April 2000


The IRS has announced a pilot program for prefiling agreements (PFAs), which will allow large business taxpayers to request examination and resolution of specific issues relating to tax returns they expect to file between September and December 2000.

The purpose of the PFA program is to enable taxpayers and the IRS to resolve pre-return-filing issues that might otherwise be disputed in postfiling audits. As a result, the IRS expects PFAs to reduce the cost, burden, and delay of postfiling examinations.

The PFA program is being administered by the recently created Large and Mid-Size Business Division of the IRS. In its test phase, the PFA program will be open to large businesses that currently have an on-site coordinated examination team.

The IRS says it will select approximately 5­10 taxpayers from among the eligible firms that request participation in the pilot program. The pilot will include an orientation about the program with the audit team, after which the audit team will work with the taxpayer to resolve the designated issue before the return's filing deadline. Participants and the IRS will evaluate the program after the pilot program is completed.

IRS Notice 2000-12, which appears in Internal Revenue Bulletin 2000-9, dated February 28, 2000, provides the following information on the program:

* Appropriate subject matter for a PFA;
* Examples of the types of factual issues likely to be suitable for resolution through the PFA program;
* Procedures the IRS will use for selecting participants for the pilot program and for processing a taxpayer's request for participating in the PFA program;
* Procedures for taxpayers to follow in withdrawing from the PFA program;
* An explanation that PFAs are closing agreements and, therefore, information on the PFA process should remain
confidential return information under IRC section 6103 and an explanation that PFAs are not written determinations under section 6110 and, thus, are exempt from disclosure under the Freedom of Information Act.

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