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IRS expands fast-track settlement options for SB/SE taxpayers

Pilot broadens mediation access, creates new settlement pathways

September 01, 2026
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Tax controversy

Executive summary

More options for fast-track tax dispute resolution

The IRS has updated its alternative dispute resolution (ADR) procedures for small business and self-employed (SB/SE) taxpayers to implement a pilot program designed to expand access to ADR, increase oversight of ADR determinations and encourage earlier resolution of tax controversies.

As noted in Announcement 2025-6, the pilot program allows taxpayers to use fast-track settlement (FTS) on individual issues within a case, pursue post-appeals mediation (PAM) after an unsuccessful FTS attempt and access a new "Last Chance FTS" option before Appeals assumes jurisdiction.

The revised framework provides taxpayers with more opportunities to resolve examination disputes earlier and with greater oversight and transparency around acceptance decisions. Taxpayers with ongoing or anticipated IRS examinations can use the newly expanded ADR procedures to develop a more efficient dispute-resolution strategy while preserving flexibility as a case progresses through the IRS administrative process.

IRS expands ADR eligibility, FTS options for SB/SE taxpayers

SB/SE taxpayers can now take advantage of more flexible and accommodating tax controversy resolution options under recently formalized changes to the IRS’s ADR program. 

The IRS on July 16 released interim guidance updating the ADR procedures for SB/SE taxpayers under IRM 8.26.2 and providing operational guidance for Appeals personnel while the pilot remains under evaluation. The guidance implements changes first unveiled by the IRS in Announcement 2025-6, which set forth a two-year pilot program designed to expand access to ADR, increase oversight of ADR determinations and encourage earlier resolution of tax controversies. 

Specifically, the pilot modifies both the FTS and PAM programs and introduces a new "Last Chance FTS" initiative for SB/SE taxpayers. The pilot applies to FTS requests made on or after January 15, 2025, and is scheduled to remain in effect through January 15, 2027.

The July 16 guidance remains in effect until July 16, 2028, unless superseded or incorporated into the Internal Revenue Manual.

Key Developments

Partial issue consideration

One of the most significant changes is that FTS may now be applied to one or more issues within a case, eliminating the all-or-nothing eligibility criteria that previously applied.

Previously, under the SB/SE FTS procedures, if a single issue was ineligible for FTS, the entire case would be deemed ineligible. Announcement 2025-6 suspends that limitation during the pilot and allows taxpayers and the IRS to pursue fast-track resolution of eligible issues even when other issues remain outside the program.

Potential taxpayer benefit: Taxpayers have greater flexibility to resolve discrete issues during exam without waiting for Appeals consideration of the entire case.

FTS participation no longer precludes PAM

Historically, SB/SE guidance generally rendered issues considered during FTS ineligible for PAM if the parties failed to resolve the issue or withdrew from the process.

Announcement 2025-6 changes that result by expressly allowing a taxpayer whose FTS request is unresolved, denied or withdrawn to seek resolution through PAM as well as through the traditional Appeals process.

Potential taxpayer benefit: Taxpayers may utilize multiple ADR programs over the life cycle of a controversy matter instead of having to choose between them.

Greater oversight and transparency

The pilot includes several procedural changes designed to encourage broader use of ADR by making the process more accommodating, transparent and streamlined.

For example, requests to participate in FTS or PAM may not be denied without approval from a first-line executive, and taxpayers must receive an explanation when their request is denied. In addition, the pre-FTS managerial conference requirement has been removed, meaning taxpayers are no longer required to exhaust all available resolution strategies in conference before seeking mediation on an issue.

Introduction of "Last Chance FTS"

The SB/SE also creates a limited-scope protocol called "Last Chance FTS."

Under this program, when a taxpayer submits a protest in response to a 30-day letter or equivalent examination notice, the SB/SE group manager will ask Appeals to notify the taxpayer about the FTS option before the case enters Appeals.

Appeals will serve as a neutral resource and notify the taxpayer that FTS is available. If both the taxpayer and Exam agree to participate, the dispute may proceed through FTS before Appeals assumes jurisdiction.

According to the IRS, the purpose of the pilot is to determine whether FTS participation increases when taxpayers are reminded of the program immediately before Appeals obtains jurisdiction.

One of the most significant changes is that FTS may now be applied to one or more issues within a case, eliminating the all-or-nothing eligibility criteria that previously applied.

Previously, under the SB/SE FTS procedures, if a single issue was ineligible for FTS, the entire case would be deemed ineligible. Announcement 2025-6 suspends that limitation during the pilot and allows taxpayers and the IRS to pursue fast-track resolution of eligible issues even when other issues remain outside the program.

Potential taxpayer benefit: Taxpayers have greater flexibility to resolve discrete issues during exam without waiting for Appeals consideration of the entire case.

Historically, SB/SE guidance generally rendered issues considered during FTS ineligible for PAM if the parties failed to resolve the issue or withdrew from the process.

Announcement 2025-6 changes that result by expressly allowing a taxpayer whose FTS request is unresolved, denied or withdrawn to seek resolution through PAM as well as through the traditional Appeals process.

Potential taxpayer benefit: Taxpayers may utilize multiple ADR programs over the life cycle of a controversy matter instead of having to choose between them.

The pilot includes several procedural changes designed to encourage broader use of ADR by making the process more accommodating, transparent and streamlined.

For example, requests to participate in FTS or PAM may not be denied without approval from a first-line executive, and taxpayers must receive an explanation when their request is denied. In addition, the pre-FTS managerial conference requirement has been removed, meaning taxpayers are no longer required to exhaust all available resolution strategies in conference before seeking mediation on an issue.

The SB/SE also creates a limited-scope protocol called "Last Chance FTS."

Under this program, when a taxpayer submits a protest in response to a 30-day letter or equivalent examination notice, the SB/SE group manager will ask Appeals to notify the taxpayer about the FTS option before the case enters Appeals.

Appeals will serve as a neutral resource and notify the taxpayer that FTS is available. If both the taxpayer and Exam agree to participate, the dispute may proceed through FTS before Appeals assumes jurisdiction.

According to the IRS, the purpose of the pilot is to determine whether FTS participation increases when taxpayers are reminded of the program immediately before Appeals obtains jurisdiction.

Practical takeaway: Multiple ADR checkpoints open more doors to dispute resolution

Put together, the revised framework effectively creates a more continuous ADR process, offering multiple opportunities designed to promote resolution before litigation becomes necessary:

  • FTS while the case remains under Exam jurisdiction
  • Last Chance FTS after a protest has been filed but before Appeals jurisdiction formally begins
  • PAM after a case has entered Appeals and settlement discussions have been unsuccessful (Note: PAM mediators serve as neutral facilitators and do not possess settlement authority)

The IRS has expressly stated that the purpose of the pilot is to increase ADR usage and make existing programs available to a broader range of cases. The issue-by-issue eligibility rules, elimination of the FTS/PAM barrier, first-line executive approval of ADR denials and new Last Chance FTS process open more avenues to resolution for taxpayers with significant unresolved examination issues.

Although the pilot expands access to ADR, participation does not guarantee resolution. The effectiveness of the pilot ultimately depends on whether both taxpayers and the IRS engage meaningfully in the settlement process.

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