Disputes over taxes in the U.S. affect over 1.6 million individuals, business entities, trusts and estates annually.1 The dollar amounts involved are staggering $31.7 billion in deficiencies were alleged by the Internal Revenue Service (IRS or Service) relating to 1991 returns. 2 Can alternative dispute resolution (ADR) serve a role in the tax dispute resolution process? This paper examines the role of ADR in resolving controversies in the federal tax dispute process, without sacrificing a taxpayer's right to due process.
Tax contests can be separated into two categories of action by the government: civil and criminal. In a civil action, the Department of Treasury wants money, which consists of tax, penalty and/ or interest. In a criminal case, the taxpayer is accused of a crime involving willful intent to evade or defeat taxes.3 Criminal and civil actions are not mutually exclusive-a taxpayer can be responsible for either or both.4 However, there are far fewer criminal cases, because they occur less frequently and are more difficult to prove. Since there are different issues, including constitutional matters, in a criminal case, this article concentrates on the civil tax dispute process.