The Tax Times: IRS Corporate Audits in 2026: What LB&I’s New Rules Really Mean for Your Company

The IRS has rolled out significant changes to its Large Business & International (LB&I) audit procedures — reforms that aim to speed up examinations and improve efficiency, but also shift new responsibilities onto corporate taxpayers. Here are three major aspects companies should keep in mind.

1. Elimination of the Acknowledgment of Facts (AOF) Process

The IRS has scrapped the Acknowledgment of Facts (AOF) process, previously intended to formalize agreement on the facts before issuing a Notice of Proposed Adjustment (NOPA). Treasury determined the step added time but little value, as companies often resisted confirming facts without knowing how the IRS planned to apply them legally.

Practitioners generally support the change, but warn that taxpayers now bear more responsibility for making sure all relevant facts are on the record. If a company introduces new information after the NOPA, the issue may be sent back to exam, delaying the appeal.

In short, corporations should proactively document and present all favorable facts early, even if they seem only potentially relevant, to avoid future procedural hiccups.

2. Expansion of the Fast-Track Settlement (FTS) Program

LB&I’s Fast-Track Settlement (FTS) process will now be open to a broader range of cases and stages in an audit, giving taxpayers more chances for early resolution. Many see this as a positive step toward reducing prolonged disputes and encouraging collaboration.

However, practitioners are concerned about unclear boundaries — such as which issues remain excluded (e.g., docketed cases, designated litigation matters) and how consistent acceptance criteria will be applied across teams. The ABA has urged the IRS to publish a tiered list clarifying what issues qualify and why, to make the process more predictable.

Taxpayers considering FTS should be prepared to settle in good faith, as the process works best when both sides are truly ready to resolve disputes rather than merely test arguments.

3. Confidentiality and Evidence Concerns Under Rule 408

Even with its expansion, some companies remain hesitant to participate in FTS because of uncertainty surrounding Federal Rule of Evidence 408 - which protects statements made in settlement negotiations from being used later in litigation.

The ABA and several practitioners have urged the IRS to formally confirm that FTS discussions and materials qualify as protected settlement communications under Rule 408. Without that assurance, taxpayers risk revealing legal positions or factual arguments that the IRS could later incorporate into new adjustments.

Until the IRS provides clarity, companies should weigh carefully how much to reveal in fast-track proceedings — balancing the goal of resolution with the need to preserve litigation strategy.

Bottom Line

These audit reforms signal the IRS's intent to streamline examinations and promote early settlements, but they place more responsibility on taxpayers to control the factual record and navigate evolving settlement parameters.

Corporations undergoing exams in 2026 and beyond should adjust their audit strategies, ensure facts are fully developed early, and monitor forthcoming IRS guidance on settlement process protections.

Have an IRS Tax Problem?