Fast Track Settlement program extended to small business.

In Ann. 2006-61, the IRS provided guidelines to extend the Fast Track Settlement (FTS) program to small business and self-employed taxpayers. Beginning Sept. 5, 2006, the Service initiated a six-month test program for certain of these taxpayers, within its Small Business/Self Employed (SB/SE) organization, in Chicago, Houston and St. Paul. After the six-month period, the IRS will evaluate the program, consider necessary adjustments and decide whether to continue testing FTS for SB/SE taxpayers for an additional 18 months. If the program is continued, it will be available to qualifying taxpayers nationwide. When the two-year test ends, the program will again be evaluated and a decision made as to whether to make the program permanent.

The procedures for using FTS for SB/SE taxpayers will generally follow those published for the Large and Mid-Size Business (LMSB) FTS Dispute Resolution Program in Rev. Proc. 2003-40. Since FTS began for LMSB in 2001, many taxpayers have successfully used it to resolve cases at the examination level and avoid an otherwise lengthy appeals process or litigation.

Eligible Cases/Application

FTS is generally available for SB/SE cases if (1) the issues are fully developed, (2) the taxpayer has stated a position in writing or filed a small-case request and (3) there are a limited number of unagreed issues. Generally, the program is not available for Collection Appeals Program, Collection Due Process, Offer-In-Compromise, Trust Fund Recovery and others cases out-lined in Ann. 2006-61. If any issue is determined to be ineligible for the FTS program, none of the issues in the case will be eligible. The SB/SE Group Manager and the taxpayer will evaluate the circumstances to determine if this process is appropriate.

To apply for the FTS program, the taxpayer and SB/SE Group Manager submit an SB/SE-Appeals FTS Application (application) to the local Appeals Team Manager. The process may be initiated by the taxpayer, Examining Agent or Group Manager at any time after an issue has been fully developed, but preferably before a 30-day letter has been issued. (Ann. 2006-61 contains a sample application.) A summary of issues prepared by the SB/SE Compliance Team and a written response by the taxpayer should be included with the application. If the case is not accepted, the taxpayer will be informed of the basis for the decision and alternative dispute resolution opportunities will be discussed. The decision not to accept a case into FTS is not subject to administrative appeal or judicial review.

Settlement Process

During the FTS process, the taxpayer and SB/SE representatives hold a conference with the FTS Appeals Official (AO). Before the FTS conference, the AO will instruct the participants as to the procedures and ground rules. FTS conferences may include separate meetings with each party, at the AO's discretion. Both parties to the FTS process will receive a copy of any meeting agenda and Session Report the AO has prepared.

If the taxpayer accepts the AO's settlement proposal, but the SB/SE Group Manager rejects it, the SB/SE Territory Manager must review the rejection and either concur in writing or accept the settlement proposal. If the SB/SE Territory Manager concurs with the Group Manager's rejection and no alternative settlement can be reached, the issue will be closed out of FTS as unagreed. If the parties resolve any of the disputed issues, a FTS Session Report should be signed by both parties, acknowledging acceptance of the settlement terms, to allow for computations. If the parties fail to resolve any issue in FTS, the taxpayer can request the issue be heard through the traditional appeals process. Both parties also retain the right to withdraw throughout the entire process.

Conclusion

The SB/SE FTS process is designed to take only 60 days from acceptance of the application to completion. An agreement reached by the parties through FTS will not bind them for tax years or issues not covered by the FTS agreement, unless specifically addressed. The FTS process is confidential; the IRS employees involved are subject to the Code's confidentiality and disclosure provisions, including Sec. 6103. The taxpayer, by signing the application, consents to disclosure of the returns and return information to the persons named in the agreement. Taxpayers should be aware that the prohibition against ex parte communication between AOs and other IRS employees does not apply to communications arising in the FTS process.

The Service should be congratulated on making the FTS process available to additional taxpayers (albeit on a test basis). The program can be a viable alternative for taxpayers, to resolve issues in less time and at less expense than traditional methods.

FROM J. Matthew Yuskewich, CPA Winterset, INC., COLUMBUS, OH