IRS TE/GE Fast Track Settlement Program
T. J. Sullivan
Drinker Biddle & Reath LLP
I. INTRODUCTION AND OVERVIEW
The IRS has offered administrative appeal to resolve tax disputes as an alternative
to litigation since 1927. The IRS Appeals Office (“Appeals”), as an independent office
from the IRS, offers a forum for taxpayers that disagree with an IRS assessment to have
the matter(s) reviewed and applicable tax law applied impartially. Review by Appeals is
not required, and taxpayers must timely request that their cases be considered by
Generally, Appeals decides over 100,000 cases a year. The duration of a case
varies depending on the specific facts and circumstances, but TE/GE cases reportedly
may take several months to be assigned and up to a year to be resolved. Appeals has
recently hired additional officers for TE/GE cases and now has 24. The IRS has made
repeated efforts to decrease the amount of time it takes to resolve a case. In connection
with these efforts, the IRS expanded the Fast Track Settlement (FTS) program to the
TE/GE division. As discussed below, FTS permits eligible TE/GE taxpayers to attempt
expedited case resolution through the use of dispute resolution techniques to streamline
the appeals process to reach a negotiated settlement within 60 days or less. The FTS
program is currently temporary and set to expire in November 2010 unless the IRS
extends its test period or makes it permanent.
Eligible TE/GE taxpayers now likely have a choice as to which administrative
appeal route they pursue, and in some case will be able to avail themselves of both the
FTS program and, if that is unsuccessful, traditional Appeals. As with any matter
potentially heading to litigation, however, the taxpayer should carefully evaluate the
advantages and disadvantages of each strategy in their particular circumstances.
II. APPEALS OFFICE & TE/GE
A. Guiding Principles
Appeals functions independently from the IRS operating divisions, reporting
directly to Commissioner Shulman. The mission of Appeals is to reach a fair and
impartial resolution of tax controversies without litigation. I.R.M. 188.8.131.52. Various
procedures and rules at Appeals help ensure Appeals maintains its independence from
2. Jurisdiction and Binding Authority
Appeals has exclusive and final jurisdiction over several matters, including to
consider cases involving the initial or continuing recognition of tax exemption and
charitable foundation classification,1 and to determine a taxpayer’s liability for income,
estate, gift, employment and excise taxes, plus additions to tax, additional amounts and
assessable penalties. Treas. Reg. § 601.106(a)(1)(ii).
3. Ex Parte Communications
Generally, there is a prohibition on ex parte communications between Appeals
Officers and other IRS employees to the extent such communication would appear to
compromise the independence of the Appeals Officer. IRS Restructuring and Reform
Act of 1998 (P.L. 105-206), § 1001(a)(4). Ex parte communication refers to oral and
written (including electronic) communications that take place between Appeals and
another Service function without the participation of the taxpayer (or the taxpayer's
representative). Rev. Proc. 2000-43, 2000-2 C.B. 404. A taxpayer may waive the ex
parte prohibition. Id.
The IRS must provide a taxpayer a reasonable opportunity to participate in any
communication between Appeals and the originating function whenever the matter
involves more than ministerial, administrative, or procedural matters, or the
communication addresses the substance of the issues or positions taken in the case. Rev.
Proc. 2000-43, 2000-2 C.B. 404. Examples of prohibited ex parte communications
include: discussions about the accuracy of the facts presented by the taxpayer and the
relative importance of the facts to the determination; discussions of the relative merits or
alternative legal interpretations of authorities cited in a protest or in a report prepared by
the originating function; and discussions of the originating function's perception of the
demeanor or credibility of the taxpayer or taxpayer's representative.
There is no prohibition on ex parte communication regarding intra-Appeals
discussions, if the matter involves the raising of new issues in Appeals, during post-
settlement conferences between Appeals and TE/GE, or concerning discussions between
Appeals and the Commissioner. Rev. Proc. 2000-43, 2000-2 C.B. 404.
B. Appeals Procedures
1. Formal Written Protest.
To initiate an Appeals case, a taxpayer must submit a formal written protest with
specific information in all exempt organization cases. Treas. Reg. § 601.106(a)(1)(iii)(d).
The taxpayer files its formal written protest with the Area Director. TE/GE forwards the
complete case file to Appeals. The taxpayer likely will be asked to extend the statute of
limitations at this point.
2. Appeals Officer
Appeals does not have jurisdiction to consider the initial or continuing recognition of tax exemption and
charitable foundation classification if such recognition or determination is made by, or contrary to, a
National Office ruling or technical advice concerning tax-exempt or foundation status or qualification
issued before the case went to Appeals. Treas. Reg. § 601.106(a)(1)(v)(a).
Typically, the Appeals function is carried out by an Appeals Officer, who applies
the tax laws to the facts of the case reasonably and impartially and is authorized to enter
into settlement with a taxpayer. I.R.M. 184.108.40.206.2; I.R.M. 220.127.116.11.14. The Appeals
Officer makes a preliminary review of the case to determine whether it should be
returned to the originating function for further development. I.R.M. 18.104.22.168. The
Appeals Officer does not act in an investigative capacity or as an examining officer, but
may request additional information or evidence. I.R.M. 8.2.1. Notwithstanding the
prohibition on ex parte communications, the Appeals Officer is permitted to discuss
return of the case with the originating IRS function, but is limited to discussing matters
that are ministerial, administrative, or procedural. Rev. Proc. 2000-43, 2000-2 C.B. 404.
3. Appeals Conference
Generally, a taxpayer has an informal meeting with the Appeals Officer regarding
the facts and law applicable to the case. Treas. Reg. § 601.106(c); I.R.M. 22.214.171.124.
Conferences are scheduled on dates and at places reasonably convenient to the taxpayer
and are held at the Appeals offices or other IRS locations. I.R.M. 126.96.36.199.1. As a result
of the Appeals conference, the Appeals Officer determines whether there is a basis of
settlement with the taxpayer. I.R.M. 188.8.131.52.1. Appeals officers have the authority to
consider the hazards of litigation in settling a case.
4. Settlement and Subsequent Review
If the Appeals Officer and the taxpayer reach a settlement, the case must be
reviewed internally by a reviewing officer (e.g., the Appeals Team Manager). Similarly,
if the Appeals Officer recommends action favorable or unfavorable to the taxpayer, the
case must be reviewed internally by a reviewing officer. I.R.M. 184.108.40.206.2.1. The
taxpayer is entitled to a hearing with either the Appeals Officer or the reviewing officer
only if the reviewing officer disagrees with the Appeals Officer’s conclusions,
recommending Appeals accept the taxpayer’s settlement proposal or actions favorable to
the taxpayer. Treas. Reg. § 601.106(f)(3); I.R.M. 220.127.116.11.2.2. Assuming the case is
settled, the Appeals Officer should use established issue or case closing procedures and
5. Practical Outcome
A final Appeals settlement is binding on the IRS, but the taxpayer can still choose
to litigate if dissatisfied with the outcome at Appeals. Since it is Appeal’s mission to
resolve cases without litigation, and it has broad authority to negotiate settlements by
applying a hazards of litigation standard, around 90% of cases that reach Appeals are
DBR Comment: Traditional Appeals is independent and has broad authority to reach a
settlement, but it historically has been slow, taking up to a year for TE/GE cases. It is
confidential, an advantage over docketing a case in court. Many exempt organizations
specialists are skeptical of Appeals, believing that they “give too many cases away.”
III. FTS PROGRAM: ANNOUNCEMENT 2008-105, 2008-48 IRB 12192
In November 2008, the IRS introduced the FTS program for TE/GE cases, based
on, but not the same as, the existing FTS programs for the Large and Mid-Size Business
(LMSB) and Small Business/Self-Employed Taxpayer (SB/SE) divisions. Ann. 2008-
105, 2008-48 I.R.B. 1219. Under FTS for TE/GE, eligible TE/GE taxpayers may seek
expedited case resolution of issues through November 27, 2010. FTS for TE/GE is
administered jointly by TE/GE and the Appeals Office, but the case remains docketed in
TE/GE. It is important to note that the FTS program does not confer any additional
settlement authority. Settlements from FTS are subject to most of the same rules
applicable if the case had been heard in Appeals, including Internal Revenue Manual
procedures and existing published guidance. Thus, FTS serves to streamline the appeals
process for certain cases by attempting to reach settlement within 60 days or less while
the case is still in TE/GE and before the issuance of a 30-day letter.
A. Parties Involved in FTS Program
There are three significant parties involved in a case in the FTS program: a
TE/GE taxpayer, a FTS Appeals Official, and a TE/GE representative. Other parties may
include an authorized representative of the TE/GE taxpayer, a representative with
decision-making authority from TE/GE if the TE/GE representative lacks such authority,
and any person with information and expertise necessary to assist the parties during the
The FTS Appeals Official is a neutral party who uses dispute resolution
techniques to facilitate settlement between the TE/GE taxpayer and the TE/GE Appeals
Officer. As a result, the FTS Appeals Official does not perform in the traditional Appeals
Office role discussed above. The FTS Appeals Official will be a TE/GE Appeals Officer
trained in mediation; however, in rare cases, a mediation-trained Appeals Team Case
Leader may serve as the FTS Appeals Official.
B. Eligibility to Participate in FTS Program
Before a case may be accepted into the FTS program, several requirements must
be satisfied. These include:
1. A TE/GE taxpayer must have an eligible issue under examination
by TE/GE and must not have any ineligible issues;
2. A 30-day letter must not have been issued;
3. A FTS Application must be submitted;
4. The TE/GE taxpayer must provide, and include with the FTS
Application, a written response to Form 5701, Notice of Proposed
Adjustment, or a Revenue Agent Report;
5. The TE/GE Group Manager (or a designee) and the TE/GE
taxpayer must have evaluated their individual circumstances of
The information discussed below is from Ann. 2008-105, unless otherwise provided.
their case and determined that the FTS Program meets their needs;
6. The Appeals FTS Program Manager must have determined that
Appeals has the necessary staffing resources.
Once the above requirements have been satisfied, the FTS process should be completed
within 60 days of acceptance of the FTS Application, unless the parties agree to extend
the resolution period.
1. Eligible & Ineligible Issues
A TE/GE taxpayer may seek FTS for cases involving income tax, exclusion of
income from interest paid on municipal obligations, employment tax, estate and gift tax,
excise tax (including section 4958 excise taxes), and exemption, foundation or
qualification issues or other TE/GE functional issues as long as 3 additional requirements
are satisfied with respect to each issue. First, the issue must be fully developed. Second,
the TE/GE taxpayer must have stated its opinion in writing. Finally, there must be a
limited number of unagreed issues.
A TE/GE taxpayer that has one or more issues that is not eligible for FTS cannot
use FTS for any of its issues. Where one issue is determined ineligible, all issues are
deemed to be ineligible for FTS. Issues that are not eligible for FTS include: (1) issues
that can be resolved through other established settlement initiatives (e.g., the Self
Correction Program, the Audit Closing Agreement Program, etc.); (2) correspondence
examination cases; (3) cases in which the taxpayer has failed to respond to IRS
communications and no documentation has been previously submitted for consideration
by TE/GE; (4) cases in which Appeals does not have jurisdiction; (5) listed Abusive Tax
Avoidance Transactions; (6) cases involving potential for civil or criminal fraud; (7)
rebate claim cases; (8) selected initiatives as determined on an annual basis by the TE/GE
Commissioner or his delegate; (9) Tax Equity & Fiscal Responsibility Act (TEFRA)
partnership cases; (10) issues under consideration for designation for litigation; (11)
frivolous issues (e.g., issues identified in Rev. Proc. 2008-2, 2008-1 I.R.B. 90); (12)
“whipsaw” issues; or (13) issues that have been identified as excluded from FTS in a
Chief Counsel Notice (or equivalent publication).
2. FTS Application: Timing, Procedure, and Acceptance
A TE/GE taxpayer, the examining agent or the TE/GE Group Manager may
initiate an application to the FTS process at any time after an issue has been fully
developed and before issuance of a 30-day letter. Although any of these parties may
submit a FTS Application on Form 14047, the TE/GE taxpayer is required to include
with the FTS Application a written response by the TE/GE taxpayer to the Form 5701,
Notice of Proposed Adjustment, or Revenue Agent Report prepared by the TE/GE
If the case is accepted, the FTS process should be completed within 60 days of
acceptance of the FTS Application. The FTS process period may be extended beyond 60
days if all of the parties agree. If the case is not accepted, either the TE/GE or Appeals
representative will discuss other dispute resolution opportunities with the TE/GE
taxpayer. The decision not to accept a case into the FTS program is not subject to
administrative appeal or judicial review.
C. FTS Program Procedures
An FTS case remains in TE/GE and is not transferred into the jurisdiction of
Appeals. The FTS Appeals Official uses alternative dispute resolution techniques to
promote agreement. Before the FTS Appeals Official meets with the parties in a FTS
session, the FTS Appeals Official will advise the participants of the procedures and
establish ground rules. The FTS Appeals Official may modify these rules and procedures
to adequately reflect changed circumstances.
2. Rights of the Parties
The FTS process is confidential. IRS employees are subject to the confidentiality
and disclosure provisions of the Code. IRS employees, the TE/GE taxpayer, and any
other participants are prohibited from voluntarily disclosing information during the FTS
process (unless required by statute). A TE/GE taxpayer that signs a FTS agreement
consents to disclosing its returns and return information relevant to the FTS process to
persons named on the FTS agreement as participants. See Code Section3 6103(a).
Each of the TE/GE taxpayer and the TE/GE representative has the right to
withdraw at any time during the FTS process. The withdrawing party should provide
written notice to the FTS Appeals Official and the other party.
Contrary to traditional Appeals, the ex parte communication rules do not protect
communication arising in the FTS process and thus, there is no prohibition against ex
parte communication between Appeals Officers and other IRS employees. The reasoning
is that a FTS Appeals Official facilitates an agreement between the parties and does not
act in a traditional Appeals settlement role.
DBR Comment: Aside from speed, this is a key distinction with FTS. The Appeals
Officer is acting more like a mediator than a judge and really tries to bring the parties to
a voluntary settlement, and they can have ex parte communications with Exam.
3. FTS Session Reports & Agenda
The FTS process is facilitated through the use of FTS session reports and agenda,
which are created by the FTS Appeals Official and provided to representatives of both
parties with decision-making authority. FTS session reports are helpful for planning FTS
sessions and reporting developments, providing (1) a list all issues approved for the FTS
All Section references are to the Internal Revenue Code of 1986, as amended (the “Code”).
program; (2) a description of the issues; (3) the amounts in dispute; (4) conference dates;
(5) a plan of action for a FTS session; and (6) any other information that would be useful
to the process. The agenda is used in connection with guiding communication, setting the
order of issue discussion and posing questions to clarify the issues.
4. FTS Sessions
Generally, every attempt is made to reach an agreement during one FTS session.
The FTS Appeals Official conducts FTS sessions at a date and location agreed to by both
parties. Unless both parties agree otherwise, a FTS Appeals Official only considers
issues outlined in the FTS session report. Any new information presented by the TE/GE
taxpayer will delay the targeted completion date to provide the IRS time to review the
The FTS Appeals Official has sole discretion to determine whether an FTS
session should be a joint session, separate meetings, or both. Both the TE/GE taxpayer
and the TE/GE representative must have at least one representative with decision-making
authority during FTS sessions. The TE/GE taxpayer and the TE/GE representative may
bring individuals with the information and expertise necessary to assist the parties and the
FTS Appeals Officials during the settlement process, although the FTS Appeals Official
may request a limited number of participants to facilitate the settlement process.
The FTS Appeals Official may propose settlement terms for any or all issues
during a FTS session. If not all issues can be agreed upon, the FTS Appeals Official
should attempt to settle those issues that are susceptible to settlement. If the TE/GE
taxpayer and the TE/GE representative agree to the settlement terms, the FTS Appeals
Official, TE/GE taxpayer and the TE/GE representative must sign the FTS session report
acknowledging acceptance of the settlement terms.
D. Possible Outcomes of Case in FTS Program & Rights of Parties
1. The Case is Recommended for Settlement by the FTS Appeals
Neither party is obligated to accept an FTS proposed settlement. If the TE/GE
taxpayer agrees to, but the TE/GE Group Manager rejects a settlement proposal, the
TE/GE Area Manager (or equivalent TE/GE management official with jurisdiction for the
case) must review the rejection and either (1) accept the settlement proposal on behalf of
TE/GE, or (2) concur in writing with the rejection, in which case the issue that is not
settled and will be closed out of FTS as unagreed if no alternative settlement can be
DBR Comment: If the TE/GE Group Manager wants to reject an FTS settlement
proposal, he or she has to convince their supervisor to uphold the rejection in writing or
the Service will settle.
A case that the FTS Appeals Official recommends for settlement is subject to the
same applicable procedures that would have applied had the case been considered by
Appeals. Thus, the FTS Appeals Official should use established issue or case closing
procedures and agreement forms. Any settlement between A TE/GE taxpayer and
TE/GE representative as a result of FTS is not binding for taxable periods or issues not
covered by the FTS agreement, unless they are expressly provided for in a closing
The IRS must report certain proposed resolutions to the Joint Committee on
Taxation and, upon comments from the committee, the IRS may reconsider the proposed
settlement. See Code Section 6405. The TE/GE taxpayer is not obligated to agree with
an IRS reconsideration and instead may request consideration of unagreed issues by
2. The Case is Unresolved
The TE/GE taxpayer retains the right to request that the issue be considered
by Appeals under the traditional Appeals process. There are not any ex parte
restrictions imposed on intra-Appeals communications if the case is heard by Appeals,
although appropriate measure should be taken by Appeals management to ensure
impartiality. Likely, a 30-day letter would be issued and the TE/GE taxpayer would
follow the procedures discussed above regarding Appeals cases. The taxpayer may in
some cases have the same Appeals Officer assigned.
E. Other Matters
1. Who to Contact
A TE/GE taxpayer with questions about the FTS program or the suitability of its
case for FTS may contact the TE/GE Group Manager of the examining agent conducting
the audit for the period(s) currently under examination.
2. Likelihood of Permanency
When the 2-year temporary period has expired, TE/GE and Appeals will evaluate
the program, consider any necessary adjustments and determine whether to make the
program permanent. Based on the response to the FTS programs for LMSB and SB/SE,
it is unclear whether the program will be implemented permanently. The pilot FTS
program for LMSB was introduced in 2001, and made permanent in 2003. See Notice
2001-67, 2001-2 C.B. 544; Rev. Proc. 2003-40, 2003-1 C.B. 1044.
In contrast, the pilot FTS program for SB/SE has not been made permanent and is
only in a limited number of cities, although the test period has been extended more than
once. The SB/SE FTS program had an initial pilot period of 6 months in only 3 cities
beginning in 2006. Subsequently, the pilot FTS program was extended to include a total
of 7 cities through September 4, 2008. See IR 2007-200, 12/14/2007. The SB/SE FTS
program remains in the same 7 cities for a 2-year test period set to expire 11/30/2010.
Ann. 2008-110, 2008-48 I.R.B. 1224.
The IRS has invited comment on the program to be submitted to:
Internal Revenue Service-Appeals
Attn: Leonard C. Horton
4050 Alpha Road; Farmers Branch, TX 75244-4201
DBR Comment: Many taxpayers will no doubt choose to follow the commonly regarded
practice of taking every available bite at the apple to settle a case. However, where the
taxpayer is relatively certain it won’t obtain the outcome it wants in FTS because of the
alternative dispute resolution nature of the proceeding, it should consider possible
disadvantages of pursuing FTS before traditional Appeals. First, the Examination
Division will hear all of the taxpayer’s arguments before it issues the final Revenue Agent
Report and 30 day letter and could tighten up its position before their issuance. Second,
when reaching Appeals after FTS, the no ex parte communications rule will not apply, so
the Appeals Officer may not be as independent as he or she otherwise would be. In
certain cases, the Appeals Officer might actually be the same individual who acted in the
mediator role in FTS.
THE AUTHOR GRATEFULLY ACKNOWLEDGES THE ASSISTANCE OF
RACHEL ELAINE BROWN OF DRINKER BIDDLE & REATH LLP IN PREPARING