The IRS today released an advance version of Rev. Proc. 2016-30 that updates the rules and procedures for taxpayers seeking an IRS examination and resolution of certain specific issues relating to tax returns before the returns are actually filed. If the IRS and the taxpayer reach an agreement on the issues, a “pre-filing agreement” (PFA) may be executed.
Rev. Proc. 2016-30 [PDF 73] modifies the rules and process for PFAs that are available to taxpayers under the jurisdiction of the IRS Large Business and International (LB&I) division.
The user fee under the PFA program is set to increase from $50,000 to:
A fee is assessed for each separate and distinct issue examined under Rev. Proc. 2016-30.
Rev. Proc. 2009-14 made the then-existing pre-filing agreement (PFA) program permanent, and outlined the procedures for eligible taxpayers to request that the IRS examine specific issues relating to tax returns before those returns are filed. Under the PFA program established by Rev. Proc. 2009-14, if an agreement resolving the examined issues was reached before the returns were filed, the agreement was memorialized by executing a pre-filing agreement that was valid for the current tax year and up to four subsequent tax years.
Unlike letter rulings and other forms of written advice provided by the IRS Offices of the Associates Chief Counsel, a PFA does not determine the tax treatment of prospective or future transactions or events, but only of completed transactions or events whose tax treatment has not yet been reported on a return.
Rev. Proc. 2009-14 established the procedures: (1) for requesting consideration of issues under the PFA program, (2) how taxpayer issues would be selected under the PFA program; and (3) how the requests would be administered. It also described the effects of an agreement under the PFA program as well as the user fee information.
Today’s revenue procedure:
Like the 2009 revenue procedure, Rev. Proc. 2016-30 explains that the PFA system is available to taxpayers under LB&I jurisdiction, applies to the current tax year or any prior tax year for which the original tax return is not yet due and is not yet filed, and limits PFAs for future tax years to four tax years beyond the current tax year.
Rev. Proc. 2016-30 lists issues that generally are eligible for consideration under the PFA program, and also lists issues that are not eligible for PFA treatment (excluded domestic and international issues include transfer pricing issues and issues involving the accounting period, among others).
The revenue procedure sets out what is required information for a PFA request—including the specific description(s) of the issue(s)—and the instructions for where and how to submit the request. There is guidance provided as to how the IRS would select a taxpayer for the PFA program and the criteria for selection, the manner in which a PFA would be processed, and the nature and effect of a PFA, including its form and content.
At any time before a PFA is executed, either the taxpayer or the IRS may withdraw (all or parts) of the request for a PFA. If no agreement is reached, no PFA is executed, but the taxpayer and the IRS may seek to apply post-filing procedures such as the “accelerated issue resolution” (AIR) procedures to reach an agreement.
Tax professionals have found the PFA program to be successful—from the perspective of both taxpayers and the IRS—in that the PFA program improves the quality of tax compliance while at the same time reduces costs and other burdens related to tax administration. The increased user fees, however, could be viewed as another hurdle for taxpayers proactively seeking to improve compliance and obtain certainty regarding eligible issues. For those taxpayers contemplating using the PFA program to resolve a current issue, consider submitting a PFA request prior to June 3, 2016, given the user fee increase set to go into effect at that date.
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