Changes to IRS Examinations of Large Corporate Taxpayers: A Sea Change or Whistling in the Wind?

On July 23, 2025, the IRS issued guidance on audits of large corporate taxpayers. This guidance falls squarely in line with previous IRS statements at conferences, as well as its prior guidance about making examinations more effective and efficient through collaboration with taxpayers. The efficiency objective is the touchstone of this guidance, and may pave the way for the parties to complete audits in a more timely and productive manner. This Legal Update provides a brief review of the items that the IRS has identified to further its efficiency objective.

• General audit considerations: Current or new corporate audits require a “tailored audit scope.” While this may cause taxpayers to be more transparent with the IRS, it really focuses on the IRS exam teams by requiring them to set an “exam plan and timeline” for the examination. But this directive is not a one-way street. Transparency in this context likely extends well beyond the issues the IRS has identified for audit. Taxpayers will likely need to be more transparent about record retention and availability of (and access to) information. A shorter timeline often has benefits for taxpayers, but it also comes with challenges, such as needing to commit to and meet response dates for information requests. Taxpayers will need to ensure they have adequate resources and commitment from stakeholders to keep their end of the bargain. When taxpayers have so done, the IRS should no longer be surprised if taxpayers take a hard stance on not extending the statute of limitations. After all, a deal is a deal.
• Issue engagement replaces the “All Facts” IDR: The guidance states that the IRS will eliminate the AOF in 2026, which is used to solicit an “Acknowledgement of Facts” from taxpayers. (Until the AOF is eliminated completely in 2026, taxpayers will have the option to respond to AOFs.) The IRS claims this change is in response to taxpayer feedback that the AOF takes a lot of time, “but [provides] little value to the exam process.” The guidance notes that taxpayers and the IRS should engage in “issue discussions throughout the issue development process.” The effectiveness of this type of engagement turns on the IRS exam teams’ being open and transparent and allowing taxpayers to communicate with the IRS and its stakeholders in a meaningful manner. If this does not occur, it is hard to envision how this new process will meet its efficiency objectives. Given this, true IRS collaboration could mark a sea change in the current examination process, as taxpayers have been prevented from directly communicating with IRS subject matter specialists as well as IRS counsel. Moreover, taxpayers should consider demanding more engagement with the IRS about any issues and concerns the IRS has earlier in the process. This early and constant engagement may allow proactive taxpayers to resolve certain issues with IRS exams.
• Fast Track Settlement (FTS) issues: Earlier this year, the IRS announced that it was reinvigorating the FTS process to encourage broader use of the program. At the heart of that announcement was the new requirement that the taxpayer be informed of the reasons why the IRS denied a taxpayer’s request for FTS. While the new guidance supersedes its earlier guidance, the gist of the guidance remains the same: the FTS process is open for business and must be considered by IRS exam for resolution purposes. Key to the FTS process is the willingness of both parties to compromise or reach mutual concessions on the FTS issues. The IRS also provided an update to the Internal Revenue Manual to reflect these changes. There are several points in the new guidelines worth noting:
  • Acceptance of issues with the best opportunity for resolution: The new IRM provision makes clear that the greatest opportunity to use FTS will be for certain issues, including when examination of the issues is nearly completed and fully developed; when the taxpayer has stated (or is willing to state) its position in writing; and where the unagreed issues are limited in number.
  • FTS need not include all issues: While it appears there is a preference that all issues be included in the FTS process, taxpayers may be able to carve off single or groups of issues that are ripe for resolution.
  • No loss of traditional Appeals rights/New Appeals Officer: Where the FTS process is unsuccessful, a taxpayer will still be offered an opportunity to resolve the dispute through traditional Appeals. In general, a different Appeals Team Case Leader (ATCL) will be assigned to the matter in traditional Appeals.
  • Certain issues not suitable for FTS: The guidance provides lists of issues that are not appropriate for, or that are excluded from, FTS (e.g., issues designated for litigation, challenges to regulations). Taxpayers considering FTS should review these threshold issues closely. While many of the issues precluded from FTS are not surprising, taxpayers will need to be aware that this list includes “[i]ssues for which the IRS is establishing a uniform settlement position (e.g., certain listed transactions).” Note that, if a taxpayer’s FTS request is denied, the IRS must provide a verbal description of the reasons for not allowing the issue into the FTS process. Any information a taxpayer can glean from these discussions may be extremely beneficial to developing its resolution strategy going forward.
  • Cases denied FTS access. It is clear that cases that are not fully developed, or that fit into one of the categories of issues that the IRS has identified as not appropriate for FTS, will not be accepted in the program. While the February 2025 guidance on FTS seemed to suggest that the taxpayer would receive written notification of the reasons its request for FTS was denied, the new guidance states the IRS only needs to “discuss the rationale for the denial with the taxpayer….” The verbal discussion only makes sense if the IRS is fully committed to being transparent about the reasons for the denial. Regardless, as stated above, any information on the denial to the FTS program is welcomed.
• Large Corporate Compliance (LCC) matters access to Accelerated Issue Resolution (AIR): The July 25 guidance notes that there has been confusion about whether AIR applies to LCC audits. The guidance confirms that it does apply. Based on this clarification, large corporate taxpayers should consider whether AIR is an appropriate resolution tool for an issue in the current audit cycle that is reoccurring, such that the resolution can be extended to other open years for which returns have been filed. Taxpayers must still consider the requirements of Revenue Procedure 94-67.

At bottom, the IRS’s July 25 announcement about changes to large corporate taxpayer examinations is a welcomed step in the right direction to make audits more efficient and collaborative. But as with any change in policy, which this is, it takes time to permeate through the existing procedural processes. These particular changes may take time for the IRS to really implement because they require IRS exam to be more transparent with taxpayers about the audit process and its audit plan. Only time will tell if these changes can have a profound effect on efficiency, but in the meantime, taxpayers should take note and consider how they too must evolve to make audits more effective.