The PFA program is a beneficial way to reach an agreement on a contentious issue through a cooperative effort before the return is filed. Revenue Procedure 2016-30 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 reported 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 for special benefits beyond those the general public receives. 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. PFAs may be used to determine the appropriate methodology for determining tax consequences affecting future tax years. PFAs are available on international issues. 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. The chart below reflects the number of PFAs received, accepted, rejected, and closed in the calendar years 2019, 2020, 2021, and 2022. PFAs accepted may have been received in a previous year; those closed were likely accepted in a previous year. PFA program applications for calendar years 2019 through 2022 Received Accepted Rejected Closed 20 9 7 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 CY 2022 256 306 258 349 Since 2019, the PFA program has 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. Summary of the PFA process The taxpayer can file a request with the case manager or PFA program analyst. The application is evaluated by Chief 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.
