The best answer to this question is, maybe. Arbitration and mediation are alternative options in the IRS tax court that offer taxpayers a way to avoid the long wait and fees associated with a full tax court trial. In both instances, your opponent will be an IRS field agent. IRS field agents are trained agents whose entire career is investigating, proving, and prosecuting tax violations. So, while a tax agent may seem like a difficult opponent, there may still be some circumstances where an attorney may not be needed.
IRS Voluntary Binding Arbitration
The IRS voluntary binding arbitration program enables certain fact-based cases to be decided by an arbitrator instead of a judge. The decision is then filed and approved by the judge and the judgment rendered. Some examples of IRS approved cases for arbitration include property valuation and reasonable compensation cases.These cases include challenges to the value of your home for property tax purposes and how much unpaid work is actually worth. In these cases, everything rests on the testimony of professional evaluators and their estimated evaluations. So, if you hire a credible evaluator and are willing to present them and ask the right questions, you don’t necessarily need an attorney.
If, however, for example, the IRS audit of your business has turned up information that you don’t personally understand, you’ll want an attorney to represent you. Additionally, if you’ve already hired an attorney in your case, it is best to have them present at the arbitration.
Other acceptable arbitration cases include legitimate deductions and credits. These cases are also known as tax evasion cases. If your case rests on this issue, it is advisable to hire an attorney. Any deductions or credits that are found to be invalid or falsified are grounds for fines, interest, and in the worst cases, imprisonment. An attorney can find the best accountants and present your case in a light most favorable to you.
IRS Mediation
In an IRS mediation, you are negotiating a settlement with the IRS field agent and anyone else that the field agent needs on their legal team. Settlements are as tricky as poker in the legal world and should always be run through an attorney. The IRS has specific negotiating tactics that you as the taxpayer will be unaware of. An experienced tax attorney will be familiar with the IRS strategies and will know how to best work around them to gain the most favorable settlement for you. Otherwise, you’ll wind up paying the IRS more than the fees would have been for an attorney.
When you are negotiating a mediated settlement with the IRS, make it clear to your attorney whether you want the case to end at the mediation or whether you are willing to move forward with the case as necessary, as this will determine your attorney’s strategy during the mediation.
Representation Checklist
You need an attorney when:
-- You already have hired an attorney for the tax dispute
-- You do not understand what the IRS is charging you with
-- The charges involve the terms "evasion" or "fraud"
-- Experts that you consult differ on the amount you owe
-- You do not have the time to devote to fully research the issue and your defenses
-- There will be more than just the field agent at the arbitration or mediation as your opponent
As a general rule, if there is clear evidence in your case that the IRS is mistaken and your witness backs up this claim clearly, then you will most likely be able to handle an arbitration or a mediation without your attorney. However, if the expert is unclear or there are large amounts at stake, it is always best to hire an attorney so that you have one more advocate on your side.