Three phases
Pub 5125 (Rev. 9-2025), which LB&I must share and discuss with the taxpayer at the opening conference, divides the exam into planning, execution and resolution. IRM 4.46.1.2.1 explains the premise: “The issue-based principles require LB&I to focus on issues with material risk and broadest compliance impact throughout the examination process.” Issue teams, issue discussions and issue timelines replace the single examiner working the whole return. The issue that will take longest sets the estimated completion date for the case.
The team structure matters for practitioners. Each case has a case manager with overall responsibility; each issue has an issue manager who oversees planning, execution and resolution of that issue and weighs the strengths and weaknesses of each side. The team coordinator is generally the primary point of contact unless the plan says otherwise.
How issues are selected
Under IRM 4.46.3.2.1, many LB&I returns go through the Issue Selection and Collaboration Process before an examiner is assigned. The case manager completes a Manager Initial Risk Assessment; if it flags specialist issues, the specialist managers complete a Specialist Initial Risk Assessment, and the managers meet to choose the issues and assign resources. Specialist practice areas named in the IRM include treaty and transfer pricing, foreign payments, cross-border activities, financial products and engineering. The process is not required for every case; the IRM lists exceptions, including Large Corporate Compliance and Large Partnership Compliance cases, CAP cases, single-issue campaign cases and Forms 1040 outside the High Income Initiative.
Risk analysis does not stop once the exam starts. IRM 4.46.1.2.1.1 calls it an ongoing process from planning through resolution, and the taxpayer is to be told when the issues change.
Planning: the opening conference
The opening conference sets the scope and the ground rules. IRM 4.46.3.6 lists its objectives: explain the LB&I process, agree on accommodations and the flow of communication, and, depending on timing, discuss the preliminary risk analysis. Exhibit 4.46.3-3 is a sample agenda; it is worth reading before the meeting so the client's team knows what will be asked.
Materiality is negotiable. IRM 4.46.3.6.7 says that “There is no economic or mathematical formula or standard that should be applied to determine whether an amount is material in an examination,” and that agreed thresholds should be written into the examination plan and apply equally to issues examined and to the taxpayer's claims. A threshold agreement is one of the few tools that limits scope in writing.
The examination plan
The plan memorializes the planning phase but stays a living document. Under IRM 4.46.3.9.1 it must at least include:
- Case and issue timelines with milestone dates.
- The issue team members and the issue manager for each issue.
- The taxpayer personnel assigned to work with each issue team.
- Taxpayer contacts and each person's level of authority (discuss tax matters, provide and receive information, or bind the taxpayer on adjustments).
- Dates or decision points for periodically re-assessing the issues.
- The agreements reached at the opening conference.
The case timeline, under IRM 4.46.3.9.1.1, includes target dates such as the last date to submit informal claims (the 30-day window), the last date to file formal claims, the last date for IDRs, the last date for NOPAs and the date to issue the revenue agent's report. IRM 4.46.3.9.2 requires that “The examination plan must be shared and discussed with the taxpayer before the plan is final,” and IRM 4.46.3.9.3 has the case manager sign it and ask the taxpayer to sign a copy acknowledging receipt. A taxpayer that wants a last date for IDRs or a cap on new issues should negotiate it before the plan is signed.
Case timelines can be extended, and the issue manager secures the approvals. Large Corporate Compliance and Large Partnership Compliance cases use a more detailed LCC/LPC plan format under IRM 4.46.3.10.
Claims and the 30-day window
LB&I sets a 30-calendar-day window after the opening conference for informal claims (IRM 4.46.3.7.1.1). Valid informal claims, meaning claims that meet Treas. Reg. 301.6402-2, received in the window are considered. After the window, claims must be filed with the campus on Form 1120-X, 1040-X or 843, with a copy and support sent to the team, although the territory manager can accept a late informal claim and the formal claim requirement can be waived in listed cases. One rule has no flexibility: “BBA partnerships cannot submit claims after the 30-day window.” See claims during an exam and, for partnerships, the BBA examination process.
Execution: IDRs and issue development
LB&I gathers facts through a structured IDR process. Each IDR after the opening request must state one issue, be discussed in draft (generally within 10 business days), carry a negotiated response date and a date by which the team will tell the taxpayer whether the response is complete. Late or incomplete responses trigger a mandatory ladder: a delinquency notice (Letter 5077), a pre-summons letter (Letter 5078) signed by a territory manager, and a summons prepared with Counsel. The details and timing are in our guide to information document requests.
Concerns can be elevated. IRM 4.46.1.3 lists points where senior managers may get involved, including IDR enforcement steps, the NOPA process, disputes with the team and taxpayer requests. Typical escalation starts with the issue manager or case manager.
Acknowledgment of facts and the NOPA
For any issue that may end up unagreed, the team must first send a pro forma acknowledgment of facts (AOF) IDR with a draft Form 886-A (IRM 4.46.4.11). The pro forma text in Exhibit 4.46.4-3 tells the taxpayer: “Your response to the facts does not indicate agreement to the issue or any proposed tax adjustment.” The AOF IDR is not enforced by summons, but the taxpayer's response, or silence, is recorded in the final Form 886-A. Exceptions include fraud, an imminent statute and listed transactions or transactions of interest.
The AOF step exists because new facts in Appeals send the case back. The pro forma language says so directly, and IRM 4.46.4.11 has the team tell the taxpayer the case will be returned if materially new information is provided after it closes to Appeals. Treat the AOF response as the last clean chance to put facts into the record.
Adjustments are proposed on Form 5701, Notice of Proposed Adjustment, usually with Form 886-A. NOPAs are issued issue by issue as soon as a determination is made, not at the end. A response date is agreed for each NOPA (or a standard date is set at the opening conference), and the team asks for a written response describing the legal position the taxpayer relies on (IRM 4.46.4.13.3). That written response is what makes an issue fully developed for Fast Track purposes.
Resolution tools
| Tool | What it does | Authority |
|---|---|---|
| Fast Track Settlement | An Appeals official mediates while the case stays in LB&I; Appeals can apply hazards of litigation. “FTS must be considered for all unagreed issues.” | Rev. Proc. 2003-40; IRM 4.46.5.4.2.6; IRM 8.26.1 |
| Early referral to Appeals | A fully developed unagreed issue goes to Appeals while the team keeps working other issues. | Rev. Proc. 99-28; IRM 8.26.4 |
| Accelerated Issue Resolution | Applies the resolution of an issue in one period to the same or similar issue in other filed periods, in LCC cases, with mandatory Counsel involvement. | Rev. Proc. 94-67; IRM 4.46.5.4.2.4 |
| Pre-filing agreements, APAs, CAP | Resolve issues before the return is filed. | IRM 4.46.5.4.1 |
| Closing agreements | Final resolution of specific matters, including recurring issues for future years. | IRM 4.46.5.6 |
Under IRM 4.46.5.4.2.6, examiners give the taxpayer Pub 4539 at the opening interview and discuss FTS. An issue is fully developed for FTS when a NOPA has been issued and the taxpayer has responded in writing. See Fast Track Settlement for how sessions work and how LB&I FTS differs from the SB/SE program.
Reports and Appeals
IRM 4.46.5.7.1 describes the closing reports: a no-change report; an agreed report (Letter 4121-L for Forms 1120 and 1040); a partially agreed case with two reports, the partial agreement processed before the 30-day letter; and an unagreed report with Letter 950-Z, the LB&I 30-day letter. When fewer than 240 days remain on the statute, the team instead issues the report with Letter 5153, which is not a 30-day letter and asks for a statute extension so Appeals can consider the case.
Pub 5125 restates the Appeals rule: “all cases received in Appeals must have at least 365 days remaining on the statute of limitations.” If the taxpayer raises a new issue or new information in Appeals, the case goes back to the issue team; a new legal theory is sent to the team for comment while Appeals keeps the case. For LCC cases the statute extension trigger is earlier: IRM 25.6.22.2.1 lists 300 days remaining as a reason to solicit a consent. See Form 872 extensions and the Independent Office of Appeals.
After the case closes, Pub 5125 contemplates a joint post-examination critique, including how agreed issues will be treated in future years to avoid recurring adjustments.
Questions practitioners ask
Does LB&I have to tell us which issues it is examining?
Yes. Under IRM 4.46.1.2.1.1, once the team decides the issues it shares them with the taxpayer and updates the taxpayer as the risk analysis changes. The examination plan lists the issues and their timelines.
What is the 30-day window?
LB&I considers valid informal claims received within 30 calendar days of the opening conference. Later claims generally must be filed formally with the campus, and BBA partnerships cannot submit claims after the window.
Is the AOF IDR an admission?
No. The pro forma language says a response does not indicate agreement to the issue or any adjustment. It does lock in facts, and failing to respond is noted in the final Form 886-A.
Can LB&I refuse Fast Track?
FTS must be considered for all unagreed issues, but both parties and Appeals must agree to participate, and the issue must be fully developed. See IRM 8.26.1 for the cases LB&I FTS excludes.
How much time must be left on the statute for Appeals?
At least 365 days when Appeals receives the case. LB&I uses Letter 5153 instead of a 30-day letter when fewer than 240 days remain and asks for an extension.