By Sidney Goldin
For a small business or anyone operating as a sole proprietor, an audit can be devastating. As stressful as the audit can be, even greater stress can arise from the uncertainty of ongoing tax dispute proceedings.
As they stretch on for months or years, these disputes can severely limit the options available to a business during the growth stage. Fortunately, the IRS doesn’t like uncertainty any more than businesses do. The government announced a new set of tax laws at the end of 2016, which will make it easier for small business and self-employed entrepreneurs to settle their tax disputes in about 60 days or less. This special program has been in test status for years in different parts of the U.S. Now, it is national and permanent.
How It All Started
More than a decade ago, the IRS recognized that many large enterprises would gladly settle their tax disputes if there was a quick and easy option that benefited both sides. The IRS introduced a Fast Track Settlement (FTS) program for large enterprises way back in 2003. The program worked out so well that it was extended to small businesses and the self-employed in three cities in 2006. This version was just a pilot program, though, and the program rules underwent many revisions over the next few years. The pilot went nationwide four years ago. Today, the big news is that the pilot program will now become permanent, just with a few more structural adjustments.
What Does the FTS Program Do?
Just as in many legal cases, the costs of the dispute may outweigh the value of winning. Therefore, the FTS was made available to businesses of all sizes to expedite case resolution. When a business enters the program, a trained mediator from the IRS Office of Appeals is assigned to help that business’s representative come to a fair settlement with the IRS over back taxes.
The Appeals mediator typically employs mediation techniques and offers settlement proposals. These proposals can be accepted or rejected by either the business or the IRS at any time during the process. When an agreement can’t be reached, the mediator may use the Appeals’ settlement authority for dispute resolution. The mediator’s goal is to come to a final agreement – acceptable to both parties – within two months of when the business was accepted into the program; however, this decision could take longer depending on various factors.
Who Is Eligible?
Nearly any small business or self-employed taxpayer disputing factual or legal issues unresolved for at least one year are eligible for consideration.
There are four types of cases that will not be considered eligible for FTS:
- Cases that have already gone to collections.
- Cases so small that there is no IRS agent assigned to them, especially cases handled by correspondence instead of face to face meetings.
- Positions that are considered frivolous by the IRS, especially the four most common arguments:
- that wages are not income
- that paying taxes is voluntary
- a request for an “Assessment Certificate”
- that the taxpayer is a citizen of a state or region, not the United States
- Issues identified as disqualifying actions in the 2011 bulletin, including the “whipsaw” cases where the resolution may be unfavorable to a partner excluded from the settlement discussions. This also is a catchall category for any dispute deemed ineligible by an IRS Chief Counsel Notice or other FTS publication.
What Is Included in the Most Recent Changes?
A few important changes have occurred since the last major revision in 2011. The most important change is the permanent adoption and the expansion to taxpayers everywhere in the country.
The FTS is not for tax-exempt organizations or government entities (TE/GE), which are covered by a separate program.
Some of the other important considerations are:
- Businesses can be disqualified by not responding in good faith or not providing requested documentation.
- Any cases that are currently in court or are under consideration for litigation become automatically ineligible for the program.
- If the overriding dispute is addressed by closing agreements, res judicata or Supreme Court decisions, the case cannot enter the program.
There are many details that need to be covered before entering the FTS program, so small business owners should consult their accountant or tax attorney before moving ahead with filling out Form 14017 – Application for Fast Track Settlement – and composing a written statement specifying the disputed issues.
The Fast Track Settlement program for small businesses and the self-employed is now a permanent part of the tax code. Businesses of all sizes that are under audit now have an option to settle their tax disputes in around 60 days or less, as long as they meet certain criteria. Basically, a case cannot be considered frivolous, too small to have an agent assigned or already in collections. Small businesses and entrepreneurs benefit from a faster, less costly, less risky option that gives them more control over the mediation process. For small businesses operating on thin margins, this could be immensely valuable.
Contact Goldin Peiser & Peiser today for help on any IRS issues you may be facing.
Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.