement staff do not show a willingness to negotiate, taxpayers or their representatives feel frustrated or unfairly treated. Participants in these four groups also said that using ADR wastes time and money and increases the overall costs and time to resolve disputes when the taxpayer moves on to appeal or litigate a dispute that was not resolved in an ADR mediation.

In our contacts with IRS officials about such taxpayer experiences is using ADR, some officials noted that IRS trains enforcement staff on ADR's benefits. Some officials also noted the participants may not understand the role of the enforcement staff during ADR. They noted that IRS is considering a strategy to improve communication with taxpayers, including soliciting their feedback. Finally, some officials said that it is not the role of IRS enforcement staff to negotiate during mediation. Rather, the staff are to present their position to the mediator and decide whether to accept a settlement proposal that a mediator may offer. IRS officials also said that both disputants may propose a settlement and are expected to be active during ADR mediation.

Without feedback from taxpayers, IRS is challenged to assess ADR programs' contributions to its strategic goals to improve the taxpayer experience. Also, IRS is missing opportunities to use the feedback to monitor and address any problems affecting the taxpayers' experiences with ADR in real time. Further, absent such feedback, IRS has less certainty on how to enhance taxpayers' willingness and the effective use of its ADR programs.

IRS Does Not Have a Neutral Communication Resource for Fast Track Programs

IRS has not set up a neutral communication channel for answering taxpayer questions about how the ADR process works for Fast Track Resource for Fast Track programs and helping taxpayers to make informed decisions about using these programs. In addition to IRS's goals to improve the taxpayer experience, dispute systems design criteria call for disputants to have access to an independent, confidential neutral to whom they can go to for information and assistance. This includes the use of guidelines and/or coordinators and advisers.

IRS Appeals officials said they do not view it as their role to advise taxpayers on their ADR decisions. Instead of providing neutral staff to answer taxpayers' questions, IRS officials said they rely on IRS.gov website-based guidance and publications about ADR to inform taxpayers about ADR options to support decision-making on whether to pursue ADR. They noted that the operating division, such as LB&I and SB/SE, is to provide these ADR documents. Without such staff to assist them, taxpayers seeking to use Fast Track ADR programs are limited to discussing their questions about ADR with the other disputant — the IRS staff who are proposing the enforcement action that is being disputed.

In three of our five focus groups, participants referred to difficulties or confusion about using ADR and how the programs worked. For example, participants in the three groups said that the IRS website or publications raised questions about how ADR works. Furthermore, participants in two of these groups said that their questions about ADR, requests to use ADR, or the reasons IRS rejected their requests have gone unanswered by IRS staff. Overall, participants in four of the five groups said that their interactions with enforcement staff or prior experience with ADR have discouraged them from using ADR.

In discussing our preliminary results with IRS officials, the officials said that taxpayers can contact IRS Appeals staff, who are trained to be independent.⁵⁵ They also said that IRS is considering a strategy to better communicate with taxpayers about their ADR options as well as clarification of IRS staff roles involving ADR. This could include identifying neutral IRS staff whose duties include responding to taxpayers' ADR questions.

Without access to an independent IRS party that is not a disputant, taxpayers may be less likely to receive clear answers to their questions about using ADR, and Fast Track in particular. In turn, taxpayers may be less likely to use ADR, particularly if they do not feel comfortable seeking answers from enforcement staff. To the extent that taxpayers feel confused or uncomfortable, IRS cannot be assured that it is improving the taxpayer experience.

IRS Does Not Regularly Evaluate Its ADR Programs to Improve Them

As we have reported, program evaluations can play a key role in program planning, management, and oversight by providing information on both program design and execution to program managers, legislative and executive branch officials, and the public.⁵⁶ According to internal control standards, periodic evaluations combined with ongoing monitoring are key ways for managers to obtain feedback on effectiveness and identify needed changes.⁵⁷ The program evaluation literature has identified different ways that program managers and policy makers can use evaluation results to (1) clarify understanding of how the program does or does not address a problem, and (2) make changes to improve the design or management of a program. In addition, dispute systems design principles call for evaluation of the dispute system. Evaluation acts to identify strengths and weaknesses of design and fosters continuous improvement (see principle 10 in appendix V).

IRS has done limited evaluations of its ADR programs. IRS has not conducted ADR program evaluations in recent years because IRS Appeals has been understaffed, according to IRS officials.

IRS did one recent evaluation of ADR.⁵⁸ SB/SE did this study in 2016 because the taxpayer response to its Fast Track Settlement program had been low following its 2013 rollout to all SB/SE taxpayers. The study sought to profile eligible taxpayers to better understand their needs and to identify changes to increase taxpayer use of the program. The study found no barriers for eligible taxpayers.⁵⁹ Further, the study found that taxpayers and their representatives were highly unresponsive to resolving unagreed issues during the audit through mediation. In instances where Fast Track Settlement was offered, taxpayers failed to respond or saw no advantage to the program over traditional Appeal procedures.

The study report recommended that SB/SE revisit its marketing strategy to increase usage of the established issue resolution strategies and Fast Track Settlement program, possibly with the aid of SB/SE communications and stakeholder outreach offices. Additionally, the report recommended options such as (1) conducting tax preparer and taxpayer focus groups to gain perspective on the program, and (2) soliciting ideas from IRS audit officials that have been involved with the program. According to IRS officials, IRS did not revise its marketing strategy or conduct tax preparer or taxpayer focus groups. The officials said that IRS obtained some feedback from IRS staff on the use of Fast Track Settlement but did not implement a proposal to do more. In both cases, IRS officials attributed the inaction to other priorities.

Without such periodic evaluations, IRS is not taking advantage of a way to understand how well ADR programs address the lengthy and costly resolution processes through the traditional appeals and litigation processes. IRS is also missing opportunities to identify any changes to the design or management of ADR programs so that they are more effective in achieving faster, less costly dispute resolutions as well as other objectives.

IRS Has Not Established Clear Management Responsibility for ADR Programs

According to federal internal control standards, management should establish an organizational structure, assign responsibility, and delegate authority to achieve the entity's objectives.⁶⁰ The standards say  management should implement control activities through policies, procedures, techniques, and mechanisms that enforce directives to achieve objectives and address related risks. Practices that contribute to this principle include documenting policies that identify responsibilities, such as for these control activities.

The Fast Track programs are managed by officials in IRS Appeals as well as LB&I and SB/SE audit or collection units. The Rapid Appeals Program and two Post Appeals Mediation programs are managed by IRS Appeals officials. The Internal Revenue Manual (IRM) generally describes these arrangements and states the titles of some officials for program oversight when responsibilities are shared. For example, for SB/SE Fast Track Settlement, the IRM identifies responsible officials as the Director, Case and Operations Support in IRS Appeals, and Director, Examination Headquarters in SB/SE.