When a deal looks like it is lost, the perspective of both sides is to simply dig and go to the next level whatever that may be. Both sides can agree to disagree. What’s the next step? Is it your Best Alternative to a Negotiated Agreement (BATNA), mediation, arbitration, a special master, or litigation? This article will focus on some elements to consider along the way.
Best Alternative to a Negotiated Agreement (BATNA)
The Best Alternative to a Negotiated Agreement (BATNA) is the alternative that if you did not reach an agreement at least at this level you would walk away from the deal. There are a number of steps you can take before throwing in the towel and giving up on the process. Look for ways to create value. Sometimes it would appear the other party simply does not care. There are steps to take when you perceive the other person does not care. These are real world scenarios. Regardless of your situation, before giving up and going to the next level step back from the situation and a take another look. You may be surprised what you might find.
What can be done with an impasse?
When it appears, all is lost and that the case cannot be resolved based on the facts, here are some other ideas for your consideration.
#1 Don’t get angry
Remain professional, avoid hostility, and focus on interests. Really try to understand where the other party is coming from. Only by dealing with issues, the facts on the issues, the emotion tied to the issues, and the interests of the other party is it possible to work to resolve the issue.
#2 Consider the relationship now and into the future
Often you may think, once we are done with this situation, we will be able to move on. That may or may not be the case. Let’s look at an example with the IRS. The IRS looks at the situation a bit differently. Given the adjustment on the year(s) just audited and what the IRS exam team knows now, the next cycle (years under audit) should be more efficient. That’s right the IRS is looking at coming back and audit additional years. It pays to have a good working relationship with the IRS now for the next cycle that is likely coming. Keep that in mind with your situation too.
#3 Create value with a renegotiation
Know what you want. Ask for it. Have three good reasons why this is in their best interest. For example, you want to renegotiate with the IRS to see if you can have closure now. The C-suite folks want closure, guaranteed. You want to focus on problem solving. Approach renegotiation as an opportunity for both sides to raise new issues or perspectives on issues.
Three ways value can be created with the IRS are by:
- Having an agreed case, it is an easier write for the IRS, and there can be closure for both sides.
- Really understand the taxpayer’s perspective, their books and records, the analysis provided, and work to educate judiciously both sides.
- Promote a good working relationship with the taxpayer for the future to increase voluntary compliance going forward.
#4 Fully evaluate the cost of failure
Look at the costs in terms of time, resources, opportunities lost and the time frame for closure should the case be unagreed on examination and the case proceed to Appeals in the case of the IRS. Think of the toil, mental health and physical health on the participants. All too often parties underestimate the financial and other costs of going to Appeals. What about in your situation?
#5 Bring in the right parties for the negotiation
Consider all necessary parties. These are typically the IRS specialist, the IRS specialist manager, the agent, the agent’s manager, the taxpayer’s Power of Attorney (POA), the appropriate parties from the tax department, potentially a C-suite representative, the taxpayer’s study or appraisal expert, internal company experts, and anyone else that has value added to the process. Do not bring in someone that will poison the process.
#6 Using terminology that is neutral
The term “renegotiation” in and of itself may be thought of as negative. Might terms such as “review”, “restructuring”, “rescheduling”, or “clarification” be used to describe the meeting in more neutral terms? Simply changing some terms can help shape the whole tenure of the session.
#7 Consider a mediator/facilitator
A neutral third person that is able to meet with both parties, listen to them, build trust and then help the parties to find a resolution that both sides can live with can save considerable time and money. A mediator designs a process for creating value, providing communication in neutral terms, and facilitates positive results.
Having recently experienced these types of processes on with various experts hired by taxpayers with issues before the IRS, these steps can work to overcome impasses with the IRS. The same techniques can be applied in your situation too. For a more academic commentary on this topic see this article from the Harvard Law School Program on Negotiations.
Of course, it is always possible to go to a third-party decision maker. There are some questions you may want to ask before proceeding to arbitration, a special master or litigation. In any of these situations you are allowing the third party to make the decision rather than you working with the other party to come up with your own solution. This may be the best alternative after all. Just approach the situation with an open mind and keep in mind not only the monetary costs, but the lost opportunity costs as well as the emotional and physical toil that this may have on you and your team.