Offenses by Officers and Employees of the United States

ID:
UILC:
CCA_2026010615193800
7214.00-00, 6103.00-00
[Third Party Communication:
Date of Communication: Month DD, YYYY]
Number: 202625021
Release Date: 6/18/2026
From: ---
Sent: Tuesday, January 6, 2026 3:19:39 PM
To: ---
Cc: ---
Bcc:
Subject: RE: Fast Track/408 question
Hello ---,
QUESTION PRESENTED:
The specific question presented is whether oral or written statements made by the client during the Fast Track Settlement (FTS) process are protected by FRE 408? Although the question presented only asks about FRE 408, I interpret the thrust of your question to be whether statements made by the client during FTS could be used against the IRS in ongoing litigation.
SHORT ANSWER:
I was unable to find any case that analyzed whether FTS communications were barred from disclosure under 5 USC § 574 or inadmissible under FRE 408. More factual development is necessary to opine whether FTS communications are inadmissible under FTS under FRE
408. If FTS discussions have “crystallized to the point of threatened litigation,” then FTS communications would probably be inadmissible under FRE 408. However, I believe that it is likely that disclosure of FTS communications is barred by 5 USC § 574, and therefore FRE 408 would not be implicated.

# ANALYSIS

Does 5 USC 574 apply?
5 U.S.C. § 574 concerns disclosure, and states that:
A party to a dispute resolution proceeding shall not voluntarily disclose or through discovery or compulsory process be required to disclose any dispute resolution communication .unless

(5) a court determines that such testimony or disclosure is necessary to--

(A) prevent a manifest injustice;

(B) help establish a violation of law; or

(C) prevent harm to the public health and safety, of sufficient magnitude in the particular case to outweigh the integrity of dispute resolution proceedings in general by reducing the confidence of parties in future cases that their communications will remain confidential;
A “dispute resolution proceeding” is “any process in which an alternative means of dispute resolution is used to resolve an issue in controversy in which a neutral is appointed and specified parties participate” (5 USC §571(6)), and a “dispute resolution communications” is “any oral or written communication prepared for the purposes of a dispute resolution 2 proceeding, including any memoranda, notes or work product of the neutral, parties or nonparty participant; except that a written agreement to enter into a dispute resolution proceeding, or final written agreement or arbitral award reached as a result of a dispute resolution proceeding, is not a dispute resolution communication” (5 USC §571(5)).
Section 574 would likely apply to FTS proceedings because Rev Proc. 2003-40,
Section 5.10 states that: “Employees of the Service, the taxpayer and persons invited to participate by the Service or the taxpayer shall not voluntarily disclose information regarding any communication made during the FTS session, except as provided by statute, such as in sections 6103 and 7214(a)(8) and 5 U.S.C. § 574.” I believe that any argument that 574 does not apply to FTS proceedings because the FTS Appeals Official is not “neutral” (as required by §571(6)) by virtue of their actions or settlement authority would likely fail. Rev Proc. 2003-40 Section 5.01 defines the FTS Appeals Official as explicitly neutral (“An FTS Appeals Official will serve as a neutral party”). While the FTS Appeals Official has the authority to propose settlement terms and settlement authority, I read Rev Proc. 2003-40 as requiring any settlement proposed by an FTS Appeals Official to be approved by the Taxpayer and opposing Appeals Team Manager.
Therefore, disclosure of FTS communications is most likely barred by § 574 absent one of the aforementioned exceptions.
Does FRE 408 Apply?
FRE 408 concerns admissibility of evidence, and states:

(a) Prohibited Uses. Evidence of the following is not admissible — on behalf of any party — either to prove or disprove the validity or amount of a disputed claim or to impeach by a prior inconsistent statement or a contradiction:

(1) furnishing, promising, or offering — or accepting, promising to accept, or offering to accept — a valuable consideration in compromising or attempting to compromise the claim; and

(2) conduct or a statement made during compromise negotiations about the claim
— except when offered in a criminal case and when the negotiations related to a claim by a public office in the exercise of its regulatory, investigative, or enforcement authority.

(b) Exceptions. The court may admit this evidence for another purpose, such as proving a witness’s bias or prejudice, negating a contention of undue delay, or proving an effort to obstruct a criminal investigation or prosecution.
The key issue to whether FRE 408 applies is whether the communications are made pursuant to “compromise negations.” Whether compromise negations have begun is a “fact intensive inquiry.” See. e.g. Kaleb J. Pierce v. CIR, Docket No. 24786-18. In the 10th Cir., that means that the discussions had “crystallized to the point of threatened litigation.” See Big O Tire Dealers, Inc. v. Goodyear Tire & Rubber Co., 561 F.2d 1365, 1373 (10th Circuit 1977) (determining whether statements were normal business communications or compromise negotiations). The fact that an issue is with the Independent Office of Appeals does not automatically qualify communications for FRE 408 protections. See Kaleb J. Pierce v. CIR, Docket No. 24786-18 (discussions between petitioner and Appeals Officer were not protected under FRE 408 because there was no threat of litigation). Kaleb also noted that discussions concerning the hazards of litigation would suggest that settlement negotiants have occurred.
3
In order to opine as to whether FRE 408 would protect FTS discussions, more information is necessary to determine whether negations will/have “crystallized to the point of threatened litigation.” Please let me know if you have any questions.
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