Rev. Proc. 80-57

Section 1. Purpose

The purpose of this revenue procedure is to prescribe the procedures to be used by the Internal Revenue Service and taxpayers for resolving issues arising when a taxpayer is or would be subject to inconsistent tax treatment by the Service and the Puerto Rico or Virgin Islands tax authorities. Such issues generally involve: (1) allocations of income, deductions, credits, or allowances between related persons; (2) determination of residency; and (3) determinations of the source of income and related expenses. This revenue procedure does not provide procedures to be used by possession tax authorities.

Sec. 2. Background

.01 The Service has in accordance with the Agreements on Coordination of Tax Administration ("Agreements") with the Department of the Treasury of Puerto Rico (Internal Revenue News Release IR- 2123, April 25, 1979, Announcement 79-84, 1979-23 I.R.B. 19) and the Department of Finance of the United States Virgin Islands (Internal Revenue News Release IR-1926, December 30, 1977, Announcement 78-21, 1978-7 I.R.B. 42) (hereinafter "the possession tax agencies") established cooperative programs to resolve tax disputes arising from inconsistent positions taken by the Service and the possession tax agencies.

.02 The Agreements provide that when by reason of inconsistent positions taken by the Service and the possession tax agency a taxpayer is or would be subject to inconsistent tax treatment by the two jurisdictions, the Director of International Operations and the designated possession tax official shall endeavor to resolve by mutual agreement any difficulties arising from the application of the tax laws of the United States and the possession. In particular, but not by way of limitation, the Director of International Operations and the designated possession tax official may consult together to endeavor to agree: (a) to the same allocation of income, deductions, credits, or allowance between related persons; (b) to the same determination of residency of a particular taxpayer; or (c) to the same determination of the source of particular items of income.

.03 The Agreements provide that the Director of International Operations will be the representative of the Service to handle exchanges of tax returns and tax return information with the possessions, as well as to develop and coordinate cooperative programs designed to improve the administration and enforcement of both federal and possession tax laws.

.04 Requests for assistance under these mutual agreement procedures should be addressed to the Director of International Operations, Internal Revenue Service, 1325 K Street, N.W., Washington, D.C. 20225.

Sec. 3. Procedures to be Followed

.01 A taxpayer, or a taxpayer with a related person in a possession, that is subject to double taxation because of inconsistent tax treatment by the Service and the possession tax agency may request assistance in accordance with this revenue procedure.

.02 In addition to the tax assistance request, the taxpayer should file a claim for credit or refund of any overpayment of federal tax that was paid on the income in question, provided the period of limitations prescribed under section 6511 of the Internal Revenue Code, with respect to the claim for credit or refund, has not expired. The taxpayer, or a related person in a possession, should also take whatever steps are necessary under the possession tax code to prevent the expiration of the period of limitations with respect to a claim for credit or refund of the possession tax.

.03 When, in conjunction with a request for assistance under this revenue procedure, a taxpayer seeks relief in the form of a credit or refund of either possession or United States tax, the allowance of such relief is subject to the applicable tax and procedural rules of the possession and the United States.

.04 Federal income tax claims are to be made as appropriate, on: Form 1040X, Amended U.S. Individual Income Tax Return; Form 1120X, Amended U.S. Corporation Income Tax Return; or Form 1041, U.S. Fiduciary Income Tax Return. The taxpayer should indicate on the appropriate form that a request for assistance under the possession mutual agreement procedure has been filed pursuant to this revenue procedure and should attach a copy of such request to that form. The claim should be computed on the assumption that the taxpayer does not qualify for relief through mutual agreement procedures for the year or years in question.

.05 With respect to the computation of the foreign tax credit, either Form 1116, Computation of Foreign Tax Credit, Individual, Fiduciary, or Nonresident Alien Individual, which also covers credits for foreign tax on income received from foreign partnerships and other business organizations, or Form 1118, Computation of Foreign Tax Credit-Corporations, shall be attached to the Form 1040X, Form 1120X, or Form 1041, as appropriate.

.06 If any possession tax issues subject to consideration under the possession mutual agreement procedures are expected to reoccur in the future and if the period for filing Form 1040X, Form 1120X, or Form 1041 is about to expire, the taxpayer should, before the expiration of the period of limitations for the taxable year involved, file a protective claim on Form 1040X, Form 1120X, or Form 1041 and transmit a copy to the Director of International Operations. The claim should describe the expected possession tax agency action and state that the taxpayer plans to file a request for assistance under the possession mutual agreement procedure. If the taxpayer later decides not to file the request, the Director of International Operations should be promptly notified by the taxpayer.

.07 The taxpayer should file a written request for assistance with the Director of International Operations, Internal Revenue Service, 1325 K Street N.W., Washington, D.C. 20225, as soon as the issues are sufficiently developed to indicate that the taxpayer is or would be subject to inconsistent tax treatment by the Service and the possession tax agency. This will: (1) insure consideration while the facts are more easily obtainable; (2) insure adequate time for the representatives of the two jurisdictions to consult and attempt to arrive at an agreement prior to the imposition of any procedural barriers under federal or possession law; and (3) avoid unnecessary delay in the final determination of tax liability.

.08 The Director of International Operations will not accept any taxpayer's request for consideration of a case that is pending in court without the consent of the Chief Counsel of the Service. If the case is pending in the United States Tax Court, the Chief Counsel may in appropriate cases request the court to delay trial pending mutual agreement action. If the case is pending in any other court, the Chief Counsel will consult with the Department of Justice. Final decision on delaying trial rests with the court. Suspension of litigation pending any possession mutual agreement consideration will not relieve the United States taxpayer from any obligation to act with respect to that litigation.

.09 A request for assistance under this revenue procedure shall be signed by the taxpayer or a person having authority to sign the taxpayer's federal income tax returns; shall contain a statement that assistance is requested under the possession mutual agreement procedure; and shall include the following information:

1 the taxpayer's name, address, and employer identification number (individuals not engaged in a trade or business should use their Social Security number) and where applicable the name, address and employer identification number (or for individuals not engaged in a trade or business a Social Security number) of a related person in the United States possession;

2 the taxable year or years in question and the Service Center where the taxpayer's federal income tax return was filed, or if no return was filed, a statement to that effect;

3 when income tax is involved, the type of income at issue (such as salary, dividends, or interest), a description of the transaction, activities, or other circumstances pertinent to the issue and the respective positions taken by the possession tax agency and the taxpayer on the issue raised;

4 the amount of the particular item involved in the issue raised and the amount of the possession tax assessed or proposed for assessment;

5 when applicable, a description of the control and business relationships between the United States taxpayer and a related person in the possession;

6 when applicable, a statement of the status of the tax liability of the taxpayer and a related person in the possession for the year or years in question, as well as a statement as to whether the taxpayer or related person is entitled to any possession tax incentive or subsidy program benefits for the year or years in question;

7 a copy of any correspondence received from the possession tax agency and also copies of any briefs, protests and other relevant material submitted to the possession tax agency;

8 a copy of possession tax returns for the year or years in question;

9 a statement whether the federal tax return of the United States taxpayer, and where applicable the tax return of a related person in the possession, for the year or years in question were examined, or are in the process of being examined;

10 a statement as to whether a foreign tax credit was claimed in the taxpayer's federal tax return for the taxable year or years in question and, if a credit was claimed, whether it was claimed for all or part of the possession tax paid or accrued with respect to the particular item that is the subject of the request for assistance under a possession mutual agreement procedure;

11 on a separate and single document, a statement that the United States taxpayer consents to the disclosure to the designated possession tax official of any or all of the items of information set forth or enclosed in the request for assistance under this revenue procedure; this statement shall be dated and signed by a person having authority to sign the United States taxpayer's federal tax returns; and

12 other pertinent material the taxpayer may wish to supply.

Sec. 4. Notification to Taxpayer

.01 The taxpayer will be notified whether the facts submitted provide a basis for assistance under the possession mutual agreement procedure.

.02 The Director of International Operations will not assist the taxpayer if:

1 under the facts and circumstances the taxpayer is not entitled to such assistance (for example, the facts do not indicate that inconsistent positions have been taken by the Service and the possession tax agency).

2 the taxpayer indicates unwillingness to accept an agreement under the possession mutual agreement procedure except under conditions that are clearly unreasonable or unfairly prejudicial to the interests of the United States; or

3 the taxpayer does not furnish, upon request, sufficient information to determine the applicability of the possession mutual agreement procedure or otherwise fails to act as required by this revenue procedure.

.03 If the Director of International Operations accepts a request for assistance, the continuing cooperation of the taxpayer is essential. The taxpayer shall supply any additional information needed to resolve the case and keep the Director of International Operations informed as to proceedings in the possession and any other pertinent developments. The taxpayer may also be requested to execute a consent extending the period of limitations on assessment of tax for the taxable year or years in question.

.04 The Director of International Operations will notify a taxpayer requesting assistance under this revenue procedure of any agreement or partial agreement that the Service and the possession tax agency reach with respect to the taxpayer's request. If such agreement or partial agreement is not acceptable to the taxpayer, the taxpayer may pursue all rights to administrative and judicial review otherwise available under the law of the possession and the United States.

.05 When appropriate, in cases covered by this revenue procedure, the taxpayer will be requested to enter into a closing agreement in accordance with sections 6.07 and 6.17 of Rev. Proc. 68- 16, 1968-1 C.B. 770.

.06 Rev. Proc. 65-17, 1965-1 C.B. 833, and Amendment I of Rev. Proc. 65-17, 1966-2 C.B. 1211, as amplified by Rev. Proc. 65-31, 1965-2 C.B. 1024, provide that a United States taxpayer must file a request for the treatment provided by Rev. Proc. 65-17 in writing with the appropriate district director before closing action is taken on issues arising under section 482 of the Code that forecloses availability of Rev. Proc. 65-17. Accordingly, if a United States taxpayer desires assistance under this revenue procedure and the benefits provided by Rev. Proc. 65-17, the request filed under this revenue procedure should state that the taxpayer desires the benefits of Rev. Proc. 65-17 before entering into any closing agreement or before any other closing action (as defined in section 4.03 of Rev. Proc. 65-31) is taken.

Sec. 5. Effective Date

This revenue procedure is effective immediately.