LB&I Announces Expanded Prefiling Agreement Program, Significant User Fee Increase

The IRS announced May 4 that it has expanded its existing prefiling agreement program for taxpayers that fall under the jurisdiction of the Service’s Large Business and International (LB&I) division (Rev. Proc. 2016-30). The program allows eligible taxpayers to request that the Service examine specific issues relating to tax returns before those returns are filed. If a consensus is reached, the procedure permits the IRS and the taxpayer to memorialize their agreement by executing an LB&I prefiling agreement (PFA).

According to the IRS, it can often resolve issues more effectively and efficiently through a PFA than with a post-filing examination because the parties have more timely access to the relevant records and personnel. It also provides the taxpayer with certainty earlier than with a post-filing examination. Unlike letter rulings and other written advice, a PFA does not determine the tax treatment of prospective or future transactions, but only of completed transactions that have not yet been reported on a return.

The revenue procedure provides that taxpayers can obtain PFAs for the current tax year, any prior tax year for which the tax return is not yet due and is not yet filed, and for up to four future tax years after the current tax year (as long as the request also encompasses the current tax year or an eligible prior tax year). It also contains a list of eligible issues, including those that require coordination with the IRS Chief Counsel’s office. Among the issues that are specifically excluded from the program are transfer-pricing agreements, certain accounting method or period changes, and issues that are the subject of pending litigation between the taxpayer and the IRS. The full list of excluded topics is contained in the revenue procedure.

Finally, the procedure contains the amount of the user fee for PFAs for taxpayers selected to participate in the program. It is currently $50,000 but will increase to $134,300 for requests submitted on or after June 3, 2016, and then to $218,600 for requests submitted on or after Jan. 1, 2017.