a-02-60.pdf

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# Part IV - Items of General Interest

## Extension of Test of Arbitration Procedure for Appeals

### Announcement 2002-60

SUMMARY: This document modifies and extends the test of the arbitration procedure
set forth in Announcement 2000-4, 2000-1 C.B. 317, for an additional one-year period
beginning on July 1, 2002, the date this announcement is published in the Internal
Revenue Bulletin.

This procedure allows taxpayers to request binding arbitration for factual issues that
are already in the Appeals process. Under the procedure set forth in Announcement
2000-4, the taxpayer and Appeals must first attempt to negotiate a settlement. If those
negotiations are unsuccessful, the taxpayer and Appeals may jointly request binding
arbitration.

BACKGROUND: Appeals concluded a two-year test of the arbitration procedure on
January 17, 2002. During this period, Appeals received five requests for arbitration,
four of which Appeals approved. The arbitration program is consistent with IRS' efforts
to improve tax administration, provide customer service, and reduce taxpayer burden.
During the additional one-year test period, Appeals will seek additional cases for
arbitration to further evaluate the program.

CHANGES: Changes to Announcement 2000-4 made by this announcement include:

· Issues involving the substantiation of expenses under § 162 of the Internal
Revenue Code, Trade or Business Expenses, or § 274, Disallowance of Certain
Entertainment, Etc., Expenses, are now eligible for arbitration.

· Arbitration is now available for an issue for which the taxpayer intends to seek
competent authority assistance, provided a request for competent authority
assistance has not as yet been filed. In such a case, the taxpayer may not
request competent authority assistance until the arbitration process is completed.
However, competent authority assistance may be requested while arbitration is
pending if such request is necessary to keep open a statute of limitations in the
treaty country. In such a case, the U.S. competent authority will suspend action
on the case until arbitration is competed. Arbitration is not available for an issue
for which the taxpayer has requested competent authority assistance or the
simultaneous Appeals/Competent Authority procedure described in section 8 of
Rev. Proc. 96-13, 1996-1 C.B. 616, or any subsequent revenue procedure.
Taxpayers are cautioned that if they enter into a settlement with Appeals
(including an Appeals settlement through the arbitration process), and then
request competent authority assistance, the U.S. competent authority will
endeavor only to obtain a correlative adjustment with the treaty country
and will not take any actions that would otherwise amend the settlement.
See section 7.05, Rev. Proc. 96-13.

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. The arbitration procedure now includes the following express timelines to
complete the agreement to arbitrate and proceed to arbitration. Generally, it is
expected that the parties will complete the agreement to arbitrate within four
weeks after the taxpayer is notified that Appeals has approved the arbitration
request, and proceed to arbitration within 90 days after signing the agreement to
arbitrate. A taxpayer's inability to adhere to these timeframes, without
reasonable cause, may result in Appeals' withdrawal from the arbitration process.

· The arbitration procedure excludes Collection cases.

· The arbitration procedure excludes issues for which arbitration would not be
consistent with sound tax administration, e.g. issues governed by closing
agreements, by res judicata, or controlling Supreme Court precedent.

· The arbitration procedure excludes frivolous issues, such as, but not limited to,
those identified in Rev. Proc. 2001-41, 2001-33 I.R.B.173.

· The arbitration procedure excludes cases where the taxpayer did not act in good
faith during settlement negotiations, e.g., failure to respond to document
requests, failure to respond timely to offers to settle, failure to address arguments
and precedents raised by Appeals.

· Since the publication of Announcement 2000-4, Appeals has reorganized its
staffing. Therefore, position and office titles in Announcement 2000-4 are
substituted as follows, along with an updated mailing address for Headquarters
Appeals:

## Position Title Changes

Old

New

National Director of Appeals

National Chief, Appeals

Assistant Regional Director of Appeals (ARDA-LC)

Area Director

Appeals Associate Chief

Appeals Team Manager

Appeals Team Chief

Appeals Team Case Leader

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## Office Title Changes

Old

New

National Director of Appeals

National Chief, Appeals

Attn: C:AP:ADR&amp;CS

Attn: Appeals Large Business and

1099 14th Street, N.W

Specialty Programs - Operations

Suite 4200 - East

1099 14th Street, N.W.

Washington, DC 20005

Suite 4200 - East Washington, DC 20005

National Office Appeals

Headquarters Appeals

Appeals Region

Appeals Area

Office of Alternative Dispute Resolution and Customer Service Programs

Appeals Large Business and Specialty Programs - Operations

In addition to the above changes, responsibility for the management of the Appeals
arbitration program has been transferred from the Office of Alternative Dispute
Resolution and Customer Service Programs to Appeals Large Business and Specialty
Programs - Operations.

EFFECTIVE DATE: This procedure is effective July 1, 2002, the date this
announcement is published in the Internal Revenue Bulletin.

EFFECT ON OTHER DOCUMENTS: This announcement modifies and extends the
test of the arbitration procedure set forth in Announcement 2000-4.

DRAFTING INFORMATION: The principal author of this announcement is Sandy
Cohen, of the office of Appeals Large Business and Specialty Programs - Operations,
Headquarters Appeals. For further information regarding this announcement, contact
Mr. Cohen at (202) 694-1818 (not a toll-free call).