On July 23, 2025, the Internal Revenue Service ("IRS") issued interim guidance announcing changes to the Large Business & International Division ("LB&I") audit procedures (see the IRS's memorandum, here). The changes aim to shorten audits and reduce staffing burdens and costs. The guidance makes three procedural changes:
- The guidance eliminates the Acknowledgement of Facts ("AOF") Information Document Request ("IDR"). The stated purpose of the AOF is to confirm that all relevant facts are known and mutually agreed upon before the IRS issues a Notice of Proposed Adjustment ("NOPA"). The AOF is the one IDR that cannot be the subject of an IRS summons if the taxpayer chooses to not respond. The guidance confirms that the AOF process is voluntary through the end of 2025 and that the AOF process will be eliminated in 2026.
- The guidance clarifies that Accelerated Issue Resolution ("AIR") can apply to Large Corporate Compliance ("LCC") cases. AIR allows taxpayers to enter into a closing agreement with the IRS under the LCC program to apply the resolution of the same or similar issues arising from an examination to other tax periods (see Internal Revenue Manual § 4.46.5.4.2.4 (12-13-2018) here).
- The guidance updates the pilot program changes to Fast Track Settlement ("FTS") to require additional review before the IRS denies a taxpayer's request to participate in the FTS program.
Practice Point
Under the interim guidance, LB&I taxpayers under audit between now and the end of this year can continue to choose whether to participate in the AOF process. Taxpayers undergoing LB&I audits should work with their tax professional to determine whether engaging in the AOF process through the end of 2025 is a strategic benefit to their case. Given the IRS's increased emphasis on alternative dispute resolution programs, LB&I taxpayers should also discuss with their tax advisors whether AIR or FTS may be beneficial to the successful resolution of their case. It remains to be seen whether after recent budget cuts, engaging in these programs will resolve tax disputes efficiently.
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