SECTION 7. BINDING ARBITRATION

1. After the earlier of the expiration of the 60-day period for reaching agreement under Section 6.12, or the time the parties agree they will not reach a settlement under the Fast Track Dispute Resolution Procedure - Contingent Liability Cases, the parties will take part in Binding Arbitration procedures. The Binding Arbitration will be conducted in accordance with the provisions in the Arbitration Agreement, set forth in Exhibit 2. The provisions in the Arbitration Agreement are mandatory and the agreement must be executed by the Electing Taxpayer when the

application to participate in the Fast Track Dispute Resolution Procedure - Contingent Liability Cases is filed, or, at the latest, when the application for the Fixed Concession Procedure is amended to elect the Fast Track Dispute Resolution Procedure - Contingent Liability Cases.

.02 The Service will have 30 days for additional factual development from the date that the Electing Taxpayer is notified that the Service has determined that the Fast Track Dispute Resolution Procedure Contingent Liability Cases was unsuccessful.

1. During this period the Service may request additional information or documents to complete a record for submission to the Arbitrator and the Electing Taxpayer will provide a written response or documents within 15 days of receipt of the written request;

2. The Service may conduct interviews, transcribed and under oath, of individuals involved in any capacity with the transaction. Such identified witnesses, internal or external to the Electing Taxpayer’s organization, may be interviewed in this manner regardless of whether such individuals were interviewed by LMSB representatives at an earlier phase of this resolution process or during audit. The Electing Taxpayer will make all witnesses who are employed by Electing Taxpayer’s organization in any capacity available upon request and will make good faith efforts to make all other witnesses available during this 30day period.

.03 The Arbitration Agreement provides that the parties agree to be bound by the decision of the Arbitrator in respect of the issue to be resolved.

.04 Appeals will assign an employee to act as the Administrator (“Administrator”) to manage and supervise the arbitration proceeding and to act as liaison between the parties and between the parties and the Arbitrator.

.05 The Electing Taxpayer will select a neutral arbitrator from a qualified list (“Qualified List”) that the Service is in the process of developing and that will be announced at a later time. The Qualified List will consist of persons not employed by the Department of the Treasury having expertise and experience in federal tax matters. The Qualified List will be used to provide a pool of candidates from which one arbitrator will be selected. Within 15 days

2002–43 I.R.B. 737 October 28, 2002

to statements of fact, not previously presented, will be submitted to the Administrator within 10 days. If there are no objections, the Administrator will forward the submissions to the Arbitrator no earlier than the date the employment contract with the Arbitrator has been approved.

.14 Within 45 days of the date the Arbitrator receives the information set forth in Section 7.12 above, the Arbitrator will contact the parties through the Administrator and set the time for an arbitration hearing, if the Arbitrator decides that a hearing is necessary. Any such hearing will not exceed 8 hours, which shall include any oral arguments or the presentation of witnesses, as the Arbitrator may deem necessary. Alternatively, the Arbitrator may elect to render a decision based on the written record alone, without a hearing.

.15 If, at any time prior to the date set for the arbitration hearing, or if no hearing is ordered, prior to the decision of the Arbitrator, the parties reach an agreement resolving all issues relating to the Contingent Liability Transaction, the parties may withdraw from the arbitration process by notifying the Administrator. Any such settlement negotiated by Appeals will be subject to the concurrence of Counsel. If a settlement is reached, Appeals will effectuate the settlement of agreed issues using established issue or case closing procedures.

.16 Within 30 days after the hearing, the Arbitrator will select one of the Final Offers proposed by the parties. After the Arbitrator renders a decision and advises the Administrator and the parties of the decision, the case or issues will be closed using established procedures for case closing, including preparation of a Form 906, Specific Matters Closing Agreement.

.17 The tax basis of any unsold stock (or property the basis of which was determined directly or indirectly by reference to the basis in the hands of the Electing Taxpayer of the stock received in the purported section 351 exchanges), as of October 4, 2002, will be adjusted in the same manner as described in Section 5.06.