Fact Sheet: Pre-Filing Agreement (PFA) Program – January 2022

 

The PFA program is a beneficial way to reach agreement on a contentious issue through a cooperative effort before the return is filed.

  • Revenue Procedure 2016-30PDF provides the program guidelines.
  • Taxpayers estimate they save 48% by using this process instead of the traditional audit; the Service estimates savings of 30%.
  • On a scale of 1 to 5, taxpayers report an overall level of satisfaction with the program of 4.7 and 4.6 on the likelihood of recommending the process to others.

There is a user fee for participation in the program.

  • The user fee is $181,500.
  • OMB requires a user fee on special benefits beyond those received by the general public. The fee is paid only if the issue is accepted.

Any taxpayer under LB&I’s jurisdiction may apply for a PFA; eligible issues are factual and governed by well settled law.

  • PFAs can cover the current and up to four future tax years, but the transaction must be complete. They may also be used to determine the appropriate methodology for determining tax consequences   affecting future tax years.
  • PFAs are available on International issues.

Following are recent statistics on the PFA Program:

  • Each prefiling application is reviewed by a PFA subject matter expert, the Office of Chief Counsel and the applicable Practice Area to determine program eligibility for acceptance into the program.
  • The chart below reflects the number of PFAs received, accepted, rejected, and closed in calendar years 2019, 2020 and 2021.
  • PFA’s accepted may have been received in a previous year; those closed were likely accepted in a previous year.
Prefiling Agreement (PFA) Program Applications for Calendar Years 2019 through 2021
Received Accepted Rejected Closed
17 9 6 8
  • The chart below reflects the average processing time for PFAs during each calendar year (CY).
Average Processing Time
CY 2019 CY 2020 CY 2021
256 306 258

Since 2019, the PFA program received and/or accepted applications to address issues regarding:

  • Losses on Liquidation of a Foreign Subsidiary 
  • Sale/Leaseback Transactions
  • IRC 165 (g), Worthless Stock
  • IRC 41, Research Credit
  • Loan for Federal Tax purposes
  • IRC 856, Real Estate Trust Investment
  • Sale Lease Back Transactions
  • Passthrough Elections. 

Certain applications were rejected due to failure to meet requirements of Revenue Procedure 2016-30 to adequately describe issue, facts, law, and proposed methodology; coverage of an issue impacted by recent tax law changes and therefore not meeting the “well-established law” standard; and coverage of an issue relating to a transaction, the treatment of which could impact a third party and potential post filing “whipsaw” considerations.

A brief summary of the PFA process is below:

  • The taxpayer can file a request with the Case Manager or PFA Program Manager.
  • The request should include all items listed in Revenue Procedure 2016-30PDF.
  • The application is evaluated by Counsel, the Audit team, and Subject Matter Experts.
  • The Practice Area Director makes the decision to accept or not; there is no appeal to the Practice Area Director’s decision.