How does the settlement process work and how do I request settlement?
The Department of Revenue has the discretion to settle tax disputes by agreeing to accept an amount less than the proposed or assessed tax liability. In general, settlement may be offered at any time during the appeals process, whether a conference or hearing is requested or not. To seek settlement, you should fill out a Form DR-1: Office of Appeals Form and request settlement on the form. You should also make the first offer. The offer will be reviewed along with any supporting documentation. The Office of Appeals may accept, reject, or make a counteroffer to your proposal. It is not necessary to hold a conference or hearing to request settlement. The Office of Appeals may require you to complete a Form B-37: Special Consent Extending the Time for Assessment of Taxes. For more information, please see G.L. c. 62C, § 37C.
What is mediation?
The Department of Revenue’s Early Mediation Program is an alternative dispute resolution initiative available to taxpayers who have received a proposed assessment of $250,000 or more. The Office of Appeals acts as a neutral mediator in a face-to-face discussion with taxpayers and representatives of the Department of Revenue. Early Mediation may be proposed by either the Audit Division or a taxpayer when there are issues that cannot be resolved between a taxpayer and the Audit Division alone. However, the Department of Revenue retains the discretion to decide whether a case is suitable for mediation.
The Early Mediation process may be initiated after a matter has been fully developed but no later than thirty (30) days after a Notice of Intent to Assess is issued. The Department of Revenue must agree that the case is suitable for mediation. If a case is approved for mediation, the taxpayer and the Department of Revenue must submit to the Office of Appeals a joint Form EMP: Application for Early Mediation Program. The appeals officer assigned to serve as the mediator will coordinate the scheduling of the mediation, and all efforts will be made to schedule the mediation session within three (3) months of the submission of the Form EMP: Application for Early Mediation Program.
Prior to the mediation session, the taxpayer and the Department of Revenue must also complete and sign an Agreement to Mediate. The Agreement to Mediate must set forth the issues to be resolved during the mediation as well as a list of the participants that will attend the mediation. After the Agreement to Mediate has been executed, both the taxpayer and the Department of Revenue must submit to the mediator a position statement of all the issues, facts, and documents that each intends to rely upon during the mediation. Generally, the mediator will consider only those issues outlined in the Agreement to Mediate.
During the mediation, both sides will meet with the assigned mediator in joint sessions and/or in separate caucuses. Each side is expected either to have settlement authority on its own or the ability to have immediate contact with individuals with the necessary settlement authority. Attendees should also include individuals with the information and expertise necessary to assist the parties and the mediator during the settlement process.
For more information, please see Administrative Procedure 635: Early Mediation Program.
May I request settlement consideration on an expedited basis?
Yes. This option is available on the Form DR-1: Office of Appeals Form as long as the following conditions are met:
- The Form DR-1 contains a complete explanation of the facts and issues in dispute.
- The Form DR-1 includes a specific proposal for settlement.
- All documentation to support the settlement proposal is submitted with the Form DR-1.
- A Form B-37: Special Consent Extending the Time for Assessment of Taxes must be submitted (pre-assessment cases only).
- The Taxpayer and/or representative are prepared to participate in the conference or hearing on an expedited basis and have binding authority to settle the dispute at that time.
What is the difference between Mediation and an Expedited Settlement?
Both mediation and expedited settlement are processes designed to settle tax disputes in an efficient manner. While the goals of the mediation and the expedited settlement processes are similar, there are significant differences between the two settlement options.
The expedited settlement process is less formal than mediation, involving direct negotiation between a taxpayer and the Department of Revenue, and is generally less time consuming. An expedited settlement may be requested either before or after an assessment is made. However, the taxpayer must submit a settlement proposal with its request for an expedited settlement. There is no limit on the amount of tax that must be in dispute in order to request an expedited settlement. Further, if the taxpayer has an authorized representative, the taxpayer is not required to be present during the settlement discussions. Depending upon the circumstances, it is possible that a case may be resolved through the expedited settlement process without the need for face to face settlement discussions. The expedited settlement process can be a good option for both complex and routine cases.
Mediation is a more formal process, which at the outset requires both the taxpayer and the Audit Division to voluntarily agree to enter into negotiations that will be facilitated by a neutral third party mediator. Mediation may only be requested before an assessment is made; and generally, there must be at least $250,000 of tax in dispute. The presence of the taxpayer, with or without legal or other representation, is required at the mediation. The presence of a member of the Audit Division, along with a representative of the Department of Revenue’s Legal Division, is also required at the mediation. Mediation is effective in cases where in-depth face to face discussions may help the parties to better understand the facts, along each other’s positions in order to reach a settlement. The presence of a neutral party, the mediator, helps to focus the parties and facilitate the negotiations.