Exam: Rev. Proc. 94-69's Post-Filing Disclosures to Survive in Some Form
Journal of Tax Practice & Procedure
For decades, large corporate taxpayers have relied on procedures outlined in Rev. Proc. 94-69 to make post-filing disclosures and receive penalty protections. In this article, George Hani and Colin Handzo* write that, in general, accuracy-related penalties are waived in the case of disclosures or adjustments reflected on a qualified amended return (QAR) filed before the taxpayer is first contacted about an audit. But, for large corporate taxpayers under continuous or near-continuous audit, filing a QAR is rarely an option. Rev. Proc. 94-69 allows taxpayers under continuous audit to show additional tax due or make disclosures to avoid certain accuracy-related penalties after the commencement of an audit.
The procedures have been enormously popular among taxpayers and Internal Revenue Service (IRS) employees because they promote the objectives of sound tax administration. However, in 2020, the availability of these disclosures seemed in doubt. At that point, the IRS announced it was considering revoking Rev. Proc. 94-69 given the IRS's Large Business & International division's (LB&I) plan to wind down their formal continuous audit program. After receiving enthusiastic comments from stakeholders advocating that the IRS not obsolete Rev. Proc. 94-69's procedures (as well as internal comments), the IRS recently announced that it will be replacing—not obsoleting—Rev. Proc. 94-69. In its 2022 Announcement, the IRS released, and solicited comments on, a new draft Form 15307, "Postfiling Disclosure for Specific Large Business Taxpayers," which aims to standardize disclosures under a new process. The 2022 Announcement also noted that further IRS guidance will be forthcoming as to which taxpayers will be eligible to make such disclosures, and it is this question that is on many taxpayers' minds. In the authors' view, in order to achieve the intended goals of Rev. Proc. 94-69, this pool of eligible taxpayers should be sufficiently broad to allow as many taxpayers as possible to avail themselves of the post-filing disclosure procedures without providing an avenue for taxpayers to abuse the procedures. That is, the guidance should exclude people who would likely use the procedures to play the audit lottery and still gain penalty protection.
The comment period for the draft Form 15307 closed on June 3. The tight comment window as well as the inclusion of the item on Treasury's 2021-2022 Priority Guidance Plan suggests that the IRS hopes to have Rev. Proc. 94-69's replacement in place soon and hopefully in 2022. All taxpayers should be on the lookout for the finalization of Form 15307 (whether adopted in its current form or with changes) and for guidance defining the pool of taxpayers eligible to use the Form. Taxpayers should also consider the practical steps they could take now regarding returns that have already been filed and for which the IRS may open audits in the near future.
*Former Miller & Chevalier attorney