By Robert Wood
IRS audits take time and are worrisome. When one is over, you must decide whether to pay or dispute the bill. The latter takes more time and costs money. You can protest the IRS audit findings and go to IRS Appeals, or even Tax Court. But nothing happens quickly, and you'll have legal or accounting fees too. Fortunately, the IRS has expanded a way to speed up the long, expensive IRS administrative process. It’s called Fast Track Settlement. Although it isn’t new, its availability to millions more taxpayers is.
Fast Track Settlement can resolve audit disagreements in as little as sixty days, rather than possibly years. It is an alternative dispute resolution mechanism within the IRS. Normally, if you don’t agree with the results of an audit you must protest. The protest stage can take months or years while you wait to be assigned to the IRS Appeals division, have a hearing with the Appeals Officer, and either settle the case or move on to court. The Appeals process is tedious, and you can often find yourself re-hashing much of what was discussed with the original auditor.
Fast Track Settlement has been available for complex audits with the IRS Large Business & International Unit (LB&I) for some time. And since the mid-2000s, smaller taxpayers in certain cities have been able to participate too. Now, the IRS covers all taxpayers audited by the Small Business/Self-Employed (SBSE) division, which handles most audits of small businesses and individuals (except IRS wealth squad audits).
The idea of Fast Track Settlement is for you and the IRS auditor to agree on the issues, and have a mediator from the IRS Appeals Office hear both sides. The mediator tries to find middle ground. After all, IRS auditors usually can't settle issues. If the auditor thinks you owe $500,000, and you think you owe nothing, the auditor can't split the baby. That usually requires IRS Appeals. But Fast Track Settlement leapfrogs and aims for a quick deal. Fast Track Settlement could resolve your audit within sixty days from the date the IRS accepts you and the auditor into the program.
Application into this IRS program requires you, the IRS auditor, and the auditor's manager to agree. You and the auditor must prepare an application packet, IRS Form 14017 along with a list of specific issues for possible settlement. If you are accepted, the IRS mediator will review both sides and set a conference to discuss the issues. You and the IRS agent will present your positions, and the resolutions you each think are appropriate. At the end, the mediator will propose a deal. You are not bound by the proposal, and you can leave the process at any time if you want. If you leave, you can go through the normal IRS protest process. But if you do agree with some or all of the settlement, you can tie it up.
Fast Track Settlement is only available if the IRS auditor agrees. If you have a poor relationship with your auditor, or his or her manager, they may not be willing to accommodate you. Plus, Fast Track Settlement does close one specific IRS door. Any issues that are certified for settlement cannot then be considered in yet another IRS expedited resolution process called Post Appeals Mediation. But that route is not frequently used, and is essentially a last chance before going to Tax Court, so it can be worth forgoing it. As with all things tax, determining the best course is often nuanced, so be careful. Still, Fast Track Settlement can be appealing for many taxpayers, particularly if your case is ripe for settlement.
This article originally appeared at Forbes.com.
The information provided in this article is for general information purposes only. The information is not intended to be comprehensive or to include advice on which you may rely. You should always consult a suitably qualified professional on any specific matter.
I’m a tax lawyer based in San Francisco (www.WoodLLP.com), but I handle tax matters everywhere. I enjoy untangling a tax mess from the past, disputing taxes with the government or planning taxes for the future. One of my specialties is advising about lawsuit payments. Whether you’re receiving or paying a legal settlement, you can probably improve your tax position. I write frequently about taxes, from expatriation to sales tax, from selling your company to restitution. I’ve written over 30 tax books, but my best seller is still Taxation of Damage Awards and Settlement Payments. Contact me at wood@WoodLLP.com.
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