The dispute between the IRS and the client emerged because the clients failed to agree with wit the IRS findings claiming that the license was deductible over the period of 20 years and claimed that the value of the license was about $75, a fee to be paid to the Federal Trucking Commission to process an application. Based on the case, it would be imperative that the client contest the IRS evaluation in order to claim more deductions. IRS developed other alternative dispute resolution program to facilitate efficient dispute resolution. These programs are as follows arbitration, negotiation and mediation and all are suitable for dispute resolution and prevention. In relation to this case, it would be important that the client pursue a binding arbitration to resolve the issue.
Under IRS procedure, the client will opt for the binding arbitration to claim more deductions. Based on IRS, binding arbitration is the most suitable for a party that seeks allocation of deduction cases. After the case has been approved for binding arbitration through the IRS Office of Associate Chief Counsel, the parties would go ahead to pick a neutral arbitrator then create stipulations by which the arbitrator is bound. The parties in the arbitration will be comprised of the arbitrator, counsel and the clients. The client will thus be expected to show evidence at the time when he acquired the asset of the trucking company for $ 600, 000, no new licenses were being issued thus, the only way to get a license was through acquiring one in an open market for fair market value. Also, the trucking deregulation had not come for ten years and was thus not foreseeable during the acquisition time.
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Clearly, there are numerous benefits to the clients in using a binding arbitration instead of tax litigation in a Court. Arguably, arbitration has been shown to afford some possibility of reduced cost and an accelerated timetable to resolve the issue. Such is the case because the fee that the clients would pay the arbitrator is less compared to the expense that he would have paid expert witnesses to come to the court and testify during a trial. Besides, there is lower cost in the process of preparing for the arbitration that the cost in litigation in terms of preparing for the trial which implies that the client stands a better chance to use the least amount of money to resolve the issue. Such is always the case due to the idea that rules of evidence are mostly more relaxed in arbitration than in litigation, therefore, the documents could easily be submitted in lieu of having a witness coming to the trial and testify. A good example of this would be a situation where the client would have incurred the extra cost of bringing witnesses to trial when using litigation but in arbitration, the client would simply make use of his trucking records and reports.
Furthermore, based on the notion that arbitration often occurs even before a full pre-trial workout occurs, pre-trial discovery and even hearing process might be reduced. Clearly, the court would not require the arbitrator to draft a full and detailed report that explains his findings which eventually lead to the parties including the client receiving a speedy resolution to the current dispute on IRS evaluation. The arbitration process has further been proven highly convenient for the parties involved since it can easily be scheduled through a mutual agreement between the clients and the other party.
Despite the great benefits associated with arbitration, there are certain areas of weaknesses associated with it. First, there is limited recourse in arbitration since final decision might be hard to shake. Such a case would be experienced where if the arbitrator’s award is unfair to the client, then he will be struck by it and consequently debarred perpetually from airing the principal issue in court. There might emerge a case of uneven playing ground given that the "take-it-or-leave-it" nature of arbitration clauses works in support of powerful entity when challenged by a client with shallower pockets and less power.
Litigation could also be suitable since it has clear procedural and evidential rules and formal processes of inspection and disclosure. The method also has a formal process for the disclosure of evidence in terms of the expert evidence and witness statements and is a highly open system of justice. However, on the negative side, litigation is time consuming, adversarial and costly which makes it the least preferred method for the client. Finally, the decision arrived at by the judge might also result in client dissatisfaction.
In conclusion, based on the case, it is evident that binding arbitration is the most efficient approach for the client to pursue. The benefits of arbitration far outweigh those of arbitration which qualifies it as the most preferred approach. Despite the fact that ultimate outcome of arbitration might not be entirely confidential, the overall proceedings could be kept confidential. Therefore, the overall net impacts of arbitration are less costly compared to pursuing a full-scale litigation.
