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George Hani Discusses Pitfalls of IRS ADR Programs in Tax Notes

"Help Me Help You: IRS Seeks Feedback on Dispute Resolution"

Tax Notes

George Hani discussed a July 27, 2023 Internal Revenue Service (IRS) announcement requesting feedback from the public on how to improve the Independent Office of Appeals' various alternative dispute resolution (ADR) tools. An IRS Appeals official recently previewed the ADR programs' evaluation, citing declining taxpayer interest in the programs and admitting that the office wasn't fully able to explain the drop in their use. "One reason you might go to fast-track settlement is the first word: fast. In theory, if successful, you can get the issue resolved more quickly than if you go the regular appeals route. But you have to have confidence you'll succeed in that route," Hani said. 

Many taxpayers don't have that confidence, Hani continued. "I think more and more people are thinking they're not going to resolve the issue through these programs," so they opt to go straight to traditional appeals or directly to the Tax Court, he said. Hani acknowledged that a reason for taxpayers' disinterest in the ADR programs — and one that will be hard for the IRS to overcome — is that the settlement process is caught in a conflict between empowering its Appeals officers to use their independent judgment to settle and broadly ensuring that similarly situated taxpayers are treated similarly. Hani observed that many Appeals officers are former IRS exam agents, who are taught to think in terms of right and wrong, and if they think the IRS has the better position, they offer nothing. Meanwhile, Appeals officers are supposed to settle a case based on the hazards of litigation. "You've got to be willing to compromise. Otherwise, you're spinning your wheels," Hani added.