The QAR: Handle with care

By Kip Dellinger, CPA

Editor: Uzell T. Williams-Freeman, CPA

The qualified amended income tax return (QAR) is a useful instrument in the tax professional’s procedural tool bag. But as with a sharp tool, the tax adviser must ensure that it is handled with care to avoid harming the taxpayer that utilizes it.

What the QAR accomplishes

The effect of and requirements for filing a QAR are set forth in Regs. Secs. 1.6664-2(c)(2) and (3). The QAR is a creature of administrative relief initially instituted in the corporate tax shelter era of the late 1990s and modified and expanded in the early 2000s; it is not a statutory provision or a judicial doctrine. Its purpose is to encourage taxpayers to voluntarily file amended returns to report underpaid taxes on original returns or to disclose information that was or became required by law or regulatory authority — including in situations where no additional taxes are due. For partnerships subject to examinations at the partnership level, an Administrative Adjustment Request (AAR) pursuant to Sec. 6227 is filed instead of a QAR.

When a QAR is properly filed, the amount shown as tax on the original return includes the additional tax shown on the QAR for purposes of the accuracy-related penalties of Sec. 6662, effectively reducing or eliminating an accuracy-related penalty. A QAR may also be filed to satisfy the adequate-disclosure provisions (see Regs. Sec. 1.6664-2(c)(4)), which will similarly eliminate penalties for failure to adequately disclose a return position.

Beware the limitations on filing a QAR

Because the QAR is intended to provide penalty relief for voluntary compliance, its utilization is subject to several limitations, and the taxpayer and tax adviser must carefully review the limitation rules to ensure that one or more of the limiting provisions do not apply. The thrust of those rules is to disqualify an amended return in situations where the taxpayer or certain parties related to or advising the taxpayer have been contacted pertaining to an examination of or required disclosure in a tax return on the date of or prior to the filing of the amended return. Basically, to be “qualified,” the amended return (or AAR) must be filed before the earliest of:

  • The date the taxpayer is first contacted by the IRS regarding an examination of the return to be amended;
  • The date that any person is contacted by the IRS concerning an examination of that person relating to the promotion of an abusive tax shelter for which the taxpayer filing the amended return claimed — directly or indirectly — any tax benefit;
  • In the case of a passthrough item reported by the taxpayer, the date the passthrough entity is first contacted by the IRS pertaining to an examination of the return to which the passthrough item relates;
  • The date on which the IRS serves a summons relating to the tax liability of a person, group, or class that includes the taxpayer (or passthrough entity in which the taxpayer has an interest) with respect to which the taxpayer claimed any benefit — directly or indirectly — on the return to be amended; or
  • The date on which the IRS announces by certain listed guidance published in the Internal Revenue Bulletin a settlement initiative to compromise or waive penalties regarding a listed transaction (although the IRS may waive this requirement or identify a later date by which a taxpayer that participated in the listed transaction must file a QAR).

Rules similar to the above apply to an undisclosed listed transaction. An undisclosed listed transaction is a transaction that is the same as, or substantially similar to, a listed transaction for which the taxpayer claimed tax benefits that was not previously disclosed by the taxpayer pursuant to IRS disclosure requirements.

When considering the filing of a QAR, taxpayers and tax advisers should carefully review the limitations for filing a QAR in the regulations; those exceptions are detailed and complex (see Regs. Sec. 1.6664-2(c)(3)).

Large corporations and large partnerships

Special rules may apply to classes of taxpayers pursuant to Regs. Sec. 1.6664-2(c)(4)(ii). Currently, Rev. Proc. 2022-39, effective on Nov. 17, 2022, addresses how QARs are used by tax-payers subject to the Large Corporate Compliance Program (LCC) or Large Partnership Compliance Program. Care must be taken in complying with the procedure, as it states that any disclosure that does not meet its specific requirements — different from other QAR processes — will be considered inadequate, and no penalty protection will be provided.

That revenue procedure replaces long-standing Rev. Proc. 94-69, which addressed QAR-type disclosures in the IRS continuous audit program (the Coordinated Industry Case Program (CIC)) and was needed because the continuous nature of those exams otherwise rendered the QAR process inapplicable. The LCC replaced the CIC in 2019, and until the long-awaited Rev. Proc. 2022-39 arrived, a taxpayer that historically was subject to the CIC was allowed to rely on Rev. Proc. 94-69.

Both the CIC and the LCC (including large partnerships) involve a very small number of taxpayers, so those taxpayers and their advisers must pay careful attention to the specific and sometimes complex requirements for eligibility under Rev. Proc. 2022-39 and the application of its provisions. When the taxpayer is either not eligible to utilize the procedure or chooses not to, the taxpayer may qualify for the normal QAR filing requirements.

Fraud issues: The other edge of the sharp tool

In evaluating whether to file an amended income tax return — including a QAR — the taxpayer and tax adviser must consider the possibility of the IRS’s asserting fraud with regard to the items to be disclosed and their treatment on or omission from the original return.

It is a well-established principle of tax law that a nonfraudulent amended income tax return filed after a fraudulent original return cannot undo the unlimited statute of limitation for civil fraud assessments (see Badaracco, 464 U.S. 386 (1984); see also Brown, T.C. Memo. 1996-416). If there is any possibility that the IRS might assert fraud with regard to the original return, the taxpayer should be advised to seek advice from an attorney knowledgeable in criminal tax matters. This approach is consistent with the AICPA’s Statement on Standards for Tax Services No. 6, Knowledge of Error: Return Preparation and Administrative Proceedings.


Kip Dellinger, CPA, is the senior tax partner at Kallman + Logan & Co. LLP in Sherman Oaks, Calif. He serves on the AICPA Tax Practice and Procedures Committee and is a past chair of the AICPA Tax Practice Responsibilities Committee and a past member of the Tax Executive Committee. For more information about this column, contact

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