The Large Business and International (LB&I) Division has announced[^1] significant modifications to its examination process, outlined in a recent memorandum effective August 1, 2025. These changes are intended to foster more efficient and effective examinations, enhance taxpayer service, and promote collaborative issue resolution. This article will delve into the procedural updates concerning the elimination of the Acknowledgment of Facts (AOF) Information Document Request (IDR), the updated Fast Track Settlements (FTS) pilot program, and clarifications regarding the applicability of Accelerated Issue Resolution (AIR) to Large Corporate Compliance (LCC) cases.

Streamlining the Examination Process: Elimination of the AOF IDR

A notable change is the elimination of the AOF IDR process, with full elimination scheduled for 2026. Historically, the AOF was intended to ensure mutual agreement on all relevant facts—both favorable and unfavorable—before a Form 5701, Notice of Proposed Adjustment (NOPA), was issued. However, taxpayers have reported that this process added time to examinations with little corresponding value, often declining to engage with it because evaluating the relevance or completeness of facts apart from the government’s intended application of law proved difficult. Such reluctance frequently extended examinations without meaningful engagement.

While the AOF process is slated for elimination in 2026, a transition period is in effect until December 31, 2025. During this period, all in-progress and newly initiated cases will continue to offer the AOF process as an option for the taxpayer to elect or decline, with the decision and discussion documented in the case activity record. Despite the AOF's elimination, the core value of collaborative examinations remains unchanged. Examination teams are still mandated to maintain open, transparent communication with taxpayers, conduct issue discussions, share proposed tax determinations, and solicit feedback before issuing a final NOPA. Existing guidance on factual development and issue resolution, including IRM 4.46.4.7 regarding IDR procedures and IRM 4.46.5.2 concerning issue resolution, continues to apply. The elimination of the AOF IDR impacts several IRM sections, including 4.46.4 and 4.46.5.

Refining Dispute Resolution: Updates to Fast Track Settlement (FTS)

The LB&I Division is strongly encouraging the use of Fast Track Settlements (FTS) to resolve issues and cases earlier in the examination process. The memorandum supersedes previous interim guidance from February 2025, incorporating prior pilot program changes and introducing further updates to FTS considerations and coordination among executives.

Key enhancements to the FTS process include stricter protocols for denying FTS requests. Under the updated guidance, if a FTS denial is proposed, all senior directors must apprise the LB&I deputy commissioner before informing the taxpayer. Furthermore, if the FTS issue is "owned" by an Issue Manager distinct from the Case Manager, their respective Area Directors of Field Operations (DFOs) must coordinate regarding the proposed denial prior to taxpayer notification. The decision to accept or deny an FTS request is emphasized as a business decision, not a legal one. If a FTS request made by the taxpayer is denied by LB&I issue or case managers, it requires concurrence from the LB&I issue or case territory manager. If denial is still recommended after this review, written concurrence is required from the executive overseeing the issue or case territory manager (i.e., the first-line executive or LB&I DFO). A template memo (Exhibit 4.51.4-2) must be used for DFO concurrence, and notification to the taxpayer for a denied request can be verbal.

FTS is designed for cases where all issues are raised, the examination process is nearly complete, claims are timely filed and examined, issues are fully developed, the taxpayer has stated their position in writing, and unagreed issues are limited in number. While FTS works best when all unagreed issues are included, individual issues or groups of issues may be accepted if deemed in the best interest of tax administration. A taxpayer’s request to use FTS indicates their willingness to compromise or reach a mutual concession on the issue.

However, certain issues are generally not appropriate or are specifically excluded from FTS:

Docketed issues
Issues challenging the constitutionality of tax laws
Issues where the taxpayer has expressed unwillingness to compromise
Issues designated for litigation or under consideration for such designation
Issues involving competent authority assistance or simultaneous Appeal/Competent Authority procedures
Whipsaw transactions
Issues where mediation would be inconsistent with sound tax administration
Issues identified by Chief Counsel Notice as excluded
Issues raised challenging the validity of a regulation
Issues for which the IRS is establishing a uniform settlement position (e.g., certain listed transactions) may also be excluded.

FTS must be considered by LB&I issue and case managers when unagreed issues cannot be resolved directly with the examination team. Discussions about potential FTS use should occur at multiple points in the examination process, including the opening conference, mid-cycle risk analysis, and when potentially unagreed issues are proposed. Taxpayers should be provided with Pub 4539 (or directed to it online) at the opening conference, and Rev. Proc. 2003-40 before submitting an FTS application. The application itself, Form 14017, is jointly completed and signed by the taxpayer and LB&I case manager.

Crucially, Appeals retains settlement authority in FTS cases, exercising it through a Specific Matters Closing Agreement (Form 906) or a waiver Form 870-AD. Appeals will perform an independent evaluation of the hazards of litigation and will not execute a settlement that falls outside their hazards evaluation or established settlement guidelines. If FTS is unsuccessful, the taxpayer retains the option to pursue resolution through traditional Appeals. However, to ensure impartiality, the traditional appeal will not be assigned to the same Appeals Tax Counsel Law (ATCL) or Appeals Officer (AO) that heard the FTS session, unless there is written concurrence from the taxpayer and LB&I. Participation in FTS does not disqualify a taxpayer from later using Post Appeals Mediation (PAM).

For cases subject to Joint Committee (JC) reporting requirements, special procedures apply. The FTS Application form requires identification of potential JC status. Appeals is responsible for preparing an Appeals Case Memorandum (ACM) that explains only the settled FTS issues for the JC. LB&I makes the final tax computation and writes the JC Report, incorporating the ACM provided by Appeals. For Appeals-prepared closing agreements on settled issues, Appeals will solicit the taxpayer’s signature but will not execute the agreement until the Joint Committee on Taxation clearance letter is received. Revisions related to FTS are incorporated into IRM 4.51.4.

Clarifying Accelerated Issue Resolution (AIR) for Large Corporate Compliance (LCC) Cases

The memorandum also addresses confusion surrounding the applicability of Accelerated Issue Resolution (AIR). While the authority for AIR is set forth in Rev. Proc. 94-67 and uses the legacy term "Coordinated Examination Program (CEP)," the guidance explicitly clarifies that AIR remains an appropriate work stream for Large Corporate Compliance (LCC) cases as a successor to CEP.

AIR is presented as a very effective approach for resolving issues where teams have thoroughly evaluated a tax position for one or more tax periods, allowing that resolution to be applied to similar positions on other filed returns with taxpayer agreement. This approach significantly reduces taxpayer and IRS burden and expedites tax certainty. Examination teams should also refer to Rev. Proc. 68-16 when considering AIR.

Key considerations for AIR include:

AIR does not grant settlement authority to managers.
It does not alter the existing authority of case managers to resolve issues.
Counsel assistance is mandatory when using AIR.
An AIR agreement is generally limited in scope to issues on filed returns arising from an audit of specific taxpayers under the jurisdiction of the Director of Field Operations, with certain exclusions or additional approval requirements as detailed in Rev. Proc. 94-67, SECTION 3.
The AIR process does not constitute an examination of books and records.
While taxpayers can request AIR, LB&I examination teams can also evaluate cases that could benefit from an AIR agreement and offer it to the taxpayer.
It is important to note that for non-filed years, a taxpayer must request a Pre-Filing Agreement (PFA) rather than AIR.

These updates, particularly those related to AIR, are incorporated into IRM 4.46.5.

Conclusion

These modifications by the LB&I Division underscore a continued commitment to efficiency, effective examinations, and collaborative issue resolution. The elimination of the AOF IDR aims to remove procedural friction, while enhanced FTS guidelines seek to encourage early dispute resolution and streamline the appeal process. The clarification on AIR for LCC cases provides greater certainty and opportunity for resolving recurring issues across multiple tax periods. Tax professionals should familiarize themselves thoroughly with these updated directives and their impact on examination strategies, ensuring their clients are well-informed and prepared for the evolving IRS landscape. The IRS welcomes feedback on these changes through December 31, 2025, via LBI.Policy.Feedback@irs.gov.

Prepared with assistance from NotebookLM.

[^1]: LB&I Memorandum LB&I-04-0725-0008, Effective Date August 1, 2025, Published July 25, 2025