Rev Proc 85-58: Penalty Relief for Tax Deposit Errors
Discover how Rev. Proc. 85-58 provides a safe harbor for taxpayers who mistakenly mail a tax deposit, potentially waiving failure-to-deposit penalties.
Revenue Procedure 94-69 provided relief for certain large corporate taxpayers under continuous audit, allowing them to disclose tax positions at the beginning of an audit to gain protection from accuracy-related penalties. This provision, available to taxpayers in the Coordinated Industry Case (CIC) Program, created a “safe harbor” that functioned like a Qualified Amended Return (QAR). The procedure acknowledged the compliance challenges for these taxpayers under constant examination, making it difficult to file a QAR before being contacted by the IRS. This relief was focused on non-fraudulent tax positions, and in 2022, the IRS replaced this procedure with Revenue Procedure 2022-39.
Conditions for Relief Under the Original Procedure
To have qualified for relief under Revenue Procedure 94-69, a taxpayer had to be part of the IRS’s Coordinated Industry Case (CIC) Program. The taxpayer was required to provide a written statement to the IRS examiner at the beginning of an audit cycle, disclosing any items they wished to have treated as if they were on a QAR. The disclosure had to be made before the IRS raised the issue during the examination. It needed to be sufficiently detailed to apprise the IRS of the identity of the item, its amount, and the nature of the potential controversy. The procedure did not apply to issues that were not properly disclosed in the written statement.
Transition to Revenue Procedure 2022-39
Revenue Procedure 94-69 is no longer active and was formally superseded by Revenue Procedure 2022-39 in November 2022. The change was necessary because the IRS had restructured its large corporate audit program, replacing the CIC program with the Large Corporate Compliance (LCC) program. The new procedure adapts the relief to the structure of the new LCC program and also expands its availability to certain large partnerships. The IRS will notify taxpayers who are eligible for the program.
Requesting Relief Today
An eligible taxpayer, typically a large corporation or partnership selected for examination under the LCC program or other designated program, will be notified by the IRS of their eligibility to use the procedure. To request relief, the taxpayer must prepare a written disclosure of all tax positions for which they are seeking penalty protection. This disclosure must be submitted to the IRS examination team by the date specified in the opening conference or as otherwise agreed upon with the examiner.
The disclosure must be unambiguous and provide enough detail for the examiner to understand the issue. The IRS will then review the disclosure and, if it meets the requirements of the revenue procedure, will treat the disclosed items as if they had been filed on a Qualified Amended Return. This provides protection against certain accuracy-related penalties.