Settling IRS Tax Debt Through Tax Arbitration or Mediation

Free Car Insurance Comparison

Compare Quotes From Top Companies and Save

secured lock Secured with SHA-256 Encryption

UPDATED: Jul 15, 2021

Advertiser Disclosure

It’s all about you. We want to help you make the right legal decisions.

We strive to help you make confident insurance and legal decisions. Finding trusted and reliable insurance quotes and legal advice should be easy. This doesn’t influence our content. Our opinions are our own.

Written By: Jeffrey JohnsonUPDATED: Jul 15, 2021Fact Checked

Under the Administrative Dispute Resolution Act of 1996, all government administrations were ordered to pursue mediation and arbitration sessions as alternatives to formal court and administrative proceedings. The IRS is no exception to this rule and has created two distinct programs for solving tax disputes outside of the courtroom. In order to qualify for either of these methods, you cannot have already appeared in tax court.

Voluntary IRS Binding Arbitration

Under IRS procedure, a person can opt for binding arbitration for their case for either a single factual issue or the entire decision. According to the IRS, appropriate cases for binding arbitration include valuations, reasonable compensation for taxes owed, and allocation of deduction and credit cases. These cases must first be approved for binding arbitration through the IRS Office of Associate Chief Counsel. Cases involving trade or business expenses, entertainment expenses, or those cases where a settlement is imminent will not be approved for binding arbitration. Once a case is approved, the parties can choose their neutral arbitrator and establish the stipulations by which the arbitrator is bound.

As part of the arbitration process, the parties can decide whether the arbitrator will decide all facts or only certain specific issues. Should either party feel that the arbitration is proving fruitless in resolving the matters, they can file a motion for trial and the case will be sent to the tax court instead. The tax court oversees the entire arbitration process and verifies whether or not the correct procedures are being followed. After the matter goes to the arbitrator, the decision is sent back to the tax court for the final ruling. Once made, binding arbitration decisions cannot be appealed.

IRS Mediation

Mediation was initially used by the IRS in their Large Business and International Fast Track Dispute Resolution Program. Mediation is now used by the IRS to form settlement agreements with all taxpayers. The mediator is a neutral third party that does not render judgement or even offer legal advice. Instead, the goal is to diffuse emotions and aid the parties in reaching a reasonable settlement. The two parties in an IRS mediation are the assigned field agent and the taxpayer. IRS mediations are overseen by the tax court and guidance is offered to the mediator where necessary.

Mediation, like binding arbitration, must be selected by the taxpayer. It must be requested within the parameters of the trial timeline and cannot be used as a means to delay the trial or other settlement procedures. Mediation is also a one-shot deal and cannot be used twice in the same case. Most IRS mediation proceedings happen with parties in separate rooms with the mediator going between the rooms to facilitate.

Both binding arbitration and mediation are options that save the IRS and taxpayers money. The particular parties in the case can save a great deal of time. When used appropriately, these measures result in both parties reaching a settlement that is agreeable and avoiding the tax court and its fees entirely.


Get Legal Help Today

Find the right lawyer for your legal issue.

secured lock Secured with SHA-256 Encryption

Editorial Guidelines: We are a free online resource for anyone interested in learning more about legal topics and insurance. Our goal is to be an objective, third-party resource for everything legal and insurance related. We update our site regularly, and all content is reviewed by experts.

Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

Full Bio →

Written by Jeffrey Johnson
Insurance Lawyer Jeffrey Johnson

Get Legal Help Today

Find the right lawyer for your legal issue.

secured lock Secured with SHA-256 Encryption