Appeals Improves Alternative Dispute Resolution Programs, But Barriers Remain

By snapme | May 22, 2025 |

The IRS’s Alternative Dispute Resolution (ADR) options allow taxpayers and the IRS to resolve disputes more quickly than through the traditional appeals processes. Many practitioners, including me during my time in private practice, have long appreciated its advantages. I often recommended to my clients and successfully used programs like Fast Track Settlement, Post Appeals Mediation, and Tax Court Mediation, to resolve disputes effectively.

 

What Is Alternative Dispute Resolution and How Does it Help Taxpayers?

 

ADR is an informal, confidential, and voluntary process that promotes open communication between taxpayers and the IRS. The goal is to reach early and fair resolutions without the need for litigation. The IRS’s current ADR programs include:

 

 

Fast Track Settlement and Fast Track Mediation – Collection

 

FTS and FTM allow taxpayers under audit or in collection to work with an IRS Appeals mediator to facilitate a resolution—often within 60 days. These programs encourage collaboration between taxpayers and the IRS while preserving appeal rights if no agreement is reached. For taxpayers seeking a quicker and less adversarial process during examination or collection, these options can be especially valuable.

 

Post-Appeals Mediation

 

PAM is available to taxpayers when a dispute reaches an impasse during the Appeals process. A neutral IRS mediator assists the parties in exploring settlement options, facilitating communication, and identifying compromise areas. Importantly, the mediator does not impose a decision—the outcome rests solely with the parties.

 

These programs encourage collaboration between taxpayers and the IRS while preserving appeal rights if the taxpayer and IRS do not reach an agreement. By expediting resolution, ADR reduces costs, minimizes burdens on both the taxpayer and the IRS, and protects taxpayer rights—a win-win scenario.

 

The IRS is Working to Boost Participation in ADR

 

Despite its benefits, ADR has historically been underused. According to a 2023 Government Accountability Office (GAO) Report, taxpayer use of ADR declined by 65 percent between fiscal year (FY) 2013 and FY 2022. TAS joined the GAO in urging Appeals to make ADR programs more accessible to taxpayers and their practitioners. TAS believes enhanced access to ADR increases taxpayer satisfaction while promoting long-term compliance.

 

In response, Appeals and the IRS have taken action to turn the tide, and the results have been encouraging. Participation in ADR increased substantially in 2024 when compared to 2023.

 

Of note:

 

  • Overall ADR case receipts rose by 25 percent;
  • FTS cases in the Large Business & International (LB&I) Division rose by 56 percent; and
  • PAM case receipts rose by 110 percent.

 

Taxpayers who participated in FTS resolved their issues faster and more effectively when compared to traditional Appeals alternatives, and the overwhelming majority were able to reach a resolution on their issues. Specifically:

 

  • In LB&I, 91 percent of FTS cases resulted in agreement, and resolution was typically reached within four months.
  • In the Small Business/Self Employed (SB/SE) Division, 89 percent of FTS cases resulted in an agreed resolution within three months.

 

To put a finer point on it, using FTS has saved approximately 450 days per case compared to traditional resolution through Appeals. This is a significant time and cost savings for both taxpayers and the IRS.

 

New Initiatives to Expand ADR Access

 

Good news: The IRS has built on this momentum by establishing an ADR Program Management Office (PMO), and introducing three pilot programs to improve and expand existing ADR options. The IRS provides more detail on the pilots in its 2025 announcement.

 

Now that Appeals has taken important steps toward making ADR more widely available to taxpayers and practitioners, it’s important that IRS compliance functions follow suit. Before Appeals accepts a case into an ADR program, both the taxpayer and the compliance function must agree to use ADR; this means both parties have to see the benefits of using this forum. To see the full benefit of Appeals ADR programs, IRS compliance functions must fully embrace ADR and recognize its benefits. This will likely require a culture change within the IRS.

 

One important step is for Appeals to conduct educational training sessions for the IRS compliance functions in which they could clearly illustrate how ADR can prevent protracted disputes and more effectively achieve a fair resolution.

 

Going Forward

 

Although the recently enacted pilots demonstrate the IRS’s willingness and desire to make ADR more accessible to taxpayers, restrictions remain and opportunities for the IRS to further expand its availability are abundant. Notably, ADR options are not available to taxpayers subject to correspondence audit. These audits typically lack a single assigned examiner, making ADR impracticable in its current form.

 

This restriction generally makes ADR unavailable for low-income taxpayers. In FY 2019, more than half of taxpayers subject to correspondence audits had total positive income (i.e., the sum of all income before losses and deductions) below $50,000, and most of these low-income taxpayers claimed the Earned Income Tax Credit (EITC), a complex tax credit that hundreds of thousands of taxpayers rely on each year to help pay their basic living expenses. These taxpayers often don’t have the resources needed to vigorously dispute these correspondence audits, thereby risking the loss of this valuable credit that provides much-needed financial support – Congress’ purpose for designing the credit.

 

These taxpayers could greatly benefit from a low-cost, easy-to-navigate ADR-type alternative. For example, a common topic in IRS’s EITC correspondence audits is whether a taxpayer’s dependent meets the definition of a qualifying child. The rules surrounding this determination are complex and are highly dependent on the specific facts and circumstances of the taxpayer’s situation. Low-income taxpayers could benefit from having the disputed issue reviewed by an impartial party as part of an administrative review process. TAS would enthusiastically accept the opportunity to work with the IRS to develop an entirely new mechanism for addressing these types of issues, thereby providing a fast, efficient, and low-cost option by which low-income taxpayers can have their cases heard by an impartial third party.

 

It isn’t just low-income taxpayers who would benefit from enhanced ADR options. Taxpayers of all income levels could benefit from the IRS resuscitating binding arbitration for situations where, as a practical matter, the taxpayer has no legitimate way of pursuing relief through litigation. The IRS previously offered taxpayers an arbitration option, but citing lack of demand, the IRS eliminated the arbitration program in 2015. However, if the IRS appropriately designed and publicized the program, I believe it could be a useful option for those taxpayers who may not have the means or desire to pursue litigation, but are interested in obtaining a binding decision on their outstanding issue with the IRS. Taxpayers may find binding arbitration useful to decide such issues as valuation of assets. In this example, this would allow both the taxpayer and the IRS to bring in experts to attest to the value of the item in question without subjecting both parties to the high cost and protracted process of litigation.

 

These ideas present just a few glimpses into how creative application of ADR could be leveraged to benefit both taxpayers and the IRS.

Conclusion

 

IRS Appeals’ ADR programs provide taxpayers with mediation options that yield expedited case resolutions as an alternative to traditional dispute resolution. However, these programs have been historically underutilized by taxpayers for several reasons. Recently, Appeals and the IRS have taken steps to change the tide, and taxpayers are exercising their ADR options at a higher rate. Meanwhile, Appeals has initiated pilot programs that modify the rules surrounding the programs, making them more accessible to taxpayers, but it will take IRS compliance functions some time to fully embrace new ADR procedures. Both the IRS and Appeals should develop comprehensive training that clearly sets forth the benefits of ADR for both the IRS and taxpayers, namely, a faster resolution of the issues in dispute.

 

Further, the IRS and Appeals should continue to work with TAS to investigate other areas where it could expand ADR or ADR-type programs to low-income taxpayers who would greatly benefit from another fast and efficient way by which they could have their issues heard and resolved. By continuing to modernize and promote ADR programs, the IRS can better serve taxpayers at all income levels while improving efficiency and trust in the tax system.

 

Resources

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