The Underrated Power of Tax Court Rule 124 in Tax Exempt Status Revocation Cases
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Jeffrey M. Glassman
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I attended an informative panel discussion titled Challenging Revocations to Tax-Exempt Status at the ABA Tax Section’s Court Procedure and Practice Committee’s programming slot. Towards the end of the discussion, one of the Tax Court judges provided a tremendously helpful suggestion for organizations litigating tax-exempt status revocation issues. Specifically, the judge highlighted that Tax Court Rule 124 may provide a helpful mechanism to efficiently, and potentially less painfully, resolve the case.
Tax Court Rule 124 relates to Alternative Dispute Resolution. Within Rule 124 is a provision titled Voluntary Nonbinding Mediation—and that provision was specifically mentioned by the judge on the panel. That provision states:
The parties may move by joint or unopposed motion that any issue in controversy be resolved through voluntary nonbinding mediation. Such a motion may be made at any time after a case is at issue and before the decision in the case is final.
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Order by Court: The mediation shall proceed in accordance with an order of the Court setting forth such directions to the parties as the Court considers to be appropriate.
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Tax Court Judge or Special Trial Judge as Mediator: A Judge or Special Trial Judge of the Court may act as mediator in any case pending before the Court if:
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the motion makes a specific request that a Judge or Special Trial Judge be designated as such, and
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a Judge or Special Trial Judge is so designated by order of the Chief Judge.
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Mediation can provide immense value to tax exempt organizations. First, it can resolve disputes more efficiently. In mediations, the formal rules of evidence generally do not apply. Nor will parties need to present all of their witnesses as they would at trial. Second, the mediator—be it a judge of the Tax Court or otherwise—may be able to entertain other forms of relief beyond the all-or-nothing approach that many fully-tried and briefed cases require. For example, if a mediator determines that an organization can remediate a particular problem and also that the IRS has some risk of losing the case, the mediator may propose a creative solution that would not otherwise be available through trial. Third, mediation gives both parties an opportunity to learn about weaknesses in their cases, which may make settlement more likely.
Ultimately, there is a lot on the table when tax exempt status is being litigated. Alternative dispute resolution tools, such as voluntary nonbinding mediation, may offer a wonderful alternative to resolve these disputes.
If you have any questions about tax-exempt status revocation proceedings, be it litigation or within the IRS, or any civil or criminal tax issue, you can contact me at jglassman@meadowscollier.com or 214-749-2417.
