IRS FIN 48
As a result of the impending effective date for the application of Financial Accounting Standard Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes, of FASB Statement 109 (FIN 48), some taxpayers may wish to request a greatly accelerated examination and resolution before the end of their current financial statement accounting year of “uncertain tax positions” taken in filed returns and/or expected to be taken in tax returns yet to be filed.
This document provides an initiative by which the Service will be able to greatly expedite examination and accelerate the resolution of important issues within the framework of its normal processes and its normal rules of engagement, while at the same time providing good customer service.
This initiative is not intended to produce a different result in the resolution of tax issues than would obtain under the normal pace of examination and resolution, but simply to speed up the processes by which such examination and resolution would otherwise result. As such, it is appropriate to work closely with the taxpayer to resolve the issue they are concerned with relative to FIN 48 implementation in the time frames established by the team and taxpayer and then work any further issues, but the focus continues to be overall compliance by taxpayers.
Section A. Overview
This document sets forth the requirements for the Service to permit taxpayers’ participation in this expedited resolution initiative. Section B describes eligibility. Section C describes procedures. Section D discusses operational rules. Section E discusses the resolution of uncertain tax positions using some of the various existing IRS resolution tools that may be utilized in an expedited manner.
Section B. Eligibility, Timeframes, Deadlines
1) Taxpayers that issue certified financial statements in accordance with U.S. Generally Accepted Accounting Principles (GAAP) are eligible to raise an issue or multiple issues for consideration under this initiative. The effective date for the adoption of FIN 48 is the taxpayer’s first fiscal financial accounting year beginning after December 15, 2006. For the calendar year taxpayers, adoption is required on January 1, 2007.
2) This initiative will not be available to any promoters of any listed transactions. A promoter is a person who (i) organized, managed, or sold the transaction; (ii) participated in the organization, management, or sale of the transaction; or (iii) received fees in connection with the organization, management, or sale of the transaction.
3) This initiative is intended to apply primarily to taxpayers that will issue certified financial statements for their current financial accounting years ending on or before 03/31/2007. Time is considered ample under ordinary practice to address similar concerns of taxpayers that will issue certified financial statements for their current financial years ending after 03/31/2007.
4) Requests for the resolution of issues under this initiative must be received no later than the day that is 45 days prior to the taxpayer’s financial statement year-end date.
5) The Service will not agree to resolve the following issues under this initiative:
a) Any issue or transaction that has been designated for litigation or for which the taxpayer has been notified that the Service is considering designating the issue or transaction for litigation;
b) Any issue or transaction for which the taxpayer is a party in a court proceeding to determine the tax treatment of any aspect of the issue or transaction;
c) Any issue or transaction for which the taxpayer has had the fraud penalty under § 6663 imposed or for which the taxpayer has been notified that the Service is considering imposing the fraud penalty;
d) Any issue or transaction for which the taxpayer is under a tax-related criminal investigation by the Service or the Department of Justice or for which the taxpayer has been notified that the Service or the Department of Justice intends to commence a tax-related criminal investigation; and
e) Any other issue or transaction that, in the discretion of the Service, is not appropriate for resolution in an expedited manner.
6) Any uncertain tax positions expected to be taken in the tax return(s) yet to be filed are subject to all of the eligibility restrictions and excluded issues set forth in Rev. Proc. 2005-12, 2005-1 C.B. 206 with respect to pre-filing agreements. In particular, in such circumstances, the Service will only consider issues that require either a determination of facts or the application of well-established legal principles to known facts.
Section C. Procedures
1) Taxpayers must agree to, and act with complete transparency and be committed to timely issue resolution.
2) The taxpayer and the Service must jointly agree upon a timeline for specific objectives, including a specific deadline for the closing agreement (see Form of Agreement below), bearing in mind the goal of final closure by the end of the current financial statement accounting year.
3) Taxpayers have the following responsibilities in the event the Service accepts an issue for resolution under this initiative:
a) The taxpayer will be required to provide the following information, generally immediately, but as soon as possible in the circumstances, after the taxpayer is notified that an issue will be considered under this initiative:
i) the information necessary to determine the proper tax treatment of the issue or transaction;
ii) all documents relating to the issue or the transaction, such as transaction documents and all related legal and/or accounting opinions, regardless of whether these documents would otherwise be subject to claims of judicial or statutory privilege;
iii) a description of the issue and summary of all relevant facts;
iv) a document setting forth all relevant legal authorities including any and all contrary authorities with relevant citations;
v) original documents that relate to the taxpayer’s risk assessment of the issue or transaction; and
vi) where the uncertain tax position appears on the return filed or would be reflected on a return yet to be filed.
b) All requested information provided in writing must include a declaration, signed by a person currently authorized to sign the taxpayer’s federal income tax return, in the following form:
“Under penalties of perjury, I declare that I have examined these documents, and to the best of my knowledge and belief, the facts presented in support of the request are true, correct, and complete.”
c) The taxpayer will be required to provide access to taxpayer personnel or representatives knowledgeable with the facts and/or the transaction. The taxpayer will endeavor to have in attendance at all meeting(s) those individuals necessary to resolve any problems, issues, and/or concerns.
4) With respect to the resolution of uncertain tax positions taken in a filed return for which the taxpayer is under examination, the taxpayer should submit a request to the examiner and/or team manager.
5) With respect to the resolution of uncertain tax positions taken in a filed return but for which the taxpayer is not under examination:
a) if the taxpayer is under examination for any other taxable year(s), the taxpayer should submit a request to the examiner and/or team manager conducting that examination.
b) if the taxpayer is not under examination for any year, the taxpayer should submit the request stating that it is pursuant to the FIN 48 initiative to one of the following:
Email Address: Melanie.Perrin@irs.gov
Fax: (202) 283-8406
Mailing Address using FedEx or UPS:
Internal Revenue Service
Attn: Melanie Perrin
801 9th St. N.W.
Washington D.C. 20001
6) With respect to the resolution of uncertain tax positions for which the tax return is not yet filed, the taxpayer must submit a request that follows all of the procedures set forth in Rev. Proc. 2005-12 and clearly state that expedited treatment under the initiative described in this document is desired.
7) LMSB’s office of Pre-Filing & Technical Guidance (PFTG) will:
a) Appoint one of its personnel to act as Point of Contact for taxpayer inquiries and to receive requests for expedited issue resolution that are made by taxpayers not currently engaged in a compliance examination for any year.
b) Ensure that its PFA procedures are expedited as necessary.
c) Establish a rapid but informal method (email, fax, phone call, etc.) by which requests tentatively accepted by team managers, examiners, or PFTG designees may be forwarded to PFTG for concurrence, coordination, monitoring, etc., and by which PFTG will respond swiftly with concurrence or rejection.
d) Establish a method to record and report on the nature of all issues accepted and rejected under this initiative.
e) Establish a method to report the outcomes of this initiative and include them in the Service’s usual measurement processes.
8) The Service will handle requests for expedited issue resolution under this
Initiative as follows:
a) Examination team managers, examiners, or designees assigned by PFTG will endeavor to respond to taxpayers’ requests either tentatively accepting an issue or declining to consider an issue within 1 business day of receiving the request.
b) Tentative decisions by examination team managers, examiners, or designees assigned by PFTG to accept an issue for resolution will be immediately communicated to PFTG for concurrence.
c) PFTG will endeavor to respond to the communications of examination team managers, examiners, or designees assigned by PFTG, with concurrence or, based on policy or other considerations, with rejection, within 1 business day of receiving those communications.
d) Examination team managers, examiners, or designees assigned by PFTG will endeavor to render final acceptance or rejection of taxpayers’ requests to requesting taxpayers, within 1 business day of receiving PFTG’s concurrence or instruction to reject.
e) The examination team manager, examiner, or designee assigned by PFTG, will engage appropriate resources and employ all available tools to reach an expedited resolution.
f) With respect to issues or transactions that require the PFA process, the Service will expedite the PFA process.
g) Once a matter is accepted for resolution, the Service agrees to employ its best efforts to resolve the matter within the agreed timeline.
h) The Service will endeavor to have in attendance at these meetings those individuals necessary to resolve any problems, issues and/or concerns.
i) The Service will exercise its best efforts to execute closing agreements expeditiously and within the agreed timeline.
Section D. Operational Rules – Internal Procedures
1) Return Filed and Under Examination
a) The taxpayer approaches the examining agent and/or team manager requesting assistance.
b) Management of the issue remains within the Industry line of management.
c) PFTG is notified the examination of the issue has started (for tracking purposes).
d) Team meets with the taxpayer to establish evidenced intent on behalf of the taxpayer to resolve the issue.
e) Taxpayer and team establish expectations as to firm closure date and craft a timeline for specific objectives.
f) Taxpayer presents the issue(s) and all information as outlined in the above eligibility guidelines.
g) All other eligibility and guideline requirements as set forth in the above Eligibility and Guidelines section are present and or available.
h) For tracking and monitoring purposes, the team/examiner will update the ERCS system with Project Code 0544 and Tracking Code 0544 (both codes are the same).
i) If a successful resolution of the issue is met, the team will finalize the issue by securing a Closing Agreement Form 906.
j) At the conclusion of the examination of the FIN 48 issue(s), whether or not successfully, the examiner will notify PFTG with the updated information.
NOTE: It is anticipated that in the process of examination of the issue(s), where appropriate, existing Issue Resolution Tools may be utilized, DO 4-24, DO 4-25, Early Referral to Appeals, Fast Track Appeals, etc.
2) Return Filed and the Taxpayer is Not Under Examination. (There is no taxpayer relationship with the field.)
a) The taxpayer will Email/Fax or overnight a request for an expedited review of the FIN 48 issue(s) to the PFA Coordinator, Melanie Perrin at:
Fax: (202) 283-8406
Mailing Address using FedEx or UPS:
Internal Revenue Service
Attn: Melanie Perrin
801 9th St. N.W.
Washington D.C. 20001
b) PFTG will notify the appropriate PSP.
c) PSP assigns case to appropriate work unit within the industry and updates with appropriate project and tracking codes.
d) The decision to open the return is made by the team manager.
e) Upon contact by the examiner the examination will begin using the same procedures outlined under procedures for a “Return Filed and Under Examination”, above.
3) Un-filed Returns
a) If the taxpayer is currently under examination a team or examiner is on site, submission of a request for a Pre-Filing Agreement (PFA) should be given to the LMSB team manager. The team manager will complete the PFA transmittal form and forward to the PFTG PFA Coordinator.
b) Upon approval of the PFA by the appropriate industry director, the team/examiner will secure the PFA filing agreement fee from the taxpayer and immediately begin the review of the FIN 48 issue.
c) If the taxpayer is not currently under examination, the taxpayer will be expected to the normal PFA procedures as provided by Rev Proc 2005-12.
d) The taxpayer will be expected to provide/ disclose all information as required under the above procedures.
Section E. Resolution of Uncertain Tax Positions
1) In order to expedite the resolution of issues under this initiative, one or more meetings will be convened in which the taxpayer or its representatives will provide a full exposition of all pertinent facts and documents and will present all legal arguments for and against the uncertain tax position.
a) All items described in paragraph 3(a) of the section on Procedures, above, will be demonstrated and discussed as necessary for the Service to be made fully aware of the taxpayer’s return positions and why those positions are uncertain.
b) All Service personnel attending the meeting(s) will be able to raise questions and concerns.
c) Total transparency and candor is required at these meetings.
d) To expedite the consideration of issues under this initiative, Informal Document Request procedures should be suspended and other paperwork processes should be postponed until the execution of a closing agreement or withdrawal as described below.
2) Resolution of issues will be reached in accordance with standard rules of engagement for examinations. However, upon acceptance of an issue for expedited examination and resolution, Service personnel should give consideration to which, if any, of the various resolutions tools might be helpful in expediting resolution so that any necessary advance notice can be given to other personnel that may be required for the application of such processes (e.g., the Office of Appeals if Fast Track may be contemplated).
3) For issues or transactions in filed returns, whether or not an examination is currently open, the following are examples of some alternative dispute resolution tools that may be employed on an expedited basis:
a) D.O. 4-24, IRM 188.8.131.52.33;
b) D.O. 4-25, IRM 184.108.40.206.3;
c) Industry Issue Resolution, IRM 7.40.1, Rev. Proc. 2003-36 (for issues where an acceptable filing position already exists under and IIR, but the taxpayer does not employ it);
d) Early Referral to Appeals, Rev. Proc. 99-28;
e) Fast Track Settlement, Rev. Proc. 2003-40; and
f) Accelerated Issue Resolution, IRM 220.127.116.11, Rev. Proc. 94-67.
4) For issues or transactions expected to be reflected in tax return(s) yet to be filed, the PFA process under Rev. Proc. 2005-12 will be employed on an expedited basis.
5) Appeals has agreed to provide its services, as needed to assist in this initiative, in an expedited manner. (See “Contacts” below for Appeals contact information.)
Form of Agreement
All expedited resolutions under this initiative will be incorporated in a closing agreement under section 7121. The form and content of the closing agreement must comply with Rev. Proc. 68-16, 1968-1 C.B. 770.
At any time prior to the execution of a closing agreement, either the taxpayer or the Service may withdraw from consideration of all or part of the request.
Financial Accounting Standards Board – This link goes to the FASB website, from which FIN 48 can be accessed. To access FIN 48, scroll down the FASB page to the section that includes FASB Interpretations.
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