The IRS Large Business & International (LB&I) Division published an Interim Guidance Memorandum (IGM) on July 23, 2025, implementing three changes to current LB&I audit procedures.1 Specifically, the IGM (1) removes the Acknowledgement of Facts Information Document Request from the audit process, (2) clarifies the applicability of Accelerated Issue Resolution to Large Corporate Compliance cases, and (3) revises and implements procedural rules to enhance participation in the Fast Track Settlement process. These changes took effect on August 1, 2025.
In this alert, we provide a brief overview of the three changes and a few practice pointers to consider. Of course, if you have any questions about how these changes might impact your audit, please consider reaching out to legal counsel.
Elimination of the Acknowledgement of Facts Information Document Request
The IGM provides that LB&I will phase out the use of the Acknowledgement of Facts (AOF) Information Document Request (IDR) in audits. The AOF will be optional from August 1, 2025, through December 31, 2025, and will be eliminated entirely in early 2026.
The AOF IDR was introduced in 2016, and its stated purpose was to promote collaboration and transparency between the IRS and taxpayers by making sure that relevant facts were understood and documented before the issuance of the Notice of Proposed Adjustment (NOPA). The AOF IDR is usually issued at the conclusion of the audit phase to establish pertinent facts for each issue by requesting the taxpayer to either agree with the facts as written by the IRS or provide corrections and additional relevant details. This process could be complex, as the IRS sometimes embedded legal statements within the stated facts and drafted them to favor the IRS’ position. Moreover, because taxpayers typically had not yet seen the IRS’s legal stance during the audit, they might be unaware of additional relevant facts. In practice, the AOF IDR often led to frustration and confusion, with taxpayers finding it difficult to evaluate the relevance of the facts chosen by the government, or the benefits and risks of responding or not responding.
The AOF IDR process will be completely eliminated in 2026. For any cases under audit between now and December 31, 2025, taxpayers will be offered the option of participating in the AOF IDR process. The IGM notes that revenue agents must still conduct factual development and ensure that the core value of collaborative examinations is being met while these changes are being implemented. Between August 1, 2025 and December 31, 2025, taxpayers should continue working with their advisors to evaluate the benefits and drawbacks of responding to any AOF IDRs offered by the LB&I examination team. The IRS can still use a taxpayer’s response to other types of IDRs as a basis for stipulation of facts or to support arguments made by the IRS at the appeals stage or in court. Going forward, taxpayers should continue to be careful to provide accurate information and remain diligent in documenting all communications and correspondence with the IRS and, in particular, of the facts.
Expanding the Use of Accelerated Issue Resolution
In addition to announcing the forthcoming elimination of the AOF IDR, the IGM also expressly provides that Accelerated Issue Resolution (AIR) is applicable to Large Corporate Compliance (LCC) cases. AIR, which was set forth in Revenue Procedure 94-67, is a voluntary, early dispute resolution procedure that allows a taxpayer to resolve specific issues where similar issues have been thoroughly examined and resolved in prior tax periods, reducing the need for repetitive audits. Prior to this IGM, there was some ambiguity of whether AIR applied to LCC cases since the AIR revenue procedure referenced an outdated examination procedure, but now the IGM resolves any confusion.
Corporate taxpayers should evaluate whether utilizing AIR would help resolve recurring examination issues to potentially reduce the duration and administrative burden of their examinations.
Enhanced Procedures for Fast Track Settlements
Finally, the IGM supersedes and replaces a February 2025 memorandum which announced pilot program changes to Fast Track Settlements (FTS). FTS is a voluntary alternative dispute resolution process designed to resolve tax disputes during examination with the assistance of a mediator from the IRS Appeals Office. Participation in FTS is voluntary and requires mutual consent from both the taxpayer and the IRS.
Historically, the IRS had rejected FTS requests if any single issue in a case was ineligible for FTS. In February 2025, the IRS announced a pilot program which revised the eligibility criteria to allow FTS to be used for one or more issues in a case, even if other issues are ineligible.2 The IGM makes this change permanent.
Additionally, the IRS must now obtain written concurrence from the Director of Field Operations if the IRS plans to deny a request for FTS, senior IRS executives must be notified of the denial before the taxpayer is notified, and coordination is required between issue and case managers.
These enhancements are designed to increase transparency and reduce denials, with the ultimate goal of encouraging broader use of the FTS process. Taxpayers should continue to consider whether utilizing FTS for some or all issues in a case would aid in resolution of their case.
Footnotes
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IRS, Interim Guidance Memorandum (IGM) from Ronald H. Hodge II, Assistant Deputy Comm’r, Compliance Integration, LB&I Div., to All LB&I Employees (July 23, 2025) (Control No. LB&I-04-0725-0008).
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IRS, Announcement 2025-6, Pilot Program Changes to Fast Track Settlement (2025) https://www.irs.gov/pub/irs-drop/a-25-06.pdf
