Safeguarding taxpayer confidentiality: pre-filing and competent authority agreements.

• Position: Tax Executives Institute

June 7, 2000

On June 7, 2000, Tax Executives Institute submitted the following comments to the U.S. Department of the Treasury and the Internal Revenue Service concerning the need to safeguard taxpayer confidentiality in respect of pre-filing agreements and competent authority agreements. The comments took the form of a letter from TEI's International President, Charles W. Shewbridge, III, to Jonathan Talisman, acting Assistant Secretary of the Treasury (Tax Policy), and Charles O. Rossotti, Commissioner of Internal Revenue. It was prepared under the aegis of TEI's IRS Administrative Affairs Committee, whose chair is Robert J. McDonough, Jr. of the New England Chapter.

On behalf of Tax Executives Institute, I am writing to reiterate TEI's unwavering commitment to safeguarding taxpayer privacy by preserving the confidentiality of pre-filing and competent authority agreements. The Internal Revenue Service's public position that such agreements are not subject to disclosure under section 6110 of the Internal Revenue Code has recently been challenged in the media and in filings with the IRS (and the courts). TEI urges the Treasury Department and IRS to take all steps necessary to preserve the confidentiality of these important agreements.

Pre-Filing Agreements

In February, the IRS announced a pilot program for pre-filing agreements (PFAs), under which business taxpayers may request an examination and resolution on specific issues relating to tax returns that they expect to file between September and December, 2000. Notice 2000-12, 2000- 12 I.R.B. 727 (February 14, 2000), sets forth a program to enable taxpayers and the IRS to resolve issues that otherwise are likely to be disputed in post-filing audits. If successful, the program will be expanded to include more issues and all business taxpayers.

At bottom, PFAs resemble an audit settlement -- an agreement between the IRS and a taxpayer based on a taxpayer's specific facts. Under section 6103, such agreements are beyond the scope of section 6110 and the Freedom of Information Act (FOIA), 5 U.S.C. [sections] 552, because they are suffused with confidential return information. TEI supports the implementation of the PFA program because the agreements will permit the negotiation and settlement of complex tax liability issues based upon the unique circumstances of each taxpayer and in a manner that the taxpayer and the government can fully rely on. Thus, TEI believes that the PFA program represents...