The examination process can be lengthy and daunting for any taxpayer. All too often, the quality and result of the audit process is driven not by the taxpayer's facts but by the actions, reactions, and temperament of the IRS agent assigned to the case. Although involving the agent's manager for review can sometimes have a positive effect, some cases are so complicated (or contested) that the IRS loses sight of the forest for the trees.
Enter the IRS' Fast Track Settlement ("FTS") program. FTS allows taxpayers who cannot agree with SB/SE Examination the opportunity to take specific issues to IRS appeals. The stated goal of FTS is to speed up the resolution of tax audits by offering a fresh and impartial viewpoint beyond simply a conference with your auditor's supervisor. While not taking the place of a formal appeal of an adverse determination, FTS is designed to help resolve specific issues within an examination while it is ongoing. Thus, the hope is that resolution of one or more contested and unagreed upon issues will result in swift and final resolution of the audit without formally taking the full outcome to Appeals or to court.
On April 3, 2014, the IRS issued internal guidance regarding FTS within the Small Business/Self-Employed Examination Division (available here). Among the highlights of the memorandum is a directive to both Field and Office group Managers that they try to resolve a disputed issue with taxpayers whenever the taxpayer has requested that the case be sent to Appeals. However, in order to be eligible for FTS taxpayers must have cooperated fully in the examination process and, upon request, must have stated their position on contested issues in writing. Managers, on the other hand, are responsible for fully developing and documenting the issues before the case should progress in FTS. In cases where issues are not fully developed and full documentation is not provided, the Appeals officer may consider terminating the FTS which would force the taxpayer to re-apply after further development with Examination. The impetus, therefore, is clearly on full factual development for swift resolution.
The memorandum also notes that cases should be resolved in Appeals within 60 days. Every effort should be made to provide notice of FTS in eligible cases prior to issuance of the 30-day letter. If accepted, the FTS case will be assigned to an Appeals officer trained in mediation. Appeals will not be forwarded the full administrative case file from Examination; rather the Appeals officer in charge of an FTS case will review the FTS application materials and may request additional information from either party to fully develop and understand the issues. FTS is not binding on the taxpayer, and therefore the taxpayer may disagree or withdraw. In cases where one or more issues can be resolved, the taxpayer will sign a closing agreement and the case will continue in Examination with finality on the agreed-upon issues.
In sum, the memorandum provides greater guidance on how FTS cases are to be handled at both the Examination and Appeals levels and emphasizes early case development and use of FTS in the audit process. By encouraging non-binding settlement negotiations with Appeals early on rather than at a point where litigation is the next step, FTS procedures allow taxpayers to attempt to resolve contested issues without forfeiting their formal administrative appeal rights if they ultimately disagree. Although the guidance is noted as "interim," it will be incorporated into the Internal Revenue Manual by April 2015. Hopefully, the procedures set forth in the memorandum will be well noted and swiftly implemented in SB/SE Examination.