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Part 8. Appeals

Chapter 26. Alternative Dispute Resolution Program

Section 1. Fast Track Settlement for Large and Mid-Size Business (LMSB) Taxpayers

8.26.1  Fast Track Settlement for Large and Mid-Size Business (LMSB) Taxpayers

8.26.1.1  (10-23-2007)
Objective and Authority for Alternative Dispute Resolution Programs

  1. A primary objective of the Service is to resolve tax controversies at the lowest level without sacrificing the quality and integrity of those determinations. Alternative Dispute Resolution programs achieve this objective.

  2. The IRS Restructuring and Reform Act of 1998 (RRA 98), P.L.105-206 directs the IRS to implement procedures that allow broader use of early Appeals programs and to establish procedures that allow alternative dispute resolution including mediation and arbitration.

8.26.1.2  (10-23-2007)
Authority for Fast Track Settlement Program for Large and Mid-Size Business (LMSB FTS)

  1. Rev. Proc. 2003-40 establishes the Large and Mid-Size Business Fast Track Settlement Program (LMSB FTS) specifically for cases in LMSB with the goal of expediting case resolutions and expanding the range of dispute resolution options available to taxpayers.

    Note:

    Section 3.02 of Rev. Proc. 2003-40 provides that in certain circumstances, other Operating Divisions and taxpayers may participate in the LMSB FTS program.

  2. Appeals and LMSB jointly manage and administer the LMSB FTS Program.

  3. LMSB FTS provides LMSB and taxpayers an opportunity to resolve their disputes with an Appeals Official providing mediation skills and settlement authority.

  4. FTS is available on an issue by issue basis for LMSB cases participating in the Compliance Assurance Process (CAP). The IRS formally announced CAP in Announcement 2005-87, 2005-50 I.R.B.

8.26.1.2.1  (10-23-2007)
LMSB FTS Program Objectives

  1. LMSB FTS enables taxpayers and the IRS to work together to resolve outstanding issues while the case remains in the jurisdiction of LMSB.

  2. LMSB FTS is designed to:

    • Increase issue resolution at the lowest level.

    • Use Appeals tools in Exam.

    • Decrease the overall time from return filing to ultimate resolution.

    • Reduce the burden for the taxpayer and the Service.

8.26.1.2.2  (10-23-2007)
Collaborative Dispute Resolution Process

  1. LMSB FTS takes place while the case is in LMSB jurisdiction and is designed to be completed in approximately 120 calendar days .

  2. All three parties - LMSB, the taxpayer, and Appeals - are active participants in the process, and all three must agree before a proposed resolution is implemented.

  3. LMSB FTS uses mediation techniques to focus issues and lead LMSB and the taxpayer to self-determine the outcome of the dispute.

  4. When a resolution is not reached through mediation, Appeals may propose a resolution, but such proposal is not imposed on either party.

8.26.1.2.3  (10-23-2007)
Considering Factual and Legal Issues in LMSB FTS

  1. Appeals Hazards Settlements:

    1. LMSB FTS allows the parties to consider hazards regarding what facts, if any, a court will accept and hazards regarding the merits of different possible legal interpretations of law in resolving disputes.

    2. Where the disposition of an issue involves consideration of the hazards of litigation, Appeals exercises delegated settlement authority to accept the settlement in a closing agreement that finally determines the treatment of the issues.

  2. Mediated Agreements:

    1. While settlement authority is available in the process, the issues are often resolved in a mediated agreement between the taxpayer and Examination.

  3. Parties to the Process:

    1. The decision makers must fully participate in the LMSB FTS process

    2. The decision maker decides who to invite to the LMSB FTS session

    3. The parties are encouraged to bring their best experts into the process. This includes Technical Advisors in those instances where the issues are industry specific, or where a Technical Advisory position was established for the issue

8.26.1.2.4  (10-23-2007)
Appeals Officers Assigned to LMSB FTS

  1. Assign LMSB FTS cases using the following general guidelines:

    1. Primarily assign to Grade 15 Appeals Team Case Leaders (ATCL) trained in mediation.

    2. In limited cases, assign to Grade 14 Appeals Officers, trained in mediation, in conjunction with an Appeals Team Manager (ATM), either individually or serving as Team Leaders.

  2. Assign cases from other Operating Divisions participating in the LMSB FTS program as follows:

    1. Primarily assign to Grade 14 Appeals Officers trained in mediation in conjunction with an ATM.

    2. In limited cases, assign to Grade 13 Appeals Officers trained in mediation in conjunction with an ATM.

8.26.1.3  (10-23-2007)
Initiating LMSB FTS

  1. LMSB FTS is initiated any time after an issue is fully developed.

    1. An issue is generally considered fully developed after the Form 5701, Notice of Proposed Adjustment, is issued to the taxpayer clearly setting out the Government’s position, and the taxpayer has prepared a written response defining their position and the basis for disagreement.

    2. For cases from other Operating Divisions, an issue is generally considered fully developed when the case could otherwise be written up as unagreed with a 30-day or 90-day letter.

  2. It is best to consider all unagreed issues of a case in one "Application for Fast Track Settlement" ; however, depending on the availability of sufficient Appeals resources, individual issues may be accepted into LMSB FTS. When it is in the best interest of tax administration, accept the "Application for Fast Track Settlement" for individual issues or groups of issues.

  3. The greatest opportunity to reduce administrative burden and costs for all parties exists when:

    • All issues are raised and the examination process is nearly complete.

    • All claims are filed and examined.

    • Issues are fully developed.

    • Taxpayer states their position in writing.

    • There are a limited number of unagreed issues.

  4. With the concurrence of the Appeals Fast Track Program Manager and the LMSB Territory Manager, an issue is accepted when it is adequately developed to facilitate resolution, even though it may not be developed to the extent required for a Revenue Agent Report (RAR).

8.26.1.4  (10-23-2007)
Case Eligibility in LMSB FTS

  1. LMSB FTS is not the appropriate dispute resolution process for all cases involving LMSB taxpayers. The LMSB Group Manager or designee and the taxpayer must evaluate their individual circumstances to determine if this process meets their needs.

8.26.1.4.1  (10-23-2007)
Cases Accepted into LMSB FTS

  1. LMSB FTS is generally available for all cases worked under the jurisdiction of LMSB.

  2. Appeals Coordinated Issues, Compliance Coordinated Issues, Industry Specialization Issues, and listed transactions are accepted into LMSB FTS.

  3. Bankruptcy cases are accepted when LMSB follows the IRM provisions regarding notification to Chief Counsel and the Justice Department.

    1. Appeals provides an Appeals Officer to assist Examination and the taxpayer in evaluating the merits of the issues, including hazards of litigation.

    2. Since the final tax determination is generally under the jurisdiction of a court, a closing agreement is generally not used because no one representing the taxpayer possesses the authority to execute the closing agreement. The decision to reduce the liability in the proof of claim rests with LMSB, in accordance with Chief Counsel and the Justice Department.

  4. TEFRA cases are accepted under limited circumstances with the concurrence of both the Appeals Fast Track Program Manager and the LMSB Territory Manager.

    1. LMSB FTS is used for cases in a TEFRA proceeding where the first level entity and the major controlling shareholders/ partners are included in the FTS session.

    2. LMSB must agree to maintain responsibility for both key case and investor statutes, and to complete the required TEFRA administrative proceedings, including NOPA, NBAP and FPAA procedures, and to process investor settlement agreements for all levels.

    3. An Appeals Official conducts the FTS session at the first entity level and helps the parties reach a settlement.

    4. A Waiver on Assessment Form 870P-AD type of agreement is used to secure agreement from the entity and controlling shareholders/partners. Normally, a closing agreement is not used in TEFRA cases, but may be used at the option of the parties.

  5. LMSB taxpayers who participate in the Compliance Assurance Process are accepted into LMSB FTS. CAP is an LMSB program designed to resolve tax issues prior to the filing of a tax return.

    1. Under CAP, corporations are assigned to an LMSB Account Coordinator (AC) who works with the taxpayer and coordinates additional IRS resources as needed to resolve economic events and material tax transactions in a contemporaneous manner with the goal of resolving tax issues prior to filing the corporate tax return.

    2. The LMSB AC engages the taxpayer to identify and resolve material issues during the tax year rather than waiting several years after a tax return is filed.

    3. When an agreement to the proper tax treatment is reached the taxpayer receives an acceptance letter from the IRS, omitting the need for post filing review of specific transactions or issues.

  6. Non-LMSB cases are accepted under Section 3.02 of Rev. Proc. 2003-40 when the Appeals Fast Track Program Manager and the referring Operating Division’s first line management concur the case is accepted into the LMSB FTS process.

    1. The appropriate non-LMSB Examination Operating Division manager carries the responsibilities of the LMSB Team Manager.

8.26.1.4.2  (10-23-2007)
Cases Excluded from LMSB FTS

  1. Generally, docketed cases, constitutional issues, and cases in which a 30-day letter was issued are excluded from the LMSB FTS program.

  2. LMSB FTS is not available for the following:

    1. Issues in a taxpayer’s case designated for litigation.

    2. Issues in a taxpayer’s case under consideration for designation for litigation.

    3. Issues for which a taxpayer request the Simultaneous Appeals/Competent Authority procedure described in section 8 of Rev. Proc. 96-13.

    4. Issues outside of LMSB jurisdiction (e.g. Collection, Employee Plans, Exempt Organizations) except as noted above.

    5. Issues that are part of a whipsaw transaction.

    6. Issues that are identified in a Chief Counsel Notice, or equivalent publication, as excluded from the FTS process.

    7. Issues for which mediation is not consistent with sound tax administration.

  3. Issues specifically excluded under Rev. Proc. 2003-40 result in the exclusion of the entire case.

8.26.1.5  (10-23-2007)
General Procedures for LMSB FTS

  1. The LMSB Team Manager consults with an ATM in the Appeals Office closest to the referring LMSB Office to ensure proper screening, application and submission of the case.

  2. The Appeals Fast Track Program Manager is available to assist with any concerns regarding the LMSB FTS process.

  3. For LMSB procedures and guidelines leading up to the acceptance of a case into the LMSB FTS program, see IRM 4.51.4.

8.26.1.5.1  (10-23-2007)
Consideration of LMSB FTS

  1. LMSB FTS is premised on the basis that LMSB and the taxpayer have exhausted existing issue resolution strategies available within LMSB, and now want to use an optional strategy to reach resolution.

  2. To ensure the taxpayer has a basic understanding of the LMSB FTS process, LMSB provides a copy of Publication 4539, Fast Track Settlement - A Process for Prompt Resolution of Large & Mid Size Business Tax Issues, to the taxpayer prior to considering an "Application for Fast Track Settlement."

  3. If the LMSB FTS process is unsuccessful in resolving an issue, a taxpayer is not precluded from requesting traditional Appeals consideration.

8.26.1.5.2  (10-23-2007)
LMSB Participation in the FTS Process

  1. LMSB is fully involved in the LMSB FTS process as an equal participant.

  2. LMSB participants include the LMSB Team Manager, Revenue Agents and others who have the knowledge and expertise to contribute to issue resolution.

  3. In addition to the Team Manager, LMSB participants generally include the Team Coordinator and/or Revenue Agents primarily responsible for the development of the subject issue(s).

  4. LMSB participants also include Specialists and/or Technical Advisors. In those instances where the issues are industry specific or there is a Technical Advisory position established for the issue, the participation of appropriate Technical Advisors is strongly recommended.

  5. The LMSB Team Manager, in consultation with the assigned Appeals Team Case Leader (ATCL) or Appeals Officer, determines the LMSB participants.

  6. For CAP issues, LMSB participants include the Team Manager, and the LMSB AC, as well as any specialists and/or technical advisors, if needed. If necessary the LMSB Territory Manager and the Director of Field Operations also participate in the FTS process.

8.26.1.6  (10-23-2007)
Receipt and Control of LMSB FTS Cases

  1. When Appeals receives an LMSB FTS case, it is important for the administrative file to include the following documents:

    • Application for Fast Track Settlement

    • Form 5701, Notice of Proposed Adjustment, and/or Form 886-A. (For CAP issues include the LMSB Issue Position Paper)

    • Taxpayer’s written response.

  2. Any concerns the LMSB Team Manager or taxpayer have are referred to either the LMSB or the Appeals Fast Track Program Manager before the formal FTS package is completed.

8.26.1.6.1  (10-23-2007)
Assignment of an LMSB FTS Case

  1. When the "Application for Fast Track Settlement" is ready to submit and is signed by the appropriate LMSB Territory Manager, the referring LMSB Team Manager faxes the application to the Appeals Fast Track Program Manager.

  2. In most cases, the Appeals Fast Track Program Manager notifies the ATM that a LMSB FTS case is coming to the local office. When time permits, the ATM pre-assigns an Appeals Official to the case.

  3. Within three business days of receipt, the Appeals Fast Track Program Manager reviews the "Application for Fast Track Settlement" to determine if the LMSB FTS eligibility requirements are met.

  4. If the Appeals Fast Track Program Manager determines the case is eligible, he/she signs the Application to Fast Track Settlement and forwards it to the local ATM for concurrence.

  5. If the ATM concurs with the acceptance of the application, he/she signs the "Application for Fast Track Settlement" and faxes a signed copy to the Appeals Fast Track Program Manager.

  6. If the ATM does not recommend acceptance of the case, he/she communicates this to the Appeals Fast Track Program Manager who may assign the application to another ATM for a second review.

  7. Any case started without concurrence of both the Appeals Fast Track Program Manager and the Examination Territory Manager will, at the discretion of either manager, be treated as a withdrawn case.

  8. Except with the concurrence of the LMSB Territory Manager and the Appeals Fast Track Program Manager, the FTS process is limited to 120 calendar days .

8.26.1.6.2  (10-23-2007)
Denying the LMSB FTS Request

  1. If the Appeals Fast Track Program Manager or ATM determines that a case does not qualify for LMSB FTS (e.g. issues not fully developed, issues do not qualify, Appeals resources are not available, issues excluded), the ATM discusses the reason(s) for the denial with the Appeals Fast Track Program Manager.

  2. Requests for Technical Advice, Field Service Advice, etc. are not made during the LMSB FTS process. Cases requiring such issue development actions are not ready for Fast Track, and the Appeals Fast Track Program Manger or ATM recommends rejection.

  3. The Appeals Fast Track Program Manager may concur with a recommended denial of the LMSB FTS request by an ATM, or may accept the case and identify necessary resources.

  4. If the LMSB FTS request is recommended for rejection, the Appeals Fast Track Program Manager discusses the reason(s) for rejection with the LMSB Territory Manager.

  5. The Appeals Fast Track Program Manager notifies both the taxpayer and LMSB Team Manager of the reason(s) for the denial within ten business days of receipt of the "Application for Fast Track Settlement" .

8.26.1.6.3  (10-23-2007)
Accepting the LMSB FTS Request

  1. Upon acceptance of the "Application for Fast Track Settlement" , and the concurrence of the Appeals Fast Track Program Manager, the ATM assigns the case to an AO or ATCL within seven business days of receipt of the application.

  2. When determining a reasonably convenient site for the LMSB FTS session, the ATCL or Appeals Official follow the provisions of IRM 8.6.1.2.1for providing convenient conference opportunities.

  3. The ATM and ATCL coordinate on the need to use a team of Appeals Officers.

  4. When the case includes Appeals Coordinated Issues (ACI) or LMSB Coordinated Issues (CCI), the Appeals Officer or ATCL follows the requirements in IRC 8.7.3.4.2, IRM 8.1.4.8, and IRC 8.2.1.1 to refer the issues to the Appeals Director, Technical Guidance staff. Initiate the referral by phone and follow up with a formal written referral.

  5. The Appeals LMSB FTS Program Manager requests that Appeals management assign the FTS case to Appeals Officers with experience or particular technical expertise in the issue, such as CCI/ACI issues, international issues or listed transactions.

8.26.1.6.4  (10-23-2007)
Carding in the LMSB FTS Case

  1. The "Application for Fast Track Settlement" must be signed by the ATM, the Appeals Fast Track Program Manager and the LMSB Territory Manager before the case is input into ACDS.

  2. Carding in a Fast Track Settlement case is given priority treatment.

  3. When carding in the LMSB FTS case, APS follows the general provisions for carding in cases contained in IRM 8.20.5.1, Appeals Processing Manual, Processing and Establishing New Receipts. However, the following special entries are made on the case inventory screen:

    • Source = FE (check AMDISA for Aging Reason Code 04, if present, source is CE)

    • Feature Code = LS (CAP issues include Feature Code = CP in addition to the LS)

    • ASGNDATE = Consistent with normal ACDS procedure

    • REQAPPL = Later of date Application signed by taxpayer or the LMSB Team Manager

    • RECDATE = Later of acceptance dates by the Appeals Fast Track Program Manager or the LMSB Territory Manager

    • CREDATE = Consistent with normal ACDS procedure

  4. Add return level information as follows:

    • AIMS Indicator = E

    • STATDATE = leave Blank

    • STATCODE = EXAM

    • PBC = Check AMDISA for the correct code

    • Proposed Tax/Proposed Penalty = Leave blank until ATCL determines the amount of unagreed deficiency

8.26.1.6.5  (10-23-2007)
Appeals Official’s Role in the LMSB FTS Process

  1. Within ten business days after assignment of the case, the Appeals Official calls the taxpayer and the LMSB Team Manager to start the FTS session planning process and follows-up in writing with an FTS Acknowledgement Letter.

  2. The Appeals Official identifies and discusses the need to limit the number of participants in the FTS session.

  3. LMSB FTS cases are excluded from the Settlement Authority Panel Review, because LMSB must agree to any disposition of the issues.

8.26.1.6.6  (10-23-2007)
Appeals Technical Guidance Coordinator’s Role in Coordinated Issues

  1. Where an issue is coordinated the Appeals Official follows the procedures in IRM 8.7.3.2, Coordinated and Appeals Emerging Issues.

  2. To meet the requirements that all decision-makers are at the LMSB FTS session, and that coordinated issues are reviewed by the Appeals Technical Guidance (TG) Coordinator, the Appeals TG Coordinator normally serves as a team member and participates in the FTS session with the taxpayer and LMSB.

  3. If the Appeals TG Coordinator is not part of the Fast Track Team, settlement of the coordinated issue remains subject to the review and concurrence of the Appeals TG Coordinator. This is accomplished via telephone discussion, review and concurrence.

  4. If there is a disagreement between the Appeals TG Coordinator and the Appeals Official on appropriate settlement terms for the issue, follow the resolution procedures in IRM 8.7.3.4.3.1, Settlement Not Reached Under Delegation Order 4-25.

8.26.1.7  (10-23-2007)
LMSB FTS Session

  1. The LMSB FTS session includes all activities from the acceptance date of the LMSB FTS case through the date all three parties reach a final agreement.

8.26.1.7.1  (10-23-2007)
Planning the LMSB FTS Session

  1. Planning begins when the taxpayer and LMSB complete the "Application for Fast Track Settlement" , which includes a target completion date.

  2. The parties are encouraged to bring their best experts into the LMSB FTS process.

  3. All"decision-makers" are required to be present.

  4. The Appeals Official leads the taxpayer and LMSB in developing an overall plan for the FTS session. The plan includes preparation of an agenda and FTS Session Report.

  5. The parties must agree to a plan that allows completion of the LMSB FTS process within 120 calendar days .

8.26.1.7.2  (10-23-2007)
FTS Session Report and Agenda

  1. In conducting the LMSB FTS session, the Appeals Official uses a FTS Session Report and an agenda. The agenda guides the communication, sets the order of issue discussion, asks questions to clarify each issue and guides conference meetings.

  2. The Appeals Official provides the FTS Session Report to all decision makers early in the process, and updates it as the session progresses.

8.26.1.7.3  (10-23-2007)
Conducting the LMSB FTS Session

  1. The LMSB FTS session is led by Appeals, but all three parties are active participants with equal voices.

  2. LMSB FTS employs various alternative dispute resolution techniques to propose solutions.

  3. Appeals does not act in a traditional Appeals role, but first uses an interest-based approach to facilitate a settlement of the issues between the parties.

  4. Using mediation techniques, Appeals attempts to bring the parties to a mutual resolution of the issues during the FTS session.

  5. Appeals may conduct the entire LMSB FTS session jointly with LMSB and the taxpayer, or with LMSB and the taxpayer separately after an initial joint session.

  6. As issues are resolved, Appeals posts the results to the FTS Session Report and gives an updated copy to all participants. Appeals maintains a history of the updated FTS Session Reports.

8.26.1.7.4  (10-23-2007)
Appeals Recommendations in LMSB FTS Cases

  1. Appeals uses various methods and techniques to meet the needs and circumstances of each particular case.

  2. The Appeals Official ultimately makes recommendations regarding the settlement of any or all issues (both factual and legal). If acceptable to both parties, the settlement proposal is adopted.

  3. Neither party is required to accept a proposal made by the Appeals Official.

  4. Both LMSB and the taxpayer must agree with the settlement proposal. If the LMSB Team Manager rejects the Appeals Official’s settlement proposal, the LMSB Territory Manager must concur in writing with the rejection.

  5. If the LMSB Territory Manager concurs with the LMSB Team Manager's rejection of the proposed settlement, and an acceptable alternative settlement is not reached, the issue is closed unagreed.

  6. If the LMSB Territory Manager does not concur with the rejection of the proposed settlement, the settlement proposal is accepted by LMSB.

8.26.1.7.5  (10-23-2007)
New Information Received During LMSB FTS

  1. If the taxpayer or LMSB present new information during the LMSB FTS session, Appeals gives the receiving party adequate time to evaluate it.

  2. If consideration of substantial new information unacceptably delays the FTS session, Appeals withdraws the case from LMSB FTS. The case is resubmitted for acceptance into LMSB FTS after the issues are fully developed.

  3. In situations where substantial new information is disclosed as part of the FTS process, the information serves as a basis to raise a new issue or file a claim. Where the process is not delayed beyond 120 calendar days , and all parties agree to accept the new issue or claim, it is accepted into the existing LMSB FTS process.

8.26.1.7.6  (10-23-2007)
New Issues/Claims Raised During LMSB FTS

  1. Once a case comes to LMSB FTS, the expectation is that all issues and claims were raised, all relevant information is disclosed, and the case is ready for resolution. The Appeals Official confirms all issues are listed on the FTS Session Report at the beginning of the process.

  2. New issues or claims are generally not accepted if the FTS process cannot be completed within 120 calendar days.

  3. The grounds for raising a new issue or claim must be substantial, and the potential effect on the tax liability must be material. New issues or claims are not raised to trade against existing issues.

  4. A taxpayer’s claim requires LMSB action. However, such action need not be part of the LMSB FTS process.

  5. New, unrelated claims or new issues raised are not attached to an existing FTS process, but generally are considered in a separate process outside of FTS.

  6. While the parties work to resolve the issues originally referred to LMSB FTS, the process is not suspended to allow examination of the new issues/claims.

  7. If the taxpayer declines to bring the LMSB FTS process to a conclusion prior to consideration of such claims, the Service withdraws the case from LMSB FTS. The taxpayer then reapplies for LMSB FTS after LMSB completes a review of the new claim.

8.26.1.7.7  (10-23-2007)
Developing the LMSB FT Session Report

  1. The FT Session Report assists the parties in planning the LMSB FTS session and reports progress on the issues in dispute.

  2. At the conclusion of the process, the FT Session Report forms the basis for drafting closing agreements and the Revenue Agent’s Report (RAR).

  3. Use the FT Session Report to identify the issues and reflect agreement by all parties on the number and description of issues, the amounts in dispute, conference dates, and a plan of action to follow in the LMSB FTS process.

  4. In addition to documenting all contacts in the ACDS activity record and conference notes, the Appeals Official uses the FT Session Report at the start of the process, and updates it as decisions are made.

  5. The Appeals Official -

    1. Gives the taxpayer and LMSB a copy of the FT Session Report at the beginning of the process with the Acknowledgement Letter; and after each decision is reached and the report is updated.

    2. Confirms the parties agree with all entries, and

    3. Solicits signatures of the taxpayer and LMSB Team Manager at the conclusion of the session whether agreed or unagreed.

  6. Signing the FT Session Report does not constitute a final settlement. The signatures carry no more force and effect than a memorandum of understanding between the parties.

  7. The FT Session Report is not a waiver of restrictions on assessment, nor does it terminate consents to extend the statute of limitation, nor does it start the running of any statute of limitations, in particular the one-year statute under IRC 6629(f) involving TEFRA proceedings.

  8. LMSB FTS cases involving TEFRA entities must include the above language on the face of the FTS Session Report.

  9. The signature of a Service Official on the FT Session Report does not create a promise against reopening the case.

  10. The agreed resolution is incorporated into the appropriate closing agreement for LMSB CAP issues resolved during the FTS session.

  11. Fully developed, but unagreed issues not resolved using FTS during pre-filing are incorporated into a 30-day letter once the return is filed and the case is forwarded through the traditional Appeals Process for CAP issues.

  12. Binding arbitration is not an option available for CAP issues.

  13. For LMSB taxpayers participating in CAP who do not utilize FTS prior to the return being filed, the option is available to elect FTS during the post-filing examination process. An exception is a change in facts and circumstances the parties subsequently agree merits the use of FTS.

8.26.1.8  (10-23-2007)
Fast Track Settlement Authority for Appeals

  1. Appeals has settlement authority under Delegation Order 97 found in IRM 1.2.47, Delegation of Authorities for the Appeals Process.

  2. An Appeals Official, such as an ATCL or ATM, uses delegated settlement authority to enter into and approve any LMSB FTS agreement involving hazards of litigation by using a Form 906, Specific Matters Closing Agreement, or a general waiver via Form 870-AD.

  3. Appeals makes its own evaluation of the hazards on LMSB FTS issues. LMSB should not commit, or appear to commit, to a settlement that exceeds their authority to resolve issues prior to referral to LMSB FTS.

  4. Potential settlement positions discussed with the taxpayer before an LMSB FTS referral are presented to the Appeals Official for consideration during the session. However, Appeals does an independent evaluation of the hazards and does not execute a settlement if it does not fall within such evaluation or established settlement guidelines for the issue.

  5. If the Appeals Official does not accept a settlement proposed between the taxpayer and LMSB, the Official explains why it is not accepted to both parties.

  6. If a Joint Committee report is required for the case, Appeals delays execution of the closing agreement until LMSB completes the Joint Committee procedures. Where Appeals settlement authority is utilized on a Joint Committee case, the Appeals Official involved in the settlement is available to respond to inquiries from the Joint Committee regarding the settlement.

8.26.1.9  (10-23-2007)
Terminating the LMSB FTS Session

  1. If after a reasonable time, it is apparent that no further benefit will be derived from the process, the LMSB Team Manager and/or the Appeals Official considers terminating the session.

  2. If the Appeals Official decides the LMSB FTS Session should be terminated, he/she consults the Appeals Fast Track Program Manager before making the final decision to terminate the session.

  3. If the LMSB Team Manager decides to terminate the FTS session, concurrence of the appropriate LMSB Territory Manager is required.

  4. If no issues are resolved prior to termination, no further reporting to the taxpayer or LMSB by Appeals are required.

  5. If some issues are resolved at the time of termination, standard LMSB FTS process closing procedures are followed with regard to the resolved issues.

  6. The taxpayer retains all standard appeal rights with regard to any issues remaining unresolved at the time of termination.

8.26.1.10  (10-23-2007)
Withdrawal from LMSB FTS Session

  1. The taxpayer may withdraw from LMSB FTS at any time by providing written notice to the LMSB Team Manager and the Appeals Official.

  2. For any unresolved issue(s), taxpayers retain all traditional appeal rights.

  3. LMSB closes the case as "Unagreed" or "Partially Agreed" as appropriate and forwards the case to Appeals upon receipt of an acceptable protest and request for an Appeals hearing from the taxpayer.

  4. Advise the taxpayer that the case will be closed through the standard LMSB closing process.

8.26.1.11  (10-23-2007)
Unresolved Issues in LMSB FTS

  1. As in traditional Appeals cases, it is possible to have both resolved and unresolved issues in LMSB FTS cases. The resolved issues are closed using the agreed procedures.

  2. When the LMSB FTS process is unsuccessful in resolving an issue (including withdrawn issues), Appeals sends a letter to both the taxpayer and LMSB identifying who participated in the process, listing the issues not resolved, and explaining the taxpayer’s rights to appeal.

  3. The administrative file consisting of the Form 5701 with the taxpayer’s written response, any FTS workpapers produced by LMSB and Form 5402 are provided to LMSB for inclusion in the case file. No Appeals Case Memorandum (ACM) is prepared for unresolved issues.

8.26.1.12  (10-23-2007)
Ex Parte in LMSB FTS Cases

  1. In LMSB FTS, ATCLs and Appeals Officers are not acting in their traditional Appeals' settlement role. As a result, the prohibition on ex parte communications between Appeals Officers and other Internal Revenue Service employees provided by Section 1001(a)(4) of the Internal Revenue Service Restructuring and Reform Act of 1998 does not apply to the communications in the process.

  2. If the LMSB FTS process is unsuccessful, Appeals may not issue a statutory notice of deficiency, information disclosed by the taxpayer to LMSB during the FTS session cannot be used by LMSB to complete the examination report, and the taxpayer retains all traditional appeals rights.

8.26.1.13  (10-23-2007)
Reconsideration of FTS Session Report Agreements

  1. The FT Session Report is treated as final when it is signed, unless the specific conditions outlined below warrant altering the agreement.

  2. If an agreement is reached, but a subsequent authoritative decision is rendered affecting the agreement in a substantive and material manner, either LMSB or Appeals reconsiders the agreement unless both the taxpayer and Appeals previously signed a closing agreement Form 906, or Form 870-AD.

  3. If the change is substantive and material, the agreement is renegotiated. The word substantive means a change in law or legal precedent which results in a meaningful change to Appeals' assessment of the hazards of litigation.

  4. Any agreement reached in a LMSB FTS session may be reopened in the case of fraud, malfeasance, concealment or misrepresentation of a material fact.

  5. The grounds for such action must be substantial (strong, possessing real merit) and the potential effect on the tax liability must be material (having real importance and great consequence).

  6. NEW ISSUES - To raise a new issue, there must be good, sound, substantial grounds already existing in the record or known to the decision maker. Substantial grounds are those that cause a decision maker to be quite certain, at the time a new issue is raised, that the Government will prevail if the issue is litigated. Quite certain does not necessarily mean 100 percent certain, but it does mean a very high degree of certainty.

  7. Outside of these strict parameters, LMSB and Appeals will respect the terms agreed to on the FTS Session Report.

  8. LMSB and Appeals commit to advocate the agreement reached in a signed FTS Session Report to reviewing authorities, such as the Joint Committee.

  9. In the event of a request from Appeals or LMSB to reconsider the FT Session Report agreement, the LMSB Territory Manager and the ATM must agree on the decision to reconsider. If LMSB and Appeals are unable to agree, the decision is elevated to the Executive owners of the LMSB FTS process.

8.26.1.14  (10-23-2007)
LMSB FTS Cases Subject to Joint Committee

  1. Special procedures must be followed in cases subject to Joint Committee reporting requirements.

  2. Upon assignment of an LMSB FTS case, Appeals must confer with both the taxpayer and LMSB to determine whether the case is subject to Joint Committee reporting requirements, and record the results in the ACDS case activity record.

  3. At the completion of the LMSB FTS process, the case status relative to Joint Committee reporting is reconfirmed, taking into consideration the results of the settlement process, before finalizing the settlement.

  4. When issues are resolved by Appeals using delegated settlement authority, Appeals is responsible for preparing an ACM and providing a copy to LMSB for inclusion in their Joint Committee Report.

  5. On the day agreement is reached, the terms and dollar adjustments of the resolved issues are documented on the FT Session Report. All parties (Appeals, LMSB and the taxpayer) sign-off on the FT Session Report, and LMSB begins preparing the tax computation and the Joint Committee Report. Appeals explains to the taxpayer that the agreement is treated as final for computation purposes, but it is subject to review by the Congressional Joint Committee on Taxation.

  6. Appeals prepares the closing agreement on settled issues, and solicits the taxpayer's signature on the closing agreement, but the closing agreement is not signed by Appeals until the Joint Committee clearance letter is received.

  7. Immediately after the taxpayer signs the closing agreement, Appeals closes the case on ACDS using Form 5402. The Appeals Official notes in Item 11, Remarks, on the Form 5402; "The closing agreement should be returned to Appeals for signature after the Joint Committee completes consideration of the settlement" .

  8. Since the case is in LMSB jurisdiction, LMSB makes the final tax computation, and writes the Joint Committee Report. Appeals prepares an ACM explaining only those LMSB FTS issues resolved with Appeals settlement authority. The explanation provides sufficient detail and analysis to apprise the Joint Committee of the Appeals evaluation and settlement of the LMSB Fast Track issues. On the settled issues, Appeals responds to any concerns raised by the Joint Committee.

  9. LMSB includes the Form 5402, ACM and closing agreement in their Joint Committee Report.

  10. Issues resolved between the taxpayer and LMSB without the need for Appeals settlement authority (resolved within the LMSB Team Manager’s authority), are written up by LMSB who will respond to Joint Committee concerns for these issues.

8.26.1.15  (10-23-2007)
Reaching Agreement During LMSB FTS

  1. On the day agreement is reached, at the conclusion of the LMSB FTS session, the amounts of the agreed adjustments are put into the FT Session Report and Appeals asks the parties to indicate agreement by signing the report. For those issues resolved using Appeals settlement authority, Appeals advises the taxpayer the settlement is not final until a closing agreement is signed. If a refund requires a report to the Joint Committee, Appeals notifies the taxpayer the settlement is not final until the report clears the Joint Committee. All parties are given a copy of the signed FT Session Report.

  2. With an agreement reached, the parties have several weeks to complete the final closing procedures, including the preparation of the tax computations by LMSB. For issues settled by Appeals, Appeals prepares a brief ACM and a closing agreement. After the taxpayer and Appeals sign the closing agreement, LMSB secures the appropriate case closing documents from the taxpayer and closes the case through standard examination procedures.

8.26.1.15.1  (10-23-2007)
Closing Agreement Distribution and Taxpayer Closing Letter

  1. The following details the distribution for the closing agreement:

    1. Original to Examination to staple to return

    2. Duplicate to taxpayer

    3. Triplicate to Appeals closed file records

    4. Copy to Appeals Fast Track Program Manager

  2. Send the taxpayer the closing agreement with a closing letter containing the following text:

    "The agreement we reached on your LMSB FTS case has been approved and we will return the file to LMSB so that they may complete processing of your case. The enclosed copy of the accepted closing agreement is for your records. The LMSB Team will compute the tax and give you a report. If you have any questions, please call me at the phone number shown above."

  3. For CAP issues, forward the closing letter to the LMSB AC and LMSB Team Manager.

8.26.1.15.2  (10-23-2007)
Brief Appeals Case Memorandum (ACM)

  1. For issues settled using Appeals settlement authority, Appeals prepares a brief ACM and a closing agreement. A brief ACM summarizes the significant facts, body of law relied upon by the parties, and includes a brief evaluation and recommendation on whether the disposition should be accepted.

  2. For issues settled using the authority of the LMSB Team Manager rather than Appeals settlement authority, Appeals does not prepare an ACM. Appeals may be asked to assist in preparing a closing agreement for LMSB resolved issues, but an authorized LMSB manager executes the closing agreement.

  3. No ACM is required for issues not resolved in the FTS session.

8.26.1.15.3  (10-23-2007)
Preparing Form 5402, Appeals Transmittal and Case Memo

  1. The Appeals Officer or ATCL prepares Form 5402 and includes the following entries:

    1. Item 8, Revised Findings – enter an amount equal to 35% of the agreed adjustments to taxable income and the dollar-for-dollar effect of agreed adjustments to credits.

    2. Item 11, Remarks – enter "This is an LMSB Fast Track Settlement Case"

    3. Item 11, Closing Code – enter either :
      14 – Fully resolved
      15 – Not resolved (includes taxpayer withdrawals)
      16 – Partially resolved
      20 – Withdrawn for procedural reasons (further development, bankruptcy)

    4. Joint Committee Cases – note in Item 11, Remarks, "The closing agreement should be returned to Appeals for signature after the Joint Committee completes consideration of the settlement."

8.26.1.15.4  (10-23-2007)
LMSB FTS Closing Package

  1. When the LMSB FTS case is completed, submit an "LMSB FTS Closing Package" to the following:

    1. ATM

    2. Appeals Fast Track Program Manager

    3. LMSB Team Manager

  2. The "LMSB FTS Closing Package" consists of:

    1. Form 5402

    2. Brief ACM (if required)

    3. Closing Agreement (if required)

    4. FT Session Report(s)

    5. Agenda(s)

    6. Case Activity Record

    7. All correspondence received from and sent to the taxpayer/representative

  3. Close the administrative file along with the LMSB Team Manager's closing package to APS and flag it with LMSB Fast Track Settlement - Expedite Handling

  4. The Appeals Official forward the Appeals Fast Track Program Manager's closing package directly to the Appeals Fast Track Program Manager for retention in the closed office file.

8.26.1.15.5  (10-23-2007)
APS Closing Procedures for LMSB FTS Cases

  1. The general provision for APS closing procedures is found in IRM 8.20.7, Appeals Processing Manual - Appeals Case Closures.

  2. A closed office file is not created or maintained locally since the package forwarded to the Appeals Fast Track Program Manager is maintained as the closed office file. Refer to IRM 8.20.8.1 for retention periods.

  3. APS returns the administrative file and "LMSB FTS Closing Package" to LMSB using Form 3210.

8.26.1.15.6  (10-23-2007)
Withdrawals from LMSB FTS

  1. If after assignment, it is determined a case is not ready for the LMSB FTS process, or there is a change in status, the Appeals Official discusses withdrawal of the case with the appropriate Appeals Fast Track Program Manager and Appeals Team Manager.

  2. A change in status may include but is not limited to filing for bankruptcy, a change in corporate structure, finding the case is not sufficiently developed to proceed, or a determination on a Service-wide basis that a particular issue is not subject to a negotiated settlement.

  3. In the event of the withdrawal of a case, the Appeals Official -

    1. Sends a letter to both the taxpayer and LMSB identifying who participated, listing the unresolved issues, and explaining that the taxpayer retains full rights to a traditional appeal.

    2. Return the administrative file to LMSB without an ACM. The file consists only of Form 5701 and the taxpayer’s written response to Examination .

    3. See IRM 8.26.2.15. for closing procedures.

  4. A case may be withdrawn without prejudice, and after the question is addressed, the "Application for Fast Track" may be reconsidered.

  5. When resubmitting a withdrawn case, management decides how to assign an Appeals Official. Ex parte restrictions are not imposed on intra-Appeals communications. Appeals management takes appropriate action to fulfill the Appeals Mission to be fair and impartial. This policy must be made clear to the taxpayer at the beginning of the process, and if the taxpayer is unable to accept this policy, the taxpayer may decide to forego the LMSB FTS option and go to traditional Appeals.

8.26.1.16  (10-23-2007)
Customer Satisfaction Survey for LMSB FTS

  1. At the conclusion of the LMSB FTS process, the Appeals Fast Track Program Manager provides the appropriate survey forms to the Appeals Official and the LMSB Team Manager and encourages them to complete the survey forms so the information can be used to evaluate and improve the process.

  2. The Appeals Official responsible for the survey also sends the survey to taxpayers on LMSB FTS cases included in the general Appeals Customer Satisfaction Survey.


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