Menu
Tax Notes logo

Deloitte Seeks Retention of Admin Relief Procedure for Large Entities

OCT. 16, 2020

Deloitte Seeks Retention of Admin Relief Procedure for Large Entities

DATED OCT. 16, 2020
DOCUMENT ATTRIBUTES

October 16, 2020

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

The Honorable Charles P. Rettig
Commissioner, Internal Revenue Service
1111 Constitution Ave. NW
Washington, DC 20224

The Honorable Michael J. Desmond
Chief Counsel, Internal Revenue Service
1111 Constitution Ave. NW
Washington, DC 20224

RE: Comments on Revenue Procedure 94-69

Dear Assistant Secretary Kautter, Commissioner Rettig, and Chief Counsel Desmond:

We are pleased to submit comments on behalf of Deloitte Tax LLP, a subsidiary of Deloitte LLP1, regarding the Internal Revenue Service (“IRS”) Large Business & International Division's (“LB&I”) request for comments on Revenue Procedure 94-69,2 dated August 19, 2020. Specifically, our comments recommend that the Department of Treasury (“Treasury”) and the IRS maintain an administrative procedure similar to Revenue Procedure 94-69 to allow some segment of the largest LB&I entity taxpayers (based on objectively measured criteria) to show additional tax due or make disclosure with respect to an item or position upon the opening of a new examination cycle to avoid the imposition of certain accuracy-related penalties under section 66623 of the Internal Revenue Code.

I. Introduction

a. Revenue Procedure 94-69 in General

For at least the past 35 years, the IRS has provided special procedures for certain large corporate taxpayers to show additional tax due or make adequate disclosure with respect to an item or a position to avoid imposition of certain accuracy-related penalties.4 Originally, these procedures applied to taxpayers subject to the Coordinated Examination Program (“CEP”), which was then replaced by the Coordinated Industry Case (“CIC”) program in 2000. Revenue Procedure 94-69 allows this group of taxpayers5 to, in lieu of filing a formal amended return on Form 1120X, Amended U.S. Corporate Income Tax Return, disclose adjustments in a written statement to the IRS within 15 days of request (or based upon an otherwise agreed time on a showing of a reasonable cause). This written statement is treated as a qualified amended return (“QAR”)6 as defined in Treas. Reg. § 1.6664-2(c)(3) and, therefore providing protection from certain accuracy-related penalties under section 6662.

b. LB&I Request for Comments on Revenue Procedure 94-69

In 2019, the IRS replaced CIC with the Large Corporate Compliance Program (“LCC”) effective for audits for tax years 2017 and later. The IRS announced in May 2019, that, as a transition, Revenue Procedure 94-69 will continue to apply to any taxpayer that is in both the CIC program (for years prior to 2017) and the new LCC program (for the 2017 tax year).7

On August 19, 2020, LB&I issued a request for comments on Revenue Procedure 94-69, which noted that it is considering obsoleting Revenue Procedure 94-69 because LCC is no longer a continuous examination program.8 In addition, LB&I noted that the special procedures potentially create a disparity among the LB&I filing population, as well as the broader IRS filing population, who must use the QAR process to obtain penalty protection. Finally, LB&I stated that the special procedures do not support the broader tax administration effort to improve the accuracy and reliability of returns at the time of filing.

II. Recommendations — Maintain an Administrative Relief Procedure for the Largest Taxpayers

Treasury and the IRS should maintain an administrative relief procedure similar to existing Revenue Procedure 94-69 to allow the largest LB&I entity taxpayers, including partnerships, to show additional tax due or make disclosures upon the opening of a new examination cycle to avoid the applicable accuracy-related penalties under section 6662. As noted in the Internal Revenue Service Advisory Council 2015 Public Report,9 underlying the purpose behind the deemed QAR rules of Revenue Procedure 94-69 is the recognition that often times large taxpayers learn of corrections to tax return positions after the time an original return is filed and before LB&I has begun an examination due to a variety of internal and external factors, including the complexity surrounding a large entity taxpayer's transactions and positions as well as statutory and regulatory changes.10 Tax departments are preparing original returns accurately to the best of their abilities, and they often have no or little control over many of these outside events. Taxpayers also generally have an interest in preparing accurate and compliant initial filings so as to avoid later compliance costs. The disclosure procedure set forth in Revenue Procedure 94-69 allows these largest taxpayers to correct their returns without the need to submit formal amended returns, and thereby avoiding the costly and burdensome first series of amendments pre-examination, as well as later, duplicative state and other regulatory filings that would also occur at the end of the IRS examination.

At the same time, we believe that the procedure set forth in Revenue Procedure 94-69 actually enhances and encourages voluntary compliance in accordance with IRS Policy Statement 20-1,11 as the program promotes transparency between the taxpayer and the LB&I examination team at the beginning of a new examination cycle.12 This will still be true for the largest taxpayers under the LCC program because they will still in many cases be subject to continuous examination due to their size and/or other attributes. These largest taxpayers, therefore, are not and will not be playing the “IRS audit lottery”, which is one of the main concerns to LB&I. Such an administrative relief procedure also benefits the IRS by allowing its resources to focus on areas of potential correction or noncompliance.

While the LB&I request for comments expresses concern with creating a disparity among the LB&I filing population, as well as the broader IRS filing population who must use the QAR process, differing treatment is appropriate (and consistent with good tax policy) in this context due to the unique circumstances facing these largest entity taxpayers. The existing disclosure avenues available to other smaller taxpayers are not adequate for this former CIC population of taxpayers as they result in duplicative, costly, and unnecessary amended return filings by the taxpayers and more burden for both these taxpayers and the IRS. The need for this type of distinction has historically been recognized by Treasury and the IRS since at least 1985, and the IRS's own regulations allow for such type of distinction pursuant to Treas. Reg. § 1.6664-2(c)(4)(ii). Thus, Treasury and the IRS should simply update the administrative relief procedure in Revenue Procedure 94-69 to apply to the largest LB&I entity taxpayers (based on objectively measured criteria).

III. Conclusion

For the reasons stated above, we respectfully recommend that Treasury and the IRS maintain an administrative procedure similar to Revenue Procedure 94-69 to allow the largest LB&I entity taxpayers (based on objectively measured criteria) to show additional tax due or make disclosures with respect to an item or position upon the opening of a new examination cycle to avoid the imposition of certain accuracy-related penalties under section 6662.

We appreciate your consideration of our comments. Please feel free to reach out to either of our professionals who contributed to this comment letter, Anita Soucy at (202) 378-5590 or Matt Cooper at (202) 220-2153, as we would be happy to discuss any questions you may have.

Sincerely,

Deloitte Tax LLP
Washington, DC

cc:
Krishna P. Vallabhaneni, Tax Legislative Counsel, Department of the Treasury
Sunita Lough, Deputy Commissioner for Services and Enforcement, Internal Revenue Service
Douglas O'Donnell, Commissioner (Large Business & International), Internal Revenue Service
Nikole Flax, Deputy Commissioner (Large Business & International), Internal Revenue Service
Drita Tonuzi, Deputy Chief Counsel (Operations), Internal Revenue Service
Kathryn Zuba, Associate Chief Counsel (Procedure and Administration), Internal Revenue Service
Robin Greenhouse, Division Counsel (Large Business & International), Internal Revenue Service

FOOTNOTES

1Please see www.deloitte.com/us/about for a detailed description of our legal structure. Certain services may not be available to attest clients under the rules and regulations of public accounting.

21994-2 C.B. 804.

3Unless otherwise indicated, all “section” references are to the Internal Revenue Code of 1986, as amended, and all “Treas. Reg. §” references are to the Treasury regulations promulgated or proposed thereunder.

4Rev. Proc. 85-26, 1985-1 C.B. 580, the predecessor to Rev. Proc. 94-69, applied with respect to the former substantial understatement of income tax penalty under section 6661.

5Treas. Reg. § 1.6664-2(c)(4)(ii) specifically authorizes the IRS to prescribe, by revenue procedure, the manner in which the qualified amended return rules apply to particular classes of taxpayers.

6A QAR is an amended return filed after the due date of the original return and before the time the taxpayer is first contacted regarding an examination of the return, as well as before additional specified criteria.

7See Memorandum for all Large Business and International Division Employees, available at https://www.irs.gov/pub/foia/ig/spder/lbi-04-0419-004.pdf.

8See https://www.irs.gov/newsroom/irs-seeks-comments-on-revenue-procedure-94-69.

9Internal Revenue Service Advisory Council 2015 Public Report, available at https://www.irs.gov/pub/irs-utl/2015-IRSAC-Full-Report.pdf.

10In a comment letter dated, July 25, 2019, Deloitte Tax LLP noted that Treasury and the IRS issued final regulations relating to section 965 transition tax on February 5, 2019, which was after the due date of the original 2017 tax return for many large corporate taxpayers; therefore, these taxpayers had to make decisions on whether to make certain elections without knowing the final rules and without any IRS administrative relief to correct late elections in this context.

11See IRM 1.2.1.12.1 (06-29-2004), Policy Statement 20-1 (Formerly P–1–18), Penalties are used to enhance voluntary compliance.

12In other areas the IRS has had great success in providing taxpayers with methods of voluntary disclosure and we believe the IRS should provide more avenues for voluntary disclosure.

END FOOTNOTES

DOCUMENT ATTRIBUTES
Copy RID