Faster Audits, More ADR: IRS Rolls Out Significant LB&I Changes

On July 23, 2025, the Internal Revenue Service (“IRS”) issued interim guidance for Large Business & International Division (“LB&I”) audit procedure. The IRS announced three major changes: (1) the Acknowledgement of Facts Information Document Request (“AOF IDR”) will be eliminated; (2) Accelerated Issue Resolution (“AIR”) applies to Large Corporate Compliance (“LCC”) cases; and (3) the IRS must conduct additional review before denying a taxpayer’s request to participate in the Fast Track Settlement (“FTS”). These changes reflect the IRS’s continued push to make its examinations “more efficient and current.”

The End of AOF IDRs

The most meaningful change announced by the IRS is that the AOF IDR is optional through the end of 2025, followed by a complete phase-out in 2026.

Previously, the AOF IDR process required taxpayers to accept or provide modifications to the IRS’s proposed universe of facts through an IDR laying out the facts upon which the IRS’s adjustment will be based. The goal of the AOF IDR process was to streamline case submission to the IRS Independent Office of Appeals by ensuring that all facts were agreed upon before the conclusion of an examination. Years ago, when the AOF IDR was first announced, many taxpayers argued that it was not a productive exercise and that it was a trap for taxpayers to make admissions that would be binding against the taxpayer should the case fail to resolve administratively and proceed to litigation. The new guidance indicates that the IRS believes that AOF IDRs consumed a significant amount of time and provided little value to the Exam and Appeals process. As a result, the IRS will eliminate the AOF IDR on January 1, 2026, leaving it up to taxpayers to decide whether to engage in the AOF IDR process for the remainder of 2025.

The IRS is replacing the AOF IDR with increased “issue discussions throughout the issue development process.” Whether the issue development process is an effective replacement will depend upon whether the Exam team is responsive, amenable to compromise, available, and transparent. Taxpayers will need to be vigilant and persistent in their communications with the Exam team and set clear timelines so that issue conferences are well-timed and productive. Taxpayers will also need to ensure that they understand the relevant facts early in the Examination process to ensure that all relevant facts are presented to Exam prior to Appeals. Keep in mind: If new facts are presented to IRS Appeals for the first time, IRS Appeals must return the dispute to the Exam team, which increases costs and inefficiencies.

Accelerated Issue Resolution applies to large companies

The IRS guidance also confirmed that AIR applies to LCC cases. AIR allows taxpayers to enter into a closing agreement with the IRS under the LCC program, applying an agreed resolution of an issue from one audited tax year to similar positions across multiple filed years in the same audit cycle. AIR requires taxpayer agreement and mandatory counsel involvement; it does not constitute an examination of books and records. Taxpayers may find that Exam is more willing to discuss this option in light of the new guidance.

Heightened Oversight for Fast Track Settlement Denials

The IRS also is continuing its efforts to encourage broader use of the FTS program. The IRS issued guidance to formalize additional internal requirements before the IRS may deny an FTS request. Now, a denial must be accompanied by a written concurrence memorandum from the Deputy Field Operations, must inform the taxpayer of the reasons why it denied the taxpayer access to the FTS, and will require senior directors to brief the LB&I Deputy Commissioner before informing the taxpayer.

The FTS process is limited to certain issues, including when an examination is nearly complete, the taxpayer has or is willing to state its position in writing, or there are only a few remaining issues to resolve. FTS, however, is not right for other cases—such as cases poised for litigation or involving challenges to Treasury regulations. FTS also does not remove traditional IRS Appeals options.

Key Takeaways

LB&I’s latest guidance signals a clear shift toward faster, more collaborative large corporate examinations by removing procedural roadblocks, expanding tools to resolve recurring issues, and imposing greater accountability around alternative dispute resolution.

Large corporate taxpayers can prepare now by:

• Considering their approach to AOF IDR participation in 2025 and ensuring complete fact development;
• Identifying any repeat issues that could benefit from AIR to accelerate multi-year closures; and
• Integrating FTS considerations into audit plans.

Proactive engagement, proper issue framing, and diligent record-keeping will be critical to managing effective and efficient exam timelines moving forward.