FTS is generally available for all cases within LB&I's Compliance jurisdiction and certain cases outside of LB&I's jurisdiction. According to IRS, it works best with a limited number of unagreed issues. FTS can also be used in conjunction with LB&I's Compliance Assurance Process (CAP), which allows participating large corporations to work collaboratively with an IRS team to identify and resolve potential tax issues before the tax return is filed each year.
FTS can be used to settle most factual and legal issues, listed transactions, appeals and compliance coordinated issues, and issues requiring hazards of litigation settlement (i.e., where IRS considers its odds of winning a case and factors this into its decision of whether to settle or go to trial).
According to Pub 4539, the advantages of using FTS include:
- Quick resolution (i.e., within 120 days) of audit issues;
- One-page application;
- Consideration of the hazards of litigation (which can be considered by appeals officers and IRS counsel, but not IRS examining agents);
- Preventing the accrual of "hot" interest (i.e., the additional 2% interest imposed on large corporate underpayments under Code Sec. 6621(c));
- Withdrawal from the process at any time; and
- Retention of all traditional appeal rights (see below).
When it appears that there might be unagreed issues raised during a taxpayer's exam, the taxpayer and LB&I team manager should have an early discussion regarding the possible use of FTS. Before the Form 5701 (Notice of Proposed Adjustment) is issued, the taxpayer and LB&I team should first agree on all of the facts and circumstances, and exhaust LB&I resolution authority on the issues.
Both the taxpayer and those that have the authority to represent the taxpayer must be present during FTS. A Form 2848, Power of Attorney and Declaration of Representative, can be used.
If the parties decide that a resolution cannot be reached, the case will be closed promptly. The taxpayer retains all traditional appeal rights if the case or issue isn't settled. The administrative file will be returned to LB&I without Appeals' notes, but any written documents disclosed by the taxpayer during the FTS process will become available to be used by LB&I in its determination.
An alternative to FTS is the Early Referral to Appeals. According to Pub 4539, this option is best utilized relatively early in the examination process when there are one or more developed, unagreed issues, and there are other undeveloped examination issues. Here, the developed, unagreed issues are referred to Appeals, while the other issues continue to be developed in LB&I.
Read more at: Tax Times blog