For many years, the Internal Revenue Service (IRS) has provided large corporate taxpayers who are under continuous audit to make affirmative disclosures at the start of an audit so they have an opportunity to disclose tax positions and avoid certain civil tax penalties. The procedure, outlined in Revenue Procedure 94-69, has been very popular with both taxpayers and IRS agents because it provides a mechanism that allows taxpayers to informally “amend” a return without filling out all of the paperwork. IRS agents also like the procedure because it allows them to focus the examination on the disclosed issues and incorporate the adjustments in the final computation from the audit. Indeed, the procedure has grown in practice to include the disclosure of affirmative and negative adjustments at the start of the examination and not just in the audits of taxpayers under the jurisdiction of the IRS’s Large Business & International division. However, as the continuous audit paradigm has ended, in 2020 the IRS questioned the continuing viability of this procedure and sought comments from taxpayers on if, and how, it should continue.

Numerous commentators (including the American Bar Association Section of Taxation and Tax Executives Institute, Inc.) recommended that the IRS keep this post-filing disclosure procedure in place, citing the following points in support:

• The procedure avoids the need to file a formal amended return, a burdensome process on large taxpayers.

• Requiring formal amended returns can be a significant strain on taxpayer resources, including the potential need to deal with state and local tax filings.

• All mistakes can be fixed at one time (i.e., avoiding multiple amended returns).

• The procedure eases reporting issues with Schedules K-1 that are issued after the original tax return is filed.

• The procedure allows incorporating carryover adjustments from prior examinations.

• There’s potential to avoid strict liability for penalties relating to transfer pricing adjustments.

On February 25, 2022, the IRS announced that it will standardize the process for making post-filing disclosures so that eligible taxpayers and IRS agents have consistent guidelines for determining what constitutes adequate disclosure. To that end, the IRS has published a new draft form, Form 15307, Post-Filing Disclosure for Specified Large Business Taxpayers, to be used by eligible taxpayers seeking to make a post-filing disclosure. Taxpayer comments on the new draft form can be submitted here.

The draft Form 15307, which must be signed under penalties or perjury, requires that the taxpayer identify the number of disclosures and provide specific information about each disclosure, including:

• Adjustment type

• Timing

• Effect of carryover

• Description

• Increase/decrease to taxable income or tax credits

• Explanation of the item being disclosed

Examples of acceptable and unacceptable descriptions and disclosures are provided in the instructions to the draft form. Generally, netting of adjustments is not permitted, however, where the facts and circumstances of an item are identical and represent a high volume of low dollar amounts, the disclosures can be netted. The instructions warn that failure to meet the requirements in the form “will result in the disclosure being inadequate” and that “[i]nadequate disclosure will not result in protection from accuracy-related penalties.” A further consequence of an inadequate disclosure is ineligibility to utilize Form 15307 for a yet to be determined period of time.

Practice Point: The post-filing disclosure procedure is extremely beneficial for eligible taxpayers. Large taxpayers who are accustomed to making post-filing disclosures through the Revenue Procedure 94-69 procedure should carefully review the IRS’s recent announcement and new draft form and consider whether to submit comments.