Comment letter to the IRS on potential obsoleting of Revenue Procedure 94-69

The Honorable. David J. Kautter 
Assistant Secretary for Tax Policy
U.S. Department of the Treasury 
1500 Pennsylvania Avenue, NW 
Washington, DC 20220 

The Honorable Michael J. Desmond
Chief Counsel
Internal Revenue Service
1111 Constitution Avenue, NW
Washington, DC 20024

The Honorable Charles P. Rettig
Commissioner
Internal Revenue Service
1111 Constitution Avenue, NW
Washington, DC 20024

Dear Sirs:

On behalf of our members, the American Bankers Association (ABA)1 is pleased to submit the following comments with respect to Revenue Procedure 94-69 as requested in an IRS press release dated August 19, 2020.

Summary

We recommend that Revenue Procedure 94-69 be updated to recognize certain changes that have been made over the years in the Large Business and International (LB&I) examination processes. However, the update should retain core procedural and transparency objectives that are inherent in the current Revenue Procedure.

Background

Revenue Procedure 94-69 applies to large corporate taxpayers who have been included in certain IRS programs for examination. The programs have had various names over the years, including the Coordinated Examination Program (CEP), the Coordinated Industry Case Program (CIC) and most recently, the Large Corporate Compliance Program (LCC).

Revenue Procedure 94-69 allows for a taxpayer under continual audit the ability to prepare documentation at the commencement of an audit (within 15 days) for the IRS exam team. By following the terms of Revenue Procedure 94-69, the submission will have the effect of filing a qualified amended return. The ability to follow these procedures is important in that it allows taxpayers to make various corrections, additions and disclosures and among other benefits described below, potentially avoid penalties that might be assessed. Filing a qualified amended return is generally not possible once a taxpayer has been contacted by the IRS for examination. Accordingly, if the Revenue Procedure is declared obsolete, a taxpayer effectively under continual examination may be challenged in obtaining the benefits of qualified amended return treatment.

In the press release, the IRS states that with the advent of the LCC program and more targeted examination selection, there is consideration of making Revenue Procedure 94-69 obsolete. We respectfully disagree and ask for careful consideration.

There is also language in the press release that comment letters “should not merely request a continuation of the treatment afforded under Revenue Procedure 94-69”. Accordingly, while we are supporting a continuation of the treatment afforded under the existing Revenue Procedure, we offer the following support and recommendations:

1. Revenue Procedure 94-69 provides taxpayers under continual audit an opportunity to effectively file a qualified amended tax return as defined under Regulation 1.6664- 2(c)(3). In the press release, the IRS implies that there may be a material change in the number of taxpayers that will be under continual examination. In reviewing the criterion for the LCC Program in LB&I audit materials, it appears likely that a significant number of corporations will be in the Program. In addition, while we do not know the scoring process for audit selection, we suspect that there will continue to be a material number of LCC taxpayers that will effectively be subject to continual examination. We respectfully suggest that the LCC is a relatively new program. Appropriate time should be taken to understand the number of taxpayers that might be impacted by making Revenue Procedure 94-69 obsolete.
2. If there are a material number of corporations under continual examination, those corporations are not enjoying an “advantage”. In the press release, the advantage is defined as a “disparity among the LB&I filing populations, as well as the broader IRS filing population who must use the qualified amended return process”. If a taxpayer is effectively under continual audit, it should have the opportunity to receive the benefits of a qualified amended return by following existing procedures. Maintaining the procedures from Revenue Procedure 94-69 will help eliminate, rather than create, a disparity among taxpayers.
3. Even if it turns out there are a relatively small number of taxpayers that might be affected by making the Revenue Procedure obsolete, consideration should be given to the complexities these taxpayers have and will continue to face. Significant issues include the changes made in the Tax Cuts and Jobs Act (TCJA), the tax policy initiatives put in place due to the pandemic and potentially being on the precipice of additional tax reform. These changes and initiatives have resulted in historic levels of implementation guidance. Taxpayers should be able to use the current procedures to make changes and/or disclosures to react to this complex and dynamic environment.
4. We believe Revenue Procedure 94-69 promotes transparency through the disclosure of corrections, updated information, reactions to recently issued guidance, judicial developments, etc. While hypothetically these disclosures could be accomplished on amended tax returns, the ability to provide efficient and up-to-date disclosures contemporaneously with the commencement of an audit is clearly the most efficient process for all parties; including where there is the potential for controversy.
5. Revenue Procedure 94-69 encourages voluntary compliance for large taxpayers, which is a cornerstone principle of American tax law. Currently, there is no duty for a taxpayer to amend its tax return if taxpayers later find an error after filing the return. Many errors are found soon after a return is filed and/or when the next return is being prepared. If a taxpayer cannot efficiently make up-to-date amendments, disclosures, etc. with potential penalty relief,, a taxpayer may decide not to file an amended return at all. Having Revenue Procedure 94-69 available encourages taxpayers to voluntarily disclose these errors.
6. Many errors are found soon after a return is filed and/or while taxpayers prepare the next year’s return. Revenue Procedure 94-69 allows taxpayers to voluntarily disclose these errors while avoiding penalties. If Revenue Procedure 94-69 was not available, taxpayers would have to amend returns and “hope for the best” from their local audit team. Some audit teams may propose penalties; some may not. Revenue Procedure 94-69 takes away this discretion from the various audit teams and provides more administrative consistency
   regarding assessing penalties on amended returns to correct errors.
7. Revenue Procedure 94-69 allows for a significant reduction in burden for the taxpayer AND the government. By having an effective “due date” at the commencement of the audit for providing updated information to the government, this allows for a consolidation of volunteered corrections and other changes provided by the taxpayer with changes that are proposed and ultimately agreed to by the government. In large complex tax returns, this is a very important issue in that the forms and related calculations are significant and complex.
8. Most taxpayers that will meet the criterion for the LCC program have made significant investments in various types of pass-through entities. In the banking industry, many of our members have investments in low-income housing, new markets, historic and energy tax credit-based entities. A number of our members have investments in literally thousands of entities that promote the initiatives set forth in Congress. Due to the nature of these investments, there are typically a significant number of adjustments to initially filed taxable income and other information that are regularly provided to the investors, which are regulated banks. The procedures in Revenue Procedure 94-69 provide for efficient and timely updates to information that may have been included in original tax returns.
9. Taxpayers who may “qualify” for the LCC program file tax returns in many individual states. By consolidating taxpayer volunteered adjustments with other adjustments that have been proposed and ultimately sustained or agreed to as part of the audit process, there is an ability to file single amended state tax returns at the end of the audit versus filing multiple state amended tax returns. This is a significant issue and again, has an impact on the efficient administration of tax both on a federal and state level.
10. Revenue Procedure 94-69 provides taxpayers with an ability to review positions that might have potential for assessment of accuracy-related penalties at the time an audit is starting. This allows taxpayers the same opportunity that the IRS has to evaluate the regulatory and judicial developments existing at the time of the examination versus when the tax position was taken on the original tax return or other post-tax return filing periods. This does not put the taxpayer at an advantage. Rather it allows taxpayers to be in a similar position as the IRS.

We appreciate that the language in Revenue Procedure 94-69 may need to be updated as a result of various changes to names of IRS audit programs and related procedures. We support making those changes. In addition, in light of the strong policy reasons set out above for maintaining the core principles of the Revenue Procedure, we suggest that the IRS consider expanding the eligibility for qualified amended return treatment to all LCC taxpayers. Again, we believe these procedures promote transparency, fairness to taxpayers and significant efficiency and administrative benefits.

Thank you for your consideration. Please do not hesitate to contact us with questions or comments.

Sincerely,

John P. Kinsella