On November 6, 2013, the IRS announced the nationwide expansion of the Fast Track Settlement (FTS) program to small businesses and self-employed individuals. Prior to this announcement, FTS was only available to (1) large and mid-size businesses with more than $10 million in assets and (2) small businesses and self-employed individuals in a small handful of U.S. cities. In September 2006, the IRS announced a pilot program for taxpayers under investigation by the Small Business/Self-Employed Division (SB/SE) in Chicago, Illinois, Houston, Texas, and St. Paul, Minnesota; in December 2007, the IRS expanded the scope of the pilot program to small businesses and self-employed taxpayers under investigation in Philadelphia, central New Jersey, San Diego (California), Laguna Nigel (California), and Riverside (California). Now all small businesses and self-employed taxpayers under investigation by the IRS throughout the United States can take advantage of this streamlined settlement program that is designed to expedite the timeframe for resolving audit cases by sharpening the focus on a small number of disputed factual or legal issues.
Basic Structure of FTS
FTS enables taxpayers that have unagreed issues and at least one open year under investigation to work collaboratively with the SB/SE and the Office of Appeals to resolve all outstanding issues while the case is still under SB/SE jurisdiction. An Appeals Officer trained in mediation will serve as a neutral party (the FTS Appeals Official) in order to resolve disputed issues at a conference between the parties entitled the FTS Session. The FTS Session will include the FTS Appeals Official, the taxpayer, and a representative of SB/SE. The taxpayer and SB/SE representatives should be limited to individuals with decision-making authority and with sufficient knowledge of the facts to assist the parties and the FTS Appeals Official during the settlement negotiations.
Before the FTS Session, the Appeals Official is responsible for preparing an FTS Session Report which includes a “list of all issues approved for the FTS program, a description of the issues, the amounts in dispute, conference dates, a plan of action for the FTS Session, and other information useful to the process as determined by the parties and the FTS Appeals Official.” The FTS Appeals Official will hold the FTS Session at an agreed-upon date and location, will allow both parties (the taxpayer and the SB/SE representative) to summarize their positions on the disputed issues. At the FTS Session, the Appeals Official may propose settlement terms or may consider settlement terms proposed by either party.
If the taxpayer approves the FTS Appeals Official’s settlement proposal but the SB/SE Group Manager rejects it, then the SB/SE Territory Manager must review the SB/SE’s rejection of the settlement proposal and either concur in writing or accept the settlement proposal on behalf of SB/SE. If, however, both parties accept the settlement terms, both the parties and the FTS Appeals Official will sign the FTS Session Report acknowledging acceptance of the settlement terms for purposes of preparing computations.
Advantages of FTS Over Standard Audit Procedures
The main advantage of FTS over standard audit procedures is that is saves considerable time. The goal of the FTS is to resolve disputed issues within 60 days; under standard audit, appeals, and litigation procedures, the resolution of these same issues could take months or even years. The time savings helps taxpayers in two significant ways:
1. By minimizing legal and accounting fees; and
2. By minimizing distractions for businesspersons who need to focus on the ongoing concerns of their business.
Another advantage of FTS is that taxpayers do not forgo their appeal rights by participating in the FTS program. If the taxpayer is dissatisfied with the results of the FTS process for any reason, that taxpayer still retains all of his or her appeal rights, including the right to request a hearing before Appeals or a conference with a manager. The taxpayer may also withdraw from the FTS process at any time and for any reason. Therefore, the FTS process offers taxpayers the opportunity to resolve disputed issues quickly and efficiently while still retaining their rights to appeal the disputed issue and voluntarily withdraw from the FTS process.
Eligibility for Participation in FTS
In order to participate in FTS, a small business or self-employed taxpayer must meet the following criteria:
1. The factual and/or legal issues must be fully developed. In order for FTS to function as a streamlined audit settlement program, the factual and/or legal issues in dispute must be “fully developed.” This generally means that the IRS has proposed adjustments to the tax return(s) under examination (via Form 5701), and the taxpayer has responded to the proposed adjustments in writing. According to the announcement of the FTS program administered by the Large and Mid-Size Business Division (LMSB), the “parties should initiate FTS only after the Service issues the Form 5701 (Notice of Proposed Adjustment) and the taxpayer provides a written response, but before the date on which the Service issues the first letter of proposed deficiency which allows the taxpayer an opportunity for administrative review in the Office of Appeals (30-day letter).” According to the announcement of the FTS program administered by the SB/SE Division, however, “FTS will be used to resolve factual and legal issues and may be initiated at any time after an issue has been fully developed, preferably before the issuance of a 30-day letter or equivalent notice.” In other words, it might be possible under the new program to request FTS consideration if the issues are fully developed and the small business or self-employed individual has already received a 30-day letter.
2. There are a limited number of unagreed issues. The IRS can only offer the benefits of FTS to taxpayers who disagree with the IRS on a small number of factual or legal issues. Although there is no predetermined limit on the number of unagreed issues that can be presented for FTS settlement, the IRS has stated that the number of unagreed issues should be “limited,” and that when it is in the best interest of tax administration, “only one issue may be accepted into FTS while the audit continues.” Thus, a taxpayer who disagrees with the IRS examiner regarding a number of different complex factual and legal issues is not likely to be admitted to FTS for resolution of all the disputed issues; it is possible, however, that a taxpayer could request FTS consideration for two or three of the most complex factual or legal issues and proceed under standard audit and appeals procedures for the remaining issues.
3. The disputed issue is not poised for litigation. The IRS will not accept any issue for FTS consideration if that issue is either “designated for litigation” or “under consideration for designation for litigation.” An issue can become “designated for litigation” if the IRS Office of Chief Counsel has identified the same issue for an earlier taxable year of the same taxpayer; an issue may be “under consideration for designation for litigation” if the taxpayer has filed (or perhaps is contemplating filing) a petition in U.S. Tax Court for a prior taxable year regarding the same issue.
4. The case is not a Collection Appeals Program, Collection Due Process, Offer in Compromise, or Trust Fund Recovery case. If the disputed case arises from one of these programs, FTS is not available (except as provided in any IRS guidance).
5. The taxpayer has not already requested competent authority assistance. If the taxpayer has already requested assistance from the U.S. competent authority to address the mutual agreement procedure provisions of tax treaties, then the issues under consideration by the competent authority will not be eligible for FTS.
6. The taxpayer must have responded to IRS communications and submitted documentation for consideration by Compliance. Cases in which the taxpayer fails to respond to IRS notices will not be eligible for FTS consideration because the issues are not fully developed.
7. The disputed issues must arise from a standard audit rather than a “correspondence exam.” “Correspondence exam” cases “worked solely in a Campus/Service Center site” will not be considered for FTS.
8. The case must not involve “whipsaw” issues. If a case involves more than one taxpayer – for example, if the audited transaction involves Taxpayer A and three other unrelated taxpayers (Taxpayers B, C, and D)—it is likely that the resolution of Taxpayer A’s case under FTS procedures will be inconsistent with the resolution of the cases for Taxpayers B, C, and D. Therefore, Taxpayer A will be ineligible for participation in FTS so that Taxpayers B, C, and D do not get “whipsawed” by the FTS process.
9. The disputed issue must not be frivolous. Revenue Procedure 2006-2 identifies the issues that the IRS considers to be frivolous, such as the position that income taxes are voluntary and that the mandatory imposition of income tax violates the U.S. Constitution.
10. The disputed issue must not involve Tax Equity & Fiscal Responsibility Act (TEFRA) partnership matters.
11. The disputed issue must fall within SB/SE jurisdiction. It is important to note, however, that SB/SE FTS will also be available for cases under the jurisdiction of the Tax Exempt and Government Entities (TE/GE) Division, depending on the circumstances of the case.
12. The disputed issue must not have been identified in a Chief Counsel Notice or similar publication as excluded from the SB/SE FTS process.
Applying for Participation in FTS
Either the taxpayer, examining agent, or SB/SE Group Manager can apply for participation in the FTS program. In order to apply, “the taxpayer and the SB/SE Group Manager must submit a SB/SE-Appeals FTS Application to the local Appeals Team Manager.” The application should be submitted “at any time after an issue has been fully developed but preferably before a 30-day or equivalent letter is issued.”
 IR 2006-61, supra note 3.
 Id. It is important to note, however, that the signature of the parties on the FTS Session report “does not constitute a final settlement, nor does it waive restrictions on assessment, terminate consents to extend periods of limitation, start the running of any periods of limitation, or constitute agreement to close the case.” Id.
 See id. (“The SB/SE FTS process is designed to be completed within 60 days of acceptance of the SB/SE-Appeals FTS Application.”).
 IR 2006-61, supra note 3 (emphasis added).
 IRS Publication 4539, Fast Track Settlement: A Process for Prompt Resolution of Large Business and International Tax Issues (Rev. May 2012) (pamphlet on the FTS program).
 IR 2006-61, supra note 3.
 IR 2006-61, supra note 3.
 IR 2006-61, supra note 3.
 The Managing Director of M. Robinson & Company, P.C., Attorney Morris N. Robinson, LL.M., Esq., wrote an article about the Massachusetts Early Mediation Program—which was modeled after the IRS FTS program—that was published in State Tax Notes. See Morris N. Robinson, LL.M., Esq., Massachusetts DOR Initiates Early Mediation Program, State Tax Notes (Nov. 12, 2012) at p. 1.