Pre-Filing Agreement Broadened to Include International Tax Issues

On December 23rd, the IRS issued Rev. Proc. 2005-12, which announced revisions to the IRS’s relatively new program known as Pre-Filing Agreements ("PFA"), which provide potentially important benefits to foreign companies. The issues that come within the scope of the PFA program have been greatly expanded. They now include international tax issues, including the often challenging question of whether a foreign corporation’s presence in the United States has reached a level where the foreign corporation is subject to U.S. net income taxation because its activities rise to the level of being engaged in a U.S. trade or business (under U.S. domestic law) and, if so, whether its presence in the United States rises to the level of being a permanent establishment ("PE") under a relevant U.S. income tax treaty. These issues are matters that the IRS Office of Chief Counsel has typically refused to consider in the rulings process because of their highly factual nature.