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35.5.5 Arbitration and Mediation
Voluntary Binding Tax Arbitration
- Under T.C. Rule 124, the parties may move that any factual issue in controversy be resolved through binding arbitration. The motion may be made before trial at any time after the case is at issue. Upon the filing of the motion, the chief judge will assign the case to a judge or special trial judge for disposition of the motion and supervision of any subsequent arbitration. The use of the procedure, in appropriate cases, can result in a more efficient use of judicial and Service resources and assist in reducing the Tax Court’s inventory. The Executive Order 12988 on Civil Justice Reform encourages the use of all alternative dispute resolution techniques (including binding arbitration where warranted) before utilizing any formal Court proceedings. Field attorneys are encouraged to contact the office of Associate Chief Counsel (Procedure & Administration) for guidance.
- Cases involving factual issues such as valuation, reasonable compensation, or IRC § 482 should be evaluated for arbitration. Arbitration may be appropriate whether the case involves solely a factual issue or multiple issues where the factual issue can be severed. Arbitration is not appropriate for cases involving the substantiation of expenses under IRC §§ 162 and 274. Also, use of the arbitration procedure may not be appropriate; for example, if a settlement appears imminent, substantial resources have already been expended toward trial preparation, or a decision has been made that the Service must litigate the case because of its importance.
- For more information on the use of arbitration to resolve disputes, Field attorneys may refer to the Administrative Dispute Resolution Act of 1996, 5 U.S.C. § 571 et seq., and Executive Order 12988 on Civil Justice Reform (effective on May 5, 1996), which encourages the use of all alternative dispute resolution techniques including binding arbitration where warranted before utilizing any formal court proceedings.