November 18, 2022
IRS replaces Revenue Procedure 94-69 with new procedure for eligible taxpayers to file qualified amended returns to avoid accuracy-related penalties
The IRS released Revenue Procedure 2022-39, which allows eligible taxpayers to avoid IRC Section 6662(b)(1) and 6662(b)(2) accuracy-related penalties by disclosing reasonable errors on the new Form 15307, Post-Filing Disclosure for Specified Large Business Taxpayers. Form 15307 will be treated as a qualified amended return if properly completed and filed within 30 days of the IRS's request during examination. Revenue Procedure 2022-39 obsoletes and replaces Revenue Procedure 94-69.
Under Revenue Procedure 94-69, large corporations that were subject to the now defunct Coordinated Examination Program (CEP) could 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 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. The IRS continued to apply Revenue Procedure 94-69 to certain LCC taxpayers but did not apply it 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.
In August 2020, the IRS requested comments on obsoleting Revenue Procedure 94-69 (see Tax Alert 2020-2130). In Revenue Procedure 2022-39, the IRS said "[t]he comments received contended that both large corporate taxpayers and the IRS have benefited from using Revenue Procedure 94-69 to allow those taxpayers to disclose errors on their returns at the start of an audit. The IRS has determined that for a subset of large corporate taxpayers and large partnerships whose tax posture is likely to result in near-annual examinations, special procedures are appropriate for disclosure of errors on a return or items that may result in an underpayment but have a reasonable basis."
Revenue Procedure 2022-39 defines "eligible taxpayers" to whom Revenue Procedure 2022-39 applies as:
Taxpayers that are not eligible for Revenue Procedure 2022-39 may still avoid penalties by (1) filing a qualified amended return under Treas. Reg. Section 1.6664-2(c)(3) or (2) adequately disclosing the tax position on Form 8275, Disclosure Statement, Form 8275-R, Regulation Disclosure Statement, or Schedule UTP, Uncertain Tax Position Statement.
Qualified amended returns
Under Revenue Procedure 2022-39, Form 15307 is treated as a qualified amended return for the applicable year if it is filed within 30 days of the IRS's written request during examination (the date can be extended if agreed to in writing by the IRS). An eligible taxpayer that properly files Form 15307 will not be liable for (1) the penalty under IRC Section 6662(b)(1) for negligence or disregard of rules or regulations, or (2) the substantial understatement penalty under IRC Section 6662(b)(2).
Taxpayers must describe on Form 15307 all items that would result in any adjustments if the taxpayer filed an amended return. Each adjustment must be stated separately and include a description with information that reasonably may be expected to allow the IRS to identify the item, its amount and the nature of the controversy or potential controversy.
The taxpayer must include a computation of the change in taxable income or tax credits for each item disclosed on Form 15307. In addition, a taxpayer may disclose information for purposes of establishing the reasonable basis of a position, even if that position would not result in an adjustment.
Revenue Procedure 2022-39 is effective for examinations beginning after November 16, 2022.
While modified, the IRS has retained a process for certain, frequently audited taxpayers to disclose adjustments to their returns to their IRS examination teams, rather than filing qualified amended returns before the IRS contacts them about an examination. Disclosures made pursuant to Revenue Procedure 2022-39 should continue to save resources for both the IRS and taxpayers.
The IRS will request Form 15307 at the beginning of the audit. Because taxpayers may not know whether they are eligible, taxpayers need to be ready to respond promptly to meet the 30-day window to provide that information (absent other agreement) in order to preserve penalty protection.
Taxpayers who do not meet the requirements to use the new process and form will still be able to file a qualified amended return, Form 8275, Form 8275-R or Schedule UTP to avoid accuracy-related penalties.
Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor