Revenue Procedure With Guidelines for Obtaining Competent Authority Assistance In Potential Contravention of Tax Treaties Is Available

                               OUTLINE

This revenue procedure sets forth the procedures concerning requests for assistance of the United States competent authority in resolving instances of taxation in contravention of the provisions of an income, estate or gift tax treaty (hereinafter sometimes referred to as a "tax treaty" or "tax treaties") to which the United States is a party. Rev. Proc. 82-29, 1982-1 C.B. 481, and Rev. Proc. 77-16, 1977-1 C.B. 573, as amplified by Rev. Proc. 79-32, 1979-1 C.B. 599, are superseded by this revenue procedure.

SEC. 2. BACKGROUND

01. General. The United States has in force with various countries bilateral income, estate and gift tax treaties governing the taxation of income and property of residents of either country. Tax treaties have three main functions: (1) avoiding the double taxation of income, property or property transfers, by allocating or limiting the right of the source or the residence country to tax income or property; (2) avoiding discriminatory tax treatment of residents of the Contracting States; and (3) permitting reciprocal administrative assistance in the prevention of tax avoidance and tax evasion. This revenue procedure implements the mutual agreement procedure provisions included in tax treaties, which are primarily designed to ensure that the treaties are interpreted and applied according to their terms. This revenue procedure is not intended to limit or expand any specific tax treaty provision relating to competent authority matters. Further, where a tax treaty provides specific procedures for requests for competent authority assistance, those procedures shall apply and the provisions of this revenue procedure shall not apply to the extent inconsistent with such treaty provisions.

02. Requests for Assistance. When a taxpayer considers that the actions of the United States, the treaty country or both result or will result in taxation that is contrary to the provisions of an applicable tax treaty, the taxpayer may request competent authority assistance pursuant to this revenue procedure. Taxpayers are urged to examine the specific mutual agreement procedure provisions of the treaty under which they seek relief. If the taxpayer's request for competent authority consideration provides a basis for competent authority assistance, the U.S. competent authority will consult with the appropriate foreign competent authority for the purpose of avoiding taxation contrary to the provisions of the treaty.

03. Goal of Mutual Agreement Procedure Process. When the U.S. competent authority and a foreign competent authority agree to discuss an allegation of taxation contrary to the provisions of a tax treaty, whether by the United States or by the treaty country, the United States will attempt to reach an agreement that is acceptable to the United States, to the treaty country, to the taxpayer and to any relevant person related to the taxpayer.

04. U.S. Competent Authority. The Assistant Commissioner (International) acts as the United States competent authority in administering the operating provisions of tax treaties and in interpreting and applying these treaties. The Tax Treaty Division assists the Assistant Commissioner (International) in such matters. In interpreting or applying these tax treaties, the Assistant Commissioner (International) acts only with the concurrence of the Associate Chief Counsel (International). See Delegation Order No. 114 (Rev. 9), 1990-33 I.R.B. 13.

05. Scope of Mutual Agreement Procedure Process. The Assistant Commissioner (International) may engage in negotiations and conclude an agreement with a foreign competent authority pursuant to a request made by a taxpayer in accordance with the provisions of this revenue procedure. The Assistant Commissioner (International) also may, in appropriate instances, initiate competent authority negotiations in any situation deemed necessary to protect U.S. interests. Such a situation may arise, for example, when a taxpayer fails to request competent authority assistance after agreeing to an allocation of income or deductions that creates taxation contrary to the provisions of an applicable income tax treaty.

06. Place of Filing. The taxpayer must send all written requests for, or inquiries regarding, competent authority assistance to the Assistant Commissioner (International), Att'n: Tax Treaty Division, Internal Revenue Service, P.O. Box 23598, Washington, D.C. 20026- 3598.

07. Failure to Request Assistance. Failure to request competent authority assistance pursuant to this revenue procedure may cause a denial of part or all of any foreign tax credits claimed. See section l.901-2(e)(5)(i) of the regulations. See also section 7, which prescribes protective measures to be taken by the taxpayer and any relevant related person with respect to U.S. and foreign tax authorities.

08. Small Case Procedure. Requests for assistance which satisfy the small case standards are eligible for an abbreviated filing procedure. See section 10 of this revenue procedure for additional information.

SEC. 3. GENERAL CONDITIONS UNDER WHICH THIS PROCEDURE APPLIES

01. General. The exclusions, exemptions, deductions, credits, reductions in rate, and other benefits and safeguards provided by tax treaties are subject to conditions and restrictions that vary in different treaties. Taxpayers should examine carefully the specific treaty provisions that may apply in their case to determine if they are, in fact, entitled to such treaty benefits or safeguards.

02. Requirement of a Tax Treaty. If there is no applicable tax treaty between the United States and another country, there is no authority for the Internal Revenue Service to provide relief from U.S. tax due to double taxation arising under the tax laws of the foreign country and the United States. The U.S. competent authority is unable to consider a taxpayer's request that involves a country with which the United States does not have an applicable tax treaty.

03. Applicable Standards in Allocation Cases. With respect to requests for competent authority assistance involving the allocation of income and deductions between a U.S. taxpayer and a related person, the U.S. competent authority, in seeking to arrive at an agreement with a treaty country, will be guided by the standards of arm's length dealing under section 482 of the Internal Revenue Code, and the regulations thereunder, as amended, and equivalent standards applicable to dealings between independent persons (referred to in a number of income tax treaties). The U.S. competent authority also will, when negotiating agreements on the allocation of income and deductions, take into account all of the facts and circumstances and the purpose of the income tax treaty to avoid double taxation.

04. Restrictions on Relief. 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 a treaty country or U.S. tax, the allowance of such relief is subject to the applicable tax laws and procedural rules of the treaty country and the United States, as they may be modified by an applicable tax treaty and procedures promulgated thereunder. A taxpayer's claim for credit or refund of either a treaty country or a U.S. tax may be disallowed when the claim conflicts with such tax laws and procedural rules. See section 7, which prescribes protective measures to be taken by the taxpayer and any relevant related person with respect to U.S. and foreign tax authorities.

05. Who Can File Requests for Assistance. Unless otherwise specifically provided for in an applicable tax treaty, the U.S. competent authority will only consider requests for assistance from a U.S. person, as defined in section 7701(a)(30) of the Internal Revenue Code, with respect to requests for assistance pursuant to an applicable tax treaty. For purposes of this revenue procedure, the U.S. person is referred to as the "taxpayer". Unless otherwise provided for in an applicable tax treaty, non-U.S. persons must present their requests for assistance to the relevant foreign competent authority. The U.S. competent authority will also consider cases submitted for consideration as part of an advance pricing agreement request. See Rev. Proc. 91-22 of this Bulletin.

06. Closed Cases. A case previously closed after examination shall not be reopened in order to make an adjustment unfavorable to the taxpayer, unless the exceptional circumstances described in Rev. Proc. 85-13, 1985-1 C.B. 514, are present. The U.S. competent authority may, but is not required to, accept a taxpayer's request for competent authority consideration that will require the reopening of a case closed after examination.

SEC. 4. PROCEDURES TO BE FOLLOWED WHEN A TREATY COUNTRY PROPOSES AN ADJUSTMENT

01. General. If a treaty country taxes or proposes to tax the income, property, or property transfer of a taxpayer in a manner that denies or improperly restricts or will deny or improperly restrict a benefit or safeguard to which it appears the taxpayer is entitled under the terms of a tax treaty, or which causes or could cause double taxation of the same income, property, or property transfer, the taxpayer should request competent authority assistance pursuant to this section.

02. Time for Filing. The taxpayer must file a written request for competent authority assistance as soon as practical after the treaty country's position on the adjustment has been sufficiently developed to permit consideration, whether or not the adjustment has been formally proposed.

03. Form of Request. The competent authority assistance request must be signed by a person having authority to sign the taxpayer's federal tax returns. The request must contain a statement that competent authority assistance is being requested and must include the following information and materials:

(a) a reference to the specific tax treaty and the provisions therein pursuant to which the request is made;

(b) the names, addresses, and taxpayer identification numbers of the taxpayer and, if applicable, all related persons involved in the matter, and the taxable years in issue;

(c) the Internal Revenue Service Center where the taxpayer (or, if applicable, the related person or persons) filed federal tax returns (including amended returns) for the taxable years in issue, or if no return was filed, a statement to that effect;

(d) a statement whether the federal tax returns of the taxpayer (or, if applicable, of any related person or persons) for the taxable years in issue were examined or are under examination;

(e) a description of the type of income, property, or property transfer involved (such as salary, dividends, etc.); the amount of tax involved (in both the treaty country's currency and U.S. dollars, including the conversion rate); the amount of accrued interest on the tax (including the rate at which interest accrues); a description of the relevant transactions, activities or other circumstances involved in the issues raised by the treaty country; the respective positions taken or proposed by the treaty country, the taxpayer, and any relevant related person on the issues raised; and, if applicable, a description of the control and business relationships between the taxpayer and any relevant related person;

(f) if applicable, a statement concerning the status of the tax examination of either the taxpayer or any relevant related person in the treaty country for the taxable years in issue, including copies of pertinent correspondence with the tax authorities of the treaty country, briefs, protests, and other relevant materials (all with English translations), and a statement of actions requested of, proposed or taken by, the treaty country;

(g) a statement concerning the amount of any correlative adjustment or tax credit applicable to the U.S. taxpayer if the U.S. competent authority were to accept the position of the treaty country, and if applicable, whether the taxpayer wishes to make a repatriation of funds;

(h) a statement whether the request for competent authority assistance involves issues that are currently or were previously considered as part of an advance pricing agreement proceeding in the United States or in a similar proceeding in the foreign country; and if so considered, complete information must be provided regarding those proceedings, including the taxable years in issue, whether competent authority assistance was or is being requested, and, the status or result of the proceedings;

(i) powers of attorney with respect to the taxpayer;

(j) the amended tax return required under section 7.03 of this revenue procedure; and

(k) on a separate document, a statement that the taxpayer consents to the disclosure to the competent authority of the treaty country (with the name of the country specifically stated) and the competent authority's staff of any or all of the items of information set forth or enclosed in the request for U.S. competent authority assistance within the limits contained in the tax treaty under which the taxpayer is seeking relief. This statement must be dated and signed by a person having authority to sign the taxpayer's federal tax returns and is required to facilitate the administrative handling of the request by the U.S. competent authority for purposes of the recordkeeping requirements of section 6103(p) of the Code. Failure to provide such a statement will not prevent the U.S. competent authority from disclosing information under the terms of a tax treaty. See section 6103(k)(4) of the Code.

04. Other Documentation. In addition, the taxpayer shall, on request, provide the following information:

(a) copies of pertinent foreign tax returns (with English translations);

(b) copies of IRS Forms 706CE (Certificate of Payment of Death Tax), 1116, or 1118 (Computation of Foreign Tax Credit) that were filed with the federal tax return for the taxable years in issue;

(c) copies of Forms 5471 (Information Return with Respect to a Foreign Corporation) or 5472 (Information Return of a Foreign Owned Corporation), including required attachments thereto; and

(d) any other material deemed necessary by the U.S. or foreign competent authority for purposes of reaching an agreement.

05. Updates. It shall be the responsibility of the taxpayer to keep the U.S. competent authority informed of all material changes in the information or documentation previously submitted as part of, or in connection with, the request for competent authority assistance, as well as new information or documentation relevant to the resolution of the issues under consideration.

SEC. 5. PROCEDURES TO BE FOLLOWED WHEN THE UNITED STATES PROPOSES AN ADJUSTMENT

01. General. If the United States taxes or proposes to tax the income, property, or property transfer of a taxpayer in a manner that denies or improperly restricts or will deny or improperly restrict a benefit or safeguard to which it appears the taxpayer is entitled under the terms of a tax treaty, or which causes or could cause double taxation of the same income, property, or property transfer, the taxpayer is encouraged to request competent authority assistance pursuant to this section.

02. Time for Filing. A written request for competent authority assistance should be submitted as soon as practical after the amount of the proposed adjustment is determined and communicated in writing to the taxpayer.

03. Additional Filings. In addition to filing with the U.S. competent authority, the taxpayer must also file a copy of the written request for competent authority assistance with the office of the Internal Revenue Service where the taxpayer's case is pending. If the request for competent authority assistance is filed while a suit contesting the relevant tax liability of the taxpayer is pending in a U.S. court, a copy of the request must also be filed with the Chief Counsel, Attention: Associate Chief Counsel (International), Internal Revenue Service, Washington, D.C. 20224, with a separate statement attached identifying the court where the suit is pending and the docket number of the action, in addition to copies of all pleadings filed to date.

04. Coordination with Appeals Procedures. (a) Taxpayers who do not agree with the correctness of the proposed adjustment must generally pursue their right of administrative review with Appeals before requesting competent authority assistance. Appeals consideration of potential competent authority matters will be made on the merits of the underlying issues in accordance with domestic law, and without regard to any issues or considerations that do not involve potential competent authority matters.

(b) The U.S. competent authority may accept a request for assistance involving an unagreed case prior to its consideration by Appeals if it determines that it is in the best interests of the parties. Appropriate cases generally include situations in which the taxpayer's disagreement is limited to the amount of the proposed adjustment or, in the case of a proposed allocation adjustment, to the methodology used by the Internal Revenue Service in computing the proposed adjustment. When a taxpayer seeks competent authority assistance without prior consideration by Appeals, the U.S. competent authority may, in its discretion, and at any time during the process, require the taxpayer, as a precondition for further assistance, to waive any future administrative review in Appeals concerning any or all of the issues contained in the request for competent authority assistance.

(c) Where Appeals previously considered a matter prior to its acceptance by the U.S. competent authority pursuant to this revenue procedure and the matter still remains unresolved after completion of the competent authority proceedings, the Internal Revenue Service will not permit the matters previously considered in the competent authority proceedings to be referred to Appeals for further consideration, either in conjunction with docketed or non-docketed cases or in the context of a claim for refund, unless the U.S. competent authority, with the concurrence of the Associate Chief Counsel (International) and the National Director of Appeals, agrees to the taxpayer's request for additional consideration.

05. Suspension of Examination. When a request for competent authority assistance is accepted, the Internal Revenue Service will postpone further examination action on the issues under competent authority consideration, except for cases pending in court and in other instances in which action must be taken to avoid prejudicing the Government's interest. If there are other issues raised during the examination and the taxpayer is not in agreement with these issues, the District Director will follow the usual procedures for completing the examination and issue the taxpayer a thirty-day letter. In preparing a protest of the unagreed issues, the taxpayer need not include any unagreed issue under consideration by the competent authority. Following the receipt of the taxpayer's protest, appeals procedures shall be initiated with respect to those issues not subject to competent authority consideration.

06. Form of Request. The competent authority assistance request must be signed by a person having authority to sign the taxpayer's federal tax returns. The request must contain a statement that competent authority assistance is being requested and must include the following information and materials:

(a) a reference to the specific tax treaty and the provision therein pursuant to which the request is made;

(b) the names, addresses, and taxpayer identification numbers of the taxpayer and, if applicable, all related persons involved in the matter, and the taxable years in issue;

(c) the district office which has made or is proposing to make the adjustment;

(d) a description of the type of income, property, or property transfer involved (such as salary, dividends, etc.); the amount of tax involved (in both the treaty country's currency and U.S. dollars, including the conversion rate); the amount of accrued interest on the tax (including the rate at which interest accrues); a description of the relevant transactions, activities, or other circumstances involved in the issues raised by the United States; and the respective positions taken by the United States, the taxpayer, and any relevant related person on the issues raised; and, if applicable, a description of the control and business relationships between the taxpayer and any relevant related person;

(e) if applicable, a statement concerning the status of the tax examination of either the taxpayer or any relevant related person in the treaty country for the taxable years in issue, including copies of pertinent correspondence with the tax authorities of the treaty country, briefs, protests, and other relevant materials (all with English translations), and a statement of actions requested of, proposed or taken by, the treaty country;

(f) a statement concerning the amount of any correlative adjustment to the related person or tax credit adjustment to the taxpayer if the foreign competent authority were to accept the position of the U.S. competent authority, and if applicable, whether the taxpayer wishes to make a repatriation of funds pursuant to Rev. Proc. 65-17, 1965-1 C.B. 833, as amplified, amended and clarified by Rev. Proc. 65-31, 1965-2 C.B. 1024, Rev. Proc. 65-17 Amendment I, 1966-2 C.B. 1211, Rev. Proc. 65-17 Amendment II, 1974-1 C.B. 411, Rev. Proc. 70-23, 1970-2 C.B. 505, Rev. Proc. 71-35, 1971-2 C.B. 573, Rev. Proc. 72-48, 1972-2 C.B. 829, Rev. Proc. 72-53, 1972-2 C.B. 833, and Rev. Rul. 82-80, 1982-1 C.B. 89;

(g) a statement whether the request for competent authority assistance involves issues that are currently or were previously considered as part of an advance pricing agreement proceeding in the United States or in a similar proceeding in the foreign country; and if so considered, complete information must be provided regarding those proceedings, including the taxable years in issue, whether competent authority assistance was or is being requested, and, the status or result of the proceedings;

(h) powers of attorney with respect to the taxpayer and any relevant related person;

(i) an amended tax return pursuant to section 7.03 of this revenue procedure but only where a reduction of U.S. tax of the taxpayer or any related party might result from the correlative adjustment by the treaty country; and

(j) on a separate document, a statement that the taxpayer consents to the disclosure to the competent authority of the treaty country (with the name of the country specifically stated) and the competent authority's staff of any or all of the items of information set forth or enclosed in the request for U.S. competent authority assistance within the limits contained in the tax treaty under which the taxpayer is seeking relief. This statement must be dated and signed by a person having authority to sign the taxpayer's federal tax returns and is required to facilitate the administrative handling of the request by the U.S. competent authority for purposes of the recordkeeping requirements of section 6103(p) of the Code. Failure to provide such a statement will not prevent the U.S. competent authority from disclosing information under the terms of a tax treaty. See section 6103(k)(4) of the Code.

07. Other Documentation. In addition, the taxpayer shall, on request, provide the following information:

(a) copies of IRS Forms 706CE (Certificate of Payment of Death Tax), 1116, or 1118 (Computation of Foreign Tax Credit) that were filed with the federal tax return for the taxable years in issue;

(b) copies of Forms 5471 (Information Return with Respect to a Foreign Corporation) or 5472 (Information Return of a Foreign Owned Corporation), including required attachments thereto; and

(c) any other material deemed necessary by the U.S. or foreign competent authority for purposes of reaching an agreement.

08. Updates. It shall be the responsibility of the taxpayer to keep the U.S. competent authority informed of all material changes in the information or documentation previously submitted as part of, or in connection with, the request for competent authority assistance, as well as new information or documentation relevant to the resolution of the issues under consideration.

SEC. 6. COORDINATION WITH LITIGATION

01. General. The U.S. competent authority will not, without the consent of the Associate Chief Counsel (International), accept any taxpayer's request for assistance involving a case that is either pending in a U.S. court or has been designated for litigation pursuant to Rev. Proc. 87-24, 1987-1 C.B. 720, by the Associate Chief Counsel (International). If the case is pending in the United States Tax Court, the taxpayer may, in appropriate cases, be asked to join the Internal Revenue Service in a motion to sever issues or delay trial pending completion of the competent authority proceedings. If the case is pending in any other court, the Associate Chief Counsel (International) will consult with the Department of Justice about appropriate action and the taxpayer may, in appropriate cases, be asked to join the U.S. Government in a motion to sever issues or delay trial pending completion of the competent authority proceedings. Final decision on severing issues or delaying trial rests with the court. The filing of a competent authority request does not, however, relieve the taxpayer from taking any action that may be necessary or required with respect to litigation.

02. Post-Litigation Proceedings. Once a taxpayer's tax liability for the taxable years in issue has been determined by a U.S. court (including settlement of the proceedings before or during trial), the U.S. competent authority will, at most, endeavor to obtain a correlative adjustment, in whole or in part, from the treaty country. The U.S. competent authority will not undertake any actions which would otherwise reduce the taxpayer's federal tax liability for the taxable years in issue.

SEC. 7. PROTECTIVE MEASURES

01. General. In any matter subject to this revenue procedure, the taxpayer must either itself take, or, if necessary, advise a related person to take, such protective measures as may be necessary with the U.S. and foreign tax authorities so that the implementation of any agreement reached by the competent authorities is not barred by administrative, legal or procedural barriers. This includes, but is not limited to, the filing of amended returns or protective claims for refund or credit, the staying of the expiration of any period of limitations on the making of a refund or other tax adjustment, avoiding the lapse or termination of the taxpayer's right to appeal any tax determination, complying with all applicable procedures for invoking competent authority consideration, and contesting an adjustment or seeking an appropriate correlative adjustment with respect to the U.S. or treaty country tax. Any protective measure required under this revenue procedure should be taken regardless of the terms of the applicable tax treaty concerning the waiving of procedural barriers.

02. Filing of Protective Claim. (a) If a U.S. taxpayer becomes aware that a treaty country is considering but has not yet proposed an adjustment arising out of transactions of or with a U.S. taxpayer, and the statutory period in which the taxpayer can file a claim for credit or refund of U.S. taxes for the years involved is one year or less, then the taxpayer must file a protective claim for credit or refund of these taxes on the appropriate amended federal tax return. The return must include a statement in summary form setting forth the information required in section 4.03(a) through (h) (or, if the small case procedures apply, the information required in section 10.03(a) through (g)) of this revenue procedure to the extent available. The amended federal tax return must be filed with the Assistant Commissioner (International), Att'n: Tax Treaty Division, P.O. Box 23598, Washington, D.C. 20026-3598. A protective claim filed in this manner will be considered a properly filed amended return notwithstanding any other instructions on the form or in regulations concerning the place for filing. Action on the amended federal tax return will be deferred by the Internal Revenue Service until final disposition by the U.S. competent authority of the issues raised in the amended return, if a request for competent authority assistance is filed, or if no request is filed, then until such time as the taxpayer advises the U.S. competent authority that it will not seek competent authority assistance.

(b) Beginning 6 months after any amended federal tax return is filed pursuant to this revenue procedure with respect to an anticipated foreign initiated adjustment described in the preceding paragraph of this section 7.02 and every 6 months thereafter until a request for assistance is filed under section 4 of this revenue procedure, the taxpayer must state in writing (by a person authorized to sign its federal tax returns) to the Assistant Commissioner (International), Att'n: Tax Treaty Division, whether the treaty country is still considering an adjustment. The statement must update information previously included in the amended federal tax return. The Assistant Commissioner (International) may deny competent authority consideration if the taxpayer fails to file in accordance with this subsection. Further, failure to keep the Assistant Commissioner (International) apprised of the status of the actions of the treaty country may cause the Assistant Commissioner (International) to take action on the amended return and to deny any claim for refund or credit under such return.

03. Filing of Amended Tax Return. At the time the request for competent authority assistance is filed; the taxpayer must, if not previously done in accordance with this section, also file an amended federal tax return (for example, a Form 1120X Amended U.S. Corporation Income Tax Return if a Form 1120 was originally filed), in the manner provided in the regulations under section 6402 of the Code. For cases involving U.S. proposed adjustments, this requirement applies only to the extent described in section 5.06(i). The claim contained in the amended tax return shall be limited to the matters under competent authority consideration. The return shall be filed by attaching it to the request for competent authority assistance. An amended return filed in accordance with this section need not be filed with any other office of the Internal Revenue Service, notwithstanding any instructions concerning the place for filing on such forms or in such regulations. On the amended return, the taxpayer can claim a credit or refund of the taxes attributable to the issues involved in the competent authority request. Final disposition of the amended return will be deferred by the Internal Revenue Service until the U.S. competent authority disposes of the issues under consideration.

04. Effect of Amended Tax Return. Any amended federal tax return filed under this revenue procedure only allows the granting of a credit or refund that is agreed to by the U.S. and the foreign competent authorities or that is unilaterally allowed by the U.S. competent authority. This revenue procedure does not grant a taxpayer the right to invoke section 482 of the Internal Revenue Code in its favor or compel the Internal Revenue Service to allocate income or deductions or grant a tax credit or refund.

05. Treaty Provisions Waiving Procedural Barriers. In those cases where the mutual agreement procedure article of a tax treaty contains provisions that waive or remove procedural barriers to the credit or refund of tax, taxpayers may be allowed a credit or refund of U.S. tax even though the otherwise applicable period of limitations has expired, prior closing agreements have been entered into, or other actions have been taken or omitted that would ordinarily foreclose relief in the form of a credit or refund of tax. The presence of such waiver provisions, however, does not relieve taxpayers of their obligations under this revenue procedure.

06. Foreign Initiated Competent Authority Request. When a foreign competent authority refers a request for mutual agreement procedure assistance to the U.S. competent authority, the U.S. competent authority may contact interested taxpayers and advise them to comply with this revenue procedure in order to obtain consideration by the U.S. competent authority.

SEC. 8. APPLICATION OF REV. PROC. 65-17

Rev. Proc. 65-17, 1965-1 C.B. 833, as amplified, amended and clarified by Rev. Proc. 65-31, 1965-2 C.B. 1024, Rev. Proc. 65-17 Amendment I, 1966-2 C.B. 1211, Rev. Proc. 65-17 Amendment II, 1974-1 C.B. 411, Rev. Proc. 70-23, 1970-2 C.B. 505, Rev. Proc. 71-35, 1971-2 C.B. 573, Rev. Proc.; 72-48, 1972-2 C.B. 829, and Rev. Proc. 72-53, 1972-2 C.B. 833, generally provides that the taxpayer must file a request for the treatment provided by Rev. Proc. 65-17 in writing with the appropriate district director. Rev. Proc. 91-24 of this Bulletin provides that where the allocation issue under section 482 involves a country with which the United States has an income tax treaty in force which has a mutual agreement procedure article, Rev. Proc. 65-17 relief is available only in conjunction with a request for competent authority assistance made pursuant to this revenue procedure. Accordingly, all requests for competent authority assistance involving potential issues under Rev. Proc. 65-17 must contain an explicit written request for benefits available under Rev. Proc. 65-17. See Rev. Rul. 82-80, 1982-1 C.B. 89, for the tax consequences attendant to relief under Rev. Proc. 65-17 concerning an allocation to a domestic subsidiary corporation from its foreign parent corporation.

SEC. 9. DETERMINATION OF CREDITABLE FOREIGN TAXES

For purposes of determining the amount of foreign tax creditable under sections 901 and 902 of the Internal Revenue Code, any amounts paid to foreign tax authorities that would not have been due if the treaty country had made a correlative adjustment may not constitute a creditable foreign tax. See section 1.901-2(e)(5)(i) of the regulations and Rev. Rul. 76-508, 1976-2 C.B. 225, as amplified by Rev. Rul. 80-231, 1980-2 C.B. 219. A taxpayer's failure to seek competent authority assistance generally will constitute a failure to exhaust all effective and practical remedies for purposes of section 1.901-2(e)(5)(i) of the regulations. Further, the fact that the taxpayer has sought competent authority assistance but obtained no relief, either because the competent authorities failed to reach an agreement or because the taxpayer rejected an agreement reached by the competent authorities, generally will not, in and of itself, demonstrate for purposes of section 1.901-2(e)(5)(i) of the regulations that the taxpayer has exhausted all effective and practical remedies to reduce the taxpayer's liability for foreign tax (including liability pursuant to a foreign tax audit adjustment).

SEC. 10. SMALL CASE PROCEDURE

01. General. In order to facilitate requests for assistance involving small cases, this section provides a special procedure simplifying the form of a request for assistance, and in particular, the amount of information that must be initially submitted. All other requirements of this revenue procedure continue to apply to requests for assistance made pursuant to this section.

02. Small Case Standards. The U.S. competent authority may, in its discretion, accept an abbreviated request for assistance in accordance with this section from individuals and corporations if both the total proposed adjustment and total U.S. tax involved in the matter are not greater than the following:

      Taxpayer        Proposed Adjustment        Proposed Tax

(a) a statement indicating that this is a matter subject to the small case procedure;

(b) the name, address and taxpayer identification number of the taxpayer;

(c) a description of the issue and the nature of the relief sought;

(d) the total amount of the proposed adjustment and proposed U.S. tax involved;

(e) the taxable years in issue;

(f) the name of the treaty country; and

(g) copies of any correspondence with the U.S. or foreign tax authorities concerning the matter.

SEC. 11. ACTION BY U.S. COMPETENT AUTHORITY

01. Notification of Taxpayer. Upon receiving a request for assistance pursuant to this revenue procedure, the U.S. competent authority will notify the taxpayer whether the facts provide a basis for assistance.

02. Denial of Assistance. The U.S. competent authority generally will not accept a request for competent authority assistance or will cease providing assistance to the taxpayer if:

(a) the taxpayer is not entitled to the treaty benefit or safeguard in question or to the assistance requested;

(b) the taxpayer is only willing to accept a competent authority agreement under conditions that are unreasonable or prejudicial to the interests of the United States;

(c) the taxpayer does not agree that competent authority negotiations are a government to government activity that does not include the taxpayer's participation in the negotiation proceedings;

(d) the taxpayer does not furnish, upon request, sufficient information to determine whether the treaty applies to the taxpayer's facts and circumstances;

(e) the taxpayer was found, in the course of the examination of its tax return, to have acquiesced in a foreign initiated adjustment that involved significant legal or factual issues which otherwise would be properly handled through the competent authority process, and then unilaterally made a corresponding correlative adjustment or claimed an increased foreign tax credit on its U.S. tax return, without initially seeking U.S. competent authority assistance; or

(f) the taxpayer fails to comply with this revenue procedure; fails to cooperate with the U.S. competent authority; or failed to cooperate with the Internal Revenue Service during the examination of the years in issue, such that the ability of the U.S. competent authority to negotiate and conclude an agreement is significantly impeded (e.g., the period of limitations for assessment in the foreign country has expired or significant factual development is required that can not effectively be completed outside the examination process).

03. Extending Period of Limitations for Assessment. If the U.S. competent authority accepts a request for assistance, the taxpayer may be requested to execute a consent extending the period of limitations for assessment of tax for the taxable years in issue. Failure to comply with the provisions of this subsection can result in denial of assistance by the U.S. competent authority with respect to the request.

04. Review of Denial of Request for Assistance. The U.S. competent authority's denial of a taxpayer's request for assistance or dismissal of a matter previously accepted for consideration pursuant to this revenue procedure is final and not subject to administrative or judicial review.

05. Notification of Agreement. The U.S. competent authority will notify a taxpayer requesting assistance under this revenue procedure of any agreement or partial agreement that the U.S. and the foreign competent authorities reach with respect to the request. If such agreement or partial agreement is not acceptable to the taxpayer, the taxpayer may withdraw the request for competent authority assistance and may then pursue all rights to review otherwise available under the laws of the United States, as modified by this revenue procedure, and the treaty country. If the taxpayer accepts the agreement reached by the competent authorities, the agreement is not subject to administrative or judicial review.

06. Closing Agreement. When appropriate, the taxpayer will be requested to enter into a closing agreement reflecting the terms of the assistance provided by the competent authorities in accordance with section 6.07 and 6.17 of Rev. Proc. 68-16, 1968-1 C.B. 770.

07. Unilateral Relief. With respect to U.S. initiated allocation adjustments, the primary goal of the U.S. competent authority in mutual agreement procedure negotiations with a foreign competent authority pursuant to this revenue procedure is to obtain a correlative adjustment from the treaty country. For U.S. initiated non-allocation adjustments, the primary goal of the U.S. competent authority is the avoidance of taxation in contravention of an applicable tax treaty. Unilateral withdrawal or reduction of U.S. initiated adjustments, therefore, will generally not be considered. For example, the U.S. competent authority will not grant unilateral relief to a taxpayer with respect to an adjustment to income, deductions, credits, or other items solely because the period of limitations has expired in the foreign country and the foreign competent authority has declined to grant any relief from taxation.

If the period provided by the foreign statute of limitations has expired, then the U.S. competent authority may take into account other relevant facts and may, in extraordinary circumstances, provide unilateral relief with respect to the adjustment to avoid taxation in contravention of the provisions of an otherwise applicable treaty. In no event, however, will relief be granted where there is fraud or negligence with respect to the relevant transactions. In keeping with the U.S. position that tax treaties should be applied in a balanced and reciprocal manner, the United States will not grant unilateral relief in cases involving a treaty country that does not grant such relief in equivalent cases.

SEC. 12. REQUESTS FOR RULINGS

01. General. Requests for advance rulings about the interpretation or application of a tax treaty, as distinguished from requests for assistance from the U.S. competent authority pursuant to this revenue procedure, should be submitted to the Associate Chief Counsel (International) in accordance with Rev. Proc. 87-6, 1987-1 C.B. 541, as amplified by Rev. Proc. 87-39, 1987-2 C.B. 514.

02. Foreign Tax Rulings. The Service does not issue advance rulings on the effect of a tax treaty on the tax laws of a treaty country for purposes of determining the tax of the treaty country.

SEC. 13. FEES

Rev. Proc. 90-17, 1990-1 C.B. 479, requires the payment of user fees for requests to the Internal Revenue Service for rulings, opinion letters, determination letters, and similar requests. No user fees are required for a request for competent authority assistance pursuant to this revenue procedure.

SEC. 14. EFFECTIVE DATE

This revenue procedure is effective for requests for competent authority assistance filed after March 18, 1991, the date of publication of this revenue procedure in the Internal Revenue Bulletin.

SEC. 15. EFFECT ON OTHER DOCUMENTS

Rev. Proc. 82-29 and Rev. Proc. 77-16 are superseded. Rev. Proc. 65-17, as amplified, amended and clarified by Rev. Proc. 65-31, 1965- 2 C.B. 1024; Rev. Proc. 65-17 Amendment I, 1966-2 C.B. 1211; Rev. Proc. 65-17 Amendment II, 1974-1 C.B. 411; Rev. Proc. 70-23, 1970-2 C.B. 505; Rev. Proc. 71-35, 1971-2 C.B. 573; Rev. Proc. 72-48, 1972-2 C.B. 829; and Rev. Proc. 72-53, 1972-2 C.B. 833, is modified. Rev. Ruls. 72-437, 76-508 and 82-80 are also modified.

DRAFTING INFORMATION

The principal author of this revenue procedure is Eric P. Turner of the Office of Associate Chief Counsel (International). For further information regarding this revenue procedure, contact Mr. Turner on (202) 377-9493 (not a toll-free call).