rp-03-40.pdf

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Part IV - Items of General Interest

Revenue Procedure 2003-40

LMSB/Appeals Fast Track Settlement Procedure

SECTION 1. PURPOSE

This revenue procedure formally establishes the Fast Track Settlement (FTS) program
to expedite case resolution and to expand the range of dispute resolution options
available to taxpayers. The Large and Mid-Size Business Division and the Office of
Appeals will jointly administer the FTS program. FTS will allow LMSB personnel and
LMSB taxpayers an opportunity to mediate their disputes with an Appeals Official acting
as a neutral party. In addition, in certain circumstances, other Service Operating
Divisions and taxpayers may participate in the FTS program.

SECTION 2. OVERVIEW

.01 In furtherance of the Service’s goal of resolving tax controversies on a basis that is
fair and impartial to both the government and the taxpayer, the Service implemented an
LMSB Fast Track Dispute Resolution Pilot Program in Notice 2001-67, 2001-2 C.B. 544.
The pilot program demonstrated that the Service can successfully use dispute
resolution techniques within LMSB to promote issue resolution at earlier stages and
decrease the overall time from return filing to ultimate issue resolution. The FTS
program, which the Service has structured to promote resolution within 120 days of
acceptance into the program, builds on the success of the pilot program.

.02 FTS is optional for the taxpayer. FTS does not eliminate or replace existing dispute
resolution options, including the taxpayer=s opportunity to request a hearing before
Appeals or a conference with a manager. The FTS Appeals Official, serving as a
neutral participant in the FTS process, will assist LMSB and the taxpayer to understand
the nature of the dispute and to reach a mutually satisfactory resolution consistent with
applicable law. The FTS Appeals Official also may recommend a settlement based on
the FTS Appeals Official’s analysis of the issues. See
Section 2.03. The taxpayer may
withdraw from the FTS process at any time by notifying in writing the LMSB Team
Manager and the FTS Appeals Official of the withdrawal. The FTS Appeals Official or
the LMSB Team Manager also may terminate the LMSB Fast Track process, by
notifying the taxpayer in writing, if either one determines that meaningful progress
toward resolution of the issues has stopped. If any issues remain unresolved at the
conclusion of the FTS process, the taxpayer retains all of its otherwise applicable
appeal rights.

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.03 Any recommended settlement by the FTS Appeals Official of an issue in FTS shall
be subject to the procedures that would be applicable if the issue were being
considered by Appeals, including procedures in the Internal Revenue Manual and
existing published guidance. FTS therefore creates no special authority for settlement
by the FTS Appeals Official. For example, if the FTS issue is coordinated in either the
Technical Advisor Program or the Appeals Technical Guidance program, the proposed
settlement of that issue is subject to established procedures, including submission of
the proposed settlement to the Appeals Coordinator for review and concurrence.

SECTION 3. CASE ELIGIBILITY AND EXCLUSIONS

.01 The parties should initiate FTS only after the Service issues the Form 5701 (Notice
of Proposed Adjustment) and the taxpayer provides a written response, but before the
date on which the Service issues the first letter of proposed deficiency which allows the
taxpayer an opportunity for administrative review in the Office of Appeals (30-day letter).
Notwithstanding the issuance of a Form 5701 and the receipt of a written response
from the taxpayer, the Appeals and LMSB Fast Track Program Managers (collectively,
Fast Track Program Managers) shall accept an issue into the FTS program only if they
are satisfied that the issue is sufficiently developed to permit resolution within the
framework of the FTS program.

.02 FTS is generally available for all cases within LMSB Compliance jurisdiction. In
addition, the Fast Track Program Managers and the Compliance manager from a
Service Operating Division other than LMSB may agree to include a taxpayer or
issue not under LMSB jurisdiction in the FTS program, depending on the
circumstances and operational needs of the case. For example, SBSE Examination
Specialization and Abusive Schemes cases may be accepted in the FTS program
upon agreement of the Fast Track Program Managers and the SBSE manager. The
taxpayer must also agree to the inclusion into the FTS program. FTS is not well
suited for all cases, however, so the respective managers and the taxpayers must
evaluate their individual circumstances to determine if the FTS program meets their
needs, e.g.
, whether the number of issues is manageable within a 120 day time
frame. For non-LMSB cases or issues accepted into the FTS program, the
appropriate Compliance manager in the non-LMSB Operating Division will carry out
the responsibilities of the LMSB Team Manager under this revenue procedure. An
issue that is excluded from a similar alternate dispute resolution program in another
Operating Division, such as the SBSE – Appeals Fast Track Mediation Procedure,
usually also will be excluded from the FTS program.

.03 The following issues are not
eligible for inclusion into the FTS program:
1) issues in a taxpayer’s case designated for litigation;
2) issues in a taxpayer’s case under consideration for designation for litigation;
3) issues for which the taxpayer has submitted a request for competent authority
assistance;
4) issues for which the taxpayer has requested the simultaneous

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Appeals/Competent Authority procedure described in section 8 of Rev.
Proc. 2002-52, 2002-31 I.R.B. 242, or the corresponding provision of any
successor guidance;
5) issues outside LMSB jurisdiction, except as permitted under section 3.02;
6) “whipsaw” issues, i.e.
, issues for which resolution with respect to one party
might result in inconsistent treatment in the absence of the participation of
another party;
7) issues for which mediation would not be consistent with sound tax
administration, e.g.
, issues governed by closing agreements, by res
judicata, or by controlling precedent; and
8) issues that have been identified in a Chief Counsel Notice, or equivalent
publication, as excluded from the Fast Track Settlement process.
If an issue is determined not to be eligible for the FTS program, all issues in the case
shall not be eligible for the FTS program.

SECTION 4. APPLICATION PROCESS

.01 Either the taxpayer or the LMSB Team Manager may suggest participation in the
FTS program. If the other party agrees, the parties may contact the LMSB or Appeals
Fast Track Program Managers who will assist the parties in determining whether the
issue is appropriate for the FTS program. If the parties determine that the issue is
appropriate for FTS, the parties must apply to the program by completing and executing
a LMSB Fast Track Agreement form. The parties must include the Notice of Proposed
Adjustment (Form 5701) and the written response from the taxpayer with the LMSB
Fast Track Agreement to complete the package. Taxpayers do not need to submit a
formal protest for FTS. The LMSB Team Manager will coordinate preparation and
submission of the application package.

.02 All applications to the FTS program require the approval of the Fast Track Program
Managers before acceptance into FTS. If the Fast Track Program Managers approve
the application, the FTS Appeals Official (see
section 5.01 below), will notify the
taxpayer and the LMSB Team Manager. If the Fast Track Program Managers do not
approve the application, the Appeals Fast Track Program Manager will notify the LMSB
Team Manager within ten days of receipt of the application. The LMSB Team Manager
will, in turn, notify the taxpayer. The decision not to approve an application for the FTS
program is final and not subject to administrative appeal or judicial review.

.03 The parties and the FTS Appeals Official will agree to and document a projected
completion date on the LMSB Fast Track Agreement form. The goal of the FTS
program is to complete the entire FTS process in approximately 120 days. The LMSB
Team Manager and the taxpayer will also identify a preferred conference site.

SECTION 5. SETTLEMENT PROCESS

.01 FTS employs various alternative dispute resolution techniques to promote

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agreement. An FTS Appeals Official will serve as a neutral party. The FTS Appeals
Official will not perform in a traditional Appeals role, but will use dispute resolution
techniques to facilitate settlement between the parties. An Appeals Team Case Leader,
trained in mediation or, in limited cases, an Appeals Officer, trained in mediation, in
conjunction with an Appeals Team Manager, will serve as the neutral FTS Appeals
Official.

.02 During FTS, the taxpayer and LMSB representatives, including at least one
representative with decision-making authority, from both LMSB and the taxpayer, will
meet with the FTS Appeals Official. The taxpayer and LMSB representatives should
include individuals with the information and expertise necessary to assist the parties and
the FTS Appeals Official during the settlement process. The FTS Appeals Official may
ask the parties to limit the number of participants to facilitate the process. Any person
engaged in practice before the Service, as defined in Publication 216, Conferences and
Practice Requirements, must have a power of attorney from the taxpayer (Form 2848,
Power of Attorney and Declaration of Representative).

.03 The FTS Appeals Official will hold the FTS session at the date and location agreed
to by both parties. Prior to the FTS session, the FTS Appeals Official will advise the
participants of the procedures and establish ground rules. The FTS Appeals Official
may modify the rules and procedures during the session to adapt to changes in
circumstances. The FTS session may include joint sessions with all parties, separate
meetings, or both as determined appropriate in the sole judgment of the FTS Appeals
Official.

.04 The FTS Appeals Official will use a FTS Session Report to assist in planning the
FTS session and to report on developments during the session. The FTS Session
Report will include a list of all issues approved for the FTS program, a description of the
issues, the amounts in dispute, conference dates, a plan of action for the FTS session
and other information useful to the process as determined by the parties and the FTS
Appeals Official. The FTS Appeals Official also will prepare and update an Agenda,
which guides the communication, sets the order of issue discussion, poses questions to
clarify the issue and guides the meetings. During the session, the FTS Appeals Official
will provide decision makers from both parties with copies of the Agenda and the FTS
Session Report.

.05 Generally, the FTS Appeals Official will consider only those issues outlined in the
FTS Session Report, except by mutual agreement of the parties. If the taxpayer
presents information during the session that the taxpayer had not previously presented
during the audit, the FTS Appeals Official will adjust the targeted completion date to
give the appropriate Service officials time to evaluate the information/documentation.

.06 During the session, the FTS Appeals Official may propose settlement terms for any
or all issues. If the taxpayer accepts the FTS Appeals Official=s settlement proposal, but
the LMSB Team Manager rejects it, the LMSB Territory Manager must review the

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rejection and either concur in writing, or accept the settlement proposal on behalf of
LMSB. If the LMSB Territory Manager concurs with the Team Manager=s rejection of
the settlement proposal, and an acceptable alternative settlement cannot be reached,
the issue will be closed out of the FTS program as unagreed.

.07 If the parties resolve any of the disputed issues at the conclusion of the session, the
parties and the FTS Appeals Official shall sign the FTS Session Report acknowledging
acceptance of the terms of settlement for purposes of preparing computations. The
signature of the parties on the FTS Session Report does not constitute a final
settlement, nor does it waive restrictions on assessment, terminate consents to extend
periods of limitation, start the running of any periods of limitation, or constitute
agreement to close the case.

.08 If applicable, the Service will report a proposed settlement reached as a result of
FTS to the Joint Committee on Taxation in accordance with section 6405. The taxpayer
acknowledges that the Service may reconsider a proposed settlement, as reflected in a
signed FTS Session Report, upon receipt of comments on the proposed settlement from
the Joint Committee on Taxation. If the taxpayer declines to agree with any changes by
the Service upon reconsideration, LMSB will close the case unagreed and the taxpayer
will retain all the usual rights to request Appeals consideration of any unagreed issues.

.09 If the parties fail to resolve any issue in FTS, the taxpayer retains the option of
requesting that the issue be heard through the traditional Appeals process.

.10 Communications made during an FTS session are confidential. Employees of the
Service involved with the FTS process must adhere to the confidentiality and disclosure
provisions of the Internal Revenue Code, including sections 6103, 7213 and 7431. By
signing the LMSB Fast Track Agreement, the taxpayer consents, pursuant to section
6103(c), to the disclosure of the taxpayer=s returns and return information pertaining to
the issues considered in the FTS process to those persons named on the Agreement as
participants in the process. Employees of the Service, the taxpayer and persons invited
to participate by the Service or the taxpayer shall not voluntarily disclose information
regarding any communication made during the FTS session, except as provided by
statute, such as in sections 6103 and 7214(a)(8) and 5 U.S.C. § 574.

.11 The prohibition against ex parte communications between Appeals Officers and
other Service employees provided by section 1001(a) of the Internal Revenue Service
Restructuring and Reform Act of 1998 does not apply to the communications arising in
FTS because Appeals personnel, in facilitating an agreement between the taxpayer and
LMSB, are not acting in their traditional Appeals settlement role.

SECTION 6. POST-SESSION PROCEDURE

.01 Unless specific conditions warrant altering the agreement, e.g.
, a subsequent
authoritative decision that materially alters the basis for the agreement, the basis of

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settlement shall not be modified after the FTS Session Report is signed. Nor may either
party raise a new issue for FTS consideration after the FTS Session Report is signed
unless both parties and the FTS Appeals Official agree. New issues not accepted for
consideration under FTS may still be raised and considered outside the FTS program.

.02 After the parties and the FTS Appeals Official sign the FTS Session Report
acknowledging a basis of settlement, the FTS Appeals Official will draft the appropriate
settlement document to reflect the agreed upon treatment of the issue. The FTS
Appeals Official may use delegated settlement authority to enter into and approve any
Fast Track settlement agreement (
e.g.
, specific matter closing agreement or Form 870-
AD). Alternatively, LMSB and the taxpayer may resolve an issue using LMSB
resolution authority and LMSB will include the issue as an agreed issue in the Revenue
Agent=s Report. LMSB will then close the case using established case closing
procedures.

.03 If one or more issues remain unsettled at the end of FTS, the FTS Appeals Official
will send a letter to both the taxpayer and LMSB, stating who participated in the
program, listing any unresolved issues, and explaining the taxpayer=s rights to appeal
unresolved issues.

SECTION 7. GENERAL PROVISIONS

.01 A resolution reached by the parties through FTS will not bind the parties for taxable
years not covered by the FTS Session Report. Except as provided in the Fast Track
settlement agreement or Delegation Order 236, any such resolution shall not be used
as precedent.

.02 With respect to FTS cases that are returned for traditional Appeals consideration, ex
parte restrictions will not be imposed on intra-Appeals communications. Appeals
management will take appropriate measures to ensure these cases are handled fairly
and impartially.

SECTION 8. EFFECTIVE DATE

This revenue procedure is effective June 3, 2003.

SECTION 9. CONTACTS

A taxpayer who wants to submit a case to the FTS program, or that has questions about
the program and its suitability for the taxpayer=s case, may contact the LMSB Team
Manager for the tax year currently under examination. For further information,
taxpayers may contact J.W. Wyatt at (314) 612-4639 (not a toll-free number) or by email
at
j.w.wyatt@irs.gov
or James Fike at (202) 283-8353 (not a toll-free number) or by
email at
james.o.fike@irs.gov
. Taxpayers may also consider other available alternate
dispute resolution programs, including SBSE – Appeals Fast Track Mediation.