SECTION 4. SCOPE OF MEDIATION

.01 In general . The mediation procedure will attempt to resolve issues in cases that qualify under this revenue procedure while they are in the jurisdiction of Appeals. This procedure may be used only after Appeals settlement discussions are unsuccessful, and, generally, when all other issues are resolved but for the issue(s) for which mediation is being requested.

.02 Applicability . Mediation is available for:

(1) Legal issues; (2) Factual issues; (3) An Industry Specialization Program (ISP) issue or an Appeals Coordinated Issue (ACI). [ISP issues are listed in Exhibit 8.7.1–1, and ACI issues are listed in section 8.7.1–3, of the Internal Revenue Manual.] However, an ISP or ACI issue will not be eligible for mediation when the taxpayer has declined the opportunity to discuss the ISP or ACI issue with the Appeals ISP or ACI coordinator during the course of the Appeals settlement discussions;

(4) An early referral issue when an agreement is not reached, provided the early referral issue meets the requirements for mediation ( see section 2.16 of Rev. Proc. 99–28, 1999–2 C.B. 109, or any subsequent revenue procedure);

(5) Mediation 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 mediation process is completed. However, competent authority assistance may be requested while mediation 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 mediation is competed. Mediation 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 media- tion process), and then request compe- tent authority assistance, the U.S. com- petent 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 of Rev. Proc. 96–13; and

(6) Unsuccessful attempts to enter into a closing agreement under § 7121.

.03 Inapplicability . Mediation will not be available for:

(1) An issue designated for litigation or docketed in any court. [For the Chief Counsel mediation program involving issues in docketed cases, see Chief Counsel Directives Manual (CCDM)(35) 3(20)0]; (2) Collection cases; (3) Issues for which mediation would not be consistent with sound tax administration, e.g. issues governed by closing agreements, by res judicata, or controlling Supreme Court precedent;

(4) Frivolous issues, such as, but not limited to, those identified in Rev. Proc. 2001–41, 2001–33 I.R.B.173; and

(5) 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.