Massachusetts Department of Revenue and Appellate Tax Board Look to Expand Tax Dispute Mediation Programs

by Reed Smith

The Massachusetts Department of Revenue has indicated it is looking to expand taxpayer eligibility for its early mediation program for expedited settlement of tax disputes by including taxpayers with smaller proposed tax assessments—potentially as low as $250,000, compared with the current published guidance that limits the program to proposed assessments of $1 million or more. Speaking at the Boston Bar Association, Commissioner Amy Pitter stated that the Department has completed the initial pilot run of its mediation program, with three of the four mediated tax disputes ending in a settlement agreement. Commissioner Pitter also confirmed that the Department would be moving forward with the program on a permanent basis, making some adjustments to the program and expanding it to a wider group of potential taxpayers.

Last December, responding to taxpayer concerns that the tax appeal process in Massachusetts can last several years, the Department finalized Administrative Procedure 635, outlining a pilot mediation program in an attempt to speed up the resolution of disputed tax matters. Under this program, taxpayers with proposed assessments of $1 million or more that met certain criteria were eligible to enter into a four-month mediation program—if the Department agreed. The parties and a mediator would then attempt to facilitate a settlement of the issues in dispute. If the mediation did not result in a settlement, the taxpayer still had the same appeal rights as with any other proposed tax assessment.

With the seeming success of the pilot program—three of four cases ending in a settlement within four months—the Department is considering expanding the program to include audits with proposed assessments at a still-to-be-determined lower threshold, perhaps $250,000 or $500,000. The Department is also looking to revise its internal procedures to meet the intensive time demands that the mediation program imposes on its audit staff.

The Commissioner indicated that taxpayers interested in mediation—including those with proposed assessments below $1 million—can still submit requests to enter into the expanded mediation program while the Department revises its guidelines.

Taxpayers interested in the program should be aware that there is a limited time window during the audit cycle for requesting to participate and meeting the documentation requirements for participation.

First, mediation must be requested prior to the issuance of the Notice of Intent to Assess. The Department must agree that mediation is appropriate. Furthermore, the Department will only consider mediation if (1) issues and facts are fully developed during the audit, (2) the taxpayer has stated its position in writing, and (3) the parties are willing to resolve all issues during mediation.

We continue to believe that—if applied to a wide variety of tax issues—the mediation program could become a popular program with taxpayers by streamlining the current lengthy appeal and settlement process.

In other mediation news, Thomas Hammond, Jr., Chairman of the Appellate Tax Board, indicated that the Appellate Tax Board is planning to begin encouraging mediation in certain corporate excise tax cases before the Board. The Board currently has more than 8,000 docketed cases and is seeking ways to reduce its docket and expedite the resolution of appeals that can often drag on for years. The Chairman indicated that the Board hoped that for cases that are fact-intensive and do not involve recurring legal issues, the Board could serve a useful role in encouraging parties to mediate and resolve their disputes before undergoing the typical lengthy discovery process at the Board.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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