The IRS recently released Revenue Procedure 2006-44, which sets out the rules for the finalized IRS Appeals Arbitration program. This new program presents some new opportunities that taxpayers must consider.

The new IRS Appeals Arbitration program provides yet avenue to appeal factual issues that are cannot be resolved by the IRS appeals process. The program is not available for legal issues, issues that the IRS wants to litigate, and some collection issues. The program is available for factual issues related to rejected offers in compromise and responsible persons for purposes of the trust fund recovery penalty.

Both the taxpayer and the IRS must mutually agree to submit to arbitration and the issues, questions, and amounts can be limited in the arbitration agreement between the IRS and the taxpayer.

The taxpayer may initiate arbitration by submitting a written request, after consulting with the IRS appeals office that is handling the case. The Revenue Procedure specifies that the Appeals Team Manager “will” respond within two weeks.

The IRS Revenue Procedure says that IRS refusal to arbitrate is not subject to judicial review.

The Revenue Procedure then says that after the IRS okay’s the request to arbitrate, the parties “will” enter into a written agreement to arbitrate. The Procedure does not specify what happens if the parties cannot agree on the arbitration terms.

The parties can then select an arbitrator, which can be an IRS Appeals Officer from a different Appeals Office or an outside third party who is registered with “any local or national organization that provides a roster of neutral [arbitrators].” (Just FYI: I might be willing serve as an arbitrator in this type of proceeding, so please contact me if you need this service). The Revenue Procedure also provides that the IRS and the taxpayer are to pay for the cost of arbitration, regardless of which party prevails.

While this new proceeding might be helpful in in some cases, only time will tell if the IRS fully implements the program and if taxpayers opt to use the program.