4.60.2. Mutual Agreement Procedures and Report Guidelines

(1) The MAP articles of U.S. tax treaties and tax coordination agreements grant taxpayers the right to request the assistance of the appropriate competent authority specified in the treaty/agreement when a taxpayer believes that the actions of the United States or the applicable U.S. treaty partner/U.S. territory result or will result in the taxpayer being subject to taxation not in accordance with the applicable treaty/tax coordination agreement. This situation typically arises from U.S. or foreign-initiated adjustments resulting from an examination but can also arise from other U.S. or foreign-initiated actions, including when taxes are withheld by a withholding agent.

(1) Generally, the MAP articles of U.S. tax treaties and tax coordination agreements provide the authority for taxpayers to request, and competent authorities to provide, relief from taxation not in accordance with a tax treaty/tax coordination agreement. U.S. competent authority procedural authority is provided by Treasury Order 150-10 and IRS Delegation Order 4-12 (Rev. 4). See IRM 1.2.2.5.11, Delegation Order 4-12 (Rev. 4).

(2) By law, the IRS has the authority to conduct examinations under Title 26 (Internal Revenue Code) Subtitle F (Procedure and Administration) Chapter 78 (Discovery of Liability and Enforcement of Title) Subchapter A (Examination and Inspection), which includes, but is not limited to:

• IRC 7602 (Examination of books and witnesses)

• IRC 7605(Time and place of examination)

(1) The roles and responsibilities of the U.S. competent authority and Examination (as defined in Exhibit 4.60.2-1, Terms/Definitions/Acronyms) are provided for in this IRM.

(2) For related guidance on when Examination or the U.S. competent authority has control over a competent authority issue(s), see IRM 4.60.2.2.

(3) Additional roles and responsibilities of the U.S. competent authority are provided for in IRM 4.60.3, Tax Treaty Related Matters.

(1) See Exhibit 4.60.2-1, Terms/Definitions/Acronyms, for a list of commonly used acronyms and terms in this IRM.

(1) The U.S. competent authority’s jurisdiction over competent authority issue(s) in a competent authority request begins when the U.S. competent authority accepts such competent authority request (in the case of competent authority requests made to U.S. competent authority) or the U.S. competent authority is notified by the competent authority of a U.S. treaty partner/U.S. territory of a competent authority request.

(2) The U.S. competent authority will return jurisdiction over the issue(s) to the relevant office(s) within the IRS when the U.S. competent authority ceases to provide assistance regarding a competent authority issue(s).

(1) In cases where a competent authority request arises from an examination, the U.S. competent authority will notify the Examination office if it accepts the competent authority request or is notified by a U.S. treaty partner/U.S. territory of a competent authority request.

(2) Such notification will include the name and contact information of the Advanced Pricing and Mutual Agreement Program (APMA) team leader or the Treaty Assistance and Interpretation Team (TAIT) competent authority analyst assigned to the competent authority request.

(3) Examination also has notice that the U.S. competent authority has jurisdiction over the related competent authority issue affecting a tax return by a ‘TC 971 AC 080’ activity code associated with the account/return in the Master File (i.e., this activity code indicates the return(s) has an accepted, unresolved/open competent authority request associated with it). The U.S. competent authority analyst may make a request to add this activity code by using Form 3177, Notice of Action for Entry on Master File. See IRS Document 6209 (IRS Processing Codes and Information), Section 8C (Master File Codes) Subsection 9 (TC 971 Action Codes) for additional information.

(1) When a competent authority request arises from an examination, the U.S. competent authority notifies the Examination office if a competent authority resolution is reached.

(2) When Examination is directed to implement a competent authority resolution, the U.S. competent authority or the International Referral Recipient (IRR) will notify Examination of the competent authority resolution.

(3) In all other circumstances where a competent authority resolution did not arise from an examination, Examination has notice that a competent authority resolution applies to a particular year/return by an indication of such on the applicable U.S. income tax return (i.e., a taxpayer filing a return on the basis of a competent authority resolution is directed to attach a copy of the competent authority closing letter to such return and to expressly state on page one of the return that it is filed pursuant to a competent authority settlement). Examination is not required to take action in this circumstance unless the particular return/year is subsequently assigned to them and an examination is opened.

(1) Examination can ensure the results of an examination are consistent with an applicable competent authority resolution by referring to the competent authority closing letter attached to the applicable return(s) and/or the disposition memorandum (which the U.S. competent authority provides to the IRR with examination jurisdiction over the taxpayer). See IRM 4.60.3, Tax Treaty Related Matters, for information regarding the U.S. competent authority’s provision of the disposition memorandum to the IRR.

(1) Examination may direct questions relating to a competent authority request (or other tax treaty/tax coordination agreement issue) under the U.S. competent authority’s jurisdiction or to a competent authority resolution to the assigned APMA team leader or TAIT competent authority analyst (as applicable).

(2) The contact information for the assigned APMA team leader or TAIT competent authority analyst is referenced in the U.S. competent authority’s notification to Examination of the U.S. competent authority’s acceptance of a competent authority request, as well as any competent authority resolution disposition memorandum or closing letter.

(3) Examination may direct questions relating to a competent authority request or other tax treaty/tax coordination agreement issues not under the jurisdiction of the U.S. competent authority to the Treaties Practice Network. See IRM 4.60.2.2 and IRM 4.60.2.3 for additional information.

(1) Notification to a taxpayer of potential double taxation or taxation otherwise inconsistent with a tax treaty advises the taxpayer of its right to request competent authority assistance. The notification also refers the taxpayer to the MAP article of the applicable tax treaty and Rev. Proc. 2015-40 (or its successor) for procedures for making a competent authority request, under a tax treaty, to the U.S. competent authority.

(2) Where the MAP article of an applicable tax treaty contains a treaty notification period or does not allow for the waiver of time limits or other procedural limitations under the domestic law of the U.S. treaty partner, notification to a taxpayer contains information about such MAP article limitations. See IRM 4.60.2.5.3 for additional information.

(1) Notification to a taxpayer of potential double taxation or taxation otherwise inconsistent with a tax coordination agreement advises the taxpayer of its right to request competent authority assistance and refers the taxpayer to the MAP article of the applicable tax coordination agreement and Rev. Proc. 2006-23 (or its successor) for procedures for making a competent authority request, under a tax coordination agreement, to the U.S. competent authority.

(1) Examination does not notify a taxpayer of a potential competent authority issue until the issue is sufficiently developed and the adjustment can reasonably be estimated.

(2) Examination notifies the taxpayer at the earliest date possible and no later than when it issues a proposed adjustment that potentially leads to double taxation or taxation not in accordance with a tax treaty or tax coordination agreement.

(3) If the development of an issue does not permit timely notification to the taxpayer, Examination should contact the appropriate office of the U.S. competent authority. See IRM 4.60.2.3.3.

(4) Certain tax treaties have treaty notification period provisions that require, for purposes of accessing MAP, the taxpayer to notify the United States or the applicable U.S. treaty partner when Examination proposes an adjustment that implicates a competent authority issue.

(5) A minority of tax treaties’ MAP articles do not allow for the waiver of time limits or other procedural limitations under the domestic law of the Contracting States.

(6) Depending upon the facts and circumstances, if the taxpayer does not receive timely notice of a proposed adjustment, the IRS may be required to withdraw a proposed adjustment to the extent the adjustment would give rise to double taxation or taxation otherwise inconsistent with an applicable treaty.

(7) “Timely notice” generally means that the taxpayer receives notification of a proposed adjustment or of the likelihood of a proposed adjustment prior to the expiration of a period of limitations specified in the MAP article of an applicable income tax treaty. Because treaty notification provisions vary and are potentially subject to case-by-case interpretation by the competent authorities of contracting states following the conclusion of an examination, timely notice to the taxpayer, regardless of the applicable notification period, is imperative in order to ensure that taxpayers have the ability to preserve their access to MAP.

(1) Examination maintains a copy of the notification provided to the taxpayer with the examination workpapers.

(1) Examination should ensure that the following notification language is included in the audit plan for Large Corporate Compliance (LCC) taxpayers: “During the examination, adjustments may be recommended to your income tax liability causing economic double taxation as a result of your various affiliates operating in foreign countries. Therefore, we suggest you advise your foreign affiliates in these countries to notify the appropriate taxing authorities about postponing the expiration of the statutory period of limitations on refunds or other tax adjustments. This procedure should not be limited to those foreign affiliates listed on page 4 of this portion of the examination plan. In the event these adjustments affect the tax liability of an affiliate operating in a country with which the United States has an income tax treaty in effect, you have the right to request competent authority consideration for relief from economic double taxation under Revenue Procedure 2015-40 or its successor.”

(2) This notification language does not relieve Examination of the responsibility to provide notification under IRM 4.60.2.5.

(1) A taxpayer may file a competent authority request with respect to competent authority issues arising from adjustments proposed during the U.S. examination process.

(2) When a taxpayer requests assistance from the U.S. competent authority, the U.S. competent authority notifies the relevant Examination office of the request and may also request a copy of the MAP Report from Examination at that time.

(1) The Examination office to which the return is charged is responsible for ensuring that the applicable domestic period of limitations for assessment of tax for taxable periods covered by a competent authority request does not expire in cases under competent authority consideration/jurisdiction.

(2) The U.S. competent authority should be notified promptly if a taxpayer rejects a request to execute an extension of the period of limitations for assessment.

(3) In any case where a taxpayer refuses to extend the period of limitations for the resolution of U.S.-initiated adjustments, Examination should consider pursuing a quick assessment. See IRM 5.1.4.4, Jeopardy, Termination, Quick and Prompt Assessments, for additional information.

(4) A taxpayer’s rejection of a request to extend such limitations period can result in denial of assistance by the U.S. competent authority with respect to the competent authority request.

(5) The U.S. competent authority notifies Examination if it accepts a competent authority request or it is notified of a competent authority request with a U.S. treaty partner/U.S. territory.

(6) Examination suspends any further administrative action (e.g., assessment and collection procedures) with respect to the competent authority issue(s) covered in a competent authority request once the U.S. competent authority accepts a request or receives notice of a request made to a U.S. treaty partner/U.S. territory (with the exception of securing an extension of the applicable domestic period of limitations under IRM 4.60.2.6.2). See IRM 4.60.2.2 for additional information. However, Examination continues to apply its standard administrative procedures for issues not included in the competent authority request.

(1) A taxpayer requesting competent authority assistance regarding foreign-initiated actions is not required to file a copy of the request with Examination, even when the competent authority issue relates to a U.S. examination.

(2) Where a competent authority request arising from a foreign-initiated action is made to the U.S. competent authority, the U.S. competent authority contacts the IRR to notify them of the issues, forwards a copy of the taxpayer’s request to the IRR and requests that an examiner be assigned.

(3) Examination suspends administrative action (e.g., assessment and collection procedures) with respect to the competent authority issue(s) covered in a competent authority request once the U.S. competent authority accepts such request (or receives notice of a request made to the U.S. treaty partner/U.S. territory), unless the U.S. competent authority requests otherwise. See IRM 4.60.2.2 for additional information. However, Examination continues to apply its standard procedures for issues not included in the competent authority request.

(4) Additional procedures related to foreign-initiated adjustments affecting a U.S. tax return or occurring during the examination of a U.S. taxpayer are provided in IRM 4.60.2.8.

(1) In cases of U.S.-initiated adjustments, the U.S. competent authority may request additional information from Examination about the adjustments. Cases accepted for competent authority consideration in which the IRS position is not sufficiently developed will be returned to Examination either for further development or with the direction to withdraw the adjustments.

(2) In cases of foreign-initiated actions, the U.S. competent authority may request an evaluation of the foreign position/issue from Examination.

(3) Requests for evaluation of foreign positions and/or additional information are directed to the Examination office conducting the examination proceeding that the related competent authority issue(s) arise from/relate to at the time that the request is made. Examination handles these requests as priority action items, with a target date for submission of the completed response within 60 days from the time of receipt.

(4) Examination follows locally prescribed measures to record and control incoming correspondence and enter a response due date of 60 days from the date of receipt. A memorandum to the appropriate U.S. competent authority office (i.e., TAIT or APMA) indicates the office to which the request was forwarded, the name and contact information of the individual within that office who may be contacted, and the response due date given to the action office.

(5) The acknowledgment memorandum will be routed through appropriate Examination channels. If an evaluation cannot be completed within the requested 60-day period, personnel performing the evaluation will consult with the U.S. competent authority to describe the actions taken to complete the request, the reason the evaluation cannot be completed by the response due date, and the projected completion date.

(1) When a taxpayer accepts the terms of a tentative competent authority resolution, the U.S. competent authority proceeds to formally close the case.

(2) The U.S. competent authority provides the appropriate Examination office (or IRR in some circumstances) a disposition memorandum explaining the terms of the resolution. Examination and/or the taxpayer are responsible for implementing the terms of the resolution set out in the disposition memorandum. See IRM 4.60.2.3.

(3) To the extent authorized under the applicable tax treaty, the competent authority resolution is implemented even if implementation would otherwise be barred by a domestic period of limitations or other procedural limitation. In certain circumstances, the IRS may request that the taxpayer execute a closing agreement reflecting the terms of the competent authority resolution.

(4) Where no competent authority agreement is reached between the United States and the U.S. treaty partner/U.S. territory, or where the taxpayer does not accept the terms of a tentative competent authority resolution, the U.S. competent authority returns jurisdiction over the competent authority issue(s) in the competent authority request to Examination via memorandum.

(1) When a taxpayer either executes a closing agreement with respect to a potential competent authority issue(s) or otherwise reaches a settlement with Examination, Appeals or the IRS Office of Chief Counsel on the issue(s), any related competent authority request may be limited in scope or entirely precluded, depending on the terms of the settlement. For example, the MAP may be limited to the U.S. competent authority requesting correlative relief from the U.S. treaty partner or U.S. territory. See Rev. Proc. 2015-40 (or its successor) or Rev. Proc. 2006-23 (or its successor), as applicable, for additional information. Any such agreement or settlement should specify that the taxpayer acknowledges that its rights for competent authority consideration on the issue will be restricted in this manner.

(1) Many U.S. tax treaties contain a LOB article. Where applicable, a LOB article enumerates multiple, self-executing objective tests to determine whether a resident of the United States or the U.S. treaty partner is entitled to benefits under the applicable tax treaty. Most LOB articles provide that if a resident does not otherwise satisfy one of the applicable objective tests, the resident may be granted treaty benefits at the discretion of the competent authority from which benefits are sought. For additional information on the LOB requirement, see IRM 4.60.3, Tax Treaty Related Matters.

(2) In the absence of a discretionary LOB determination by the U.S. competent authority (and otherwise subject to IRM 4.60.2.7(2)), a copy of which is required to be attached to any affected U.S. income tax returns, Examination is responsible for determining whether a taxpayer claiming treaty benefits meets one of the applicable objective tests in the LOB article in order to qualify for treaty benefits.

(3) If a taxpayer received a discretionary LOB determination, Examination reviews the determination in relation to the applicable U.S. tax return(s) and notifies the U.S. competent authority of any contradictions with information gathered during Examination’s proceeding, in accordance with IRM 4.60.2.4(4). A material change in any law or fact forming the basis of a discretionary LOB determination may result in termination of the discretionary benefits. If Examination concludes that a material change has occurred, it must contact the U.S. competent authority to determine next steps. See IRM 4.60.2.3.3 for more information.

(4) Tax coordination agreements generally do not have the same taxpayer qualification requirements as tax treaties. Tax coordination agreement provisions generally apply to persons subject to the provisions of the IRC or domestic tax law of the U.S. territory.