SECTION 3. SCOPE OF ARBITRATION

.01 The arbitration procedure may be used to resolve issues while a case is in Appeals, after settlement discussions are unsuccessful and, generally, when all other issues are resolved but for the specific factual issue(s) for which arbitration is being requested.

.02 The arbitration procedure does not create any special authority for settlement by Appeals. During the arbitration process, Appeals is still subject to the procedures that would be applicable if the issue were being considered by Appeals, including procedures in the Internal Revenue Manual and existing published guidance.

.03 Arbitration is available: (1) Only for factual issues; (2) For factual issues for which a request for competent authority assistance has not yet been filed. Taxpayers are cautioned that if they enter into a settlement with Appeals (including an Appeals settlement through the arbitration process), and then request competent authority assistance, the U.S. competent authority will endeavor only to obtain a correlative adjustment with the treaty country and will not take any actions that would otherwise change the settlement. See section 7.05 of Rev. Proc. 2002–52, 2002–2 C.B. 242,

2006–44 I.R.B. 800 October 30, 2006

(2) Assign to the Arbitrator the prescribed task of finding facts;

(3) Describe with precision the answer the Parties seek; e.g., a specific dollar amount, range of dollar values, a ‘yes’ or ‘no’ finding, etc.

(4) Describe and limit the kind of information the Arbitrator may consider, e.g., the Parties’ agreement as to any legal guidance the Arbitrator must rely upon in reaching a decision;

(5) Contain an initial list of witnesses, attorneys, representatives, and observers for each Party (collectively known as Participants);

(6) Provide that the time and place of any hearing will be determined by mutual agreement of the Parties, and;

(7) Prohibit ex parte contacts between the Arbitrator and the Parties.

.02 The agreement to arbitrate may limit the number, identity and participation of Participants. In addition, the agreement may stipulate the subsequent tax or other treatment resulting from the Arbitrator’s decision and clarify any other issues that may result from the Arbitrator’s decision.

.03 The Appeals Team Manager, in consultation with the Appeals Team Case Leader, Appeals Officer, or Settlement Officer, will sign the agreement to arbitrate on behalf of Appeals.

.04 Generally, the Parties will complete the agreement to arbitrate within four weeks after the taxpayer is notified that Appeals has approved the request to arbitrate, and proceed to arbitration within 90 days after signing the agreement to arbitrate. A taxpayer’s inability to adhere to these timeframes, without reasonable cause, may result in Appeals’ withdrawal from the arbitration process.

.05 In executing the agreement to arbitrate, the taxpayer consents to the disclosure by the IRS of the taxpayer’s returns and return information incident to the arbitration to any Participant for the taxpayer identified in the initial list of Participants and to any Participants for the taxpayer identified in writing by the taxpayer subsequent to execution of the agreement to arbitrate. If the agreement to arbitrate is executed by a person pursuant to a power of attorney executed by the taxpayer, that power of attorney must clearly express the taxpayer’s grant of authority to consent to disclose the taxpayer’s returns and return

son: (a) was required to collect, truthfully account for, and pay over income, employment, or excise taxes; (b) was willful in attempting in any manner to evade or defeat any aforementioned tax or the payment thereof; and (c) is liable for the TFRP under I.R.C. § 6672; as provided for in any subsequent guidance issued by the Service;

(8) Issues for which arbitration would not be consistent with sound tax administration, e.g., issues governed by closing agreements, by res judicata, or controlling Supreme Court precedent;

(9) “Whipsaw” issues, i.e., issues for which resolution with respect to one party might result in inconsistent treatment in the absence of the participation of another party;

(10) Frivolous issues, such as, but not limited to, those identified in Rev. Proc. 2001–41, 2001–2 C.B. 173, which defines frivolous issues and sets forth the Service’s policy against making technical rulings on such issues.

(11) Cases in which the taxpayer did not act in good faith during Appeals 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; or

(12) Issues that have been otherwise identified as excluded from the arbitration program.