IRS Fast Track Settlement (Explained)
The IRS’s fast track settlement program or FTS can be a great way to resolve tax disputes with the IRS.
It is used during the IRS audit process.
The process is usually invoked by submitting a written request with the IRS auditor or collection personnel. It is voluntary. It is fast, as the name implies.
The process is informal, but that does not mean that there are no rules. There are a lot of rules. There are a lot of factors to consider before even making a request to participate in FTS.
If you want to know more about the IRS’s fast track service and settlement program, this article is for you.
What is Fast Track Settlement Program?
The term “fast track” refers to the Internal Revenue Service’s (“IRS”) pre-Appeals settlement program.
Fast track settlement is needed as the IRS audit function is not authorized to settle tax cases. The IRS Commissioner has delegated exclusive authority to settle tax balances to the IRS Office of Appeals (now called the IRS Independent Office of Appeals).
The fast track settlement program allows IRS Appeals to join the IRS audit and, if an agreement can be reached, exercise its settlement authority during the audit process. The IRS and taxpayer do not have to wait to file an appeal with IRS Appeals. This can provide certainty sooner and help avoid the delay associated with lengthy litigation.
This program was started in 2003 for large corporate taxpayers. IRS Appeals had a significant backlog of cases during this time. The backlog was due to increased IRS audits and increased retirements by IRS appeals officers.
The IRS then expanded the pilot program to other taxpayers. As of 2005, fast track settlement is allowed for all taxpayers, including small businesses.
The IRS’s Fast track tax service is not used all that often.
What are the Benefits of Fast Track?
The IRS Appeals lists the following benefits of fast track:
- Quicker resolution of audit issues (120 days or less)
- No need for a formal protest to request FTS
- A one-page application
- Consideration of hazards of litigation
- No ‘hot‘ interest under I.R.C. § 6621
- Withdrawal from the process at any time
- Retention of all traditional appeal rights
- One tax computation
- Case closes agreed in IRS audit function
This is a good summary of why you might consider requesting fast track.
How “Fast” is Fast Track Settlement?
IRS Appeals has a goal of opening and completing the mediation process in 120 days. In government terms, this is lightning fast. In fact, IRS statistics show that IRS Appeals often closes these cases well before 120 days.
Is Fast Track Mandatory?
Fast track is not mandatory. You can request it, but the IRS audit function does not have to agree to allow it.
Generally, the IRS audit function only allows fast track mediation if it feels the taxpayer’s position is reasonable and the taxpayer and IRS’s positions are not too far apart.
Once you and the IRS audit (or collection) function agree to participate in FTS, you or the IRS can withdraw from the process at any time.
Is Fast Track Binding on the IRS?
If the IRS enters into a settlement agreement during fast track, the settlement is generally binding on the IRS.
To be legally binding, the settlement has to be memorialized in a formal closing agreement. IRS Appeals typically opts for a less formal closing, such as a Form 872. This settlement is not legally binding on the IRS, but as a practical matter the IRS generally does not go back and undo settlements.
What Tax Issues Qualify for Fast Track?
Most tax issues can that arise during an IRS audit can qualify for fast track.
The IRS has said that the following types of tax disputes do not qualify:
- Issues designated by the IRS for litigation
- Issues you have submitted a request for Competent Authority (or simultaneous Appeals/Competent Authority) assistance
- “Whipsaw” issues, i.e., issues for which resolution with respect to one party might result in inconsistent treatment in the absence of the participation of another party
- Issues not consistent with sound tax administration and
- Issues excluded by a Chief Counsel Notice or equivalent publication.
I would add that any issue the IRS audit function does not allow to go to fast track is also not eligible. The IRS audit function has to agree to allow fast track. They are the gatekeeper for this program.
This generally only includes issues raised in an IRS field audit. IRS correspondence audits usually do not qualify as tax compliance examiners usually will not agree to participate in FTS. Their case loads are too high for this and the tax issues are usually too small. So not to say the IRS auditors working correspondence audits do not care, but, well, they don’t care.
I should also note that fast track can also be used for IRS collection matters, such as levies, liens, etc. I have never participated in fast track for a collection case or ever heard of anyone who has, but the IRS publications say that it is possible.
How Does the IRS Handle Fast Track Cases?
Fast track cases are handled by the IRS Office of Appeals, as noted above. IRS Appeals is a separate division of the IRS. It’s sole function is settling cases. You can see this in the IRS Appeals mission statement:
The mission of the Internal Revenue Service Independent Office of Appeals is to resolve tax controversies, without litigation, on a basis which is fair and impartial to both the Government and the taxpayer and in a manner that will enhance voluntary compliance and public confidence in the integrity and efficiency of the Service.
The meeting itself may be handled at the IRS office, your office, or on the phone.
IRS Appeals functions as a mediator in fast track cases. This means that the appeals officer acts as a go-between to allow the parties to discuss the case just as a mediator would in any other civil non-tax dispute.
It is common for the Appeals officer to act as a true mediator during the fast track process. This means they put they segregate you from the IRS auditors and basically go back and forth between the two groups. The IRS appeals officer will ask you questions and discuss the strengths and weakness of your position. It will then do the same with the IRS audit function. This back and forth usually continues until a settlement is reached or the parties conclude the process without reaching an agreement.
Hot to Offer the IRS a Settlement?
IRS Appeals does not offer the settlements during the fast track process, generally.
IRS Appeals may list settlement options if the parties do not do this themselves, but it is up to the parties to sign on to those options or not to do so.
Settlements are usually achieved due to some concession by one of the parties or the IRS appeals officer. For example, the IRS appeals officer may say to the IRS auditors or to you that if your case goes to IRS Appeals (after fast track) that IRS Appeals would likely concede the case or agree with the IRS’s position. You can see how this type of statement can help encourage the IRS auditor or you to make a concession in their or your position.
Personalities can also play a factor. An offhand comment by the IRS manager can quickly be added to by the IRS agent, which might lead the IRS appeals officer to move the conversation along that direction. Before you know it, the IRS manager cannot easily retract their position and the IRS appeals officer has an opportunity to move the case to resolution.
This is the true benefit of fast track. It can encourage the parties to come together and resolve disputes.
Does Fast Track Preclude Later Appeals?
You do not forego your appeal rights by participating in fast track. In fact, the appeals officer who worked on the case is not to have any further involvement with a later appeal you file. The IRS will not be provided with any IRS Appeals-created documents. For all intents and purposes, there are no records that you attempted to use FTS during the any later appeal.
How Do I Apply for Fast Track Settlement? Submit Settlement Application?
There is no formal settlement application you submit to request fast track. You start the fast track process by making a written request. The written request is to be submitted to the IRS auditor.
If you are being audited by the IRS’s Large Business and International Division (“LB&I”) this written request is usually submitted after the IRS has issued a Form 5701, Notice of Proposed Assessment (“NOPA”) and you have responded to the NOPA. You should generally ask for this option informally before this time, however. You have to make the request before the IRS issues a notice of deficiency.
If you have an IRS collections dispute you want to participate in fast track, you and the IRS collections representative must sign a Form 13369, Agreement to Mediate.
Where Can I Find Out More About Fast Track?
You can review Rev. Proc. 2003-40, 2003-1 C.B. 1044, IRS Publication 4167, and IRS Publication 4539.
Get Advice on Fast Track for Your Case
We are tax attorneys in Houston, Texas. We help clients settle disputes with the IRS. This includes cases submitted to fast track for settlement.
If you are considering Fast Track Settlement, we want to hear from you. Call us at (713) 909-4906.