A US Taxpayer

A US Taxpayer

January 01, 2009 | By Keith Martin in Washington, DC

A US taxpayer who wants an agreement from the IRS about a position it plans to take on a tax return can apply for a “pre-filing agreement,” but the agency has made the process prohibitively expensive in most cases.

The IRS said in late December that it will collect a filing fee of $50,000 for “each separate and distinct issue.” It made the announcement in Rev. Proc. 2009-14.

The pre-filing agreement program was an experiment started in 2001. The agency said in December that it is making the program permanent. The program applies only to large companies. Such companies can apply to the IRS for feedback about positions they plan to take on tax returns that have not been filed yet. The IRS does not have to act on the request. However, the idea is to save time by not having to argue later on audit when the facts are less fresh.

In the past, the IRS entertained requests for pre-filing agreements about only a limited number of issues. There is no longer any list. However, the transaction must have already occurred to be eligible for the program. A pre-filing agreement is essentially a way of triggering an audit for a completed transaction before a return is filed.

This is not likely to be a sensible course for most companies. Companies also have the option to apply to the IRS national office for a private letter ruling. The filing fee for a private ruling is only $11,500, and a ruling can cover multiple issues.

The IRS will issue private rulings before a transaction closes. However, a pre-filing agreement may be the only option where a company needs certainty about its tax position by a deadline and the national office has declined to rule because the matter is too factual.

Keith Martin