The Department of Revenue is committed to resolving tax disputes in an expeditious manner, without sacrificing the quality and integrity of the resolution of the disputed matters. The Early Mediation Program expands the range of dispute resolution options available to taxpayers and, in appropriate cases, offers an expedited process, potentially avoiding time-consuming and expensive proceedings. The Early Mediation Program is a pilot program, administered jointly by the Audit Division, the Legal Division, and the Office of Appeals.
Use of the Early Mediation Program in any particular case is optional for both the Department of Revenue and the taxpayer. Early Mediation does not eliminate or replace existing administrative appeal options, including the taxpayer’s opportunity to request a pre-assessment conference, a post-assessment abatement hearing, and/or settlement consideration with the Office of Appeals if the case is not resolved through the Early Mediation process.
The Early Mediation Program is a collaborative dispute resolution process, designed to resolve all issues in a disputed matter. A representative of the Office of Appeals, serving as mediator (and as a neutral participant in the mediation process), will assist the Audit Division and the taxpayer in understanding and evaluating the issues in dispute, in order to facilitate reaching an expeditious and mutually satisfactory resolution consistent with applicable law. The mediator also may recommend a settlement based on the mediator’s analysis of the issues. The mediator’s recommendation is not binding on either party. The mediator will make a recommendation only after he/she feels that the parties have made substantial and diligent efforts to settle the matter (or a particular issue) on their own.
635.2 Case Eligibility
Early Mediation is generally available for any audit case in which the Department is proposing to assess tax in excess of $1 million.
Early Mediation may be initiated at any time after a matter in controversy has been fully developed and prior to the issuance of a Notice of Intent to Assess. Generally, a matter may be considered for mediation after the exit conference between the taxpayer and the Audit Division and after receipt of a written position statement from the taxpayer, articulating the taxpayer’s position and basis for disagreement with the Audit Division’s proposed adjustment(s).
The Department of Revenue will consider mediation where:
A. Issues and facts are fully developed.
B. The taxpayer has stated its position in writing.
C. The parties are willing to resolve all (or in exceptional cases, substantially all) disputed issues.
When Early Mediation is unsuccessful, the taxpayer will be offered the opportunity to pursue resolution through traditional Appeals processes. If the traditional Appeals process is pursued, Appeals management will take appropriate action to fulfill the Appeals policy to be fair and impartial. This would involve the assignment of new Appeals personnel to the matter. This policy should be made clear to the taxpayer at the beginning of the Early Mediation process, and if the taxpayer is unable to accept this policy, the taxpayer may decide to forgo the Early Mediation option and pursue a traditional Appeals process.
635.3 Early Mediation Procedures
635.3.1 Overview of Procedures
Early Mediation is an alternative dispute resolution initiative which may be considered by either the Audit Division or the taxpayer when there are issues that cannot be resolved between the taxpayer and the Audit Division alone. If the Audit Division determines that the audit is likely to result in a proposed assessment of tax in excess of $1 million, the Audit Division may discuss the potential use of Early Mediation with the taxpayer. The Department of Revenue retains the discretion to determine that Early Mediation would not be appropriate for specific cases.
635.3.2 Application Process
Either the taxpayer or the Audit manager may suggest participation in the Early Mediation program. When a case is identified as potentially appropriate for Early Mediation by either the taxpayer or the Audit Division, the Audit Manager will discuss the issues and case with the taxpayer. Discussions should include:
A. Suitability of issues for the Early Mediation process,
B. Willingness of both parties to consider alternative resolution options,
C. Adequacy of issue and factual development, and
D. Ability of both parties to devote resources to the mediation process.
Upon reaching agreement to participate in the Early Mediation process, both the taxpayer and the Audit Manager will complete and submit a joint Application for Early Mediation Program to the Office of Appeals. This joint application will include statements of the facts and issues in dispute from both the taxpayer and the Audit Division. In addition to the Application for Early Mediation Program, the taxpayer must also complete and sign a Consent Extending the Time for Assessment of Taxes (Form A-37).
If the Audit Division determines that the matter is not appropriate for mediation, the taxpayer may pursue the traditional appeals process. The taxpayer may not appeal the Audit Division’s decision not to participate in the Early Mediation Program.
635.3.3 Waiver of Interest Imposed Under G.L. c. 62C, § 32(f)
As part of the application process, the taxpayer must sign a waiver extending the time period for purposes of calculating interest under G.L. c. 62C § 32(f). The period of time during which the parties are participating in the Early Mediation Program will not be considered in determining the length of the audit for purposes of G.L. c. 62C, § 32 (f).
635.3.4 Audit Division Participation in Early Mediation
The Audit Division is fully involved in the Early Mediation Program as an equal participant. Audit Division participants will include those with knowledge and expertise that may contribute to issue resolution.
635.3.5 Participation by Representatives of Each Party in Early Mediation
Managers of the Audit and Legal Divisions will determine whether representatives of the Legal Division will participate in the mediation as representatives of the Audit Division. The taxpayer may choose to have professional representation in the mediation process. In any event, however, the presence of the taxpayer at the mediation session(s) is strongly encouraged.
635.3.6 Mediation Process
A representative of the Office of Appeals will serve as a neutral mediator. The mediator will not perform in a traditional Appeals role, but will use mediation techniques to facilitate a mutual resolution between the parties. In some circumstances, there may be two representatives from the Office of Appeals, serving as co-mediators. There is no cost to the taxpayer to participate in the Early Mediation program, if the taxpayer chooses to have a representative of the Office of Appeals serve as a neutral mediator.
Prior to the mediation session, the taxpayer and a representative of the Audit Division must complete and sign an Agreement to Mediate. If the parties elect to have other people join them in the mediation, they too must sign the Agreement to Mediate. If individuals participate in the mediation by telephone, they must sign the Agreement to Mediate. All efforts will be made to schedule the first mediation session within 60 days of the submission of the Application for Early Mediation Program, unless otherwise agreed to by the parties.
During Early Mediation, the taxpayer’s and the Audit Division’s representatives, including at least one representative with decision-making authority from both Audit and the taxpayer, will meet with the mediator. The decision makers for each side are expected either to have settlement authority on their own, or the ability to have substantially immediate contact with those with the necessary settlement authority. The taxpayer’s and Audit’s representatives should include individuals with the information and expertise necessary to assist the parties and the mediator during the settlement process. Although the taxpayer and the Audit Division may have multiple attendees, each party must designate one person to be the official spokesperson.
The Early Mediation sessions may include joint sessions with all parties, separate caucuses with each party, or both, as determined to be appropriate in the judgment of the mediator in consultation with the taxpayer’s and DOR’s representatives. The mediation may involve multiple sessions, as determined by the mediator and the parties. Mediation is a voluntary process and all parties must consent to additional sessions.
Generally, the mediator will consider only those issues outlined in the joint Application for Early Mediation Program, except by mutual agreement of the parties.
During the Early Mediation session(s), the mediator may suggest particular settlement terms for any or all issues. The mediator’s recommendation is not binding on either party. The goal of the mediation is for the parties to reach a mutually agreeable resolution on their own, but if after their best efforts they are unable to do so, the mediator may make settlement recommendations. Settlement recommendations would be akin to settlement discussions and therefore not admissible in future proceedings.
635.3.7 The Role of the Mediator
The role of the mediator will be to establish the ground rules for the mediation, help the parties in understanding and evaluating the issues in dispute, and assist the parties in reaching a mutual resolution. The role of the mediator is not to decide the issues or make other decisions aimed at resolving the issues. In addition, the mediator may terminate the mediation if the mediator determines that the mediation ceases to be productive or determines that one or more of the parties are not acting in good faith to reach a mutual resolution.
635.3.8 Third Party Mediator
The taxpayer may request to provide a third party mediator at the taxpayer’s own expense, rather than (or in addition to) using a mediator provided by the Department of Revenue. The Department of Revenue will review the taxpayer’s request to use a particular third party mediator and, in the Department’s discretion, may or may not for its part accept such request. If the Department does not approve the taxpayer’s recommendation of a third party mediator, the Department at its option may allow the taxpayer to suggest an alternative third party mediator. The third party mediator must be a professional trained in or otherwise qualified for mediation work, be unrelated to either party, be familiar with pertinent Federal and Massachusetts tax law and issues, and not generally be engaged in advocacy work in the state and local tax area. The third party mediator must agree that he or she will not consult with either party after the mediation process is complete, regarding matters related to the subject of the mediation.
635.3.9 Settlement Agreement
If the parties reach agreement as to the terms of a settlement, the parties will sign the Early Mediation Session Report, to reflect the settlement terms. The settlement agreement will be drafted by the parties.
Settlements reached through the Early Mediation program will be entered into under the authority of G.L. c. 62C, § 37C.
635.3.10 Time Limits for Early Mediation Program
The Early Mediation Program is designed to be an expedited method for resolving tax disputes. Generally, if the parties are unable to resolve the matter within four months, the matter will be removed from the Early Mediation Program and the taxpayer may pursue the traditional appeals process. Either party may withdraw from the mediation at any time.
635.3.11 Confidentiality of the Mediation Process
The mediation process is governed by the confidentiality provisions of G.L. c. 62C, § 21 and G.L. c. 233, § 23C. The disclosure of any tax information which is discussed during the mediation is limited by the disclosure provisions contained in G.L. c. 62C, § 21. Similarly, G.L. c. 233, § 23C governs the confidentiality of memoranda and communication made in the course of the mediation.
Under G.L. c. 233, § 23C:
Section 23C. All memoranda, and other work product prepared by a mediator and a mediator’s case files shall be confidential and not subject to disclosure in any judicial or administrative proceeding involving any of the parties to any mediation to which such materials apply. Any communication made in the course of and relating to the subject matter of any mediation and which is made in the presence of such mediator by any participant, mediator or other person shall be a confidential communication and not subject to disclosure in any judicial or administrative proceeding; provided, however, that the provisions of this section shall not apply to the mediation of labor disputes.
In addition, conversations which occur during the mediation process, including any settlement recommendations made by the mediator, will be considered confidential settlement negotiations.
The parties to any mediation must agree that, if they are unable to resolve the dispute through mediation, any e-mails, other correspondence, or memoranda drafted for the purposes of the mediation and exchanged during the mediation process, including documents drafted and/or received by the mediator, will be considered documents provided for settlement purposes and not subject to admission at the Appellate Tax Board or in any court without the express written approval of the Commissioner and the taxpayer. Similarly, the substance of conversations and/or negotiations between the parties or with the mediator will likewise be considered confidential and inadmissible in proceedings before the Appellate Tax Board or any court.