IRS makes pre-filing agreement program permanent.

• Author: Keenan, John

How many times, as your company prepares its federal tax return, do you believe--instinctively or through experience--that a return position for a particular transaction may raise an issue in a post-filing review? Although such a review likely will not occur for three or four years, you may have concerns now about the currency and availability of records and keeping track of key players involved in the transaction. The bottom line is this: You know that it will cost your company money and resources to resolve the issue, not to mention suffering the uncertainty of the potential tax burden itself. Shouldn't there be a better way to handle it? There may be: The Internal Revenue Service Pre-Filing Agreement (PFA) Program. This article reviews the IRS's PFA Program, including the recent decision to make the program a permanent part of the IRS's dispute resolution process, and discusses considerations tax executives should take into account in considering whether to seek a PFA.

Establishment of the PFA Program

The Internal Revenue Service's mission statement states the IRS is to "[p]rovide America's taxpayers top quality service by helping them understand and meet their tax responsibilities...." One innovative way that the IRS assists taxpayers in meeting their tax responsibilities is through the Pre-Filing Agreement Program. The PFA Program was introduced as a pilot program in 2000 and, because of its success, was made permanent in late 2008. The PFA program permits Large and Mid-Size Business (LMSB) Division taxpayers to request examination and resolution of specific issues on returns that have not yet been filed, which enables taxpayers to address their tax responsibilities more efficiently.

The PFA program was announced in Revenue Procedure 2001-22. (1) Initially, the program restricted the eligible years to current or prior taxable years, for which the returns were neither due nor filed. This limited both the taxpayers and the IRS, because they could not resolve issues for multiple future taxable years or issues regarding appropriate methodologies for determining tax consequences that would affect future taxable years. To address these concerns, the IRS subsequently expanded the scope of the PFA program in Revenue Procedure 2005-12 (2) by allowing agreements that could include up to four taxable years beyond the current year. In addition, the IRS expanded the list of domestic and international issues eligible for the PFA program.

On December 24, 2008, the IRS released Revenue Procedure 2009-14, (3) which made the PFA program permanent. Currently, issues eligible for the PFA program include: (1) factual issues and the application of well-established law to known facts; (2) issues that...