How to Use Multiple Equivalent Simultaneous Offers in Negotiations with the IRS

In this article from the Harvard Law School Program on Negotiation blog Katie Shonk presents an excellent example of a Multiple Equivalent Simultaneous Offer (MESOs regarding a job candidate).   She presents an example where the job candidate weighs an offer and responds with three alternatives addressing salary, location (New York, London, Chicago) and vacation days (2 weeks to 4 weeks).  In this instance she used an example weighing 50% being salary, 30% location and 20% being vacation days.  She suggests assigning points to each and presenting no more than MESOs back to the potential employer.  This is an interesting read and should give you some food for thought.

How can you apply this to an IRS audit? For a corporation with say three major issues for the two years under audit a similar approach could be offered. For example there could be an international issue, a research credit issue and depreciation issue as the three major areas. As the taxpayer you understand the implications to not only the years under audit, but also the implications to future years that have not been audited. Depending on how this issue is resolved with the examination team with the years under audit this may set a precedent for future years that could be under audit.

The company may also have a perspective and a sense of ownership regarding certain issues. As an example I offer a case where the CEO was instrumental in saving the company from failure a few years earlier when he worked with research to generate a new product that became a cash cow to the company. The CEO feels very strongly about the research credit issue and the tax department knows that the CEO would be very disappointed if this project were not found to qualify for the research credit. The tax department is less concerned about the timing issue related to repairs and depreciation.   The international issue needs to be studied carefully because of implications in future years with several of the foreign entities.

The IRS team has brought on various specialists on the audit including an international examiner for the international issues, an engineer for the research credit and depreciation issues, a computer audit specialist for statistical sampling relative to the depreciation issues and other specialist on some of the more minor issues. Who is responsible for the case? The case manager is the ultimate decision maker on the case, but needs to give very serious consideration to each of the specialists. If the case manager’s team coordinator and the specialists do not agree the case manager needs to discuss this with the team coordinator, the specialist and the specialist’s manager.  They should work together to come up with a solution that is acceptable to all given the facts in the case.

What can the taxpayer do? The taxpayer can present multiple MESO’s to the case manager as a way to provide the case manager with alternatives to consider. The case manager can weigh these relative to the facts in the case and proposals presented by the specialists and the team coordinator on the case. By discussing the issues in this manner, it may be possible to determine the sense of ownership of the issues by the various team members similar to the sense of ownership of the issues by the taxpayer.

By considering not only the technical merit of the issue, but also the emotion and the underlying interests of the parties using MESO’s it may be possible to overcome an impasse at the examination level. If the impasse can be overcome at the examination level this would avoid having to take the case to Appeals. The benefits are:

  • closure,
  • the agreement on how to approach each of the issues going forward (certainty of approach),
  • the reduced resources on not having to prepare and go to Appeals,
  • the ability to use tax department resources to work on current tax issues, and
  • not to have to focus on Appeals and the use of outside consultants.

This article provides some ideas related to MESO’s. I have presented some ideas relative to the use of this concept on an IRS audit to reach an agreement with an examination audit team.  The same analogy can be made to other negotiation issues.

Mike is a manager with over 25 years’ experience at all levels of management.  Mike provides services related to negotiation, mediation, and value added services (business valuation reviews, research credit advice, transfer pricing assistance, strategic planning and leadership development) to help clients and boards of directors on a wide variety of issues.  When not serving clients as a consultant or blogging, Mike is an avid writer, speaker and educator.  When not working Mike enjoys family, church, volunteering, and daily yoga, meditation and exercise.

About the author

Mike Gregory is a professional speaker, an author, and a mediator. You may contact Mike directly at mg@mikegreg.com and at (651) 633-5311. Mike has written 12 books (and co-authored two others) including his latest book, The Collaboration Effect: Overcoming Your Conflicts, and The Servant Manager, Business Valuations and the IRS, and Peaceful Resolutions that you may find helpful. [Michael Gregory, ASA, CVA, NSA, MBA, Qualified Mediator with the Minnesota Supreme Court]