IRS Makes Tax Exempt/Government Entities Fast Track Settlement Program Permanent

Editor: Michael Dell, CPA

Procedure & Administration

In Announcement 2012-34, the IRS said it is making the Tax Exempt and Government Entities Division Fast Track Settlement (TE/GE FTS) program permanent.

In 2008, the IRS announced a pilot program to extend fast track settlement to TE/GE cases to expedite case resolution within TE/GE, i.e., while a case is still at the examination level. The pilot program was scheduled to last two years, and it officially expired on Nov. 30, 2010. However, since that time, TE/GE and the IRS Office of Appeals have continued to offer fast track settlement on an informal basis.

Based on the IRS’s determination that the program supports its initiative to reduce the time and cost of examination and case resolution, Announcement 2012-34 confirms that the TE/GE FTS will be a permanent program. The only significant change between the pilot program and the permanent program will be an additional level of review of applications to accommodate the management structure of the TE/GE Division.

The TE/GE FTS enables taxpayers that have unagreed issues in at least one open period under examination to work with TE/GE and Appeals to resolve them while the case is still under TE/GE jurisdiction and before it is officially transferred to Appeals. The program may be 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 IRS issues a 30-day letter (or its equivalent).

Announcement 2012-34 describes key features of fast track settlement, which include:

• The types of cases that are eligible and the types that are excluded;
• How to apply;
• The settlement process;
• Post-settlement procedures;
• Treatment of unresolved cases; and
• The precedential value of settlement agreements.

The permanent TE/GE FTS was effective as of Sept. 4, 2012. Taxpayers may apply for the program by submitting Form 14017, Application for Fast Track Settlement.

Implications

When the pilot TE/GE FTS was announced in 2008, the IRS indicated that TE/GE and Appeals would evaluate the program, consider any necessary adjustments, and determine whether to make the program permanent following the two-year pilot period. The program’s informal continuation following the pilot period, and now Announcement 2012-34, appear to indicate that TE/GE and Appeals generally have had positive experiences with resolving issues through the program.

Organizations with open periods under examination should refer to Announcement 2012-34 to determine whether they have issues that are eligible for TE/GE FTS and, if so, whether participation in the program would make sense.

Taxpayers who have unagreed issues during an IRS examination that they would ordinarily take to Appeals should carefully weigh the benefits and potential detriments of TE/GE FTS. On the benefits side, there can be significant savings of time and expenses. However, for TE/GE FTS to be successful, a taxpayer and the IRS exam team must be willing to reconsider the strength of their relative positions in light of the arguments advanced during the fast track settlement process.

EditorNotes

Michael Dell is a partner with Ernst & Young LLP in Washington, D.C.

For additional information about these items, contact Mr. Dell at 202-327-8788 or michael.dell@ey.com.

Unless otherwise noted, contributors are members of or associated with Ernst & Young LLP.