Alternate Dispute Resolution Rules

Huzaima Bukhari & Dr. Ikramul Haq

Huzaima Bukhari & Dr. Ikramul Haq, leading tax consultants, are well-known authors of many books on Pakistani tax laws. They work for a multi-disciplinary firm, HUZAIMA & IKRAM (fax: +92 42 5310721, e-mail: irm@brain.net.pk; website: http://www.paktax.com.pk) which specialises in international tax, intellectual property, corporate and constitutional law and publishes tax books [through sister concern Lahore Law Publications]  besides holding courses on a variety of subjects relating to tax laws under the banner of Lahore Institute of Tax Education (LITE).

For the first time in the history of Income Tax Law in Pakistan, Alternate Dispute Resolution (ADR) option has been provided by inserting section 134A vide Finance Act 2004 which is aimed at extending the much-desired-for facility to taxpayers to avail administrative means for resolving disputes through mediation outside the ambit of convention appeal system. This provision requires the Central Board of Revenue (CBR) to notify procedures for (a) referral of disputes and (b) mediation of unresolved issues and (c) entering into binding agreements or offers in compromise. The rules recently notified by the CBR for public comments and the law itself have been examined in this article.

The main idea behind this new provision was to provide arbitration of unresolved/disputed issues. Unfortunately no public debate was initiated prior to its insertion. The draft law was not made public and no opinion was elicited from the stakeholders and experts. The CBR is unilaterally pursuing the “tax reform” agenda (sic) without involving the taxpayers and public at large, who will later pay back the heavy loan of over US$100 million provided by World Bank and others for this entire exercise. Time and again we have emphasised that no reform agenda can succeed unless the entire nation is taken into confidence and their participation is ensured at the time of enactment of laws and not at the stage of implementation alone.

The result of not consulting taxpayers, tax bars and other trade bodies is obvious: bad drafting of a well-intended law. The salient features of section 134A of the Income Tax ordinance, 2001 [hereinafter “the Ordinance”] are:

• Any aggrieved person in connection with any matter of income tax pertaining to liability of income tax, admissibility of refund, waiver or fixation of penalty or fine, relaxation of any time period or procedural and technical condition may apply to the Central Board of Revenue for the appointment of a committee for the resolution of any hardship or dispute mentioned in detail in the application.
• The Central Board of Revenue may, after examination of the application of an aggrieved person, appoint a committee consisting of an officer of Income Tax and one or two persons from a notified panel of Chartered or Cost Accountants, Advocates, Income Tax Practitioners or reputable taxpayers for the resolution of the hardship or dispute.
• The committee will examine the issue and may, if it deems necessary, conduct  inquiry, seek expert opinion, direct any officer of Income Tax or any other person to conduct an audit and make recommendations in respect of the resolution of dispute as it may deem fit.
• The Board may, on the recommendation of the committee, pass such order, as it may deem appropriate.
• The aggrieved person may make the payment of income tax and other taxes as determined by the Board in its order under sub-section (4) and all decisions, orders and judgments made or passed shall stand modified to that extent and all proceedings under this Ordinance or the rules made thereunder by any authority or forum shall abate provided that, in case the matter is already sub-judice before any forum or tribunal or the court, an agreement made between the aggrieved person and the Board in the light of recommendations of the committee shall be submitted before that forum, tribunal or the court for consideration and orders as deemed appropriate.
• In case the aggrieved person is not satisfied with the orders of the Board, he may file an appeal or reference with the appropriate forum, tribunal or court under the relevant provisions of this Ordinance within a period of sixty days of the order passed and communicated to the aggrieved person by the Board under this section.

Section 134A has the following inherent defects that need to be removed:

1. CBR has been given the central role in all the matters that is from examination of application for ADR to passing of an order whereas informal dispute resolution mechanism should be implemented through an independent ADR Authority.
2. For each and every case or at least for each major city, the CBR is to appoint/notify a committee consisting of an officer of Income Tax and one or two persons from a notified panel of Chartered or Cost Accountants, Advocates, Income Tax Practitioners or reputable taxpayers. It will not be practical as the taxpayer will only come forward for ADR when he knows that the ADR Authority is a permanent and neutral body having members of impeachable repute and professional competence.
3. Conducting ADR through a committee, comprising a tax official, advocate or chartered accountant or cost accountant, for each case will be costly, procedurally cumbersome as well as time-consuming exercise. The whole concept of fast track dispute resolution stands negated.
4. The issue of payment of members of committee has been left undecided both in the law and the proposed rules. How can a small businessman pay a heavy fee of an advocate or FCA or Cost Accountant for attending meetings? The ADR Authority should be a public body having a permanent structure as is the case in many other countries e.g. USA and U.K where tax officials and experts work jointly to carry out this important task outside the ambit of an expensive conventional justice system.
5. The right to appeal against the order of the CBR [section 134A(6)] is vaguely drafted as it is not clear how against the same order appeal/reference can be filed before (1) appropriate authority (2) tribunal and (3) court. There is no definition of “appropriate authority” in the law or the proposed rules.
6. It does not explicitly provide that a resolution reached by the parties through ADR will not bind the parties for tax years not covered by the agreement or except as provided in the agreement, any such resolution shall not be used as precedent.
7. It has completely overlooked the fact that there already exists a provision in the Federal Tax Ombudsman Ordinance 2000 that is section 33 which clearly provides informal resolution of dispute. An already established institution can be engaged for ADR mechanism, especially when statutory provision is available to this effect and infra structure is available. It is strange that since the inception of the FTO office in 2000 neither the tax department nor the taxpayers thought of availing this vital provision of informal dispute resolution. The same is going to be the fate of section 134A if CBR fails to properly implement it and convince the taxpayers that it is meant for amicable settlement of disputes and not imposition of CBR’s self-assumed judicial/administrative will.

In the Sales Tax Act 1990, a similar provision i.e. 47A was inserted as early as in 2002 but due to lack of proper infrastructure as discussed above and faulty perception of CBR only a negligible number of cases came for resolution. It is pertinent to mention that section 134A is exact replica of section 47A of the Sales Tax Act, 1990. If section 47A of the Sales Tax Act read with rules 62 to 71 of Sales Tax Rules have failed to attract the taxpayers for informal dispute resolution then how section 134A and proposed rules, which are ditto copy of the earlier enactment, can be of any usefulness. There is some fundamental flaw in the entire scheme which has not been realised by the CBR to this date. Making the same mistake again and again appears to be CBR’s favourite pastime.

The CBR has notified the draft Income Tax Dispute Resolution Rules (see annex. A) in pursuance of section 134A(7) of the Ordinance. Since the law itself is badly drafted as shown above, the draft rules, notified for public comments, portray many shortcomings as these do not provide complete procedure, necessary details and comprehensive mechanism that are necessary to successfully execute this important facility made available to the taxpayers for the first time in the history of Income Tax in Pakistan. On the contrary, Internal Revenue Service of USA has notified Fast Track Programme (FTM) [Annex. B] which contains explicit, detailed and comprehensive procedures covering each and every aspect of Fast Track Dispute Resolution Mechanism. The CBR can learn a lot from this programme and after making some necessary changes to suit local conditions and environments easily implement it.

The ADR can be made successful if:-

1. A permanent forum is established, independent of compliance functions, to efficiently prevent or resolve a dispute. If consider appropriate by the CBR, FTO Office under section 33 of FTO Ordinance 2000 can be utilised for this purpose.
2. Fast Track Dispute Resolution Mechanism is simple, cost-effective and reliable so that taxpayers can come forward with complete confidence and faith.

The faulty nature of draft rule 231C can be seen from the very fact that it does not define the “appropriate authority” for the purpose of filing appeal or reference against the order of the CBR as mentioned in section 134A(6). Both the law and rules are vague in claiming that if a person is aggrieved with the order of the CBR he may file appeal or reference with:

1. Appropriate Authority [neither defined nor specified];
2. Tribunal or
3. Court

It is not clear that under what circumstances a taxpayer can invoke jurisdiction of three different entities and what are the boundaries/criteria/rules for the same. The draft rule is completely silent about presentation of case before the ADR committee and the taxpayer’s right to bring his Authorised Representative. In contrast the USA Fast Track Programme (FTM) is explicit on these issues [see Annex. B]. Besides above mentioned inherent drafting and conceptual errors and lacunae, section 134A and draft rule 231C lack the correct perspective to provide:

1. Small businesses, self-employed taxpayers and tax officials the opportunity to mediate disputes through retired judges and tax officials, who are ready to work in public spirit, as a neutral party. Serving tax officials and tax professionals should not be an part of the process as they cannot act as neutral parties. In USA and U.K under such a programme, most tax disputes are resolved within 40 days compared to several months through the regular appeal process. In USA alone since June 2002, more than 50,000 cases have been mediated – with 100 percent resolution.
2. Resolution of tax disputes with large and middle-sized businesses at an earlier stage – within a months’ time than through the normal audit and appeal processes.

If CBR wants to make ADR a success it needs to:

• Establish the Fast Track Mediation (FTM) programme to expedite case resolution and to expand the range of dispute resolution options available to taxpayers. For this purpose a permanent Office of ADR should be established at CBR to administer the FTM programme or alternately FTO Office should be assigned the task under section 33 of the FTO Ordinance 2000.
• Ensure that FTM should allow tax officials and taxpayers an opportunity to mediate their disputes with ADR Authority/FTO acting as a neutral party. 
• Consider that the ADR Authority, headed by a Director General, preferably a retired judge of Supreme Court or High Court and consisting of some permanent members, preferably retired Income Tax Officials, not below the rank of Grade 20 who rendered at least 25 years of service, work as neutral body.
• Establish ADR Authority as a permanent organisation because ad-hoc ADR committees will not be interested to work with the public zeal that is required in such a process. Any good tax lawyer or chartered accountant or cost accountant will not volunteer for a meagre fee to resolve a tax dispute. Secondly, these persons should not be involved from the standpoint of professional ethics that debar them from entering into resolution of cases involving their competitors in the field. The CBR will be a loser in this process as taxpayers will be lured by professionals who may later on become their future tax advisors. No code of ethics has been laid down for members of ADR committee. It is simply irreconcilable that a person who himself is engaged in tax practice can become a neutral person in resolving a tax dispute between a taxpayer and the department. The same principle applies to serving tax officials who under the proposed rules are to act as a member of ADR committee. 

The process of alternate dispute resolution can only be successful if managed through an Independent Authority not even administratively subordinate to CBR, which is totally autonomous, comprising ex-judges and retired tax officials who are not involved in tax practice. In USA such a system is already in vogue since July 2000. We are reproducing its salient features at Anne. B for CBR’s consideration. Further information can be seen at http://www.irs.gov/pub/irs-drop/rp-03-40.pdf and http://www.irs.gov/pub/irs-drop/a-03-36.pdf.

_______________________________________________________________________

Annex. A

Government of Pakistan

Revenue Division

Central Board of Revenue

*

Islamabad, 10^th August, 2004.

N o t i f i c a t i o n

(Income Tax)

S.R.O. 682(I)/2004. – The following draft amendments in the Income Tax Rules, 2002, proposed to be made in exercise of the powers conferred by section 237 of the Income Tax Ordinance, 2001 (XLIV of 2001), is hereby published for the information of all persons likely to be affected thereby, and notice is hereby given that the draft will be taken into consideration after fifteen days of its publication in the official Gazette.

2.         Any objection or suggestion, which may be received from any person, in respect of the said draft amendments before the expiry of the aforesaid period, shall be considered by the Central Board of Revenue.

Draft Amendments

            In the aforesaid Rules, after rule 231B, the following new rule shall be inserted, namely: –

            “231C. The income tax alternate dispute resolution rules[*]. – (1)   This rule shall apply to all cases of disputes brought or specified for resolution under section 134A.

            (2)        In this rule, unless there is anything repugnant in the subject or context,-

•       “applicant” means a person or a class of persons who has brought a dispute for resolution under section 134A;
•       “Board” means the Central Board of Revenue.
•       “Committee” means a Committee constituted under sub-section (2) of section 134A; and

(d)       “Dispute” means any matter of income tax pertaining to liability of income tax, admissibility of refund, waiver or fixation of penalty or fine, relaxation of any period or procedural and technical condition as specified in sub-section (1) of section 134A;

            (3)        Any person or [†]class of persons interested for resolution of any dispute under section 134A shall submit a written application for [‡]alternative dispute resolution to the Board in the form as set out in the Schedule below.

            (4)        The Board, after examination of the contents of an application by a taxpayer and facts stated therein and on satisfaction that the application may be referred to a Committee for the resolution of the hardship or dispute, shall constitute a Committee consisting of the following members, namely:-

(a)        the Director General, Large Taxpayers Unit or Commissioner, Medium Taxpayers Unit or any other Commissioner or officer of the Income Tax Department nominated by the CBR.

(b)        a Fellow of Chartered Accountants, registered with Institute of Chartered Accountants of Pakistan or an Associate of Cost and Management Accountant, an advocate of High Court or Income Tax Practitioner having at least twenty-five reported cases in a reputed journal to his credit; and

(c)        a reputable taxpayer.

            (5)        The Board may appoint one of the members of the Committee to be its Chairman.

            (6)        An application filed under this rule may be disposed of by the Committee within thirty days of its constitution:

                        Provided that the time so specified may, if requested by the Chairman of the Committee for reasons to be recorded in the request, be extended by the Board to such extent and subject to such conditions and limitations as it may deem proper.

            (7)        The Chairman of the Committee shall be responsible for deciding the procedure to be following by the Committee which may inter-alia, include the following, namely:-

•       To decided* about the place of sitting of the Committee;
•       to specify date and time for conducting proceedings by the Committee;
•       to supervise the proceedings of the Committee;
•       to issue notices by courier or registered post or electronic mail to the applicant;
•       to requisition and produce relevant records or witnesses from the Commissioner or other concerned quarters;
•       to ensure attendance of the applicant for hearing either in person or through an advocate, representative or a tax consultant;
•       to consolidate recommendations of the Committee and submission of a conclusive report to the Board; and
•       for any other matter covered under these rules.

            (8)        The committee may conduct inquiry, seek expert opinion, direct any officer of income tax or any other person to conduct an audit and make recommendations to the Committee in respect of dispute or hardship.

            (9)        The Committee may determine the issue and may thereafter seek further information or data or expert opinion or make or cause to be made such inquiries or audit as it may deem fit, to formulate its recommendations in respect of any matter specified in sub-section (1) of section 134A.

            (10)      The applicant may withdraw the application made under sub-rule (3) of these rules at any time before the Committee submits its recommendations to the Board.

            (11)      The [§]application shall pay members of the Committee, other than public servant, remuneration covering traveling allowance and daily allowance. The extent and amount of remuneration and the manner of payment thereof shall be decided by the Chairman of the Committee under intimation to the applicant.

            (12)      The Chairman of the Committee shall send a copy of the recommendations of the Committee to the Board, applicant and the concerned Commissioner, simultaneously.

            (13)      The Board on its own motion or on the request of the applicant may refer back the recommendations of the Committee for rectification of any mistake apparent from record or for reconsideration of the facts or law, as the case may be, not considered earlier by the committee.

            (14)      The Committee after rectification of the mistake or reconsideration of the facts or law as aforesaid shall furnish to the Board its fresh or amended recommendation within such period as specified by the Board.

            (15)      The Board, after examining the recommendations of the Committee shall finally decide the dispute or hardship and make such orders as it may deem fit for the resolution of the dispute or hardship under intimation to the applicant, Chairman of the Committee and the concerned Commissioner.

            (16)      The copy of order passed by the Board shall be provided to the applicant and to the Commissioner having jurisdiction over the case for modification of all decisions, orders and judgements passed in respect of the said dispute or hardship, within such period as may be specified by the Board in the order.

            (17)      On receipt of the Board’s order as aforesaid, the concerned Commissioner shall implement the order in such manner and within such period as may be specified by the Board in the order.

            (18)      Notwithstanding any thing contained in this rule an order passed by the Board shall cease to exist if it is subsequently found to have been obtained by fraud or misrepresentation of facts about the nature of dispute or hardship on which the said order was passed and all decisions, orders and judgements modified under the said order shall deemed to be re modified.

THE SCHEDULE

[See sub-rule (3)]

Application for alternate dispute resolution

under section 134A of the Income Tax Ordinance, 2001

To,

            The Chairman,

            Central Board of Revenue,

            Islamabad

Dear Sir,

            The undersigned being duly authorized hereby apply _______________________ (name and address of the applicant) for dispute or hardship resolution under section 134A of the Income Tax Ordinance, 2001 (XLIX of 2001).

2.         Necessary details of the dispute or hardship are set out below and in the annexure to this application.

3.         A request is made to constitute a Committee as provided under sub-rule (4) of rule 231C of the Income Tax Rules, 2002.

4.         The following documents as are necessary for the resolution of the dispute or hardship are enclosed.

            (a) _________________________________________________________

            (b) _________________________________________________________

            (c) _________________________________________________________

Yours faithfully,

Signature ____________

Name _______________

                        (in block letters)

NTN ________________

Address ______________

Date _________________

Annexure

[See paragraph 2 of the Schedule]

• Name of the applicant _________________________________________

(in block letters)

• National tax number ___________________________________________
• Address of the applicant ________________________________________
• Telephone Number ___________________ Fax Number _____________
• The Commissioner with whom a dispute has arisen_____________________
• The following is the statement of the relevant facts and law with respect to dispute or hardship having bearing on the question(s) on which the resolution is required (Please annex extra sheet, if required):-

• Statement containing the applicant’s interpretation of law or facts, as the case may be, in respect of question(s) on which resolution is required (Please annex extra sheet, if required) is as follows:-

• The extent or the amount of tax which the applicant agrees[**] to pay, if any.

• The undersigned, solemnly declare that:-
• full and true particulars of the dispute/ hardship for the purposes of resolution have been disclosed and no material aspect affecting the determination of the application filed under the Income Tax Ordinance 2001, in this behalf has been withheld; and
• that the above issue(s) is/are pending before ____________ (name of the appellate forum, ITAT or court)/ not pending before any forum, ITAT, High Court or Supreme Court of Pakistan for adjudication.
• I shall pay the remuneration of the members, other than a public servant, of the Committee to the extent as the Chairman of the Committee may decide.

Yours faithfully,

Signature ____________

Name _______________

                        (in block letters)

Designation ____________

Date _________________.”.

—————————————————————————————————

[C. No. 3(16)IT-Jud/04]

Salman Nabi

Member (Direct Taxes)/

Additional Secretary

Annex. B

IRS Revenue Procedure 2003-41

SB/SE – Appeals Fast Track Mediation Procedure

SECTION 1. PURPOSE

This revenue procedure formally establishes the Fast Track Mediation (FTM) program to expedite case resolution and to expand the range of dispute resolution options available to taxpayers. The Small Business/Self-Employed Compliance Division and the Office of Appeals will jointly administer the FTM program. FTM will allow SB/SE personnel and SB/SE taxpayers an opportunity to mediate their disputes with an Appeals Official acting as a neutral party.

SECTION 2. OVERVIEW

.01 In furtherance of the Service’s goal of resolving tax controversies on a basis that is fair and impartial to both the government and the taxpayer, the Service implemented a SB/SE Fast Track Mediation program on July 1, 2000. The pilot program demonstrated that the Service can successfully use dispute resolution techniques within SB/SE to promote issue resolution at earlier stages and decrease the overall time from return filing to ultimate issue resolution. The FTM program, which the Service has structured to promote issue resolution within an average of 30 to 40 days from the initial joint discussion between the FTM Appeals Official and the parties, builds on the success of the pilot program.

.02 FTM is optional for the taxpayer. FTM does not eliminate or replace existing dispute resolution options, including the taxpayer’s opportunity to request a hearing before Appeals or a conference with a manager. The FTM Appeals Official, serving as a neutral participant, will assist SB/SE and the taxpayer to understand the nature of the dispute and to reach a mutually satisfactory resolution consistent with applicable law.

The FTM Appeals Official may also recommend to the parties a resolution on the merits based on the FTM Appeals Official’s analysis of the issues. Either party may withdraw from the mediation process at any time by notifying the other party and the FTM Appeals Official in writing of the withdrawal. The FTM Appeals Official also may terminate the mediation process, by notifying the taxpayer and SB/SE in writing, if it is determined that meaningful progress toward resolution of the issues has stopped. If any issues remain unresolved at the conclusion of FTM, the taxpayer retains all of its otherwise applicable appeal rights.

SECTION 3. CASE ELIGIBILITY AND EXCLUSIONS

.01 FTM is generally available for all non-docketed cases and collection source work over which SB/SE has jurisdiction, including offer in compromise (OIC), trust under recovery penalty (TFRP) and collection due process (CDP) cases. FTM is generally not available for issues for which resolution will depend on an assessment of the hazards of litigation and which require the FTM Appeals Official to use delegated settlement authority.

.02 The following issues and cases are not eligible for inclusion in the FTM program:

(1) Issues in a taxpayer’s case designated for litigation;

(2) Issues in a taxpayer’s case under consideration for designation for litigation;

(3) Issues for which there is an absence of legal precedent;

(4) Issues for which there are conflicts between circuit courts of appeal;

(5) Issues included in the Technical Advisor Program or in the Appeals Technical

Guidance Program;

(6) Issues for which the taxpayer has submitted a request for competent authority

assistance;

(7) Issues for which the taxpayer has requested the simultaneous

Appeals/Competent Authority procedure described in section 8 of Rev. Proc. 2002-52,

2002-31 I.R.B. 242, or the corresponding provision of any successor guidance;

(8) “Whipsaw” issues, i.e., issues for which resolution with respect to one party

might result in inconsistent treatment in the absence of the participation of another

party;

(9) Cases worked at a Campus site in which a penalty was proposed, except

those involving special electronic fund deposit penalties;

(10) Cases worked at a Campus site in which an offer-in-compromise was made;

(11) Collection Appeals Program cases;

(12) Automated Collection System cases;

(13) Frivolous issues, such as, but not limited to, those identified in Rev. Proc.

2001-41, 2001-1 C.B. 173, or any succeeding revenue procedure;

(14) Issues for which mediation would not be consistent with sound tax

administration, e.g., issues governed by closing agreements, by res judicata, or by

controlling precedent;

(15) Cases in which the taxpayer has failed to respond to Service

communications and no documentation has been previously submitted for consideration

by the examiner;

(16) Issues within the scope of Rev. Proc. 2002-18, 2002-1 C.B. 678 (methods of

accounting); and

(17) Issues that have been identified in a Chief Counsel Notice, or equivalent

publication, as excluded from the Fast Track Mediation process.

In addition to the cases described in (9) and (10), other cases worked at the Campus

sites are generally not eligible for FTM.

.03 Fast Track Mediation should be initiated only after an issue has been fully developed. The respective managers and taxpayers must evaluate their individual circumstances to determine if the FTM program meets their needs, e.g., whether the number of issues is manageable within a 30 to 40-day time frame.

.04 Application to the FTM process should only be initiated if there is sufficient time remaining on the period of limitations for assessment and collection. Consistent with current Compliance procedures, a case should not be submitted to the FTM program if the failure to resolve any issue in the FTM process would result in Compliance forwarding the case to Appeals with less than 180 days remaining on the statute of limitations.

SECTION 4. APPLICATION PROCESS

.01 Either the taxpayer or the SB/SE Team Manager may suggest participation in the FTM program. If the parties are interested in electing FTM, and need assistance in determining if the issue is appropriate for the FTM process, they may contact the SB/SEFTM Program Manager.

.02 A request to participate in FTM may only be initiated at the conclusion of an examination/collection determination. Parties apply to the program by completing and executing an Agreement to Mediate, attached as Exhibit 1.

.03 SB/SE will prepare a brief “Summary of Issues” and a tentative tax computation to submit with the Agreement to Mediate to the appropriate Appeals Office. The taxpayer may also submit a summary of the issues, but a formal protest is not required. All documents submitted with the Agreement to Mediate are available to the other party.

.04 All applications to the FTM process require the approval of an Appeals Manager before acceptance into FTM. If the Appeals Manager approves the application, the Appeals Manager will notify the taxpayer and the SB/SE Team Manager. If the case is

not accepted for FTM, the Appeals Manager will notify the taxpayer and the SB/SE Team Manager and return all paperwork to SB/SE. The decision not to approve an application for the FTM program is final and not subject to administrative appeal or judicial review.

SECTION 5. MEDIATION PROCESS

.01 During FTM, the case remains under SB/SE Compliance jurisdiction.

.02 After the case is accepted into the FTM program, an Appeals Manager will assign the case to the FTM Appeals Official, an Appeals Employee who has been trained in mediation. The FTM Appeals Official will serve as a neutral party. The taxpayer does not have the option of using a non-IRS employee as a mediator under the SB/SE –Appeals FTM program.

.03 The FTM Appeals Official will hold the FTM session at a date and location agreed to by both parties, usually at the local Appeals Office. Prior to the FTM session, the FTM

Appeals Official will advise the participants of the procedures and establish ground rules. The FTM Appeals Official may modify the rules and procedures during the session to adapt to changes in circumstances. The FTM session may include joint sessions with all parties, separate meetings, or both, as determined appropriate in the sole judgment of the FTM Appeals Official.

.

04 Both the taxpayer and SB/SE will be given ample opportunity to present the irrespective positions. The FTM Appeals Official may also ask either party for additional information if deemed necessary for a full understanding of the issues being mediated. A copy of any submission a party gives to the FTM Appeals Official will be provided simultaneously to the other party.

.05 The taxpayer and SB/SE representatives will meet with the FTM Appeals Official. The taxpayer’s authorized representative may also participate in the FTM session. At least one representative with decision-making authority for each party must be present at the mediation sessions, or be available for consultation, unless the case is an OIC case over $50,000 (including tax, penalty, and interest) for which Counsel approval is currently required pursuant to section 7122(b) of the Internal Revenue Code. The FTM Appeals Official may ask the parties to limit the number of participants to facilitate the process. Any person engaged in practice before the Service, as defined in Publication 216, Conferences and Practice Requirements, must have a power of attorney from the taxpayer (Form 2848, Power of Attorney and Declaration of Representative).

.06 The FTM Appeals Official may postpone or terminate the session if: (a) the taxpayer or SB/SE presents new information or new issues during the mediation session; (b) the taxpayer wishes to submit a substantial amount of documentary information; or (c) the taxpayer wishes to present witnesses, including experts. Any such postponements to allow both parties the opportunity to review and evaluate the new information may result

in a longer period for completion of the FTM process. If requested by either party, the FTM Appeals Official may allow a reasonable delay in the proceedings if the FTM Appeals Official determines it is warranted. Any delays will be communicated to, and coordinated with, both parties.

.07 The FTM Appeals Official does not have settlement authority and will not render a decision regarding any issue in dispute. The issues submitted to the FTM process may only be resolved if both the taxpayer and SB/SE reach an agreement.

.08 Communications made during an FTM session are confidential. Employees of the Service, or persons invited by the Service to participate in FTM, must adhere to the confidentiality and disclosure provisions of the Internal Revenue Code, including sections 6103, 7213 and 7431. Employees of the Service, the taxpayers and persons invited by the Service and the taxpayer to participate in FTM shall not voluntarily disclose information regarding any communication made during the FTM session, except as provided by statute, such as in sections 6103 and 7214(a)(8) and 5 U.S.C. § 574.

.09 By signing the Agreement to Mediate, attached as Exhibit 1, the taxpayer consents, pursuant to section 6103(c), to the disclosure of the taxpayer’s returns and return information pertaining to the issues considered in FTM to those persons named on the Agreement as participants or observers. If the Agreement to Mediate is executed by a person pursuant to a power of attorney executed by the taxpayer, that power of attorney must express the taxpayer’s grant of authority to consent to disclose the taxpayer’s returns and return information by the Service to third parties, and a copy of that power of attorney must be attached to the agreement.

.10 The prohibition against ex parte communications between Appeals Officers and other Service employees provided by section 1001(a) of the Internal Revenue Service Restructuring and Reform Act of 1998 does not apply to the communications arising in the FTM program because Appeals personnel, in facilitating an agreement between the taxpayer and SB/SE, are not acting in their traditional Appeals settlement role.

SECTION 6. POST-SESSION PROCEDURE

.01 If the parties resolve any of the disputed issues in the FTM session, SB/SE will secure the appropriate closing documents from the taxpayer and will close the case through SB/SE’s established case closing procedures.

.02 If applicable, the Service will report a proposed resolution reached as a result of FTM to the Joint Committee on Taxation in accordance with section 6405. The taxpayer acknowledges that the Service may reconsider a proposed resolution upon receipt of comments on the proposed resolution from the Joint Committee on Taxation. If the taxpayer declines to agree with any changes by the Service upon reconsideration, SB/SE will close the case unagreed and the taxpayer will retain all of the usual rights to request Appeals consideration of any unagreed issues.

.03 Under certain circumstances, the settlement of an OIC case may require a legal opinion from Counsel (7122(b) Counsel) pursuant to section 7122(b). For these OIC cases that are successfully mediated in the FTM program, the case will be forwarded to the 7122(b) Counsel for an opinion after the FTM session and the 7122(b) Counsel shall not be present at the FTM session. Final processing of the OIC case will be subject to the opinion of the 7122(b) Counsel.

.04 If the parties fail to resolve any issue in FTM, the taxpayer retains the option of requesting that the issue be heard through the traditional Appeals process. With respect to any unresolved issues, SB/SE will close the case or issue unagreed in accordance with established case closing procedures.

.05 At the conclusion of FTM, the FTM Appeals Official will prepare a brief written report by completing a Fast Track Mediator’s Report on the appropriate form, and submit a copy to each party.

.06 A resolution reached by the parties through FTM will not bind the parties for taxable

years not covered by the agreement. Except as provided in the agreement, any such resolution shall not be used as precedent.

SECTION 7. EFFECTIVE DATE

This revenue procedure is effective June 3, 2003.

SECTION 8. CONTACT FOR FURTHER INFORMATION

A taxpayer who wants to participate in FTM, or who has questions about the program

and its suitability for the taxpayer’s case, may contact Jacqueline Harris at (972) 308-

7330 (not a toll-free call) regarding the tax year currently under examination.

Exhibit 1

Agreement to Mediate

To: Appeals Team Manager Date: ________________

Compliance: The person to contact in Compliance about this case is:

Name and Title: ___________________________ ID/Badge Number: ____________

Telephone Number: ________________________

Taxpayer TIN_____________________ Year(s) _________________

Source (FE/OE/CO, etc.) ___________ MFT ___________

Type of Tax (1040, 1120 Emp., etc) or Collection Issue (CDP, OIC etc) __________

Taxpayer:

Name: ______________________________________________________________

Address: ____________________________________________________________

City, State and Zip Code: _______________________________________________

Telephone: (___) ______________________________________________________

Name of Representative _______________________________________________

Name of Firm: _________________________________________________________

Address: _____________________________________________________________

City, State and Zip Code: ________________________________________________

Telephone: (___)____________________ Fax (___)___________________________

IRS and Treasury employees who participate in any way in the mediation process and any person under contract to the

IRS invited to participate, will be subject to the confidentiality and disclosure provisions of the Internal Revenue Code, including I.R.C. sections 6103, 7213, and 7431. See also 5 U.S.C. section 574. The parties also acknowledge that IRS and all other Treasury employees involved in the mediation are bound by I.R.C. section 7214(a)(8) and must report information concerning violations of any revenue law to the Secretary. The Mediator will have the right to ask either party for additional information if deemed necessary for a full understanding of the issues being mediated. A copy of any submission a party gives to the mediator will be provided simultaneously to the other party.

The Taxpayer consents to the disclosure by the IRS of the Taxpayer’s returns and return information incident to the mediation to any participant or observer for the Taxpayer. If the mediation agreement is executed by a person pursuant to a power of attorney executed by the Taxpayer, that power of attorney must clearly express the Taxpayer’s grant of authority to consent to disclose the Taxpayer’s returns and return information by the IRS to third parties, and a copy of that power of attorney must be attached to this agreement.

___________________________ ___________________________

Taxpayer Date Taxpayer Date

_____________________________ ___________________________

Representative Date Compliance Date

Other Participants (if applicable):

Name Position or Affiliation Phone

---

[*] Although a single rule is proposed to be inserted i.e. Rule 231C, the title uses the plural form “rules”.

[†] Section 134A(1) only gives right to “aggrieved person” to avail this facility but the rules have extended it even to class of persons.

[‡] [‡] The correct word should have been “alternate”.

*     The correct word should have been “decide”.

[§] The apparently intended word is “applicant”.

[**] Wrongly appears as “agree” in the Notification.