F. Advance Approval of Proposed Correction

(1) Taxpayers may request advance approval of a proposed correction. If granted,

the advance approval provides assurance to taxpayers and organizations that the IRS will view an intended remedial action favorably as correction.

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(2) Advance approval is only available when:

a. The only barrier is the reluctance to correct because they are uncertain of

final IRS approval, and

b. The other aspects of the issue aren’t disputed.

(3) For all other cases, treat the case as unagreed if the taxpayer is unwilling to make

correction.

(4) To grant advance approval, all the following conditions must be met:

a. The taxpayer indicates acceptance of initial tax liability (Sections 4941

through 4945).

b. Correction will be very difficult or costly, requiring the exercise of sound

judgment on a broad scale.

c. The taxpayer should be able to complete the proposed correction within 90

days from the date of approval.

d. The taxpayer submits a written request for advance approval, attention of the

Area Manager.

(5) The written request must:

a. Fully describe the surrounding circumstances giving rise to the initial tax

liability.

b. Outline in detail the nature and method of the proposed correction.

c. Accept an initial tax liability for the act or failure to act in question.

d. Include the date by which the taxpayer will complete the correction.

(6) When such a written request is received, suspend further action on the issue, and

continue all other aspects of the examination. Send a copy of the request to the Area Manager (scanned and secured e-mail if possible). Consult with Area Counsel if complex correction situations arise from the written request. Schedule and hold a conference call with the Group and Area Managers.

(7) If the Area Manager approves the request, prepare and issue a draft correction

approval letter. See Letter 5305, Private Foundation Correction Approval Letter. The letter must:

a. Explain in detail the proposed corrective action.

b. Specify the due date for correction completion.

c. Require the taxpayer to notify the Area Manager upon completion.

d. Clarify that the taxpayer’s reliance on the letter is conditioned on it meeting

the conditions specified for correction.

Reminder: Monitor the time remaining on the statute of limitations. Consider requesting a statute extension as needed.

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(8) If the Area Manager denies the request, prepare and issue a draft correction

rejection letter. See Letter 5306, Private Foundation Correction Rejection Letter. In the letter:

a. Outline the taxpayer’s proposal.

b. Explain why it doesn’t constitute correction.

c. Clarify that other methods of correction are still available.

d. Suggest a correction action (or actions) that would be acceptable.

(9) If the Area Manager accepts the request, keep the case in the group, and

continue to work other issues on the case. When the Area Manager provides notification that the taxpayer corrected, secure proof. Secure the taxpayer’s agreement to the first tier tax on Form 870-E. Collect the first tier tax or secure an installment agreement request (Form 9465, Installment Agreement Request).

(10) If notification or proof is not received by the due date for correction, contact the

taxpayer to confirm correction. Ask the taxpayer to send proof right away (via express mail, or fax).

(11) If proof of correction is not promptly received after contacting the taxpayer, close

the case as unagreed. See IRM 4.70.14, Resolving the Examination, for closing procedures.