The IRS expands the use of ADR programs to resolve tax disputes and other newsworthy procedural stuff
5 min read
The Internal Revenue Service ("IRS") is doubling down on its primary alternative dispute resolution ("ADR") tools. It is clear that the IRS wants taxpayers to resolve their disputes prior to going to court. In 2024, the IRS announced that the IRS Independent Office of Appeals ("IRS Appeals") had created the "Alternative Dispute Resolution Program Management Office" focused on resolving taxpayer disputes earlier in the process, increasing the use of ADR initiatives, and increasing the efficiency of the dispute resolution process. See IR-2024-119 (Apr. 24, 2024).
One of the IRS's most successful ADR programs is Fast Track Settlement ("Fast Track"). Fast Track was introduced in 2001 as a pilot program to resolve large tax cases before they move to IRS Appeals. See Notice 2001-67, 2001-2 C.B. 544. Fast Track is a mediation by and between the IRS examination team and the taxpayer during an audit. The mediator for the Fast Track is an IRS Appeals Officer specially trained in mediation techniques. The program has been so successful that it was made permanent in 2003, and is now available for small tax cases as well as tax-exempt and employment tax disputes and collections cases. See Revenue Procedure ("Rev. Proc.") 2003-40, 2003-1 C.B. 1044 (making Fast Track for large taxpayer cases permanent); Rev. Proc. 2017-25, 2017-14 I.R.B. 1039 (small tax cases and employment tax disputes); Announcement 2012-34, 2012-36 I.R.B. 334 (tax-exempt disputes); Rev. Proc. 2016-57, 2016-49 I.R.B. 786 (collections cases). Fast Track is voluntary by both the taxpayer and the IRS Examination team. But newly issued IRS guidance (LBI-04-0725-0008 (July 23, 2025); Internal Revenue Manual ("I.R.M.") 4.46.4, 4.51.4) has made it very difficult for the IRS not to agree to Fast Track, and also requires the IRS to provide an explanation where it does not agree to a request for Fast Track consideration.
On October 1, 2025, IRS Appeals announced a two-year pilot program to make Post Appeals Mediation ("PAM") more attractive to taxpayers. See IR-2025-100 (Oct. 1, 2025); AP-08-0925-0017 (Sept. 11, 2025). PAM is a voluntary ADR program that taxpayers can request when they were not successful in resolving their tax disputes at IRS Appeals. If a request for PAM is accepted, the taxpayer and the IRS Appeals Officer who presided over the unsuccessful IRS Appeals conference mediate the dispute with a new IRS Appeals Officer. Taxpayers can also hire a third-party co-mediator at their own expense to be involved. Under the newly announced pilot program, the mediator will always be an IRS Appeals Officer who has never worked on the matter, hopefully ensuring the case will get a fresh perspective from an, arguably, unbiased mediator. Historically, PAM was generally not available if the taxpayer had engaged in Fast Track previously on the same case/issue, but IRS guidance issued earlier this year has eliminated that rule. See IR-2025-14 (Jan. 15, 2025); Announcement 2025-6, 2025-5 I.R.B. 526. This means taxpayers have can try to resolve their tax disputes with the IRS up to three times (Fast Track, IRS Appeals, and PAM) prior to engaging in litigation with the IRS!
The Accelerated Issue Resolution or "AIR" program has been around since 1994 (see Rev. Proc. 94-67, 1994-2 C.B. 800), and is a voluntary ADR program which allows taxpayers to apply the resolution of the same or similar issues arising in the examination from one or more tax periods to other tax years which are already reported on a return. Pursuant to recent IRS guidance (LBI-04-0725-0008), the IRS has made clear that that AIR can be used in all large corporate compliance cases. AIR makes the resolution of a recurring tax reporting issue in an open audit apply to other tax years that have not been opened for examination.
Also Newsworthy
There is no more Acknowledgment of the Facts ("AOF") Information Document Request ("IDR")! For the last decade, the IRS asked taxpayers in the final IDR issued in an audit to review and verify the IRS's write-up of the facts in the case. The articulated purpose of the AOF IDR was to ensure that the IRS had all the relevant facts to present the case to Fast Track or IRS Appeals. Taxpayers and the tax bar consistently complained that the process was a waste of time and resources. The IRS must have heard the complaints, and has eliminated the AOF IDR process from audits as of December 31, 2025. See LBI-04-0725-0008. Until the end of the year, the AOF IDR is voluntary.
And lastly, the IRS has made clear that the IRS Appeals Officer will provide a copy of the Appeals Case Memorandum ("ACM") to the taxpayer upon request. What is the ACM? The ACM is the memorialization of an IRS Appeals Officer's analysis and details the facts and legal conclusion of the determination and proposed resolution. The manager of the IRS Appeals Officer must review and agree with the ACM before a settlement is officially accepted and finalized. The ACM can be valuable to the taxpayer as it provides a glimpse into how the IRS is analyzing a tax issue and case. In the past, the IRS Appeals Officer automatically shared the ACM with the IRS examination team, but not with the taxpayer. Pursuant to an internal memorandum, IRS Appeals officers are reminded that they should also share a copy of the ACM with the taxpayer. See IRS Appeals Moves Toward Greater Transparency by Sharing Appeals Case Memoranda with Taxpayers, National Taxpayer Advocate Blog (Aug. 12, 2025), https://www.taxpayeradvocate.irs.gov/news/nta-blog/irs-appeals-moves-toward-greater-transparency-by-sharing/2025/08/; see also I.R.M. 8.1.1.6.4(2).
Practice Point
With limited resources, the IRS is turning to ADR techniques to resolve tax disputes with taxpayers. These techniques have a high success rate, but taxpayers need to know their options and how to best navigate the available ADR tools. If you have a protracted tax dispute with the IRS, make sure to ask your tax advisor how you can most efficiently and effectively resolve the case short of litigation.
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