Administrative Procedure

Administrative Procedure AP 635: Early Mediation Program

Date: 01/31/2018
Organization: Massachusetts Department of Revenue
Referenced Sources: Massachusetts General Laws

Administrative

Procedures

635.1. Introduction

635.2. Case Eligibility

635.3. Early Mediation Procedures

635.3.1. Overview of Procedures

635.3.2. Application Process

635.3.2.1. Filing an Application Prior to Issuance of a Notice of Intent to Assess

635.3.2.2 Filing an Application for Mediation after the Issuance of a Notice of Intent to Assess

635.3.3. Participation of Parties in Early Mediation

635.3.4. Participation by Legal or Other Professional Representative for Each Party in Early Mediation

635.3.5. Mediation Process

635.6. The Role of the Mediator

635.3.7. Third Party Mediator

635.3.8. Settlement Agreement

635.3.9. Time Limits for Early Mediation Program

635.3.10. Confidentiality of the Mediation Process

635.1 Introduction

 The Department of Revenue (the “Department”) 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 administered jointly by Audit, the Litigation Bureau and the Office of Appeals.

 

 Use of the Early Mediation Program in any particular case is optional for both the Department 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 for parties seeking resolution through reasonable compromise, and is 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 Audit and the taxpayer(s) in understanding and evaluating the issues in dispute, in order to facilitate an expeditious resolution of the tax dispute 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 may 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 in which the Department is proposing to assess tax in excess of $250,000.

 Early Mediation may be initiated at any time after a matter in controversy has been fully developed in the course of a tax audit, but not later than 30 days after 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 Audit. 

 

The Department will consider mediation when:

 

A. Issues and facts are fully developed and documented. (Audit will rarely agree to mediate a matter where the taxpayer has not provided information which was requested during the course of the audit.)

B. The taxpayer has presented its position to Audit.

C. The parties are willing to resolve all (or, in certain cases, substantially all) disputed (and undisputed) issues. 

 When Early Mediation is unsuccessful, the taxpayer will be offered the opportunity to pursue resolution through the traditional appeals process within the Office of Appeals. If the taxpayer pursues the traditional appeals process, the Office of Appeals will assign new personnel from the Office of Appeals to ensure fairness and impartiality.

635.3 Early Mediation Procedures

635.3.1. Overview of Procedures

635.3.2. Application Process

635.3.2.1. Filing an Application Prior to Issuance of a Notice of Intent to Assess

635.3.2.2 Filing an Application for Mediation after the Issuance of a Notice of Intent to Assess

635.3.3. Participation of Parties in Early Mediation

635.3.4. Participation by Legal or Other Professional Representative for Each Party in Early Mediation

635.3.5. Mediation Process

635.3.1 Overview of Procedures

Early Mediation is an alternative dispute resolution initiative that may be proposed by either Audit or the taxpayer when there are issues that cannot be resolved between the taxpayer and Audit alone. If Audit determines that the audit is likely to result in a proposed assessment of tax in excess of $250,000, Audit may discuss the potential use of Early Mediation with the taxpayer. The Department retains the discretion to determine that Early Mediation would not be appropriate for specific cases.

635.3.2 Application Process

Either the taxpayer or Audit may suggest participation in the Early Mediation program. When a case is identified as potentially appropriate for Early Mediation by either the taxpayer or Audit, a representative of Audit 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 attempt to resolve the dispute through mutual compromise;

C. Adequacy of development and documentation of facts and pertinent issues (the taxpayer should submit to Audit any new information that it wishes to be considered, so that it can be evaluated before the parties complete an Application for Early Mediation Program); and

D. Ability of both parties to devote resources to the mediation process.

635.3.2.1 Filing an Application for Mediation Prior to Issuance of a Notice of Intent to Assess

Upon reaching an agreement to participate in the Early Mediation process prior to the issuance by the Department of a Notice of Intent to Assess, both the taxpayer and a representative of Audit will complete and submit a joint Application for Early Mediation Program to the Office of Appeals. This joint application will include a complete listing of the issues in dispute from both the taxpayer and Audit. 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), which may be uploaded as an attachment to the taxpayer’s account on MassTaxConnect (MTC).

 If the taxpayer wishes to pursue mediation prior to the issuance of a Notice of Intent to Assess, the taxpayer must sign a waiver tolling the time period for purposes of determining interest under G.L. c. 62C § 32(f). The period of time during which the parties participate 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).

 If Audit determines that the matter is not appropriate for mediation, the taxpayer may pursue the traditional appeals process. The taxpayer may not appeal Audit’s decision not to participate in the Early Mediation Program.

635.3.2.2 Filing an Application for Mediation After the Issuance of a Notice of Intent to Assess

In the event that a Notice of Intent to Assess has been issued, the taxpayer may still seek mediation within a limited time period. In order to participate in the mediation program at this stage, the taxpayer must submit an Application for Early Mediation within the same time frame as would be necessary to request a pre-assessment conference with the Office of Appeals. Accordingly, the Application for Early Mediation must be received within 30 days after the issuance of the Notice of Intent to Assess or postmarked by the twenty-fifth day following the issuance of the Notice of Intent to Assess. In addition to the Application for Early Mediation Program, the taxpayer must also complete and sign a Special Consent Extending the Time for Assessment of Taxes (Form B-37), which can be uploaded onto MTC as an attachment.

 If Audit determines that the matter is not appropriate for mediation, the taxpayer may pursue the traditional appeals process. The taxpayer may not appeal Audit’s decision not to participate in the Early Mediation Program.

 An Application for Early Mediation Program which is submitted after the issuance of a Notice of Intent to Assess will be deemed to be a conference request in accordance with G.L. c. 62C, § 26(b). If the parties either do not pursue mediation or do not resolve the matter through mediation, the taxpayer will be afforded an opportunity for a conference with the Office of Appeals prior to assessment.

635.3.3 Participation of Parties in Early Mediation

Audit is fully involved in the Early Mediation Program as an equal participant. Audit participants will include those with knowledge and expertise on the issues in dispute that may contribute to issue resolution. While the taxpayer, like Audit, may choose to have professional representation in the mediation process (see 635.3.4 below), the presence of the taxpayer or one or more officers or other employees of the taxpayer itself at the mediation session is strongly encouraged.

Managers of Audit and the Litigation Bureau will determine whether representatives of the Department’s Litigation Bureau will participate in the mediation as representatives of Audit. The taxpayer also may choose to have professional representation in the mediation process.

635.3.5 Mediation Process

A representative of the Office of Appeals will serve as a neutral mediator, unless both parties agree to utilize, exclusively, a Third Party Mediator as requested by the taxpayer. The mediator will use mediation techniques in an effort 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’s representative and a representative of the Department must complete and sign an Agreement to Mediate, including a Participants List. The Participants List should contain the names and signatures of each individual who will be participating in the mediation (note that this list may be updated if additional parties will participate).

 After the Agreement to Mediate has been executed, each party must submit to the mediator a position statement, which should contain a written summation of the facts and issues relating to the mediation and the party’s position/legal arguments, not to exceed 20 pages (exclusive of exhibits consisting of pre-existing documents and reports). The parties must include a statement of all issues, facts and documents that the parties intend to rely upon during the mediation. Any new facts, documents and/or issues raised or presented at the mediation session may unfairly prejudice the proceedings, protract the negotiations, make settlement more difficult, or result in one party or both withdrawing from the mediation. If new issues are raised as part of the mediation, either party or the mediator may elect to suspend the process to develop or confirm additional facts, or either party or the mediator may terminate the mediation. The mediator may ask either party for additional information before the mediation session if deemed necessary for a full understanding of the issues to be mediated.

 All communications and/or correspondences relating to the subject matter of the mediation involving the mediator must include all parties, except as otherwise permitted. The mediator will simultaneously send each party a copy of the other party’s position statement.

 All efforts will be made to schedule the mediation session within 3 months of the submission of the Application for Early Mediation Program, unless otherwise agreed to by the parties.

 During the mediation session, the taxpayer’s and Audit’s representatives (at least one of which with decision-making authority for each party) will meet with the mediator. The decision makers for each side that participate in the mediation are expected to have authority to settle all issues in dispute on the day of the mediation session, or the ability to have substantially immediate contact with those with the necessary settlement authority to settle all issues in dispute on the day of the mediation session. 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 Audit may have multiple attendees, each party must designate one person to be the official spokesperson. Each party is strongly encouraged to limit the number of attendees at the mediation session to foster resolution of the disputed matters.

 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 Audit’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.

 The mediator will consider only those issues outlined in the Agreement to Mediate, except where the parties mutually agree that the mediator may consider issues not outlined in the Agreement to Mediate.

 During the Early Mediation session(s), the mediator may suggest particular settlement terms for any or all issues, which will not be 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 suggest settlement recommendations. Settlement recommendations would be akin to settlement discussions and therefore not admissible in future administrative or judicial proceedings.

635.3.6 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 resolve the issues. Furthermore, the mediator may terminate the mediation if the mediator determines that the mediation ceases to be productive or that one or more of the parties are not acting in good faith to reach a mutual resolution.

635.3.7 Third Party Mediator

The taxpayer may request that a third party serve as mediator, at the taxpayer’s expense, rather than (or in addition to) the mediator provided by the Department. The Department will review the taxpayer’s request to use a particular third party mediator and, in the Department’s discretion, may or may not 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, which the Department, in its discretion, may or may not accept. 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 laws 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 and shall be bound by the confidentiality provisions of G.L. c. 62C, § 21 and G.L. c. 233, § 23C.

635.3.8 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. A formal settlement agreement incorporating those terms will then 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.

635.3.9 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 by providing the mediator and the other party with a written notice of withdrawal.

635.3.10 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 taxpayer 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 communications made in the course of the mediation.

Under G.L. c. 233, § 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.

G.L. c. 62C, §§ 21, 26(b), 32(f), 37C

G.L. c. 233, § 23C

Form A-37, Consent Extending the Time for Assessment of Taxes

Form B-37, Special Consent Extending the Time for Assessment of Taxes

Referenced Sources:

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