In more detail
In general, interim guidance is used to communicate new or revised instructions or operational changes to IRS employees when there is insufficient time to update, clear, and publish the Internal Revenue Manual sections containing the subject matter content.
The general purpose of this IGM's guidance is achieving "more efficient and current examination posture" to improve both taxpayer service and effective tax administration. This purpose, as well as specific modifications detailed in the IGM, appears to be in line with other recent efforts (e.g., creation of the Alternative Dispute Resolution Program Management Office (ADR PMO) in 2024) to increase the speed, simplicity, and efficiency with which taxpayer disputes can be resolved. For more information on the ADR PMO, see our client alert, IRS Pumps Cash into Struggling Dispute Resolution Program.
The IGM detailed three key changes within the exam process:
- Elimination of the Acknowledgement of Fact Information Document Request (AOF IDR).
- Announcement of changes to the Fast Track Settlements (FTS) process.
- Clarification that the Accelerated Issue Resolution (AIR) is applicable in the context of Large Corporate Compliance (LCC).
Elimination of AOF IDR process
The most practical change announced in the IGM was elimination of the AOF IDR process beginning January 1, 2026. From August 1 through December 31, 2025, taxpayer participation in the AOF process is optional. Originally adopted in 2016, the purpose of the AOF IDR was to give taxpayers an opportunity to review and agree to all relevant and undisputed facts prior to the issuance of a Form 5701, Notice of Proposed Adjustment (NOPA). In practice, however, the IRS noted that taxpayers had expressed reluctance to participate in the AOF IDR process because it was difficult for them to evaluate the relevance or completeness of the facts presented in the AOF IDR separate from the government's intended application of the law to such facts in the NOPA.
The IGM emphasizes the importance of "communicating with the taxpayer and holding issue discussions throughout the issue development process." Specifically, examination teams will "continue to conduct issue discussions, share the proposed tax determination, and solicit feedback on the taxpayer's position before issuing a final NOPA."
Changes to FTS eligibility criteria made permanent, denial procedures increased
Another change announced in the IGM involved FTS, a voluntary ADR process created to resolve disputes during audit, the parameters of which are described in Rev. Proc. 2003-40. In February, LB&I issued IRS Announcement 2025-6, describing a pilot program that modified certain aspects of FTS, including FTS eligibility criteria. Prior to the pilot program, if one issue in a taxpayer's case was ineligible for FTS, the entire case was ineligible. The February guidance expanded the eligibility criteria to make FTS available for one or more issues in a case, even if other issues were ineligible. The IGM made this change permanent providing additional flexibility for taxpayers to take discrete issues to FTS.
The IGM also adds extra layers of internal review and executive-level approval before a taxpayer's request to participate in FTS may be denied and requires coordination between issue and case managers. Any recommendation to deny FTS must receive written concurrence from the LB&I Director of Field Operations (DFO) that oversees the issue or case territory manager. In addition, DFOs will apprise senior directors, and senior directors must apprise the LB&I deputy commissioner of a proposed FTS denial before informing the taxpayer. Notably, the IGM states that a decision to accept or deny a taxpayer's FTS request is "a business decision, not a legal decision."
As noted above, this specific modification appears to track directly with the efforts of the ADR PMO to create meaningful opportunities for resolution of taxpayer disputes. The guidance has spurred a renewed focus on the FTS program, including additional communication around the FTS program with taxpayers and Exam providing the FTS application as a matter of course for unagreed audits. The IGM leaves many open questions including the timing for acceptance into the program, particularly considering the more rigorous review process.
AIR applicable to LCC cases
AIR, the parameters of which are set forth in Rev. Proc. 94-67, is a voluntary early dispute resolution procedure that can be used to resolve issues under current examination that have been examined and resolved for prior tax periods. The text of Rev. Proc 94-67 used a legacy term, Coordinated Examination Program, which created confusion about AIR's applicability to LCC cases. The IGM removes any ambiguity as to its applicability by expressly providing that LCC cases "remain an appropriate work stream for AIR." The IGM also encourages examination teams to evaluate prior tax period resolutions to identify those that can be applied to other filed returns. While either the IRS may offer or the taxpayer may request AIR, the process requires taxpayer consent.
Conclusion
The IRS has long struggled with inventory management, and a backlog of cases. Recent IRS workforce reductions exacerbate an existing need for more efficient approaches to the caseload. The Government Accountability Office issued a report in 2023 which revealed that use of ADR programs had fallen drastically since 2013 and made recommendations for improvement. The IGM responds to that call to action. The IGM encourages efficiency and prompts the IRS to reconsider taking advantage of the available dispute resolution tools. Given this recent guidance, taxpayers should remain alert to identify opportunities to leverage these avenues.
