IRS Announces Permanent Fast-Track Settlement Program for TE/GE Taxpayers

Part IV. Items of General Interest

This announcement provides an opportunity for taxpayers (entities or individuals) with issues under examination by the Tax Exempt and Government Entities Division (TE/GE) to use Fast Track Settlement (FTS) to expedite case resolution within the TE/GE organization. The TE/GE FTS will enable TE/GE taxpayers that currently have unagreed issues in at least one open period under examination to work together with TE/GE and the Office of Appeals (Appeals) to resolve outstanding disputed issues while the case is still in TE/GE jurisdiction.

DESCRIPTION OF TE/GE FAST TRACK SETTLEMENT

TE/GE and Appeals jointly administer the TE/GE FTS process. TE/GE FTS is used to resolve factual and legal issues, and it may be initiated at any time after an issue has been fully developed, but before the issuance of a 30-day letter (or its equivalent). TE/GE FTS is available to taxpayers nationwide.

BACKGROUND

The pilot program for TE/GE FTS was announced in Announcement 2008-105, 2008-2 C.B. 1219, to extend fast track settlement to TE/GE cases and provide for direct oversight of the program by TE/GE and Appeals. The pilot program officially expired on November 30, 2010; however, TE/GE and Appeals have continued to offer FTS on an unofficial basis. This announcement establishes TE/GE FTS as a permanent program based on the determination that it supports the Service-wide initiative of reducing the time and cost of examination and case resolution. TE/GE FTS is consistent with the pilot program with the exception of an additional level of review for TE/GE FTS applications to accommodate the management structure of TE/GE. The key features of TE/GE FTS are:

• The TE/GE Group Manager coordinates preparation and submission of the application package to the Appeals FTS Program Manager. The Appeals Team Manager responsible for TE/GE programs serves as the Appeals FTS Program Manager.

• The TE/GE Group Manager notifies the taxpayer of acceptance into or rejection from the FTS program, participates in the FTS Session on behalf of the government, and is primarily responsible for accepting or rejecting any settlement proposal that arises as a result of the FTS.

• The TE/GE FTS Application will be reviewed by both the TE/GE Group Manager and an operating division official (e.g., a Director of Examination) before it is sent to the Appeals FTS Program Manager for final approval.

• In managing cases eligible for TE/GE FTS, the Appeals FTS Program Manager may consult with the TE/GE Group Manager.

• The TE/GE FTS process is designed to be completed within 60 days of acceptance of the TE/GE FTS Application.

Generally, TE/GE FTS is available for cases involving income tax; exclusion of income from interest paid on municipal obligations; employment tax; estate and gift taxes; excise tax; exemption, foundation or qualification issues; or other such TE/GE functional issues as appropriate when:

• Issues are fully developed;

• The taxpayer has stated a position in writing; and

• There are a limited number of unagreed issues.

• Issues that can be resolved through other established settlement initiatives, such as, but not limited to, the Self Correction Program "SCP," the Audit Closing Agreement Program "Audit CAP," or other programs described in Rev. Proc. 2008-50, 2008-2 C.B. 464;

• Correspondence examination cases;

• Cases in which the taxpayer has failed to respond to IRS communications or no documentation has been previously submitted for consideration by TE/GE;

• Cases in which Appeals does not have jurisdiction (including determination of penalties under § 6700 of the Code);

• Cases involving Listed Transactions or Abusive Tax Avoidance Transactions (ATAT) defined in I.R.M. Exhibit 4.32.1-1;

• Cases involving potential for civil or criminal fraud;

• Rebate claim cases;

• Tax Equity and Fiscal Responsibility Act (TEFRA) partnership cases;

• Issues designated for litigation;

• Issues under consideration for designation for litigation;

• Frivolous is sues, such as, but not limited to, those identified in Notice 2010-33, 2010-17 I.R.B. 609, or any successor guidance;

• "Whipsaw" is sues, i.e., issues for which resolution with respect to one party might result in inconsistent treatment in the absence of the participation of another party; or

• Issues that have been identified in a Chief Counsel Notice, or equivalent publication, as excluded from the FTS process.

APPLICATION PROCESS

A taxpayer that is interested in participating in TE/GE FTS, or that has questions about the program and its suitability for the taxpayer's case, may contact the TE/GE Group Manager or the Examiner conducting the audit for the period(s) currently under examination. The taxpayer, the Examiner, or the TE/GE Group Manager may consider using the TE/GE FTS process at any time after an issue has been fully developed but before a 30-day letter (or its equivalent) is issued.

To apply for the TE/GE FTS program, the taxpayer should submit Form 14017, Application for Fast Track Settlement, available at http://www.irs.gov/pub/irs-pdf/f14017.pdf (TE/GE FTS Application). A Form 5701, Notice of Proposed Adjustment, or a preliminary report of findings, as appropriate, and a written response from the taxpayer must be included with the TE/GE FTS Application to facilitate the understanding of the parties' opposing views. If the Form 5701 has not previously been prepared, the TE/GE Examiner should prepare one for submission with the Form 14017. The TE/GE FTS Application will be reviewed by both the TE/GE Group Manager and an operating division official before it is sent to the Appeals FTS Program Manager for final approval.

If the case is not accepted for inclusion in TE/GE FTS, the TE/GE or Appeals representative will discuss other dispute resolution opportunities with the taxpayer, including 30-day letter procedures contained in IRS Publication 1, Your Rights as a Taxpayer, or Publication 5, Your Appeal Rights and How To Prepare a Protest If You Don't Agree. The decision not to accept a case into the TE/GE FTS program is not subject to administrative appeal or judicial review.

SETTLEMENT PROCESS

TE/GE FTS employs various alternative dispute resolution techniques to promote case or issue resolution. An FTS Appeals Official will serve as a neutral party. A TE/GE Appeals Officer trained in mediation or, in limited cases, a mediation-trained Appeals Team Case Leader, serves as the neutral FTS Appeals Official. The FTS Appeals Official does not perform in a traditional Appeals role, but uses dispute resolution techniques to facilitate settlement between the parties.

During TE/GE FTS, the taxpayer and TE/GE representatives meet with the FTS Appeals Official (the FTS Session). The taxpayer and TE/GE representatives at the FTS Session should include individuals with decision-making authority and the information and expertise necessary to assist the parties and the FTS Appeals Official during the settlement process. The FTS Appeals Official may ask the parties to limit the number of participants at the FTS Session to facilitate the process. A taxpayer is not required to have a representative to participate in TE/GE FTS. If the taxpayer is represented by a person engaged in practice before the Service, however, this individual must have a power of attorney from the taxpayer (Form 2848, Power of Attorney and Declaration of Representative).

The FTS Appeals Official will hold the FTS Session at the date and location agreed to by both parties. Prior to the FTS Session, the FTS Appeals Official will advise the participants of the procedures and establish ground rules. The FTS Appeals Official may modify the rules and procedures during the FTS Session to adapt to changes in circumstances. The FTS Session may include joint sessions with all parties, separate meetings, or both, as determined appropriate in the sole judgment of the FTS Appeals Official.

The FTS Appeals Official will use an FTS Session Report to assist in planning the FTS Session and to report on developments during the FTS Session. The FTS Session Report will include 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 prepare and update an agenda to guide the communication, set the order of issue discussion, and pose questions to clarify the issues. During the FTS Session, the FTS Appeals Official will provide decision makers from both parties with copies of the agenda and the FTS Session Report.

Generally, the FTS Appeals Official will consider only those issues outlined in the FTS Session Report, except by mutual agreement of the parties. If the taxpayer presents information during the FTS Session that the taxpayer had not previously presented during the audit, the FTS Appeals Official will adjust the targeted completion date to give the appropriate IRS officials time to evaluate the information.

During the FTS Session, the FTS Appeals Official may propose settlement terms for any or all issues and may consider settlement terms proposed by either party. If the taxpayer accepts the FTS Appeals Official's settlement proposal, but the TE/GE Group Manager rejects it, the TE/GE Area Manager with jurisdiction for the case must review the rejection of the settlement proposal and either concur in writing with the rejection or accept the settlement proposal on behalf of TE/GE. If the TE/GE Area Manager concurs with the rejection of the settlement proposal, and an acceptable alternative settlement cannot be reached, the issue will be closed out of the FTS program as unagreed.

If the parties resolve any of the disputed issues at the conclusion of the FTS Session, the parties and the FTS Appeals Official shall sign the FTS Session Report acknowledging acceptance of the terms of settlement for purposes of preparing computations or making other determinations. 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. Post-settlement procedures are described below.

The TE/GE FTS process is confidential. IRS employees involved in any way with the TE/GE FTS process are subject to the confidentiality and disclosure provisions of the Internal Revenue Code. To participate in TE/GE FTS, the taxpayer must consent, pursuant to section 6103(c), to the disclosure of the taxpayer's returns and return information pertaining to the issues being considered in the TE/GE FTS process to those persons named on the Form 14017 as participants in the process. IRS employees, the taxpayer, and persons invited to participate by the IRS or the taxpayer shall not voluntarily disclose information regarding any communication made during the FTS Session, except as provided by statute.

The prohibition against ex parte communications between Appeals Officers and other IRS employees provided by § 1001(a) of the Internal Revenue Service Restructuring and Reform Act of 1998 does not apply to the communications arising in the TE/GE FTS process because the Appeals personnel are facilitating an agreement between the taxpayer and TE/GE and are not acting in their traditional Appeals settlement role. Rev. Proc. 2012-18, 2012-10 I.R.B. 455.

Any recommended settlement by the FTS Appeals Official of an issue in TE/GE FTS shall be subject to the procedures in the Internal Revenue Manual and published guidance existing at the time of the recommendation that would be applicable if the issue was being considered by Appeals. FTS therefore creates no special authority for settlement by the FTS Appeals Official. For example, if the FTS issue is coordinated in either the Technical Advisor Program or the Appeals Technical Guidance program, the proposed settlement of that issue is subject to established procedures, including submission of the proposed settlement to the Appeals Coordinator for review and concurrence.

If the parties fail to resolve any issue in TE/GE FTS, the taxpayer retains the option of requesting that the issue be heard through the traditional Appeals process.

Except as specifically provided above, both parties retain the right to withdraw throughout the entire TE/GE FTS process. A party wishing to withdraw should provide written notice to the FTS Appeals Official and the other party.

POST-SETTLEMENT PROCEDURE

If the parties reach an agreement on all or some issues through the TE/GE FTS process, the TE/GE representative, or FTS Appeals Official, as appropriate, will use established issue or case closing procedures and applicable agreement forms, including preparation of a Form 906, Closing Agreement on Final Determination Covering Specific Matters, if appropriate.

If applicable, the IRS will report a proposed resolution reached as a result of TE/GE FTS to the Joint Committee on Taxation in accordance with section 6405. The IRS may reconsider a proposed settlement, as reflected in a signed FTS Session Report, upon receipt of comments on the proposed settlement from the Joint Committee on Taxation. If the taxpayer declines to agree with any changes by the IRS upon reconsideration, TE/GE will close the case unagreed, and the taxpayer will retain all the usual rights to request Appeals consideration of any unagreed issues.

UNRESOLVED CASES

With respect to TE/GE FTS cases that are returned for traditional Appeals consideration for any reason, ex parte restrictions will not be imposed on intra-Appeals communications. See Rev. Proc. 2012-18, 2012-10 I.R.B. 455. Appeals management will take appropriate measures to ensure these cases are handled impartially.

PRECEDENTIAL VALUE OF SETTLEMENT AGREEMENTS

A resolution reached by the parties through the TE/GE FTS process will not bind the parties for taxable periods or issues not covered by the settlement, unless such taxable periods or issues are addressed expressly in a closing agreement reached as part of the TE/GE FTS process.

DELEGATION OF AUTHORITY

This announcement constitutes a delegation by the Commissioner of Internal Revenue of settlement authority to Grade 14, 13, and 12 Appeals Officers who are assigned to be FTS Appeals Officials for TE/GE FTS cases described in this announcement. This delegation of settlement authority includes the responsibility for arriving at the final disposition from the Government's perspective, approving the final settlement in accordance with the delegated authority, and executing the appropriate closing documents. This authority may not be redelegated.

EFFECTIVE DATE

This program is effective beginning September 4, 2012.

EFFECT ON OTHER DOCUMENTS

Announcement 2008-105 is modified and superseded.

CONTACT INFORMATION

The principal author of this announcement is Debra Kohn, Office of Associate Chief Counsel (Procedure & Administration). For further information regarding this announcement, contact Joan T. Hirsch, Program Manager, TE/GE Entities at (562) 400-1801 (not a toll-free call), or by email at Joan.T.Hirsch@irs.gov.