Navigating today's IRS examination with fast track settlement.

• Author: Warnshuis, Thomas A.

At the end of an IRS audit many taxpayers are left to decide how to proceed, especially when faced with a proposed adjustment that they disagree with. Before pursuing an appeal, Fast Track Settlement may provide a viable alternative to consider.

IRS Appeals

The mission of the IRS Appeals team is to resolve tax controversies in a fair and impartial manner without litigation. Appeals frequently settles cases by reducing an adjustment by a particular percentage that the taxpayer will choose to accept. Appeals has no specific quota on the number of cases it can recommend for litigation, but there is significant pressure to settle cases and avoid litigation unless a case is egregious.

Most taxpayers do not understand the Appeals process or how Appeals resolves cases. Appeals gets involved when a taxpayer does not agree to the adjustments proposed by the IRS examination team. Appeals acts as an independent party to the examination and takes a fresh look at each case before it. Unresolved cases are closed from the examination field team and assigned to Appeals. It should be noted that most examiners complete a Form 4665, Report Transmittal, that is addressed to Appeals. The purpose of this letter is for the examination team to communicate any specific details it wants Appeals to be aware of. This could be a description of questionable taxpayer behavior, tactics the taxpayer or its adviser could use to disrupt the examination team's pre-Appeals conference presentation, or any other pertinent information.

After Appeals receives and assigns the case, the ex parte communication rules are implemented. This means the Appeals officer cannot speak with the examination team about the case unless the taxpayer and its adviser are present. This preserves the independence of the Appeals process.

In general, the examiner will prepare for the Appeals officer a pre-Appeals presentation that discusses the case and the relevant taxing authority, and that attempts to convince the Appeals officer that the adjustment should be upheld. The taxpayer and its adviser are present for the pre-Appeals conference. This is the last contact between the Appeals officer and the examination team. Next, the taxpayer and its adviser meet directly with the Appeals officer to present their case for reducing or overturning the adjustment. This generally is a formal presentation and can require significant time and resources to prepare. More meetings to negotiate a settlement and...