The Internal Revenue Service is looking for ways get its post-filing alternative dispute resolution programs greater exposure and use.
The agency recently issued a public call for comment on a variety of topics related to the use of ADR, including learning why taxpayers choose not to use ADR; issues that keep taxpayers from using ADR that should be changed to allow for inclusion; how best to improve ADR; how best to education about ADR; feedback on when ADR proved particularly useful; and ideas on how to achieve tax certainty or resolution sooner beyond existing ADR programs, including ideas for new programs.
A list of specific issues the IRS has outlined can be found here, though comments submitted about the ADR should not necessarily be limited to the subject areas listed.
Indu Subbiah, supervisory appeals officer and acting senior advisor in the IRS Independent Office of Appeal, explained the genesis of this request for comment.
“We had a sense the ADR [programs] weren’t being used quite as robustly as we would have liked,” she said in an interview with Federal Tax Daily, adding that a recently issued U.S. Government Accountability Office report “really brought that to our attention.”
According to the report, “IRS Could Better Manage Alternative Dispute Resolution Programs To Maximize Benefits,“IRS Could Better Manage Alternative Dispute Resolution Programs To Maximize Benefits,” GAO found that while the agency offers six alternative dispute resolution programs,“IRS used ADR programs to resolve disputes in less than half of one percent of all cases reviews by its Independent Office of Appeals”from fiscal year 2013 to 2022. In this time period, the number of cases closed using ADR annually peaked in 2014 (429 cases closed) and then steadily declined during the review period, reaching a low point of 119 cases closed in 2022.
“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,” the GAO report states. “Although IRS does not know definitively why ADR usage has declined, potential reasons include taxpayers do not perceive the benefits of using ADR, according to IRS officials”
The report continues: “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. … IRS has not regularly monitored the taxpayer experience with ADR to address problems in real-time.”
With these critical observations about the ADR programs being put forth by GAO, the Independent Office of Appeals is now proactively looking at what is going on to make the ADR programs work better for taxpayers and the agency, the first step being this request for comments.
“The whole point of ADR programs is so that taxpayers and the IRS can use ADR to resolve issues, potentially at a lower cost,” Subbiah said. “I think everybody would agree that when the process works, the IRS and the taxpayer can avoid costly litigation.”
“The question for us is how can we is how can we even improve the ability to resolve a case with Appeals, and to me, it’s maybe can we resolve those cases sooner,” Andrew Keyso, chief of the IRS Office of Independent Appeals, said during the interview.
“I think this is a good time to reconsider how we do alternative dispute resolution and mediation because of the” supplemental funding the agency received as part of the Inflation Reduction Act, Keyso said, noting that there are more resources to apply to appeals officers and mediators.
Keyso said that one of the ways the Office of Appeals measures success of ADR “based on how many people are coming in to use ADR and those numbers are fairly small. So I think we’d like to see those numbers increase.”
One thing that the IRS will be looking for in the questions is the need for education as a potential way to increase the use of ADR. In fact, one of the questions the agency asked is directly focused on education.
“One of the questions we really focused on was education,” Subbiah said, noting that they are looking for stakeholders to “tell us [and] to help us understand whether it is [lack of] education [on ADR and its benefits] or is it something else. I think it will be very telling and very interesting to us to really get at the heart of why it isn’t being used.”
Elizabeth Askey, deputy chief of the Office of Independent Appeals, noted, anecdotally, that larger businesses and wealthier taxpayers seem to be a lot more aware of the various tools at their disposal, including ADR. However, the Office also is hearing situations where there is a reluctance on the part of compliance officers to use ADR tools.
Keyso added that while larger businesses and wealthier taxpayers might be more aware of ADR, there needs to be more education for smaller businesses and lower income taxpayers, in addition to education across the IRS itself.
“So, in those cases, it may be a matter of us getting to the root of why some compliance personnel are less inclined to go this route than others,” Askey said during the interview. “It’s not just the education of taxpayers and their practitioners, but of our own compliance personnel.”
Keyso stressed that this effort was broad, not only in the scope of which taxpayers and practitioners might need education about the availability and use of ADR, but also within the agency. And he remains optimistic that this effort to request commentary from the public will help that.
“We’re optimistic that the public will come in and tell us why we don’t make use of more ADR. We don’t find it productive, for instance, or we can’t get the agency to cooperate,” he said. And with the additional IRA funding in hand, the agency can respond and look to see how ADR can be restructured to make it more useful for everyone to help get more issues resolved in a more timely and cost-efficient manner.
“I hope that mindset is shared across the agency,” Keyso said.“I think it is and is becoming more so in the effort to help resolve cases quickly.” He noted there will always be cases where resolution needs a more traditional path, but when this process is complete, there will be a greater recognition where ADR can be and is used.
IRS is asking the public to submit its comments on the ADR programs by August 25, 2023, via email at firstname.lastname@example.org.
By Gregory Twachtman, Washington News Editor