On June 17, 2025, the Internal Revenue Service (IRS) announced improvements to its pre-filing agreement (PFA) program. The PFA program aims to enable taxpayers and the IRS to resolve issues, which would likely appear in a post-filing examination, before the taxpayer’s return is filed. The program was established by the predecessor to IRS Large Business & International Division (LB&I) as a pilot program and later became permanent. The recent updates to the PFA program are meant to offer greater certainty to taxpayers regarding the tax treatment of significant issues, as well as to encourage voluntary compliance and curtail costly examinations for both the taxpayer and the government.
History of the IRS Pre-Filing Agreement Program
The PFA pilot program, which was launched in 2000, several months before the launch of the Fast Track Dispute Resolution program, demonstrated that both taxpayers and the IRS benefitted from using the program. Following its initial success, the IRS made the program permanent in 2001 with Rev. Proc. 2001-22. During the first five years of the permanent program, 94 taxpayers were accepted into the program out of which 62 PFAs were executed. However, the popularity of the program seems to have waned in more recent years. From 2019 through 2022, only nine PFA program applications were accepted out of which eight PFAs were executed.
In the initial iteration of the PFA program, under both the pilot and the permanent programs, eligible taxpayers with eligible issues in eligible tax years were able to request a PFA to resolve potential issues prior to filing a tax return. Taxpayers could not use the PFA program to resolve future years, resolutions were limited to current and previous tax year issues.
Under the pilot program, the IRS would consider any issue with settled legal principles. However, in Rev. Proc. 2001-22, the IRS specified appropriate issues for resolution. There were two lists, one with domestic issues, and the other with international issues. The domestic issues list was a non-exhaustive one, suggesting the types of issues which the IRS considered appropriate for resolution with a PFA. However, the list of international issues was exhaustive. As a result, if a taxpayer had an international tax issue that was not on that list, the issue was ineligible for resolution with a PFA. Consequently, greater flexibility was permitted with respect to the scope of the PFA program for resolution of domestic issues than for taxpayers seeking to resolve international issues.
In 2005, the IRS updated the PFA program with Rev. Proc. 2005-12, which put consideration of international and domestic issues on more even footing with respect to eligibility for the PFA program. Under this revenue procedure, the list of international issues became illustrative, rather than exhaustive, similar to the approach used for eligible domestic issues. The revenue procedure also expanded the scope of the program to allow consideration of issues impacting future tax years, provided the same issue was also related to either the current or a prior tax year.
Prior to the issuance of Rev. Proc. 2005-12, the most common reasons a PFA application would be rejected were that the issue was ineligible for PFA consideration or the issue implicated unsettled law. From 2001 through 2004, the IRS rejected 39 applications as inappropriate for the program. Fifteen of these applications were rejected because the issue was not suitable or ineligible for the program; thirteen were rejected because the issue encompassed unsettled law.1
The current PFA program is governed by Rev. Proc. 2016-30, which sets forth the current rules, procedures, and eligibility standards for the program. Any taxpayer under the jurisdiction of LB&I is eligible for the program. The current taxable year, any prior taxable years for which the original tax return is not yet due (taking extensions into account), and any future tax year, which does not extend more than four years beyond the current tax year are eligible for the PFA program.
The following issues may generally be considered under the PFA program: (1) issues that require a determination of facts or the application of well-established legal principles to known facts; (2) issues regarding a methodology used by a taxpayer to determine the appropriate amount of an item of income, allowance, deduction, or credit; and (3) issues under the jurisdiction of an operating division other than LB&I if the other operating division concurs with the issuance of the PFA. Even if an issue is eligible for the PFA program, the IRS has discretion to reject an application for a PFA. Prior to acceptance in the program, the request must be approved by the LB&I practice area director with jurisdiction over the applicant taxpayer with coordination from the Associate Chief Counsel with subject matter jurisdiction over the issue.
While Rev. Proc. 2016-30 sets forth information that must be included in a PFA application, the revenue procedure does not identify a standard form to be used as a PFA application. General information that must be provided in the application includes identifying information, a brief description of the taxpayer’s business, and specific information related to the PFA request.
Program Improvements
On June 17, the IRS announced improvements to the PFA program in an attempt to provide greater certainty for taxpayers and as a part of its efforts to expand access to alternative dispute resolution programs. The improvements are reflected in an updated PFA landing page on the IRS website that now includes updated program statistics and a streamlined process overview. The statistics currently show that from 2019-2024, the IRS accepted 67% of applications into the PFA program. Research credit and section 165(g)(3) worthless stock deduction issues accounted for 57% of all PFA requests during that period.
On the updated webpage, the IRS now provides an overview of the PFA request submission process to help clarify the application process for taxpayers. The webpage describes that a pre-submission conference may be requested when taxpayers are unsure whether their issue or request is appropriate for the PFA program and identifies the steps for requesting a pre-submission conference. The webpage also provides an overview of when and how to submit a PFA request. Taxpayers may use this overview as a starting point when preparing an application, which must conform to requirements under Rev. Proc. 2016-30.
The IRS has also added a list of issues suitable for PFA resolution and supporting documentation, which are likely to be viewed as beneficial improvement for taxpayers. Using this list of likely suitable issues, taxpayers may review and determine what documentation should be included with the application, as well as evaluation the documentation that the IRS would need to review should the application be accepted into the PFA program. The webpage lists the following as likely suitable issues:
- Research credit;
- Worthless securities deduction and corollary issues;
- Limitation on repurchase premium on convertible debt;
- Discount rates and the costs of required capital;
- Long term contracts;
- International: qualified business unit;
- International: US trade or business;
- International: Effectively connected income;
- International: deductions against effectively connected income; and
- International: permanent establishment.
By reviewing this list, taxpayers will have greater clarity about what the IRS expects with a PFA filing request and considerations the IRS views as relevant to each issue.
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1 See IRS Announcement 2002-54, 2002-1 C.B. 1190; IRS Announcement 2003-43, 2003-1 C.B. 1139; IRS Announcement 2004-59, 2004-2 C.B. 94; Announcement 2005-42, 2005-1 C.B.
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