Alternative Dispute Resolution Programs Making a Comeback at the IRS

In 1996, Congress, recognizing the benefits of alternative dispute resolution (ADR) in the private sector, passed the Administrative Dispute Resolution Act of 1996 (the Act). The Act implemented ADR techniques within federal administrative agencies. ADR provides alternative methods to resolve tax disputes outside of the traditional stages of dispute resolution (such as IRS exam, IRS appeals, and litigation). With the use of neutral third parties to facilitate resolution, ADR often results in quicker and less costly resolutions without the need for litigation.

Formation of ADR Program Management Office

Since the passage of the Act, the IRS has established various ADR programs. However, without significant IRS support, taxpayer use of the ADR programs has steeply declined over the years. According to a 2023 Government Accountability Office Report, between fiscal years 2013 and 2022, ADR participation decreased by 65%.

To resurrect taxpayer use of these programs, the IRS Independent Office of Appeals established the Alternative Dispute Resolution Program Management Office (ADR PMO) in April of 2024. ADR PMO is tasked with educating taxpayers and the IRS on early resolution options, coordinating training and support of mediators, and monitoring the effectiveness of ADR offerings.

To further encourage taxpayers to use ADR programs, effective January 25, 2025, the ADR Program Management Office initiated two-year pilot programs to test changes to two of its current ADR Programs: Fast Track Settlement and Post Appeals Mediation.

Fast Track Settlement

Fast Track Settlement (FTS) was initially established in 2001 as a pilot program to resolve unagreed issues at an earlier stage within IRS exam’s jurisdiction. In 2003, FTS was formally established within the Large Business and International (LB&I) division, with expansion to the Tax Exempt and Government Entities (TE/GE) and the Small Business and Self-Employed (SB/SE) divisions in 2012 and 2017, respectively. FTS is designed to be completed within 120 days for LB&I taxpayers and within 60 days for SBSE and TE/GE taxpayers. This is a significant time reduction compared to the average resolution time of about 365 days at traditional IRS appeals.

Taxpayers under exam may request participation in FTS prior to the issuance of the exam report. A case is considered eligible for FTS provided:

• All issues have been fully developed during the exam.
• There are a limited number of unagreed issues.
• The taxpayer has stated its position on all unagreed issues in writing.

Once a case is accepted into FTS, the case remains within exam’s jurisdiction while FTS is jointly administered with the IRS Independent Office of Appeals (Appeals). In an FTS session, a neutral Appeals officer employs various ADR techniques to mediate a resolution between the taxpayer and the IRS. At the conclusion of an FTS session, the Appeals officer makes recommendations. If both the taxpayer and IRS agree with the recommendations, they enter into a settlement. If either party disagrees with the FTS recommendation, the taxpayer retains the right to pursue the issue at traditional IRS appeals.

Updated FTS Pilot Program

Under the newly released FTS pilot program, FTS can now apply to one or more issues within a case. A case is no longer considered ineligible for FTS solely because of one ineligible issue. Additionally, if a taxpayer requests to participate in FTS, the request cannot be denied without the approval of a first-line IRS executive (i.e., directors in each of the IRS divisions). If the request is denied, the IRS must issue an explanation for the denial. Finally, within the SB/SE and TE/GE divisions, a pre-FTS managerial conference is no longer a prerequisite to participation in FTS. These changes are aimed at expanding the group of FTS-eligible taxpayers and increasing the program’s usage and oversight by the IRS.

The IRS also announced a Last Chance FTS Pilot Program. Under this program, when a taxpayer submits an appeals protest in response to a 30-day letter issued by the IRS at the end of an SB/SE exam, the IRS group manager will contact Appeals. An Appeals officer will then reach out directly to the taxpayer to offer the FTS option and provide information on how to request participation in the program. Through the Last Chance FTS Pilot Program, the IRS will evaluate whether FTS participation increases when taxpayers are reminded of this option.

Post Appeals Mediation

In 2014, the IRS established Post Appeals Mediation (PAM) for taxpayers who have participated in traditional Appeals but disagree with the proposed settlement. Both the taxpayer and Appeals must agree to participate in the PAM process. In this program, a neutral third-party mediator facilitates conversations between the taxpayer and Appeals by defining the issues and promoting a negotiated settlement. The resulting settlement is not binding on either party. The goal for resolution is 60 to 90 days.

Under the PAM pilot program, taxpayers who previously participated in FTS prior to traditional appeals are no longer precluded from participating in PAM. Similar to the FTS pilot program, and to ensure full consideration, taxpayer requests to participate in PAM may only be denied with the approval of a first-line IRS executive. If the request is denied, the IRS must issue an explanation for the denial.

Improvements are Still Needed

Recent efforts by the IRS to promote ADR have been successful. Between 2023 and 2024, taxpayer use of ADR increased as follows:

• ADR case receipt increased by 25%,
• FTS cases in LB&I rose by 56%, and
• Post Appeals Mediate case receipt increased by 110%.

On May 25, 2025, the National Taxpayer Advocate highlighted the success of the IRS ADR programs.  In LB&I, 91% of FTS cases were resolved, typically within four months, and in SB/SE, 89% of FTS cases were resolved, typically within three months.

Yet, despite this promising success, the National Taxpayer Advocate noted several concerns. She stated there will need to be a “culture change” within the IRS before exam teams see the full benefit of ADR programs and, therefore, agree to participation. She also encouraged the IRS to bring back ADR programs, such as binding arbitration, which was previously eliminated in 2015. Finally, the National Taxpayer Advocate encouraged the expansion of ADR programs in correspondence exams, where more than 50% of examined taxpayers are low-income with very limited resources to dispute audit outcomes.

FTS and PAM provide less costly and more efficient resolution options, offering additional bites at the apple to resolve a tax dispute. Taxpayers with unagreed issues at IRS exam or Appeals should take advantage of the available ADR programs. Taxpayers should engage a trusted tax advisor to help them navigate the proper timing to request ADR consideration and throughout the ADR process. If you have questions about the ADR process, contact our team below.