IRS International Issues

8.7.3.7  (12-11-2007)
International Issues

  1. IRM 1.4.28.9 and IRM 8.2.1.6 require referral of all cases containing international Issues (as presented in the International Examiner’s report) to the Technical Guidance International Specialists groups. A list of the International Specialists is found on the Technical Guidance web page at http://appeals.web.irs.gov/intl/Intl_specialist.htm .

  2. Issues involving Tax Treaties and the Mutual Agreement Procedure of U.S. Income Tax Treaties are referred to an International Specialist during the pre-conference review of the case if possible. On occasion, the assistance of an Appeals International Specialist is requested by the U.S. Competent Authority in the development and negotiation of double taxation cases brought forward by taxpayers to the Competent Authority.

8.7.3.7.1  (12-11-2007)
Competent Authority Cases

  1. A thorough discussion of the Competent Authority and the Mutual Agreement Procedure (MAP) are found at IRM 4.60.3. Rev. Proc. 2006-54 contains the procedures for taxpayers seeking Competent Authority assistance. Section 8 of Rev Proc 2006-54 describes the Simultaneous Appeals Competent Authority procedure.

  2. Taxpayers who do not agree with the correctness of an allocation adjustment may pursue their right of an administrative appeal before requesting Competent Authority consideration, or request the Simultaneous Appeal procedure.

  3. See IRM 8.7.3.7.2, Potential Competent Authority Cases, for information concerning Appeals procedures, responsibilities and authority when the taxpayer is seeking a resolution of the issue in Appeals prior to requesting Competent Authority consideration.

  4. A taxpayer may file a MAP request for Competent Authority consideration any time during the U.S. tax determination process.

  5. If the request is filed while the case is still under examination, Compliance continues to work on all issues not covered by the request. When issues are raised which are not under Competent Authority consideration and the taxpayer is not in agreement, Compliance proceeds with the case and issues a 30-day letter. In protesting the unagreed issues, the taxpayer does not need to address any unagreed issue under consideration by the Competent Authority. Following the receipt of the taxpayer’s protest, Appeals procedures are initiated with respect to all unagreed issues not under Competent Authority consideration.

  6. When a request for Competent Authority consideration is filed while a case is in Appeals, the Appeals Officer suspends settlement discussions on the subject issue and forwards the MAP request to the Compliance Area Director, Attn: Program Manager (International). Appeals attaches the following to the request:

    1. Excerpts from the taxpayer’s protest pertaining to the issue;

    2. Copies of all additional documentation or evidence offered by the taxpayer during the appeal process which impact on the issue; and

    3. A memorandum to the Director, International outlining the details of any fact-finding discussions with the taxpayer, settlement negotiations on the MAP issue and the terms and conditions of any proposed or tentative settlement reached with the taxpayer including an analysis of the hazards of litigation or other factors weighed which may contribute to a reduction of the amount at issue as originally proposed. Make sure this memo clearly indicates if the case may be subject to Joint Committee review. The U. S. Competent Authority has exclusive jurisdiction to resolve issues they accept for consideration.

8.7.3.7.2  (12-11-2007)
Potential Competent Authority Cases

  1. The following guidelines are followed for handling Appeals cases with potential Competent Authority issues.

    1. Appeals does not attempt to hinder or prohibit taxpayers as part of a settlement from seeking Competent Authority consideration, nor does Appeals make settlement concessions based upon taxpayers’ offers to waive their rights to Competent Authority consideration.

    2. Appeals Officers, upon receipt, scrutinizes the issue to determine whether the facts and case documentation are sufficiently developed so Appeals can consider the merits of the adjustment. All cases not adequately developed are returned to Compliance in accordance with IRM 8.2.1.4 , Receipt of New Assignment by Appeals Officer.

    3. Generally, it is in the overall best interest of the U.S. Treasury for Appeals to avoid lump sum and traded issue settlements involving potential Competent Authority issues. Sacrificing part or all of an international tax adjustment in order to obtain an agreement on a domestic issue may result in uneven treatment between the U.S. and "treaty" taxpayers. On a case-by-case basis, Appeals case processing and settlement objectives may appear better served by employing traded issue or lump sum settlements; however, the overall result (when combining all potential Competent Authority issues resolved in Appeals) may render unjust financial benefits not intended by the tax treaties to treaty partner countries. Therefore, Appeals does not settle a potential Competent Authority issue, except on its merits.

  2. When a potential Competent Authority issue is present in a case, additional care must be given when preparing the Appeals Case Memo (ACM). The special features section of the Form 5402, Appeals Transmittal and Case Memo, is used to indicate a potential Competent Authority issue is present in a case. This feature is marked "X" regardless of how Appeals resolves the issue (i.e., unagreed, partial settlement or full concession by either the taxpayer or government).

  3. When drafting an ACM describing the proposed settlement of a potential Competent Authority issue, the Appeals Officer must bear in mind this document may be used by the Director, International in negotiating the resulting double taxation with treaty partner countries. Accordingly, the ACM must provide as much information as possible concerning the Appeals Officer’s reasoning, which led to the proposed settlement. Explain in full the rationale and weight given to the various factors resulting in a partial or full concession by the government. This information enables the Competent Authority at some later date to assure taxpayers do not abuse the Appeals and Competent Authority functions by gaining additional reductions in tax from the Competent Authority for the same factors considered by Appeals.

    1. If a taxpayer enters into a written agreement with respect to potential Competent Authority issue with Appeals (or Compliance), the U.S. Competent Authority endeavors only to obtain correlative adjustment from the treaty country and does not undertake actions that otherwise change such agreements.

    2. If Appeals and the taxpayer reach a settlement of a potential Competent Authority issue, the taxpayer must pursue a correlative adjustment from the treaty partner through the mutual agreement procedure mechanism, or risk losing the foreign tax credit associated with the correlative adjustment. (See Treas. Reg. 1.901-2(e)(5)(i) and Rev. Rul. 92-75).

  4. A Form 870-AD"Offer to Waive Restrictions on Assessment and Collection of Deficiency in Tax and Accept Overassessment" is used to obtain an agreement on a potential Competent Authority issue. A modification of the agreement form for settlement with reservations is required. See IRC 8.6.4.4.2, Modification of Agreement for Settlements With Reservations, for suggested language).

8.7.3.7.3  (08-10-2007)
Appeals Review Panels Under the Mutual Agreement Procedure Canada-United States Income Tax Convention

  1. This section discusses the Appeals Technical Procedures and Guidelines for Appeals Review Panels under the Canada-United States Income Tax Convention (1980) as amended from time to time (referred to as "Convention " ). The Technical Procedures and Guidelines are used by Appeals personnel.

  2. The United States Competent Authority (CA) assists taxpayers with respect to matters covered in the Mutual Agreement Procedure (MAP) provisions of tax treaties.

    1. An income tax treaty generally permits taxpayers to request CA assistance when they consider actions of the United States, the treaty country, or both, result or will result in taxation contrary to the provisions of the treaty.

    2. Income tax treaties generally permit taxpayers to request assistance, for example, to relieve economic double taxation arising from an allocation under IRC section 482 or an equivalent provision under the laws of a treaty country.

    3. For CA procedures, see Rev. Proc. 2006-54, Rev. Proc. 2006-49 IRB 1035, Rev. Proc. 2002-2 C.B. 242 , or any successor revenue procedure.

  3. The Canadian and United States CAs agreed to establish principles, guidelines, and procedures to resolve disagreements in respect of the underlying facts and circumstances in cases referred to under the MAP article of the Convention.

  4. The CAs established the binding procedures to determine the underlying facts and circumstances of a specific MAP case where factual disagreements persist. The procedures involve the Appeals organizations of Canada Revenue Agency (CRA) and the United States Internal Revenue Service (IRS), respectively.

  5. The expectation is Appeals Review Panels will be requested by the CAs to determine underlying facts and circumstances in Competent Authority, Advance Pricing Agreement, and simultaneous Appeals and Competent Authority cases.

8.7.3.7.3.1  (08-10-2007)
Appeals Review Panel Procedures

  1. In the event the CAs are unable to agree on the underlying facts and circumstances of a specific MAP case within six months after the first face-to-face negotiating meeting for the case, refer any facts and circumstances issues to an Appeals Review Panel.

  2. A facts and circumstances issue presented to the Appeals Review Panel may involve a taxpayer request that the CAs attempt to resolve the issue for certain subsequent taxable periods if the same issue continues in those periods. See Section 7.06 of Rev. Proc. 2002-52.

  3. Submit any CA referral requests for an Appeals Review Panel in writing to the CRA and IRS Chief, Appeals for approval. Detail the factual disagreements and the respective views of the CAs in the request.

    1. For IRS Appeals, Tax Policy and Procedure (Exam) coordinates approval and assignment with Technical Guidance (TG) and the Fast Track Settlement Program Manager.

    2. Tax Policy and Procedure (Exam) prepares a memorandum for signature by the Director, Technical Services to notify the United States and Canada in writing of their acceptance (with a list of participants) or rejection of a referral within 30 days of the date the request was made by the CAs. If the referral is not accepted, Tax Policy and Procedure (Exam) prepares a memorandum explaining why.

  4. For approved referral requests, the CRA and IRS Appeals organizations each appoint a member of the organization with decision-making authority (referred to as the "Official" ) to participate in an Appeals Review Panel proceeding.

    1. Appropriate IRS Appeals personnel, including specialists and their managers, may support the Appeals Official and participate in the Appeals Review Panel proceedings, which include meetings, conference call discussions, and providing necessary information to achieve a comprehensive understanding of the issues.

    2. Unless the CAs agree otherwise, an Appeals Official or member appointed to the Panel must not have had previous involvement in an audit of the subject taxpayer, an appeal, or simultaneous Appeals/Competent Authority request filed by such taxpayer for the tax years under CA jurisdiction.

    3. The CRA and the IRS Appeals Official updates the Appeals Review Panel member list of participants as necessary and exchanges it with each other.

    4. The approved CA referral request is date stamped by Tax Policy and Procedure (Exam), and a photocopy is provided by the assigned Appeals Official to Appeals Processing Services for input on the Appeals Centralized Database System (ACDS). The ACDS feature code "CA" is used for Competent Authority cases.

  5. The CAs forward a written submission detailing the facts and circumstances disagreement, the issue positions of each CA, and CA contacts to the CRA and IRS Appeals Official for their consideration prior to the opening Appeals Review Panel conference.

    1. While the Appeals Review Panel is a government-to-government process, the Panel may request supplementary information/representation from any party possessing relevant information.

    2. IRS Appeals Review Panel members must not disclose their processes or findings to subject taxpayer of a specific MAP case, the taxpayer’s representatives, or any persons other than the CAs.

    3. Subject taxpayer of a specific MAP case, the taxpayer’s representatives, and the CAs are not allowed ex parte contacts with Appeals Review Panel members unless requested to do so by the Panel.

    4. If any ex parte contact occurs with an IRS Appeals Review Panel member, the Panel member must immediately disclose the contact to the CRA and IRS Appeals Officials.

  6. If an Appeals Review Panel requires face-to-face discussions, meetings are held in Ottawa or Washington, D.C. on an alternating basis.

  7. The targeted time frame for an Appeals Review Panel to conclude work and render a decision is 150 calendar days from the date a referral request is required or agreed to. The Appeals Review Panel may ask the CAs to extend the 150-day time frame. Either CA may unilaterally grant an extension.

  8. If an issue is resolved during the Appeals Review Panel, the decision is incorporated into a joint written report submitted to the CAs (see Section 3 below).

  9. For simultaneous Appeals and CA requests under Section 8 of Rev. Proc. 2002-52, the taxpayers are informed that if the CAs fail to agree or the taxpayers do not accept the mutual agreements reached, the taxpayers are permitted to refer the issue to IRS Appeals for further consideration in the administrative process.

8.7.3.7.3.2  (08-10-2007)
Appeals Review Panel Decisions

  1. If a facts and circumstances issue is resolved during an Appeals Review Panel process, a joint written report is prepared. The Panel report -

    1. Identifies the MAP case.

    2. Summarizes the issues causing factual disagreement.

    3. Provides the decision regarding underlying facts and circumstances in dispute.

    4. Is signed by the CRA and Appeals Officials.

  2. The Appeals Review Panel sends a copy of the Panel report to the CAs.

  3. The CAs follow the decision of the Appeals Review Panel regarding their findings in respect of the underlying facts and circumstances of the specific MAP case.

  4. If a facts and circumstances issue is not resolved, the IRS Appeals Official prepares a brief ACM and the CRA Official prepares a summary of its findings. Both documents are forwarded to the CAs.

    1. IRS Appeals will not share the ACM with the taxpayers.

    2. Unless the CAs agree otherwise, no members of the Appeals Review Panel may participate in any subsequent resolution of the subject MAP case.

  5. Established Appeals closing procedures are followed for a CA work unit. The Appeals Official prepares Form 5402, Appeals Transmittal and Case Memo, Appeals Review Panel Report, and includes the following information in "Remarks" :

    1. A statement saying, "This is a Competent Authority Case under MEMORANDUM OF UNDERSTANDING BETWEEN THE COMPETENT AUTHORITIES OF CANADA AND THE UNITED STATES REGARDING FACTUAL DISAGREEMENTS UNDER THE MUTUAL AGREEMENT PROCEDURE dated June 3, 2005."

    2. Applicable closing code: 14 – Fully Resolved; 15 – Not Resolved; 16 – Partially Resolved; or 20 – Withdrawn for Procedural Reasons.

  6. Appeals Officials and team members use ACDS to track cases. Closed office file are mailed to the Appeals Fast Track Settlement Program Manager for centralized filing.


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