After several months marked by uncertainty regarding the future of long-standing examination procedures and the Internal Revenue Service's (IRS) ability to maintain the status quo, taxpayers were met in July 2025 with an unexpected surprise. On July 23, 2025, the agency released interim guidance LB&I-04-0725-0008, outlining significant changes to its Large Business & International Division (LB&I) examination process. 

In the memorandum, LB&I announced three key updates aimed at enhancing the efficiency of LB&I examinations. The most notable development that will impact a significant number of taxpayers is the scheduled elimination of Acknowledgement of Facts (AOF) Information Document Requests (IDRs) in 2026. The AOF process initially started in response to updated IRS Appeals policies that would potentially send cases back to IRS Exam if new facts or information were presented by taxpayers in the Appeals proceeding. Because a taxpayer's protest is submitted to Exam, who has the opportunity to prepare a rebuttal, any fact presented to Exam for the first time in a protest would not be considered a "new" fact for purposes of the Appeals policies. The AOF IDR was Exam's attempt to identify all relevant facts as early in the examination as possible, rather than waiting for the taxpayer's protest at the end of an unresolved audit. Taxpayer responses to AOF IDRs ran the full spectrum of not responding in any meaningful way to full engagement on the facts. 

In the memorandum, LB&I recognized that the AOF procedure often resulted in delays in closing an audit and, in some circumstances, taxpayers refusing to engage in the process with IRS Exam altogether. As further laid out in the memorandum, and in-line with the recognition of varied taxpayer responses to AOF IDRs, between August 1 and December 31, 2025, taxpayers with active or potential cases may formally elect to participate in, or decline, the AOF IDR process. The memorandum made clear that transparency and open communication between LB&I Exam teams and taxpayers must be maintained and that Exam teams should actively solicit feedback on taxpayers' positions prior to issuing any final Notice of Proposed Adjustment. 

The memorandum also addressed enhancements to the February 2025 Fast Track Settlements (FTS) pilot program and clarifies the applicability of Accelerated Issue Resolution (AIR) for Large Corporate Compliance (LCC) cases. The memorandum generally follows the February 2025 pilot program guidance, but supersedes it in several key areas: 

1. IRS Exam must secure written approval from the Division Front Office, the senior leadership group responsible for oversight of examination activities, before denying a request for FTS
2. Exam is required to provide the taxpayer with a clear and direct verbal explanation of the reasons behind the denial
3. The IRS must notify all relevant internal parties before the denial decision is formally communicated to the taxpayer

Notably, the memorandum states that "[t]he decision whether to accept or deny a taxpayer's request to participate in the FTS program is a business decision, not a legal decision." In addition, the memorandum clarifies that although Rev. Proc. 97-64 provides the authority for the AIR program and uses a legacy term, Coordinated Examination Program (CEP), which is now sunset, LCC cases (which effectively replaced CEP) "remain an appropriate workstream for AIR."

Taken together, the developments outlined in the July 2025 memorandum reflect LB&I's renewed focus on efficiency and collaborative examination practices in light of the recent changes at the agency. The effective date of the memorandum is August 1, 2025, and it will expire on August 1, 2027. The period for public comments on this guidance remains open through December 31, 2025. 

For more information, please contact:

George A. Hani, ghani@milchev.com, 202-626-5953

Omar M. Hussein, ohussein@milchev.com, 202-626-1578

The information contained in this communication is not intended as legal advice or as an opinion on specific facts. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. For more information, please contact one of the senders or your existing Miller & Chevalier lawyer contact. The invitation to contact the firm and its lawyers is not to be construed as a solicitation for legal work. Any new lawyer-client relationship will be confirmed in writing.

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