What Is the IRS’s Pre-Filing Agreement Program?

 Posted on September 16, 2025 in Taxation Law

The U.S. Tax Code is complicated, especially when dealing with large companies or international businesses. These companies may encounter a number of complex tax issues when filing returns, and they may wish to take steps to avoid tax audits or other actions by the IRS that could result in financial losses. One way of doing so is through the Pre-Filing Agreement (PFA) Program, which allows taxpayers to identify potential issues and attempt to resolve them before they file tax returns.

Because of the complexity of the issues that may be covered in Pre-Filing Agreements, legal help from an experienced attorney can be crucial when addressing these matters. A skilled lawyer who has a strong understanding of the U.S. Tax Code, the tax credits and deductions that may be available, and the steps that may be taken to minimize a taxpayer's tax burden can help ensure that these agreements can be used correctly.

Understanding the PFA Program

Taxpayers that fall under the jurisdiction of the IRS’s Large Business and International (LB&I) division may be able to use the PFA program to address certain types of tax issues with the IRS, reducing the risks of audits and providing certainty about the tax obligations that will apply to them. When participating in this program, a taxpayer will provide documentation related to specific transactions or other tax-related issues, and they will work with IRS personnel to resolve potential disputes prior to filing a tax return.

A PFA request must be submitted within 60 days after the transaction in question or within 30 days after the close of the applicable tax year, whichever comes first. A request will include a written description of the issue being discussed and a summary of the relevant facts. The IRS may take around 8-9 months to review the request, discuss the issues involved with the taxpayer, and finalize an agreement. The fee for participating in the PFA program is $181,500.

Issues That May Be Addressed Through the PFA Program

The IRS has highlighted several issues that are likely to be suitable for Pre-Filing Agreements, including:

• Research Credits: If a taxpayer believes that they qualify for tax credits based on research activities or experimental expenditures, they may address this issue prior to claiming these credits on a tax return. Documentation required may include publicly available SEC Forms 10-K for the 3 preceding tax years (for publicly traded companies) or audited annual financial statements for the 3 preceding tax years (for privately held entities), Forms 6765 showing the source of qualified research expenses for the 3 most recent tax years, descriptions of agreements with third parties, a copy of a research credit study, other financial records, and other relevant documentation.

• Worthless Securities Deductions: If a taxpayer owns securities that have become worthless during a tax year and wishes to claim deductions for these losses, they may request a review of these deductions. Documentation will need to be provided to corroborate the taxpayer’s description of the transaction related to these securities and the losses that were experienced.

• Long-Term Contracts: A PFA may be used to determine whether a construction or manufacturing contract qualifies as a long-term contract. A taxpayer will need to provide a copy of the contract and relevant information about the contract, including the date they entered into the contract, the date contracting costs were first incurred, and the estimated year in which the contract will be completed.

• Qualified Business Units for International Taxpayers: A PFA request may determine whether a unit of a taxpayer’s business is considered to be a qualified business unit (QBU). Documentation to provide in these requests includes information about the legal structure of the potential QBU, descriptions of the specific branch or division of the business, descriptions of the activities the unit conducts, and copies of the financial records of the potential QBU.

• International Businesses Conducting Trade or Business Within the United States: To determine whether an international business is engaging in these activities, the IRS may review records such as organizational charts, descriptions of worldwide business operations, descriptions of the nature and scope of business activities within the United States, lists of all property owned by the business in the United States, and copies of contracts and invoices.

• Effectively Connected Income for International Taxpayers: A PFA may be used to determine the amount of gross income that is effectively connected with a trade or business within the United States and whether deductions may be connected with this income. Documentation may include financial statements, balances of gross revenue and expenses, assets used to generate revenue, descriptions of passive income, and determinations of interest, head office expenses, or other deductions.

• Permanent Establishment in the United States for International Taxpayers: A request may be filed to determine whether a permanent establishment may allow for a bilateral income tax convention and the profits that may be attributed to that establishment. A taxpayer will need to provide documentation showing that they meet all requirements for claiming benefits under the tax convention.

This is not an exclusive list of all issues that may be appropriate for the PFA Program. The IRS may accept requests based on other items that a taxpayer expects to file on a tax return. However, Pre-Filing Agreements cannot address future transactions, incomplete transactions, or hypothetical scenarios.

Contact Our San Jose, CA Tax Lawyer

Pre-Filing Agreements can help address potential issues well before they lead to tax audits or penalties. At John D. Teter Law Offices, our San Jose tax law attorney can provide guidance on when submitting a PFA request may be beneficial. We will help identify, organize, and assemble required documentation and provide the right information to the IRS, while also working to resolve any disputes that may arise. To learn more about how we can help large corporations and international businesses resolve tax-related issues, contact us at 408-866-1810 and arrange a consultation.