Final regulations on Appeals, Fast Track Settlement programs

In brief

What happened?

Treasury and the IRS on January 14 issued final regulations affecting taxpayers requesting the consideration of federal tax controversies by the IRS Independent Office of Appeals (Appeals). The guidance implements the Taxpayer First Act of 2019 that codified Appeals and made the office generally available to taxpayers. The guidance provides that although the Appeals resolution process generally is available to all taxpayers, there are several significant exceptions to consideration by Appeals. The final regulations also address certain procedural and timing rules that must be met before Appeals consideration is available. The final regulations, which are effective January 15, adopt, with slight modifications in response to comments, proposed regulations issued in September 2022.

In addition, the IRS on January 15 issued IR-2025-14 and Announcement 2025-6 announcing three pilot programs that will test changes to the agency’s Alternative Dispute Resolution (ADR) programs, such as Fast Track Settlement (FTS) and Post-Appeals Mediation (PAM), to help taxpayers resolve tax disputes earlier and more efficiently.

Why is it relevant?

In anticipation of an expected increase in challenges to the validity of Treasury regulations after the Supreme Court’s decision in Loper Bright Enterprises v. Raimondo, taxpayers have been waiting to see if Treasury and the IRS would maintain their position in the proposed regulations that Appeals will not consider regulation validity challenges. While there were a few modest changes to reflect comments received, the final regulations do not deviate significantly from the proposed regulations. It is clear that litigation will be required in the case of regulation validity challenges.

The piloted changes to FTS and PAM are welcome news for taxpayers and should lead to an increase in opportunities to utilize ADR programs in issue resolution.

Action to consider

Taxpayers with current IRS disputes should ensure a fresh understanding of the Appeals process and consider using the ADR options.

Exceptions to consideration by Appeals

The final regulations list 24 federal tax controversies that are excepted from consideration by Appeals or matters or issues that otherwise are ineligible for consideration by Appeals because they are neither a federal tax controversy nor treated as a federal tax controversy under the final regulations. If a matter or issue not eligible for consideration by Appeals is present in a case that otherwise is eligible for consideration by Appeals, the ineligible matter or issue will not be considered by Appeals. The federal tax controversies that are excepted include:

1. Any administrative determination made by the IRS rejecting a position of a taxpayer that the IRS has identified as frivolous and any case solely involving the taxpayer’s failure or refusal to comply with the internal revenue laws because of frivolous moral, religious, political, constitutional, conscientious, or similar grounds.
2. Penalties assessed by the IRS under Section 6702 (relating to frivolous tax submissions) or Section 6682 (relating to false information with respect to withholding) or any other penalty imposed for a frivolous position or false information.
3. Any administrative determination made by the IRS relating to awards to whistleblowers.
4. Any administrative determination issued by an agency other than the IRS.
5. Any decision made by the IRS not to issue a Taxpayer Assistance Order.
6. Any decision made by the IRS concerning material to be deleted from the text of a written determination unless the written determination is otherwise being considered by Appeals.
7. Any denial of access under the Privacy Act.
8. Any issue resolved in a closing agreement that the taxpayer entered into with the IRS, and any decision made by the IRS to enter into or not enter into such agreement.
9. Any case in which the IRS erroneously returns or rejects an offer in compromise (OIC) as nonprocessable or no longer processable and the taxpayer requests Appeals consideration to assert that the OIC should be deemed to be accepted.
10. Any case in which a criminal prosecution, or a recommendation for criminal prosecution, is pending against the taxpayer for a tax-related offense, except with the concurrence of the Office of Chief Counsel or the Department of Justice, as applicable.
11. Any issues relating to allocation among different fee payers of the branded prescription drug and health insurance providers fees.
12. Any certification or issuance of a notice of certification of a seriously delinquent federal tax debt to the State Department relating to the revocation or denial of a passport in the case of serious tax delinquencies.
13. Any issue barred from consideration, or any other administrative guidance related to collection due process or equivalent hearings. 
14. Any case, determination, matter, decision, request, or issue that Appeals lacks the authority to settle.
    • Any case or issue in a case that has been referred to the Justice Department.
    • Any competent authority case.
    • Any decision of the IRS Commissioner or delegate to not rescind a penalty for a non-listed reportable transaction.
    • Any request for relief from joint and several liability on a joint return when the nonrequesting spouse is a party to a docketed case in the US Tax Court and does not agree to granting full or partial relief to the requesting spouse.
    • Any criminal restitution-based assessment.
15. Any adverse action related to the initial or continuing recognition of tax-exempt status, an entity's classification as a foundation, the initial or continuing determination of employee plan qualification, or a determination involving an obligation and the issuer of an obligation.
16. Any case docketed in the Tax Court if the notice of deficiency, notice of liability, or final adverse determination letter is based upon a technical advice memorandum in that case involving an adverse action.
17. Any decision by an Office of Associate Chief Counsel regarding whether to issue a letter ruling or the content of a letter ruling.
18. Any issue based on a taxpayer’s argument that a statute violates the US Constitution unless there is an unreviewable decision from a federal court holding that the cited statute is unconstitutional.
19. Any issue based on a taxpayer’s argument that a Treasury regulation is invalid unless there is an unreviewable decision from a federal court invalidating the regulation as a whole or the provision in the regulation that the taxpayer is challenging.
20. Any issue based on a taxpayer’s argument that a notice or revenue procedure is procedurally invalid unless there is an unreviewable decision from a federal court holding it to be invalid.
21. Any case or issue designated for litigation, or withheld from Appeals consideration in a Tax Court case, in accordance with guidance regarding designating or withholding a case or issue.
22. Any case docketed in the Tax Court if the notice of deficiency, notice of liability, or other determination was issued by Appeals unless the exception regarding when the Tax Court remands a collection due process case for reconsideration applies.
23. Any case in which timely Appeals consideration must be requested before a petition is filed in the Tax Court because exhaustion of administrative review, including consideration by Appeals, is a prerequisite for the Tax Court to have jurisdiction, and the taxpayer failed to timely request Appeals consideration.
24. Any administrative determination made by the IRS to deny or revoke a Certified Professional Employer Organization certification.