On January 15, 2025, the Internal Revenue Service (IRS) announced three pilot programs that aim to broaden the use of two existing alternative dispute resolution (ADR) programs: Fast Track Settlement (FTS) and Post-Appeals Mediation (PAM). ADR programs can enable quicker and more efficient resolutions to tax controversies. Last year, the IRS Independent Office of Appeals (Appeals) created the ADR Program Management Office, which was tasked with "[revitalizing] existing programs" and evaluating new ADR initiatives in line with the goals set out in the IRS Strategic Operating Plan. These pilot programs are the first to be announced by the ADR Program Management Office. 

FTS gives taxpayers an opportunity to resolve certain disputed factual and legal issues settlement based on the hazards of litigation while the case is still in the Examination function's jurisdiction and before the entire audit is complete. An Appeals officer will act as mediator and may propose, but not impose, a settlement to the taxpayer and Exam. FTS does not replace taxpayers' general avenues for dispute resolution — taxpayers that participate in FTS can still go to Appeals in the normal course if FTS is not successful. 

PAM gives taxpayers an opportunity to request to enter into non-binding mediation to get a second look at any unresolved issues that remain after an Appeals conference. All parties, including the Appeals team, must agree to enter into PAM. The mediator typically is another Appeals officer, although the taxpayer can bring in another mediator from outside the IRS. 

The pilot programs will test the following changes to FTS and PAM:

• FTS will be available on an issue-by-issue basis. Currently, if a taxpayer has a disputed issue that is ineligible for FTS, the taxpayer's whole case is ineligible for FTS. 
• Taxpayers that participated in FTS will be eligible to participate in PAM, should it be necessary. Currently, taxpayers that participate in FTS are precluded from participating in PAM. 
• Taxpayer requests to participate in FTS or PAM, both of which require agreement from the IRS party involved, will not be denied unless a first line executive gives approval to deny the request. In addition, taxpayers will be given an explanation for any denial. 
• Taxpayers in audits by the Small Business/Self-Employed Division will be offered Last Chance FTS. This pilot will notify taxpayers that have submitted a protest in response to a 30-day letter of the opportunity to participate in FTS.

ADR programs serve as a valuable tool for both tax planning and controversy resolution and the pilot programs represent positive developments for taxpayers interested in participating in these programs. These pilot programs are aimed at publicizing ADR programs and removing barriers to their use. Allowing taxpayers to take individual issues into FTS will make FTS more widely available. In addition, requiring executive-level approval for denials of taxpayer requests to enter FTS or PAM, together with the commitment to issue a written decision for those denials, should result in more careful consideration — and hopefully higher rates of approval — of those requests. The pilot programs are effective for requests made on or after January 15, 2025 and last for two years through January 15, 2027. 

For more information, please contact:

Brian S. Gleicher, bgleicher@milchev.com, 202-626-1589

George A. Hani, ghani@milchev.com, 202-626-5953

Samuel A. Lapin, slapin@milchev.com, 202-626-5807

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