Revised procedures and increased user fees for pre-filing agreements
Request your PFA before June 2 to avoid increased user fees
TAX ALERT |
The IRS has revised the procedures (Rev. Proc. 2016-30) that allow the taxpayer to resolve specific issues relating to tax returns before those returns are filed, by entering into a pre-filing agreement (PFA) with the IRS. The new Rev. Proc. 2016-30 supersedes and modifies Rev. Proc. 2009-14.
PFAs and through pre-filing examinations PFAs provide the taxpayer with certainty regarding the examined issue at an earlier point in time than a post-filing examination. Usually taxpayers prefer to enter into PFAs for issues that are most likely to be disputed in a post-filing examination. PFAs benefit both taxpayers and the IRS by improving tax compliance and reducing the costs, burdens and delays of the post-filing examination disputes between the taxpayers and the IRS. The taxpayers can enter into PFAs only for the current taxable year, for any prior taxable year for which the original return is not yet due and is not yet filed, and for a limited number of future taxable years.
A PFA can only be requested by taxpayers who are under the jurisdiction of the Large Business and International Division (LB&I) and only for the eligible issues, such as:
- Issues that require either determination of facts or application of well-established legal principles to known facts
- Methodology used by a taxpayer to determine the appropriate amount of an item of income, allowance, deduction or credit
- Any other issue under the jurisdiction of an operating division of the IRS other than LB&I, but only with the concurrence of that operating division
Rev. Proc. 2016-30 expands the scope of change in method of accounting issues that may be eligible for a PFA to include:
- Ability of a taxpayer to request that the IRS enter into a PFA with respect to the approved change in method of accounting, if the IRS has previously issued a letter ruling consenting to a non-automatic change under Rev. Proc. 2015-13, or its predecessor or successor
- Ability of a taxpayer to request the IRS to enter into a PFA with respect to the requested change in method of accounting, if a taxpayer timely filed the Form 3115 to request an automatic change under specific sections of the Rev. Proc. 2015-13
Rev. Proc. 2016-30 also reflects the new structure of the LB&I to where the requests for PFAs shall be submitted.
The PFA program originally started as a pilot program and due to its success became a permanent PFA program with the issuance of Rev. Proc. 2001-22. In the past five years the IRS received 173 PFA requests, accepted 116 of those requests for the program and successfully closed 99 cases with agreement. The user fee for filing the PFA is currently $50,000. The fee will increase to $134,300 for requests submitted after June 2, 2016, and to $218,600 for requests submitted after Dec. 31, 2016. The fee will be assessed for each separate and distinct issue and will be due only if the taxpayer is selected to participate in the program.
The IRS is raising the fee to reimburse itself fully for the cost of providing the service. The current user fee only partially covered the costs associated with the administration of the PFA program. The rest of the cost was covered by the funds in the IRS’s general operating budget. This was done in order to make the service more accessible to a broader range of taxpayers. However, due to the budget constraints, the IRS has to now fully recover the cost of its services and thus has to significantly raise the user fee.
Due to this substantial raise in user fee, those considering entering into a PFA with the IRS should act before the fee increase becomes effective.