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The IRS's Large Business and International Division (LB&I) has requested comments on Revenue Procedure 94-69, under which certain large corporations may be treated as filing "qualified amended returns" after the commencement of an IRS examination. For large corporations that historically had been subject to continuous audit, the Revenue Procedure states that corrections disclosed to an IRS exam team will be treated as a qualified amended return for purposes of penalty protection so long as they are disclosed within 15 days of the first written request for information following the opening of the exam.

Background

Under Revenue Procedure 94-69, large corporations that were subject to the (former) Coordinated Examination Program (CEP) may show additional tax due or adequately disclose an item or a position to avoid substantial understatement penalties or accuracy-related penalties under IRC Section 6662. The revenue procedure requires taxpayers to submit, within 15 days of the IRS's first written information request, a written statement describing all items that would result in adjustments if the taxpayer had filed a properly completed amended return.

The IRS eliminated the CEP in 2000. Subsequently, Revenue Procedure 94-69 was applied to taxpayers under the Coordinated Industry Case Program (CIC). Taxpayers under the CIC were generally under continuous examination.

In 2019, the IRS replaced the CIC with the Large Corporate Compliance (LCC) program, applicable to tax years beginning in 2017. In contrast to the CIC, taxpayers under the LCC generally are not under continuous examination. Instead, the IRS annually selects which taxpayers it will examine based on risk profile. To determine the LCC population, the LCC program applies an automated application to consider large-case-pointing criteria, such as gross assets and gross receipts. Once the population is determined, the LCC program uses data analytics to identify the returns with the highest compliance risk.

Following the transition to the LCC last year, the IRS confirmed that Revenue Procedure 94-69 would continue to apply to certain LCC taxpayers. It would not, however, apply to LCC taxpayers that were not previously CIC taxpayers, or to any CIC taxpayers that did not have an open CIC examination as of May 2019. Taxpayers not covered by Revenue Procedure 94-69 still have the option to (1) make disclosures under IRC Section 6662; (2) file a qualified amended return at any time before they are first contacted regarding examination of the return; or (3) use the qualified amended return process, if under audit, for subsequent years if they file before being contacted in writing about the examination of that subsequent year return.

IRS says Revenue Procedure 94-69 creates disparity

In its request for comments, the IRS said it was reconsidering the penalty protection provided under Revenue Procedure 94-69 because, "Revenue Procedure 94-69, which is available to a small group of large corporate taxpayers, creates a disparity among the LB&I filing population, as well as the broader IRS filing population [that] must use the qualified amended return process." The IRS also noted that the procedure does not make returns more accurate when filed. In addition, all taxpayers have the option of submitting informal claims for refunds within 30 calendar days of the opening conference.

The IRS said taxpayer comments "should not merely request a continuation of the treatment afforded under Revenue Procedure 94-69."

Implications

Those wishing to comment on the possible revocation of Revenue Procedure 94-69 have until October 19, 2020, to submit their comments to the IRS.

In the meantime, large corporate taxpayers should consider their options in light of the fact that the IRS has begun to open new examinations following the July 15, 2020 expiration of the temporary COVID-19 moratorium. If Revenue Procedure 94-69 is no longer available, taxpayers that have typically held onto adjustments with the intention of disclosing them at the beginning of an audit under Revenue Procedure 94-69 might wish to file an amended return, consistent with the qualified amended return rules under IRC Sections 6662 and 6664.

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