IRS Fast Track Settlement: anatomy of the 60-day process

Most owners first hear about IRS Fast Track Settlement from the revenue agent, late in a field exam, when the two sides have stopped moving. The agent's position is written up, the owner's accountant disagrees, and someone mentions a mediated session with Appeals that is supposed to wrap up in about two months. That description is accurate as far as it goes. What it leaves out is the sequence: who has to agree, what gets signed, what the mediator can and cannot do, and what you give up by walking in. This article takes the process apart piece by piece.

What IRS Fast Track Settlement actually is

Fast Track Settlement is a voluntary mediation program for examination disputes that are still inside the Small Business/Self-Employed division. The IRS describes it as a way to resolve cases early, and states its goal as resolution within 60 days from the date the application is accepted. The governing authority is Revenue Procedure 2017-25, which took the program nationwide and became effective March 20, 2017, superseding the earlier announcement that had run it as a pilot.

The mediator is an Appeals Officer trained in mediation, borrowed from the IRS Independent Office of Appeals and acting as a neutral. The IRS's internal manual calls this person the FTS Official. Two features distinguish the program from a regular Appeals conference. First, jurisdiction over the case never leaves SB/SE; the exam team sits at the table with authority to settle. Second, the mediator is allowed to do more than referee. If facilitation stalls, the FTS Official may propose settlement terms, though the proposal binds no one.

Think of it as Appeals coming to the exam rather than the exam going to Appeals. The file does not get shipped, and the whole thing is supposed to happen before the 30-day letter that normally starts the formal appeal clock. Our practice sees this as the main attraction for a closely held business: the people who know the facts are the people in the room.

Step one: the eligibility screen

Before anyone fills out a form, the case has to qualify, and the screen is stricter than owners expect. Under Rev. Proc. 2017-25, a case is eligible when it contains disputed factual or legal issues, the issues are fully developed, and the issues remain unresolved after the Group Manager has been involved. The internal manual adds that the program is generally available for non-docketed SB/SE cases with no regard to dollar amount, and that there cannot be significant unresolved factual differences between the exam team's view and the taxpayer's.

"Fully developed" is doing a lot of work in that sentence. It means the examiner has finished the fact-gathering, any required technical advice or valuation report is in hand, and the remaining fight is about what the facts mean. A case where the owner still owes documents, or where the agent has not yet written up the issue, is not ready. The practical consequence is that Fast Track tends to be raised near the end of an exam, not the middle.

The Group Manager conference is the other gate. The manual expects the parties to have exhausted their own resolution options, including a conference with the examiner's manager, before mediation is requested. Skipping that step is one of the more common reasons a request goes nowhere.

The exclusions

Rev. Proc. 2017-25 and the manual list the cases that are kept out regardless of how well developed they are. The ones that matter most to a small business read roughly as follows:

• Cases where the taxpayer did not act in good faith during the audit, which the IRS describes as failing to cooperate or unduly delaying.
• Correspondence examinations worked solely at a campus, as opposed to a field or office exam.
• TEFRA partnership cases.
• Collection matters: Collection Due Process, the Collection Appeals Program, offers in compromise and trust fund recovery penalty cases.
• Issues designated for litigation, docketed in any court, or already foreclosed by a closing agreement, res judicata or controlling Supreme Court precedent.
• Frivolous positions.
• So-called "whipsaw" issues, where the government could lose from both directions, including joint-return disputes where both spouses do not join the same session, and innocent spouse claims.
• Issues tied to a pending competent authority request, with narrow exceptions.

One rule sits above the whole list and deserves its own sentence. If any single issue in the case is ineligible, no issue in the case is eligible. A clean dispute over a deduction can be knocked out of the program by an unrelated penalty question the agent has handled as a campus matter, or by a partner-level issue that falls under the partnership exclusion. The manual does leave the Appeals Team Manager and Group Manager room to agree to take an otherwise ineligible case, but that is discretionary and not something to build a plan around.

Step two: Form 14017 and the application package

The application is Form 14017, Application for Fast Track Settlement. Either the taxpayer or the exam team can raise the idea, but both must agree; nobody is dragged into the program. The form is completed jointly and signed by the taxpayer and the examiner, with the Group Manager or a designee signing as well. No Territory Manager signature is needed.

Attached to the form is a package: the examiner's supporting work papers and the taxpayer's written response. The manual describes that response as a brief written statement of the facts along with a statement of the taxpayer's position. Brief is the operative word. This is not the place for a protest the length of a law review article. The mediator needs to understand where the two sides diverge, not read every exhibit.

From there the Group Manager checks completeness and eligibility and, if satisfied, forwards the package to the local Appeals Team Manager, who makes the final call on acceptance. A refusal to accept a case is not subject to administrative appeal or judicial review. The 60-day goal starts running from acceptance, not from the day the form was signed.

A representation wrinkle that trips people up

If a representative signs for the taxpayer, the power of attorney has to do more than the usual Form 2848 does out of the box. The manual is explicit that Form 2848 does not by itself authorize the representative to consent to disclosure of return information to the other people in the room; that authority has to be added in the designated section of the form, and a copy attached to the application. Practitioners who assume their standing POA covers mediation discover the gap when the examiner refuses to proceed. Fix it before the form is filed.

Timing against the letters

For field examinations the manual says Fast Track is ideally initiated before the 30-day letter issues. For office exam cases it is initiated when the taxpayer requests an Appeals conference. In every case the referral has to happen before a 90-day letter, the statutory notice of deficiency, goes out. Once that notice is issued, the dispute belongs to the Tax Court deficiency process and the window is closed. Fast Track also does nothing to the assessment statute, which is why the question of whether to sign a consent extending the audit clock often arrives at the same meeting where mediation is first raised.

Step three: the session

The session itself is the part owners imagine as a hearing. It is closer to a structured negotiation. The FTS Official first uses mediation techniques to facilitate discussion between the exam team and the taxpayer. Each side explains its position; the mediator probes and looks for the facts on which the dispute actually turns.

When facilitation does not close the gap, the FTS Official may offer a settlement on the factual and legal issues, using regular Appeals settlement authority and based on the hazards of litigation. Hazards of litigation is the Appeals shorthand for a candid estimate of how each side would fare in court, expressed as a percentage concession. Rev. Proc. 2017-25 is careful to say that the program creates no special settlement authority for the mediator; a recommended settlement follows the normal Appeals procedures. Neither party is obligated to accept what the mediator proposes.

Because jurisdiction stays with SB/SE, the ordinary prohibition on ex parte communications between Appeals and other IRS employees does not apply inside the Fast Track process. The mediator can speak with the exam team outside the taxpayer's presence. Owners accustomed to the strict separation in a traditional appeal sometimes find this uncomfortable, and it is a fair point to weigh. The flip side is speed: the mediator can test a proposal with the examiner's manager in real time instead of through weeks of correspondence.

Withdrawal is available throughout. A taxpayer can withdraw from Fast Track at any time by written notice to Appeals and SB/SE, and Appeals and the exam team may themselves decide to pull a case that turns out not to be ready.

Step four: the Form 14000 session report

Every Fast Track case ends with a Form 14000, Fast Track Session Report, prepared by the FTS Official and listing the issues and the adjustment dollars in dispute, with the outcome recorded issue by issue. All parties sign it. Owners often treat that signature as the settlement. It is not.

The manual describes the signed report as reflecting the parties' good faith intention to resolve the issues on the stated terms, with resolution not final until the necessary closing documents or waivers are signed. Three technical points follow from that, and each one matters to a business with other years open. The report is not a waiver of restrictions on assessment. It does not terminate any consent already given to extend the statute of limitations. And it does not start the running of any statute of limitations. Nothing about signing the report changes the clock on the exam.

Nor does the report stop the IRS from reopening the case under its own reopening policy. In practice that is rare, but an owner who has read the report as a closing agreement will be surprised to learn it is a statement of intent.

Step five: closing documents, or the unagreed path

When the issues settle

If the exam team and the taxpayer accept the resolution, the case closes as agreed and the FTS Official prepares Form 870-AD, the Appeals version of the assessment waiver, together with Form 906, a closing agreement, where one is appropriate, and an Appeals Case Memorandum documenting the basis. Form 870-AD is the document that actually binds the parties on the agreed deficiency; Form 906 is used when the resolution has effects beyond the years at issue or otherwise calls for a formal closing agreement. Settled issues then close under the revenue procedure's closing provisions.

There is a scenario the manual addresses that owners rarely anticipate: the taxpayer accepts the mediator's proposal but the Group Manager rejects it. In that event the SB/SE Territory Manager reviews the matter and either concurs in writing with the rejection or accepts the proposal. If the Territory Manager backs the rejection and no alternative is reached, the case closes unagreed. The government side has its own internal review, and a taxpayer's yes is not the last word.

When they do not

If any issue remains unresolved, the Fast Track case is closed and SB/SE begins its ordinary unagreed closing process, which typically means the 30-day letter and the protest route described in our article on what happens after the audit. The taxpayer retains all traditional appeal rights. The FTS Official destroys the session notes, and an unagreed case that went through Fast Track is assigned to a different Appeals Officer when it arrives for traditional consideration, so the mediator's impressions do not follow the file.

The one right you spend is post-Appeals mediation. Under both the revenue procedure and the manual, post-Appeals mediation is not available for any issue considered during the Fast Track process. Withdrawing before the session begins does not count as participation for that purpose. That is a real cost. Post-Appeals mediation is a second mediated attempt after a traditional Appeals conference fails, and a taxpayer who used Fast Track has already used that card.

The collection-side sibling

Owners with payroll tax trouble sometimes ask whether Fast Track can handle a trust fund recovery penalty proposal or a rejected offer in compromise. The answer is that those are excluded from Fast Track Settlement, but the IRS runs a separate program, Fast Track Mediation–Collection, for exactly those disputes. It uses Form 13369, Agreement to Mediate, is described in Publication 3605, operates under Revenue Procedure 2016-57, and carries a 40-day goal from acceptance. The programs share the Appeals mediator model but are not interchangeable, and the personal exposure under the trust fund penalty is serious enough that we treat the choice of forum as a decision in its own right.

How we weigh it for a closely held business

The case for Fast Track is strongest when the facts are settled, the dollars are meaningful, the exam team has been reasonable, and the owner needs a resolved year to close a financing or a sale. Sixty days against the many months a traditional appeal can run is a material difference for a company with a deal on the calendar. Having the examiner in the room also means a factual misunderstanding can be corrected on the spot instead of being relitigated from a cold file.

Against that, the drawbacks are equally concrete. The all-or-nothing eligibility rule means a single stray issue can disqualify an otherwise ideal case. The relaxed ex parte rule means the mediator and the exam team talk without you. The session report settles nothing until Form 870-AD is signed. And the loss of post-Appeals mediation removes a fallback that some disputes end up needing. A business whose real objective is to preserve every procedural option on the way to Tax Court may be better served by letting the 30-day letter issue and filing a conventional protest.

Where does the lawyer fit? Usually at the eligibility screen and the written statement, before Form 14017 is signed. That is the moment to decide whether the issues are really fully developed, whether the record supports the position the owner wants to mediate, whether the power of attorney is drafted for disclosure, and whether the Form 872 question should be answered first. Once the application is accepted the process moves quickly by design, and the work done in the two weeks before it is what the mediator sees.

If a field exam is heading toward an impasse and Fast Track has come up, that is a reasonable time to reach our Oklahoma City office or use the contact page on this site. Deciding how to position a dispute before the forms are signed is almost always less expensive than repairing a settlement posture afterward.

This article is general information about Oklahoma, Texas, and federal law, not legal advice, and it does not create an attorney-client relationship. Facts matter; talk to a lawyer about yours.