PFA Fees Increase

PFA fees increase

June 06, 2016 | By Keith Martin in Washington, DC

Pre-filing agreements may now be prohibitively expensive.

Pre-filing agreements are a tool that companies can sometimes use to reach agreement about the proper treatment of a US tax issue before filing a tax return. Another tool is to apply for a private letter ruling. The IRS will not issue a private ruling if the matter is too factual. However, the agency might enter into a pre-filing agreement, even though it requires digging into the facts.

In the last five years, the IRS has received an average of 30 requests a year for pre-filing agreements, accepted 20 and closed an average of 17.

The IRS charges a user fee of $50,000. The fee has not changed since 2007.

The IRS said in May that the user fee will increase to $134,300 for requests filed after June 2. It will increase again to $218,600 in 2017. It made the announcement in Rev. Proc. 2016-30.

Pre-filing agreements may be issued for any issue “that requires either a determination of facts or the application of well-established legal principles to known facts” or “a methodology used by a taxpayer to determine the appropriate amount of an item of income, allowance, deduction, or credit.”

The transaction has to have closed before the IRS will enter into a PFA.

The new fees will mean PFAs will be limited to very large dollar issues.