Tax Analysts Urges IRS to Delete Secrecy Provisions of PFA Program

[1] On February 11, 2000, the Internal Revenue Service ("IRS" or "Service") issued Notice 2000-12, in which IRS established a "pilot program" for execution of "Pre-Filing Agreements" ("PFAs"). The following comments are submitted on behalf of Tax Analysts.

[2] The Notice presents serious issues of IRS' disclosure policy. However, it came too late to have been addressed in the report on IRS disclosure policies and practices issued by the Joint Committee on Taxation on January 28, 2000 (as mandated by 3802 of the Internal Revenue Service Reform and Restructuring Act). Accordingly, in addition to transmitting these comments to you and to the issuing component of the Office of Chief Counsel (as directed in paragraph 12 of the Notice), we are sending a copy to the Joint Committee.

1. PFAs Are Not Closing Agreements and the Notice Should Be

PFAs are closing agreements entered into pursuant to I.R.C.

[4] Tax Analysts urges IRS to amend Notice 2000-12 to delete these secrecy provisions. PFAs are not, in substance or in form, in any way akin-to non-disclosable section 7121 closing agreements. They are, rather, in both substance and in form as described in the Notice, written determinations (letter rulings) that must be disclosed under I.R.C. section 6110.

[5] Section 7121 closing agreements are employed normally, indeed almost exclusively, to settle issues that have arisen on audit. Closing agreements are not intended to deal with or resolve legal issues. For example Rev. Proc. 68-16 (modified by Rev. Proc. 94-67), which governs the closing agreement process, omits all mention of legal issues, as do the "Illustrative Pattern Agreements" attached as exhibits.

[6] In Tax Analysts v. IRS, 53 F.Supp.2d 449 (D.D.C. 1999) (which the Notice relies on, id. paragraph 9), the service relied on the following description of section 7121 closing agreements:

All closing agreements contain five parts: (1)

[7] IRS takes the position (reflected, for PFAs, in Notice 2000-12 as quoted above) that all closing agreements (not only those at issue in the case reported in 53 F.Supp.2d) are exempt from disclosure in their entirety under I.R.C. section 6103. However, the validity of that position is dependent upon IRS scrupulously ensuring that closing agreements contain no legal discussion, analysis or conclusions. Under established law, even though closing agreements contain section 6103 return information, if any closing agreement contained legal guidance, that guidance -- agency working law -- would have to be made public. Tax Analysts v. IRS, 117 F.3d 607, 611- 16 (D.C. Cir. 1997).

[8] Closings agreements are, indeed, one of the categories of "guidance" issued by the various offices of the Office of Chief Counsel. Rev. Proc. 91-1, 92-1, 93-1, 94-1, 95-1, 96-1, 97-1, 98-1, 99-1, 2000-1, section 2. "The Service provides guidance in the form of letter rulings, closing agreements, determination letters, information letters, revenue rulings and oral advice." Id. All the forms of written guidance listed, except for closing agreements -- as well as other forms of guidance like General Counsel Memoranda, Field Service Advice and Service Center Advice, are made public by statute, by regulation or upon IRS' grudging recognition, following one court decision after another beginning in the early 1970's and continuing (e.g., for Field Service Advice) today, that legal guidance may not be kept secret. Closing agreement guidance is saved from application of these principles only by exclusion from them of legal discussion, analysis or conclusions.

2. PFAs Will Be Legal Guidance Containing Agency Working Law and

[10] The attempted distinction is untenable. The Notice provides that requests for a PFA are to "state the legal issue(s) involved" and "discuss the taxpayer's interpretation of these legal rules and their application to the facts in question." Notice, paragraph 4(4), (7). The Service can decide "to accept or reject the issue(s) for consideration." Id. paragraph 5. The Service and the taxpayer discuss "factual development and issue resolution with respect to the issues accepted for consideration." Id. paragraph 6.

[11] Both PFAs and letter rulings provide IRS "guidance" based on interpretation and application of the tax law to facts. Like PFAs, letter rulings are based on requests that state the facts, attach documents, analyze facts, state the "bearing" of the facts "on the issue or issues, specifying the provisions that apply," explain the "grounds for [the taxpayer's) conclusion" and cite "relevant authorities" and "contrary authorities." Rev. Proc. 2000-1, section 8.01. Hence, letter rulings "interpret[] and apply the tax laws to . . . facts." Id. section 2.01. Moreover, the Service's procedures for processing requests for PFAs and requests for letter rulings are identical in substance. Compare Notice section 6 with Rev. Proc. 2000-1, sections 10, 11. Their binding effect on the Service is the same. Notice sections 2, 6; Rev. Proc. 2000-1, section 12.

3. IRS Should Not Deceive Taxpayers By Attempting to

Sincerely yours,