IRS mediation alternatives not used enough

The Internal Revenue Service’s alternative dispute resolution programs for mediating tax issues between taxpayers and the agency, can be faster and cheaper than the usual appeals process, but use of the programs fell by two-thirds over the past decade, and the IRS doesn’t have enough information to understand why, according to a new report.

The report, released Wednesday by the Government Accountability Office, found the use of the mediation programs declined by over 65% between fiscal years 2013-2022. The IRS used the alternative dispute resolution programs to resolve disputes in less than half of 1% of all cases reviewed by its Independent Office of Appeals, which is responsible for tracking and implementing all IRS ADR programs. 

However, the IRS lacks the data to understand the reason, even on how often it rejects taxpayers’ requests to use alternative dispute resolution programs. The IRS also doesn’t collect data on the results of using some of the programs, including the actual time and costs involved. The GAO recommended the IRS improve data collection and monitoring for its alternative dispute resolution programs. 

The IRS offers six different ADR programs to provide mediation to expedite resolution and avoid the 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,” said the report. While the IRS doesn’t know definitively why ADR usage has declined, taxpayers perhaps don’t perceive the benefits of using ADR, according to IRS officials.

“The IRS is committed to resolving disputes with taxpayers without costly litigation, whenever possible,” wrote Andrew Keyso, chief of the IRS Independent Office of Appeals, in response to the report. “The mission of the IRS Independent Office of Appeals is to resolve tax controversies, without litigation, on a basis which is fair and impartial to both the government and the taxpayer. More than 70,000 taxpayers bring their case to Appeals each year, with the vast majority opting for the traditional appeals process in which Appeals personnel take a fresh, objective look at the facts and issues and negotiate an administrative settlement of the matter directly with the taxpayer and their representative. We know from our interactions with taxpayers and our customer satisfaction surveys that taxpayers appreciate the availability of this administrative dispute resolution function.”

However, the GAO believes the 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. 

It said the IRS doesn’t have clear and measurable objectives for its ADR programs that contribute to achieving the 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. The IRS doesn’t analyze data to assess whether the programs are achieving benefits such as resolving disputes over specific tax issues and reducing the investment of time and money to do so, according to the GAO. The IRS hasn’t regularly monitored the taxpayer experience with the alternative programs to address problems in real-time. Without such information, the IRS can’t assess how to improve taxpayers’ willingness to use the alternative programs as well as their experience in resolving tax disputes. In addition, the IRS can’t take action on those missed opportunities to maximize ADR benefits because the IRS hasn’t established specific responsibilities and related tasks for consistently managing all elements of the ADR programs, according to the report.

The GAO recommended the IRS is GAO is making eight recommendations to improve how IRS manages its ADR programs, including suggesting that the IRS should improve its ADR data collection, establish clear program objectives, analyze data to better achieve ADR’s benefits, monitor taxpayers’ experience to assess ways to improve it, and establish responsibilities and tasks for managing ADR programs. The IRS generally agreed with the GAO’s recommendations.