Bulletin No. 1996–49

Bulletin No. 1996–49

December 2, 1996

HIGHLIGHTS

OF THIS ISSUE

These synopses are intended only as aids to the reader in

identifying the subject matter covered. They may not be relied

upon as authoritative interpretations.

INCOME TAX

Rev. Rul. 96–55, page 4.

1996 base period T-bill rate. The “base period T-bill

rate” for the period ending September 30, 1996, is

published, as required by Code section 995(f)(4).

IA–42–95, page 21.

Proposed regulations under Code section 6662 relate to

the accuracy-related penalty regulations. A public hearing

will be held on February 25, 1997.

ADMINISTRATIVE

Rev. Proc. 96–53, page 9.

This procedure informs taxpayers how to secure an

advance pricing agreement covering transfer pricing

methodologies for international transactions from the

Office of Associate Chief Counsel (International). Rev.

Proc. 91–22 superseded.

Notice 96–58, page 7.

Qualified State Tuition Programs. This notice provides

guidance regarding certain reporting requirements and

the transition rules applicable to “qualified State tuition

programs” described in Code section 529 as added by

the Small Business Job Protection Act of 1996 (P.L.

104–188).

Notice 96–60, page 7.

The Service intends to issue, before the end of 1996,

detailed guidance under Code section 877, as amended

by the Health Insurance Portability and Accountability Act

Finding Lists begin on page 26.

Monthly Index for November begins on page 28.

of 1996 (“HIPAA”), Code section 6039F, as added by

HIPAA, and Code sections 1494 and 6048, as amended

by the Small Business Job Protection Act of 1996.

Certain filings under Code sections 877, 6039F, and

6048 will not be required to be submitted, and no

penalty will be imposed under Code section 1494(c),

before a date that is at least 60 days after the issuance

of the forthcoming guidance.

Notice 96–61, page 8.

Information reporting; discharge of indebtedness.

Pending issuance of further guidance, no penalties will

be imposed for failure to report under Code section

6050P a discharge of indebtedness of a foreign debtor

held by foreign offices or branches of foreign financial

institutions that are applicable entities under Code

section 6050P(c)(2)(C).

Notice 96–62, page 8.

Information reporting; substitute Forms 1099; logos.

Payors required to report certain payments on Form

1099 are informed that the Service intends to issue

regulations permitting the use of certain logos and

identifying slogans on substitute Forms 1099, and that

the Service is requesting comment on this matter.

Announcement 96–124, page 22.

The Service announces the publication of Rev. Proc.

96–53, informing taxpayers how to secure an advance

pricing agreement from the Office of Associate Chief

Counsel (International).

Mission of the Service

The purpose of the Internal Revenue Service is to

collect the proper amount of tax revenue at the least

cost; serve the public by continually improving the

quality of our products and services; and perform in a

manner warranting the highest degree of public

confidence in our integrity, efficiency and fairness.

Statement of Principles

of Internal Revenue

Tax Administration

The Service also has the responsibility of applying

and administering the law in a reasonable,

practical manner. Issues should only be raised by

examining of ficers when they have merit, never

arbitrarily or for trading purposes. At the same

time, the examining officer should never hesitate

to raise a meritorious issue. It is also important

that care be exercised not to raise an issue or to

ask a court to adopt a position inconsistent with

an established Service position.

The function of the Internal Revenue Service is to

administer the Internal Revenue Code. Tax policy

for raising revenue is determined by Congress.

With this in mind, it is the duty of the Service to

carry out that policy by correctly applying the laws

enacted by Congress; to determine the reasonable

meaning of various Code provisions in light of the

Congressional purpose in enacting them; and to

perform this work in a fair and impartial manner,

with neither a government nor a taxpayer point of view.

Administration should be both reasonable and

vigorous. It should be conducted with as little

delay as possible and with great cour tesy and

considerateness. It should never try to overreach,

and should be reasonable within the bounds of law

and sound administration. It should, however, be

vigorous in requiring compliance with law and it

should be relentless in its attack on unreal tax

devices and fraud.

At the heart of administration is interpretation of the

Code. It is the responsibility of each person in the

Service, charged with the duty of interpreting the

law, to try to find the true meaning of the statutory

provision and not to adopt a strained construction in

the belief that he or she is ‘‘protecting the revenue.’’

The revenue is properly protected only when we ascertain and apply the true meaning of the statute.

2

Introduction

The Internal Revenue Bulletin is the authoritative instrument of the Commissioner of Internal Revenue for

announcing official rulings and procedures of the Internal Revenue Service and for publishing Treasury Decisions, Executive Orders, Tax Conventions, legislation,

court decisions, and other items of general interest. It is

published weekly and may be obtained from the Superintendent of Documents on a subscription basis. Bulletin

contents of a permanent nature are consolidated semiannually into Cumulative Bulletins, which are sold on a

single-copy basis.

court decisions, rulings, and procedures must be considered, and Service personnel and others concerned are

cautioned against reaching the same conclusions in

other cases unless the facts and circumstances are

substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.

This part includes rulings and decisions based on

provisions of the Internal Revenue Code of 1986.

It is the policy of the Service to publish in the Bulletin all

substantive rulings necessary to promote a uniform

application of the tax laws, including all rulings that

supersede, revoke, modify, or amend any of those

previously published in the Bulletin. All published rulings

apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management

are not published; however, statements of internal

practices and procedures that affect the rights and

duties of taxpayers are published.

Part II.—Treaties and Tax Legislation.

This part is divided into two subparts as follows:

Subpart A, Tax Conventions, and Subpart B, Legislation

and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.

To the extent practicable, pertinent cross references to

these subjects are contained in the other Parts and

Subparts. Also included in this part are Bank Secrecy

Act Administrative Rulings. Bank Secrecy Act Administrative Rulings are issued by the Department of the

Treasury’s Office of the Assistant Secretary (Enforcement).

Revenue rulings represent the conclusions of the Service on the application of the law to the pivotal facts

stated in the revenue ruling. In those based on positions

taken in rulings to taxpayers or technical advice to

Service field offices, identifying details and information

of a confidential nature are deleted to prevent unwarranted invasions of privacy and to comply with statutory

requirements.

Part IV.—Items of General Interest.

With the exception of the Notice of Proposed Rulemaking and the disbarment and suspension list included in

this part, none of these announcements are consolidated in the Cumulative Bulletins.

Rulings and procedures reported in the Bulletin do not

have the force and effect of Treasury Department

Regulations, but they may be used as precedents.

Unpublished rulings will not be relied on, used, or cited

as precedents by Service personnel in the disposition of

other cases. In applying published rulings and procedures, the effect of subsequent legislation, regulations,

The first Bulletin for each month includes an index for

the matters published during the preceding month.

These monthly indexes are cumulated on a quarterly and

semiannual basis, and are published in the first Bulletin

of the succeeding quarterly and semi-annual period,

respectively.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

For sale by the Superintendent of Documents U.S. Government Printing Office, Washington, D.C. 20402.

3

Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

Section 995.—Taxation of DISC

Income to Shareholders

1996 base period T-bill rate. The

‘‘base period T-bill rate’’ for the period

ending September 30, 1996, is published, as required by section 995(f)(4)

of the Code.

Rev. Rul. 96–55

Section 995(f)(l) of the Internal Revenue Code provides that a shareholder

of a DISC shall pay interest each taxable year in an amount equal to the

product of the shareholder’s DISCrelated deferred tax liability for the year

and the ‘‘base period T-bill rate.’’ Under

section 995(f)(4), the base period T-bill

rate is the annual rate of interest determined by the Secretary to be equivalent

to the average investment yield of

United States Treasury bills with maturities of 52 weeks which were auctioned

during the one-year period ending on

September 30 of the calendar year ending with (or of the most recent calendar

year ending before) the close of the

taxable year of the shareholder. The

base period T-bill rate for the period

ending September 30, 1996, is 5.51

percent.

Pursuant to section 6622 of the Code,

interest must be compounded daily. The

table below provides factors for compounding the base period T-bill rate

daily for any number of days in the

shareholder’s taxable year (including a

52–53 week accounting period) for the

1996 base period T-bill rate. To compute

the amount of the interest charge for the

shareholder’s taxable year, multiply the

amount of the shareholder’s DISCrelated deferred tax liability (as defined

in section 995(f)(2)) for that year by the

base period T-bill rate factor corresponding to the number of days in the

shareholder’s taxable year for which the

interest charge is being computed. Generally, one would use the factor for 365

days. One would use a different factor

only if the shareholder’s taxable year for

which the interest charge being determined is a short taxable year, if the

shareholder uses the 52–53 week taxable

year, or if the shareholder’s taxable year

is a leap year.

For the base period T-bill rates for the

periods ending in prior years, see: Rev.

Rul. 86–132, 1986–2 C.B. 137; Rev.

Rul. 87–129, 1987–2 C.B. 196; Rev.

Rul. 88–94, 1988–2 C.B. 301; Rev. Rul.

89–116, 1989–2 C.B. 197; Rev. Rul.

90–96, 1990–2 C.B. 188; Rev. Rul.

91–59, 1991–2 C.B. 347; Rev. Rul.

92–98, 1992–2 C.B. 201; Rev. Rul.

93–77, 1993–2 C.B. 253; Rev. Rul.

94–68, 1994–2 C.B. 177: and Rev. Rul.

95–77, 1995–2 C.B. 122.

DRAFTING INFORMATION

The principal author of this revenue

ruling is David Bergkuist of the Office

of the Associate Chief Counsel (International). For further information about

this revenue ruling, contact Mr.

Bergkuist on (202) 622–3860 (not a

toll-free call

1996 ANNUAL RATE,

COMPOUNDED DAILY

5.51 PERCENT

DAYS

FACTOR

1

2

3

4

5

.000150546

.000301116

.000451707

.000602322

.000752959

6

7

8

9

10

.000903619

.001054301

.001205006

.001355734

.001506485

11

12

13

14

15

.001657258

.001808054

.001958873

.002109714

.002260578

16

17

18

19

20

.002411465

.002562374

.002713306

.002864261

.003015239

21

22

23

24

25

.003166239

.003317263

.003468308

.003619377

.003770468

26

27

28

29

30

.003921582

.004072719

.004223879

.004375061

.004526266

31

32

33

34

35

.004677494

.004828745

.004980018

.005131314

.005282633

36

37

.005433975

.005585340

4

DAYS

5.51 PERCENT

FACTOR

38

39

40

.005736727

.005888137

.006039570

41

42

43

44

45

.006191025

.006342504

.006494005

.006645529

.006797076

46

47

48

49

50

.006948646

.007100239

.007251854

.007403492

.007555153

51

52

53

54

55

.007706837

.007858544

.008010273

.008162026

.008313801

56

57

58

59

60

.008465599

.008617420

.008769263

.008921130

.009073020

61

62

63

64

65

.009224932

.009376867

.009528825

.009680806

.009832810

66

67

68

69

70

.009984837

.010136886

.010288959

.010441054

.010593173

71

72

73

74

75

.010745314

.010897478

.011049665

.011201875

.011354108

76

77

78

79

80

.011506364

.011658642

.011810944

.011963268

.012115616

81

82

83

84

85

.012267986

.012420380

.012572796

.012725235

.012877697

86

87

88

89

90

.013030183

.013182691

.013335222

.013487776

.013640353

DAYS

5.51 PERCENT

FACTOR

DAYS

5.51 PERCENT

FACTOR

DAYS

5.51 PERCENT

FACTOR

91

92

93

94

95

.013792953

.013945576

.014098222

.014250890

.014403582

146

147

148

149

150

.022221425

.022375317

.022529232

.022683170

.022837132

201

202

203

204

205

.030719970

.030875142

.031030336

.031185554

.031340796

96

97

98

99

100

.014556297

.014709035

.014861796

.015014580

.015167387

151

152

153

154

155

.022991116

.023145124

.023299155

.023453209

.023607286

206

207

208

209

210

.031496060

.031651348

.031806660

.031961995

.032117353

101

102

103

104

105

.015320216

.015473069

.015625945

.015778844

.015931766

156

157

158

159

160

.023761386

.023915510

.024069657

.024223827

.024378020

211

212

213

214

215

.032272734

.032428139

.032583568

.032739020

.032894495

106

107

108

109

110

.016084711

.016237679

.016390670

.016543684

.016696721

161

162

163

164

165

.024532237

.024686476

.024840739

.024995025

.025149335

216

217

218

219

220

.033049993

.033205515

.033361061

.033516630

.033672222

111

112

113

114

115

.016849781

.017002864

.017155970

.017309099

.017462252

166

167

168

169

170

.025303667

.025458023

.025612402

.025766804

.025921230

221

222

223

224

225

.033827838

.033983477

.034139139

.034294825

.034450535

116

117

118

119

120

.017615427

.017768625

.017921847

.018075091

.018228359

171

172

173

174

175

.026075679

.026230151

.026384646

.026539165

.026693707

226

227

228

229

230

.034606268

.034762024

.034917804

.035073607

.035229433

121

122

123

124

125

.018381650

.018534963

.018688300

.018841660

.018995043

176

177

178

179

180

.026848272

.027002860

.027157472

.027312107

.027466765

231

232

233

234

235

.035385284

.035541157

.035697054

.035852975

.036008919

126

127

128

129

130

.019148449

.019301878

.019455331

.019608806

.019762304

181

182

183

184

185

.027621446

.027776151

.027930879

.028085630

.028240405

236

237

238

239

240

.036164886

.036320877

.036476891

.036632929

.036788991

131

132

133

134

135

.019915826

.020069371

.020222939

.020376529

.020530144

186

187

188

189

190

.028395203

.028550024

.028704869

.028859737

.029014628

241

242

243

244

245

.036945076

.037101184

.037257316

.037413471

.037569650

136

137

138

139

140

.020683781

.020837441

.020991124

.021144831

.021298561

191

192

193

194

195

.029169542

.029324480

.029479441

.029634426

.029789433

246

247

248

249

250

.037725853

.037882079

.038038328

.038194601

.038350898

141

142

143

144

145

.021452314

.021606090

.021759889

.021913711

.022067557

196

197

198

199

200

.029944465

.030099519

.030254597

.030409698

.030564823

251

252

253

254

255

.038507218

.038663561

.038819928

.038976319

.039132733

5

DAYS

5.51 PERCENT

FACTOR

256

257

258

259

260

.039289171

.039445632

.039602117

.039758625

.039915157

261

262

263

264

265

.040071713

.040228292

.040384895

.040541521

.040698171

266

267

268

269

270

.040854844

.041011541

.041168262

.041325006

.041481774

271

272

273

274

275

.041638565

.041795380

.041952219

.042109081

.042265967

276

277

278

279

280

.042422876

.042579809

.042736766

.042893746

.043050750

281

282

283

284

285

.043207778

.043364829

.043521904

.043679002

.043836125

286

287

288

289

290

.043993270

.044150440

.044307633

.044464850

.044622090

291

292

293

294

295

.044779354

.044936642

.045093954

.045251289

.045408648

296

297

298

299

300

.045566030

.045723437

.045880867

.046038320

.046195798

301

302

303

.046353299

.046510823

.046668372

DAYS

5.51 PERCENT

FACTOR

304

305

.046825944

.046983540

306

307

308

309

310

.047141160

.047298803

.047456470

.047614161

.047771876

311

312

313

314

315

.047929614

.048087376

.048245162

.048402971

.048560805

316

317

318

319

320

.048718662

.048876543

.049034447

.049192376

.049350328

321

322

323

324

325

.049508304

.049666304

.049824327

.049982375

.050140446

326

327

328

329

330

.050298541

.050456659

.050614802

.050772968

.050931158

331

332

333

334

335

.051089372

.051247610

.051405872

.051564157

.051722466

336

337

338

339

340

.051880799

.052039156

.052197537

.052355942

.052514370

341

342

343

344

345

.052672822

.052831299

.052989799

.053148322

.053306870

346

347

348

349

350

.053465442

.053624037

.053782657

.053941300

.054099967

6

DAYS

5.51 PERCENT

FACTOR

351

352

353

354

355

.054258658

.054417373

.054576112

.054734874

.054893661

356

357

358

359

360

.055052471

.055211306

.055370164

.055529046

.055687953

361

362

363

364

365

.055846883

.056005837

.056164815

.056323816

.056482842

366

367

368

369

370

.056641892

.056800966

.056960063

.057119185

.057278330

371

.057437500

Section 6044.—Returns Regarding

Payments of Patronage Dividends

26 CFR 1.6044–5: Statements to recipients of

patronage dividends.

Are payors, required to report payments on

Form 1099, permitted to use certain logos and

identifying slogans on substitute Forms 1099? See

Notice 96–62, page 8.

Section 6049.—Returns Regarding

Payments of Interest

26 CFR 1.6049–6: Statements to recipients of

interest payments and holders of obligations as to

which there is attributed original issue.

Are payors, required to report payments on

Form 1099, permitted to use certain logos and

identifying slogans on substitute Forms 1099? See

Notice 96–62, page 8.

Section 6050N.—Returns

Regarding Payments of Royalties

26 CFR 1.6050N–1: Statements to recipients of

royalties.

Are payors, required to report payments on

Form 1099, permitted to use certain logos and

identifying slogans on substitute Forms 1099? See

Notice 96–62, page 8.

Part III. Administrative, Procedural, and Miscellaneous

Qualified State Tuition Programs

Notice 96–58

This notice provides guidance regarding certain reporting requirements and

the transition rules applicable to ‘‘qualified State tuition programs’’ described in

§ 529 of the Internal Revenue Code,

recently enacted by section 1806 of the

Small Business Job Protection Act, Pub.

L. 104–188 (the ‘‘Act’’). The notice also

solicits comments from the public on

section 529.

Section 529 provides tax-exempt status to ‘‘qualified State tuition programs,’’ meaning programs established

and maintained by a State (or agency or

instrumentality thereof) under which

persons may (1) purchase tuition credits

or certificates on behalf of a designated

beneficiary entitling the beneficiary to a

waiver or payment of qualified higher

education expenses of the beneficiary, or

(2) contribute to an account established

for the sole purpose of meeting qualified

higher education expenses of the designated beneficiary of the account.

Under § 529, qualified State tuition

programs also must meet requirements

relating to contributions, refunds, and

maintenance of separate accounts for

each designated beneficiary of the program. In addition, the program must

prohibit investment direction by contributors or beneficiaries, the pledge or

assignment of any interest in the program as security for a loan, and excess

contributions.

In general, § 529 is effective for

taxable years ending after August 20,

1996, the date of enactment. However,

the Act includes a transition rule providing that if

(1) a State maintains (on the date of

enactment) a program under which

persons may purchase tuition credits

on behalf of, or make contributions

for educational expenses of, a designated beneficiary, and (2) such program meets the requirements of a

qualified State tuition program before

the later of (a) one year after the date

of enactment, or (b) the first day of

the first calendar quarter after the

close of the first regular session of

the State legislature that begins after

the date of enactment, then the provisions of the...[Act] will apply to contributions (and earnings allocable

thereto) made before the date the

program meets the requirements of a

qualified State tuition program, without regard to whether the requirements of a qualified State tuition

program are satisfied with respect to

such contributions and earnings. . . .

H.R. Conf. Rep. No. 737, 104th Cong.,

2d Sess. 282 (1996). (Conference Report). The Internal Revenue Service will

not assert income tax liability against a

State tuition program for any period

before the program meets the requirements of § 529 if the program qualifies

for the transition rule.

Section 529(c)(3)(A) and (B) provides

that any distribution made by or benefit

furnished in-kind under a qualified State

tuition program shall be includible in

the gross income of the distributee in

the manner as provided under § 72, to

the extent not excluded from gross income under any other provision.

Section 529(d) authorizes the Internal

Revenue Service to require qualified

State tuition programs to file information reports for education furnished to

beneficiaries or distributions made to

individuals during any calendar year.

Any reporting requirements promulgated

under § 529(d) would apply in lieu of

any other reporting requirement for a

program that may apply with respect to

information returns or payee statements

on distributions.

The Internal Revenue Service is currently developing reporting requirements

under § 529(d). However, because this

legislation was enacted late in the year

and because States are expected to need

time to implement appropriate recordkeeping, reporting will not be required

for any distribution made by, or benefit

furnished in-kind under, a qualified

State tuition program prior to 1998. In

addition, the Internal Revenue Service

will not assess penalties against plan

administrators who do not file information returns or provide payee statements

on distributions made during 1997 and

prior years.

Comments on Future Guidance Invited

The Internal Revenue Service invites

comments on § 529, including the requirements for reporting distributions

made by qualified State tuition programs, the requirements for qualification

and operation of these programs, and the

treatment for federal tax purposes of

distributions made by these programs.

These comments will be considered in

drafting future guidance. Please send

7

written comments by December 31,

1996, to: CC:DOM:CORP:R (Notice

96–58), Room 5226, Internal Revenue

Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered between

the hours of 8 a.m. and 5 p.m. to:

CC:DOM:CORP:R (Notice 96–58),

Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW,

Washington, DC. Alternatively, taxpayers may submit comments electronically

via the Internet directly to the IRS internet site at http://www.irs.ustreas.gov/

prod/tax_regs/comments.html.

For further information concerning

this notice contact Monice Rosenbaum

of the Office of Associate Chief Counsel

(Employee Benefits and Exempt Organizations) at (202) 622–6070 (not a toll

free call).

Interim Guidance on Sections 877,

1494, 6039F, and 6048

Notice 96–60

This notice provides guidance for taxpayers affected by the penalty provision

of section 1494 and the filing requirements of section 6048(a) of the Internal

Revenue Code (‘‘Code’’), as amended

by the Small Business Job Protection

Act of 1996 (‘‘SBJPA’’). This notice

also provides guidance for taxpayers

affected by the ruling request provision

of section 877 of the Code, as amended

by the Health Insurance Portability and

Accountability Act of 1996 (‘‘HIPAA’’),

and the information reporting requirements of section 6039F of the Code, as

added by HIPAA.1

BACKGROUND

Section 877, as amended by HIPAA,

generally provides that a former U.S.

citizen who renounces his citizenship

after February 5, 1995, or a former

long-term lawful permanent resident

who ceases to be taxed as a lawful

permanent resident after that date, who

had as a principal purpose for such

renunciation or cessation the avoidance

of U.S. taxes, will be taxed on all of his

U.S. source income for the succeeding

10-year period. An individual who meets

a tax liability or net worth test is

1

There are currently two provisions of the Code

designated as section 6039F. The Service intends

to seek a technical correction to HIPAA to redesignate section 6039F of the Code, as added by

HIPAA, as section 6039G.

considered to be tax motivated. A

former citizen who satisfies certain criteria will not be subject to these tests if

he submits a ruling request within one

year of renunciation of U.S. citizenship

for a determination by the Secretary as

to whether such renunciation had as one

of its principal purposes the avoidance

of U.S. taxes. However, the statute provides that in no event will this one-year

period expire before November 19, 1996

(the date that is 90 days after the

enactment of HIPAA).

Section 6039F, as added by HIPAA,

requires each individual who relinquishes U.S. citizenship after February

5, 1995, to provide an information statement to the U.S. Department of State, a

diplomatic or consular officer of the

United States, or a federal court at the

time of expatriation. Any individual who

ceases to be taxed as a lawful permanent resident after February 5, 1995,

must provide a similar information statement with his U.S. tax return for that

year. However, the statute provides that

in no event will this information statement be required to be filed before

November 19, 1996.

Section 1491 generally imposes an

excise tax on the transfer of property by

a U.S. person to a foreign corporation as

paid-in surplus or as a contribution to

capital, to a foreign estate or trust, or to

a foreign partnership. Current regulations under section 1494 require a U.S.

transferor to file a return on the date

such a transfer is made. Section 1494(c),

as added by SBJPA, imposes a penalty

for the failure to file a required return

with respect to any transfer described in

section 1491 that occurs after August

20, 1996 (the date of enactment of

SBJPA).

Section 6048(a), as amended by

SBJPA, generally requires any U.S. person who transfers property to a foreign

trust after August 20, 1996, to file an

information return. The statute provides

that this return must be filed no later

than 90 days after the transfer (or such

later date as the Secretary may prescribe).

INTERIM GUIDANCE

The Service intends to issue detailed

guidance in these areas before the end

of 1996. The forthcoming guidance will

not require the submission of a ruling

request under section 877, an information statement under section 6039F, or

an information return under section

6048(a) before a date that is at least 60

days after the issuance of that guidance.

Any such ruling request, information

statement, or information return submitted within the time period set forth in

the forthcoming guidance will be considered filed in a timely manner. In

addition, no penalty will be imposed

under section 1494(c) if a return required with respect to a section 1491

transfer is filed no later than 60 days

after the issuance of the forthcoming

guidance (or such later date specified in

that guidance).

The principal author of this notice is

Michael Kirsch of the Office of the

Associate Chief Counsel (International).

For further information regarding sections 877 or 6039F, contact Michael

Kirsch or Trina Dang, for information

regarding section 1494 contact Wendy

Stanley, and for information regarding

section 6048 contact Leslie Cracraft.

Each of these individuals may be

reached at (202) 622–3860 (not a tollfree call).

Information Reporting for

Discharges of Indebtedness:

Waiver of Penalties in Certain

Circumstances for Foreign

Financial Entities

Notice 96–61

This notice extends the scope of the

penalty relief granted in the preamble to

the final Income Tax Regulations under

§ 6050P of the Internal Revenue Code

relating to the reporting of discharges of

indebtedness (61 F.R. 262, January 4,

1996).

Section 6050P requires an information

return to be filed by an applicable entity,

including an applicable financial entity,

which discharges the indebtedness of

any person if the amount discharged is

$600 or more. Section 6050P(c)(2) provides that an applicable financial entity

includes any financial institution described in § 581 or 591(a), any credit

union, and any other corporation which

is a direct or indirect subsidiary of such

entity but only if, by virtue of being

affiliated with the entity, the corporation

is subject to supervision and examination by a Federal or State agency which

regulates such other entities.

Section 1.6050P–1(d) of the regulations provides certain exceptions from

the reporting requirements. Section

1.6050P–1(d)(4) reserves guidance as to

the circumstances under which the reporting requirements will not apply to

the discharge of indebtedness of foreign

8

debtors held by foreign branches of U.S.

financial institutions. Section 1.6050P–

1(d)(4)(ii) identifies the criteria that

must be met in order to treat indebtedness held by a foreign branch of a U.S.

financial institution as being within the

scope of the reserved guidance.

The preamble to the final regulations

states, in part, that ‘‘the IRS and Treasury are continuing to study the issue of

whether reporting is necessary in the

case of foreign debtors whose debt is

discharged by foreign branches of U.S.

financial institutions. Accordingly, pending the issuance of further guidance, no

penalties will be imposed if an applicable financial entity fails to report a

discharge of indebtedness of a foreign

debtor by a foreign branch of the entity.’’

After issuance of the final regulations,

commentators requested that the penalty

relief described in the preamble to the

final regulations also apply to indebtedness held by foreign offices or branches

of foreign financial institutions that are

applicable financial entities under

§ 6050P(c)(2)(C).

The Internal Revenue Service has

determined that, pending the issuance of

further guidance, the relief granted in

the preamble should be extended, as

suggested by commentators. To accomplish this, the regulations will be

amended to delete the word ‘‘U.S.’’

from the heading of § 1.6050P–1(d)(4)

and the introductory text in § 1.6050P–

1(d)(4)(ii). Furthermore, no penalties

will be imposed if a foreign office or

branch of a foreign applicable financial

entity fails to report a discharge of

indebtedness of a foreign debtor described in § 1.6050P–1(d)(4)(ii) after

giving effect to the preceding sentence.

The principal author of this notice is

Sharon Hall of the Office of Assistant

Chief Counsel (Income Tax and Accounting). For further information regarding this notice, contact Ms. Hall on

(202)622–4930 (not a toll-free call).

Logos and Identifying Slogans on

Substitute Forms 1099

Notice 96–62

This notice informs payors who are

required to report certain payments on

Form 1099 that the Service intends to

issue regulations permitting these payors

to use certain logos and identifying

slogans on substitute Forms 1099 required to be furnished to payees after

December 31, 1995, and invites public

comment on this matter.

The Internal Revenue Code generally

requires that payors of interest (§ 6049),

dividends (§ 6042), patronage dividends

(§ 6044), and royalties (§ 6050N),

make an information return, in the form

prescribed by the Secretary, setting forth

the amount of such payments and the

name and address of the payee. The

payor must also furnish the payee with a

copy of the information return (the

payee statement) in person or in a

statement mailing. Payors may furnish

either the official Form 1099 or an

acceptable substitute payee statement.

The legislative history to the statement mailing requirement provides that

only certain limited enclosures in the

statement mailing can be made with the

payee statement, specifically: (1) a

check; (2) a letter explaining why no

check is enclosed; and (3) a statement

of the payee’s specific account with the

payor. The legislative history further

provides that a mailing is not a statement mailing if it encloses any other

material such as advertising, promotional material, or a quarterly or annual

report. The legislative history explains

that this additional material is not permitted because these enclosures may

make it less likely that payees will

recognize the importance of the payee

statement and may not utilize the payee

statement in completing their tax returns. See S. Rep. No. 99–318, 99th

Cong., 2d Sess. at 191; and H.R. Conf.

Rep. No. 99–841, 99th Cong., 2d Sess.

at II–791.

The Service recently issued final

regulations that apply to payee statements due after December 31, 1995.

§§ 1.6042–4; 1.6044–5; 1.6049–6(e);

and 1.6050N–1 of the Income Tax

Regulations. These regulations provide

that the mailing of payee statements

must qualify as a statement mailing. To

qualify, the mailing is permitted to contain only certain specified nontax enclosures, limited to: (1) a check; (2) a letter

explaining why no check is enclosed;

(3) a statement of the payee’s account;

and (4) a letter explaining the tax consequences of the information in the payee

statement. See, e.g., § 1.6042–4(d)(2)(i).

The regulations prohibit other nontax

enclosures and promotional or advertising materials and provide that even a de

minimis amount of such material violates the statement mailing requirement.

Although the regulations specifically

permit logos on the envelope and on the

permitted nontax enclosures identified

above, they do not permit logos on the

substitute Form 1099 itself. See, e.g.,

§ 1.6042–4(d)(2)(i).

The Service intends to amend the

regulations to allow the use of certain

logos and identifying slogans on substitute Forms 1099 required to be furnished to payees. The amended regulations generally will permit logos

(including the name of the payor in any

typeface, font, or stylized fashion and/or

a symbolic icon) and identifying slogans, provided the logo or identifying

slogan is used by the payor in the

ordinary course of its trade or business.

However, consistent with Congressional

intent, the amended regulations will provide that use of a logo or identifying

slogan must not make it less likely that

a reasonable payee will recognize the

importance of the payee statement for

tax reporting purposes. Pending issuance

of the amended regulations, the Service

will not impose penalties in connection

with a payor’s use on a payee statement

of a logo or an identifying slogan that

satisfies these requirements.

Public comment invited. The Service

invites public comment on this matter.

Written comments may be submitted by

mail to:

Internal Revenue Service

P.O. Box 7604

Ben Franklin Station

Attn: CC:CORP:T:R (IA–Branch 1),

Room 5228

Washington, D.C. 20044;

or, alternatively, via the internet at:

http://www.irs.ustreas.gov/prod/tax_regs/

comments.html.

DRAFTING INFORMATION

The principal author of this notice is

Donna Welch of the Office of Assistant

Chief Counsel (Income Tax and Accounting). For further information regarding this notice, contact Ms. Welch

on (202) 622–4910 (not a toll-free call).

Section 482 — Allocations Between

Related Parties

Rev. Proc. 96–53

SECTION 1. PURPOSE

This revenue procedure updates and

supersedes Revenue Procedure 91–22,

1991–1 C.B. 526, and informs taxpayers

how to secure an advance pricing agreement (‘‘APA’’) from the Office of the

Associate Chief Counsel (International)

covering the prospective determination

9

and application of transfer pricing methodologies (‘‘TPMs’’) for international

transactions. An APA is an agreement

between the Service and the taxpayer on

the TPM to be applied to any apportionment or allocation of income, deductions, credits, or allowances between or

among two or more organizations,

trades, or businesses owned or controlled, directly or indirectly, by the

same interests. The TPM thus represents

the application to the taxpayer‘‘s specific facts and circumstances of the best

method within the meaning of the income tax regulations under § 482 of the

Internal Revenue Code (’’the regulations‘‘), as agreed pursuant to negotiations between the Service and the taxpayer.

SEC. 2. OVERVIEW

Under the APA request procedure, the

taxpayer proposes a TPM and provides

data intended to show that the TPM is

the appropriate application of the best

method within the meaning of the regulations for determining arm’s length results between the taxpayer and specified

affiliates with respect to specified intercompany transactions. The Service

evaluates the APA request by analyzing

the data submitted and any other relevant information. After discussion, if

the taxpayer’s proposal is acceptable,

the parties execute an APA covering the

proposed TPM. APAs often involve

agreements with foreign competent authorities under income tax conventions.

SEC. 3. PRINCIPLES OF THE APA

PROCESS

.01 The APA process is designed to

be a flexible problem- solving process,

based on cooperative and principled negotiations between taxpayers and the

Service. .

02 APAs are intended to reflect

agreement between the taxpayer and the

Service on the best method, within the

meaning of the regulations, for determining arm’s length prices, and the

proper application of the best method to

the taxpayer’’s specific facts and circumstances (that is, the TPM). In negotiations for APAs involving one or more

foreign competent authorities (‘‘bilateral’’ and ‘‘multilateral’’ APAs), the initial negotiating position of the U.S.

competent authority will reflect the Service’s opinion, based on consultation

with the taxpayer, of the best method

within the meaning of the regulations

and the appropriate TPM.

03 The taxpayer must, to the extent

feasible, secure relevant pricing data

from closely comparable uncontrolled

transactions. If this information cannot

be obtained, the taxpayer must identify

any transactions it believes may be

comparable, but for which reliable data

is unavailable. Where such transactions

cannot be identified, the taxpayer must,

to the extent possible, secure relevant

pricing data from uncontrolled transactions that are similar, even though not

closely comparable, and propose adjustments to account for differences between such uncontrolled transactions

and its own operations. The APA process may apply notwithstanding that no

comparable uncontrolled transactions

can be identified. In such cases, a

taxpayer must demonstrate that the proposed TPM otherwise satisfies the requirements of § 482 and this revenue

procedure.

.04 The APA Policy Board (the

‘‘Policy Board’’) consists of the Associate Chief Counsel (International), the

Assistant Commissioner (International),

and the Assistant Commissioner (Examination). The Policy Board establishes

Service policy on matters of substantial

general importance pertaining to the

APA Program.

.05 The APA Program is under the

immediate supervision of a Director (the

‘‘APA Director’’) within the Office of

the Associate Chief Counsel (International). The APA Director shall, directly

or by delegation, take any actions necessary for carrying out the provisions of

this revenue procedure.

.06 Application of the TPM to tax

years prior to those covered by the APA

(‘‘rollback’’ of the TPM) is an effective

means of enhancing voluntary compliance and an effective use of resources in

addressing unresolved transfer pricing

issues. It is Service policy that, whenever feasible (based, for example, on

consistency of facts, law, and available

records in the prior years), the TPM

should be used for resolving such issues

for prior taxable years. As provided in

section 8 of this revenue procedure, the

taxpayer may request that the Service

consider a rollback in connection with a

particular request. Taxpayers should recognize that, even absent a request for a

rollback, the Service may, under regularly applicable procedures, determine

that the TPM agreed to in an APA

should be applied to prior years. When

applying the TPM to prior years,

whether or not at the request of the

taxpayer, adjustments may be made to

reflect differences in facts, economic

conditions, and applicable legal rules.

.07 The filing of an APA request does

not put into abeyance any examination

or other enforcement proceeding. Service personnel responsible for APAs and

for enforcement proceedings involving

the taxpayer shall, to the extent feasible,

coordinate their activities so as to avoid

duplicative information requests to the

taxpayer, to enhance the efficiency of

Service operations and to reduce overall

taxpayer compliance burdens.

.08 Prompt and fair resolution of

APA requests and renewals, in keeping

with the demands of the multinational

economic environment, are central goals

of the APA process.

.09 The Service intends that the APA

process will retain the flexibility to

address the needs of particular taxpayers. To this end, the Service and the

taxpayer may, by agreement, adopt special procedures, including simplified

procedures, that depart from those set

forth in this revenue procedure. Such

special procedures might be warranted,

for example, in order to meet the needs

of small business taxpayers, or in order

to facilitate simultaneous negotiation of

APAs by the taxpayer, the Service, and

foreign competent authorities.

District and of any Appeals or District

Counsel Office with responsibility for

the taxpayer’s returns normally will participate in the prefiling conference. If

the taxpayer initially requests a prefiling

conference on an anonymous basis, then

chooses to identify itself, the conference

may be rescheduled to permit necessary

personnel to participate. When requesting a prefiling conference on an identified basis, the taxpayer must inform the

APA Office whether transactions similar

or related to those to be covered by the

proposed APA are currently under consideration by Examination, Appeals or

Counsel. Taxpayers should, at least one

week prior to a prefiling conference,

send a brief prefiling submission to the

APA Office that confirms the date, time

and place of the prefiling conference;

lists the persons attending the prefiling

conference for the taxpayer; and outlines

the issues to be discussed at the prefiling conference. If the prefiling submission is ten pages or less, it may be sent

by facsimile; if the prefiling submission

exceeds ten pages, seven copies and one

original should be delivered pursuant to

the instructions contained in section 5.13

of this revenue procedure.

SEC. 4. PREFILING CONFERENCES

SEC. 5. CONTENT OF APA

REQUESTS

.01 Some cases are not suitable for

APAs. Even in suitable cases, the extent

of information needed and scope of the

necessary written request will vary from

case to case. Therefore, the taxpayer

may request one or more prefiling conferences to explore informally the suitability of an APA and to clarify what

data, documentation, and analyses are

likely to be necessary in order for the

Service to be able to consider a request;

the need for an independent expert;

potentially applicable TPMs; the possibility of an agreement among competent

authorities; and the Service’s schedule

and method for coordinating and evaluating the request.

.02 To schedule a prefiling conference, the taxpayer or its representative

should contact the APA Office with

three alternative dates for the prefiling

conference. The taxpayer may request a

prefiling conference either on the basis

that its identity will be made known in

connection with the conference, or that

it will participate in the conference on

an anonymous basis. If the taxpayer

chooses to make its identity known in

the conference, representatives of the

.01 General.

(1) All materials submitted with the

request become part of the Service’s file

and will not be returned. Therefore,

original documents should not be submitted.

(2) The taxpayer must submit copies

of any documents relating to the proposed TPM and must ensure that all

submitted information is properly labeled, indexed, and referenced in the

request. Any previously-submitted documents that the taxpayer wishes to associate with the request must be referenced in the request. If the records or

documents to be submitted are too voluminous for transmittal with the request,

the taxpayer must describe the contents

of such items in the request, certify that

the items exist at the time the request is

submitted, state where the items are

located, state whom the Service can

contact to secure the items, and confirm

that the items will promptly be made

available upon request.

(3) All documents submitted in a foreign language must be accompanied by

an English translation.

10

(4) The user fee should be submitted

with the request, unless previously submitted.

.02 Explanation of the Proposed

TPM.

The taxpayer must provide a detailed

explanation and analysis of each proposed TPM based on the principles

discussed in sections 3.02 and 3.03 of

this revenue procedure. The request

should illustrate each proposed TPM by

applying it, in a consistent format, to the

prior three taxable years’ financial and

tax data of the parties. When historical

data cannot be used to illustrate a TPM

(for example, when the TPM applies to

a new product or business), the request

should include an illustration based on

projected or hypothetical data. If coverage of three taxable years is inappropriate for any reason, the taxpayer should

provide data for an appropriate date

range and explain why this range was

chosen.

.03 General Factual and Legal Items

for All Proposed TPMs.

Unless otherwise agreed in a prefiling

conference, each request must include,

in addition to any other items specified

in this revenue procedure, the following

items:

(1) The organizations, trades, businesses, and transactions that will be

subject to the APA.

(2) The names, addresses, telephone

numbers, and taxpayer identification

numbers of the controlled taxpayers that

are parties to the requested APA (the

parties).

(3) A properly completed Form 2848

for any persons authorized to represent

the parties in connection with the request. If the taxpayer or the taxpayer’s

authorized representative has retained

any other person or persons (including,

but not limited to, a law firm, accounting firm, or economic consulting firm)

to assist the taxpayer in pursuing the

APA request, the taxpayer must also

provide a separate written authorization

for disclosures to such person or persons

and their employees during the Service’s

consideration of the request, pursuant to

the instructions in § 301.6103(c)–1 of

the Income Tax Regulations.

(4) A brief description of the general

history of business operations, worldwide organizational structure, ownership, capitalization, financial arrangements, principal businesses, and the

place or places where such businesses

are conducted, and major transaction

flows of the parties.

(5) Representative financial and tax

data of the parties for the last three

taxable years, together with other relevant data and documents in support of

the proposed TPM. This item includes,

but need not be limited to, data contained in Form 5471 (Information Report with Respect to a Foreign Corporation); Form 5472 (Information Report of

a Foreign Owned Corporation); income

tax returns; financial statements; annual

reports; other pertinent U.S. and foreign

government filings (for example, customs reports or SEC filings); existing

pricing, distribution, or licensing agreements; marketing and financial studies;

and company-wide accounting procedures, business segment reports, budgets, projections, business plans, and

worldwide product line or business segment profitability reports.

(6) The functional currency of each

party and the currency in which payment between parties is made for the

transactions that will be covered by the

APA.

(7) The taxable year of each party.

(8) A description of significant financial accounting methods employed by

the parties that have a direct bearing on

the proposed TPM.

(9) An explanation of significant financial and tax accounting differences,

if any, between the U.S. and the foreign

countries involved that have a bearing

on the proposed TPM.

(10) A discussion of any relevant

statutory provisions, tax treaties, court

decisions, regulations, revenue rulings,

or revenue procedures that relate to the

proposed TPM.

(11) A statement describing all previous and current issues at the examination, appeals, judicial, or competent authority levels that relate to the proposed

TPM, including an explanation of the

taxpayer’s and the government’s positions and any resolution of any such

issues. The same information may also

be required for similar issues involving

foreign tax authorities.

.04 Specific Factual Items for a Proposed TPM other than a Cost Sharing

Arrangement.

The following information may be

appropriate to establish the arm’s length

basis of the proposed TPM under

§ 482:

(1) Pertinent measurements of profitability and return on investment (for

example, gross profit margin or markup,

11

gross income/total operating expenses,

net operating profit margin, or return on

assets).

(2) A functional analysis of each

party setting forth the economic activities performed, the assets employed, the

economic costs incurred, and the risks

assumed.

(3) An economic analysis or study of

the general industry pricing practices

and economic functions performed

within the markets and geographical

areas to be covered by the APA.

(4) A list of the taxpayer’s competitors and a discussion of any uncontrolled transactions, lines of business or

types of businesses that may be comparable or similar to those addressed in the

request.

(5) A detailed presentation of the research efforts and criteria used to identify and select possible independent

comparables and of the application of

the criteria to the potential comparables.

This presentation should include a list of

potential comparables and an explanation of why each was either accepted or

rejected.

(6) A detailed explanation of the selection and application of the factors

used to adjust the activities of selected

independent comparables for purposes

of devising the proposed TPM. Examples of possible adjustments include

adjustments to accord with product line

segregations; for functional differences

relating to activities performed, assets

employed, risks and costs incurred; for

volume or scale differences; and for

differing economic and market conditions.

.05 Specific Factual Items for a Cost

Sharing Arrangement.

The taxpayer must apply the cost

sharing regulations under § 482 in developing the cost sharing arrangement

proposed in the request. The following

illustrates information that may be appropriate to establish that the proposed

arrangement is a qualified cost sharing

arrangement:

(1) The history of the business operations, the geographic locations, and principal business activities (for example,

manufacturing or marketing) of each of

the participants.

(2) Documentation of the arrangement and any changes made to it, along

with an explanation and the dates

thereof.

(3) The participants, their dates of

entry, each participant’s contribution to

the arrangement, each participant’s inter-

est in any covered intangibles, and how

each participant reasonably anticipates

that it will derive benefits from the use

of covered intangibles; a statement

whether there has been or will be any

transfer by any participant of covered

intangibles to another taxpayer under

common control and, if so, how benefits

will be reflected under those circumstances; and evidence of participants’

compliance with the reporting requirements under the cost sharing regulations.

(4) The method for calculating each

participant’s share of intangible development costs and the reason why such

method can reasonably be expected to

reflect that participant’s share of anticipated benefits; and a statement whether

and how the participants’ shares of

intangible development costs will be

adjusted to account for changes in economic conditions, the business operations and practices of the participants,

and the ongoing development of intangibles under the arrangement.

(5) The scope of the research and

development to be undertaken, including

the intangible or class of intangibles

intended to be developed.

(6) The duration of the arrangement;

the conditions under which the arrangement may be modified or terminated;

and the consequences of such modification or termination, such as the interest

that each participant will receive in any

covered intangibles.

(7) The scope of intangible development costs, and which costs are included

and which are excluded (for example,

costs of technology acquired from third

parties; non-product specific development costs; costs associated with abandoned projects; costs associated with

specific stages of product development;

and relevant labor, material, and overhead costs); a description of any services performed for participants to be

included in intangible development costs

(for example, contract research) and

how those services would be taken into

account; and, for a representative period,

a breakdown of total costs incurred, and

the costs borne by each participant,

pursuant to the arrangement.

(8) The basis used for measuring

benefits, the projections used to estimate

benefits, and why such basis and projections yield the most reliable estimate of

reasonably anticipated benefits; a description of any amounts to be received

from nonparticipants for the use of

covered intangibles (for example, as a

royalty pursuant to a license agreement)

and how such amounts would be taken

into account; and, for a representative

period, a comparison of projected and

actual benefit shares.

(9) The accounting method used to

determine the cost and benefits of the

intangible development (including the

method used to translate foreign currencies), and to the extent that the accounting method differs materially from U.S.

generally accepted accounting principles,

an explanation of any material differences.

(10) Prior research, if any, undertaken

in the intangible development area; any

tangible or intangible property made

available for use in the arrangement and

any compensation paid for that property

(specifying the amount, payor and

payee, and how such compensation is

determined); and any other information

used to establish the value of preexisting and covered intangibles.

(11) Whether and how participants

may join or leave the arrangement (or

otherwise change their interests in covered intangibles); any adjustments that

will be made to the participants’ interests in covered intangibles in such

cases; any payments that must be made

in such cases, and how such payments

will be calculated and made; and

whether any changes in the participants’

interests in covered intangibles have

already occurred, any compensation paid

for those interests, and any information

used to establish the value of such

interests.

(12) How cost sharing payments and

buy-in or buy-out payments (i.e., payments made when a participant contributes intangibles, or acquires or relinquishes an interest in covered

intangibles) made or received have been

treated for U.S. income tax purposes.

(13) Representative internal manuals,

directives, guidelines, and similar documents prepared for purposes of implementing or operating the cost sharing

arrangement (for example, research and

development committee meeting minutes, market studies, economic impact

analyses, capital expenditure budgets,

engineering studies, reports and studies

of trends and profitability in the industry, and financial analyses for financing

and cash flow purposes).

(14) Each participant’s gross and net

profitability (historical for five taxable

years and projected for two taxable

years) with regard to the product area

covered by the arrangement.

12

.06 Discussion of Collateral Income

Tax Issues.

The taxpayer must discuss any relevant collateral income tax issues (for

example, issues relating to foreign tax

credits) raised by the proposed TPM

under United States law.

.07 Critical Assumptions.

The taxpayer must propose and describe a set of critical assumptions. A

critical assumption is any fact (whether

or not within control of the taxpayer)

related to the taxpayer, a third party, an

industry, or business and economic conditions, the continued existence of which

is material to the taxpayer’s proposed

TPM. Critical assumptions might include, for example, a particular mode of

conducting business operations, a particular corporate or business structure or

a range of expected business volume.

.08 Contents of Annual Report.

Section 11.01 of this revenue procedure provides that the taxpayer must file

an annual report for each taxable year

covered by the APA. The taxpayer

should propose in the request a list of

items to be included in each report. For

example, the report should generally

include the following items: (a) the

application of the TPM to the actual

operations for the year; (b) a description

of any material lack of conformity with

critical assumptions and the reasons

therefor (or, if there has been no material lack of conformity with critical

assumptions, a statement to that effect);

and (c) an analysis of any compensating

adjustments to be paid by one entity to

the other, and the manner in which the

payments are to be made. Other items

may be appropriate to the taxpayer’s

particular circumstances.

.09 Term.

(1) The taxpayer must propose an

initial term for the APA. For example,

the APA could take effect at the beginning of the taxable year during which it

was requested or signed, and last for

three taxable years. The term should be

appropriate to the industry, product, or

transaction involved.

(2) The APA request must be filed no

later than the time prescribed by law

(including extensions) for filing the taxpayer’s Federal income tax return for

the first taxable year to be covered by

the APA. For purposes of the preceding

sentence, an APA request will be considered filed on the date payment of the

required user fee is made (within the

meaning of § 7502(a)), provided that a

substantially complete APA request is

filed with the Service within 120 days

thereafter, subject to extension by the

Service based on a showing of substantial unforeseen circumstances.

.10 Request for Competent Authority

Consideration.

The taxpayer must state whether any

of the parties to a request are residents

of or conduct activities in a foreign

country that has a tax treaty with the

United States or in a possession of the

United States, and whether the taxpayer

proposes an agreement among competent authorities or an agreement described in Rev. Proc. 89–8, 1989–1 C.B.

778 (see section 7 of this revenue

procedure for guidelines). For purposes

of this revenue procedure, ‘‘competent

authority’’ includes the U.S. and foreign

competent authorities under income tax

treaties to which the U.S. is a party, and

also includes the Assistant Commissioner (International) acting with respect

to a possession tax agency described in

Rev. Proc. 89–8, as well as a designated

possession tax official within the meaning of that revenue procedure. If the

taxpayer proposes an agreement among

competent authorities for the initial term

of the APA, the taxpayer’s request must

include the information described in

sections 4.05(a) and (b) and, in a separate document, section 4.05(m), of Rev.

Proc. 96–13, 1996–3 I.R.B. 31, or similar information pursuant to a request for

relief under Rev. Proc. 89–8.

.11 Perjury Statement.

The taxpayer must include in any

request for an APA, and any supplemental submission, a declaration in the following form:

Under penalties of perjury, I declare that I have examined this

request, including accompanying

documents, and, to the best of my

knowledge and belief, the request

contains all the relevant facts relating to the request, and such facts

are true, correct, and complete.

The declaration must be signed by the

person or persons on whose behalf the

request is being made and not by the

taxpayer’s representative. The person

signing for a corporate taxpayer must be

an authorized officer of the taxpayer

who has personal knowledge of the facts

and whose duties are not limited to

obtaining letter rulings or determination

letters from the Service, or negotiating

APAs. The person signing for a trust or

a partnership must be a trustee or a

partner who has personal knowledge of

the facts.

.12 Signatures.

The taxpayer or the taxpayer’s authorized representative must sign the request. If an authorized representative is

to sign, the taxpayer and representative

must conform to the rules of Rev. Proc.

96–1, 1996–1 I.R.B. 8 (or its successor).

.13 Copies and Mailing.

(1) Requests or other documents containing user fees must be mailed or

delivered to

Internal Revenue Service

Attn: CC:DOM:CORP:T

P.O. Box 7604

Ben Franklin Station

Washington, DC 20044,

or may also be hand delivered to the

drop box at the 12th Street entrance of

1111 Constitution Avenue, N.W., Washington, DC.

(2) All other communications may

either be mailed to

Advance Pricing Agreement Program

Internal Revenue Service

Attn: CC:INTL

Room 3501, 1111 Constitution Ave.,

N.W.

Washington, DC 20224

or may be delivered to

Advance Pricing Agreement Program

Internal Revenue Service

Attn: CC:INTL

5th Floor, 950 L’Enfant Plaza, S.W.

Washington, DC 20024

The taxpayer should provide the original

and seven copies of its APA request and

of all supplemental materials submitted

while the request is pending.

.14 User Fees.

(1) The user fee for each separate

request for an advance pricing agreement is $25,000 except as provided

below in this section 5.14 of this revenue procedure.

(2) The user fee for each separate request for an advance pricing

agreement from a taxpayer with gross

income (as determined in section

5.14(7) of this revenue procedure) of at

least $100,000,000 and less than

$1,000,000,000 is $15,000.

(3) The user fee for each separate

request for an advance pricing agreement or renewal from a taxpayer with

gross income (as determined in section

5.14(7) of this revenue procedure) of

less than $100,000,000 is $5,000.

(4) Notwithstanding sections 5.14(1)

and (2) of this revenue procedure, if it is

13

apparent on the face of the APA request

that the transaction or transactions subject to the request involve tangible property and/or services the total annual

value of which is not in excess of

$50,000,000, or payments for intangible

property (such as royalties) not in excess of $10,000,000 annually, the user

fee for each separate request shall not

be more than $7,500.

(5) As explained in section 5.14(8) of

this revenue procedure, an APA request

that involves pricing issues in more than

one foreign jurisdiction will normally be

considered to constitute multiple bilateral requests. The user fee for the first

such request shall be determined under

sections 5.14(1), (2), (3), (4), or (6) of

this revenue procedure as applicable.

The user fee for each subsequent bilateral request, however, shall be not more

than $7,500, if such subsequent bilateral

request (a) involves the same product

line, goods, services, or intangibles, and

the same issues, as involved in the first

request; (b) covers the same taxable

years as covered by the first request;

and (c) proposes the same TPM as the

first request.

(6) Notwithstanding sections 5.14(1)

and (2) of this revenue procedure, the

user fee for a request for renewal of an

APA, when the material facts, critical

assumptions and proposed TPM have

not substantially changed, shall not be

more than $7,500.

(7) For purposes of sections 5.14(2)

and 5.14(3) of this revenue procedure,

gross income of a U.S. person (or

non-U.S. person filing a federal income

tax return with respect to all such

person’s income) is equal to ‘‘total income’’ as reported on the last federal

income tax return for such person (as

amended) filed for a full (12 month)

taxable year ending before the date the

request was filed, plus ‘‘cost of goods

sold’’ as reported on that federal income

tax return, plus any income not subject

to tax under section 103 for that period;

and gross income of all other persons

shall be computed on an equivalent

basis (that is, gross receipts or economic

income plus cost of goods sold) for such

person’s most recently completed 12month year. For purposes of sections

5.14(2) and (3) of this revenue procedure, gross income of a taxpayer shall

include the gross income (determined

pursuant to the preceding sentence) of

all organizations, trades or businesses

(whether or not incorporated, whether or

not resident or organized in the U.S.,

and whether or not affiliated for tax

purposes) owned or controlled directly

or indirectly by the same interests controlling the taxpayer.

(8) For purposes of this section 5.14

of this revenue procedure, a separate

request constitutes a request for agreement on a transfer pricing methodology

or methodologies comprising a closely

related set of facts, such that review of

the single set of facts will suffice to

determine the suitability of all the methodologies involved in the separate request. For example, an APA submission

involving the pricing of tangible products and the manufacturing services provided by a parent to a subsidiary with

respect to those products usually would

constitute one separate request. Similarly, a submission involving separate

product lines manufactured in the same

location by substantially similar processes usually would constitute one

separate request. However, a submission

involving product lines manufactured at

different locations, or by manufacturing

processes that are not substantially similar, usually would constitute more than

one request. The fact that an APA

submission involves pricing issues related to more than one foreign jurisdiction, and thus requires analyses of separate factual or economic issues, as well

as negotiations between the U.S. and

more than one foreign competent authority, will normally result in treatment

of the submission as more than one

request. However, such separate requests

may be eligible for reduced user fees

under paragraph (5) of this section 5.14

of this revenue procedure.

(9) If an APA request is submitted or

processed under paragraphs (2), (3), (4),

(5), or (6) of this section 5.14 of this

revenue procedure, and it later becomes

apparent that the request does not meet

the criteria for application of such paragraphs, the Service will request an additional user fee to conform the request to

the proper amount under this revenue

procedure, as appropriate. The taxpayer

may either pay such additional fee and

continue the APA process or may withdraw the request. If the taxpayer withdraws the request, the Service may return

the user fee to the taxpayer if the Service

determines that such action would be

appropriate under the circumstances. Except to the extent inconsistent with this

revenue procedure, the principles of Rev.

Proc. 96–1 (or its successor), including

but not limited to section 14 thereof,

shall apply to all questions related to

user fees in connection with APAs. The

APA Team Leader described in section

6.04 of this revenue procedure, prior to

the initial meeting with the taxpayer on a

filed APA, will make a determination

regarding the correctness of the taxpayer’s initial payment of user fees and

request any necessary corrections.

(10) The chart below summarizes the

foregoing user fee provisions:

Taxpayer Gross Income

Original Request

Each Additional

Multilateral Request1 Routine Renewal2

Small Transactions3

$1 billion or more

Less than $1 billion and greater

than or equal to $100 million

Less than $100 million

$25,000

$15,000

$7,500

$7,500

$7,500

$7,500

$7,500

$7,500

$5,000

$5,000

$5,000

$5,000

1

Only if such additional request involves the same issues, covers the same years, and proposes the same TPM as the first request; see section 5.14(5).

Only if the material facts, critical assumptions, and proposed TPM have not substantially changed; see section 5.14(6).

3

Regardless of taxpayer size, applies to transactions that involve (i) tangible property or services valued at no more than $50 million annually, or (ii) payments

for intangible property not in excess of $10 million annually; see section 5.14(4).

2

SEC. 6. PROCESSING OF APA

REQUESTS

Director will coordinate with the U.S.

competent authority.

.01 Initial Contact.

After receiving a request for an APA,

a representative of the APA Program

will contact the taxpayer to discuss any

questions that the Service may have, or

to ask for any additional information or

documents believed necessary in order

to initiate processing of the request.

Additional information and documents

must be supplied by the date specified

by the Service, as extended for good

cause.

.03 Evaluation Process.

The Office of Associate Chief Counsel (International), in coordination with

the appropriate District Director and

other appropriate Service officials, will

evaluate the taxpayer’s APA request by

discussing it with the taxpayer, verifying

the data supplied, and requesting additional supporting data if necessary. The

evaluation of the request will not constitute an examination or inspection of the

taxpayer’s books and records under

§ 7605(b) or any other provision of the

Code.

.02 Coordination with Other IRS Offices.

Upon receipt of a request, the APA

Director will coordinate the evaluation

of the request with other Service officials, such as the District Director, Regional Director of Appeals and District

Counsel. In appropriate cases, such as

where a request proposes an agreement

between competent authorities, the APA

.04 Formation of the APA Team and

Designation of Team Leader.

Within 45 days of receiving the taxpayer’s APA request and any required

user fees, the APA Director will appoint

an APA Team to review the request. The

APA Team normally will consist of at

least one representative of the Office of

14

Associate Chief Counsel (International),

as well as representatives of the appropriate District and District Counsel and,

when appropriate, Appeals and the U.S.

competent authority. The APA Director

will appoint a Team Leader to oversee

the APA Team’s activities. Whenever

reasonably feasible, if a prefiling conference has been held with the taxpayer,

the Team Leader will be appointed from

among the IRS representatives at the

prefiling conference.

.05 Negotiation and Drafting.

(1) The APA Team shall arrange with

the taxpayer for an initial meeting to

take place within 60 days of receiving

the taxpayer’s APA request and required

user fee. In connection with the initial

meeting, the APA Team and the taxpayer

shall agree on a Case Plan and Schedule, to which everyone involved in the

APA–both government and taxpayer

personnel–will be expected to adhere.

The Case Plan and Schedule should list

each question raised by the initial Ser-

vice review of the APA request and

should include a schedule for seeking to

resolve each. The Case Plan and Schedule generally should reflect agreement

between the APA Team and the taxpayer

on the scope and nature of any additional information that will be required

to resolve these questions in order to

negotiate an APA. Firm dates should be

agreed upon for case milestones, including: (a) submission of any necessary

additional information by the taxpayer;

(b) evaluation of the information by the

government; (c) negotiation of a recommended agreement or competent authority negotiating position; and (d) presentation of the recommended agreement or

competent authority negotiating position

in writing to the Associate Chief Counsel (International).

(2) The time scheduled for completion of the case milestones will depend

to some extent on the scope and complexity of the particular case. In the case

of bilateral or multilateral requests, the

Service will seek to work with the

competent authority of the treaty partner

or U.S. possession involved to minimize

the time needed for competent authority

resolution.

(3) To minimize delays caused by the

need to coordinate different parties’

schedules on short notice, the time and

place of meetings required for any steps

in the case should be determined in the

Case Plan and Schedule.

(4) Failures by either the taxpayer or

the APA Team to meet case milestones

will be addressed promptly, normally in

a meeting or telephone conference involving the APA Director, members of

the Service APA Team, and the taxpayer.

If a taxpayer has failed to meet one of

the case milestones, the APA Director

will assist the taxpayer in remedying

any difficulties and will propose a

course of action to ensure that milestones can be met. Substantial and consistent failure by the taxpayer to comply

with the Case Plan and Schedule will be

treated by the Service as a withdrawal

of the APA request. In this event, if the

taxpayer wishes to continue to pursue

the APA, the taxpayer will be required

to refile the request and pay a new user

fee. If the Service fails to meet a case

milestone, the APA Director, the Service

APA Team, and supervisors in the District and Region, as appropriate, shall

work together promptly to remedy the

situation.

(5) In some circumstances, development of the case after agreement on the

Case Plan and Schedule will suggest, to

both the APA Team and the taxpayer,

that some milestone dates should be

adjusted. To preserve flexibility, the

APA Team and the taxpayer may amend

the Case Plan and Schedule by mutual

agreement, consistent with the need to

maintain progress toward completion of

the case as expeditiously as feasible.

(6) The function of the APA Team is

to negotiate and recommend an agreement, and if applicable to recommend in

consultation with the taxpayer a competent authority negotiating position, to the

Associate Chief Counsel (International).

Negotiations between taxpayers and the

APA Team should be documented by

means agreed between the parties. The

District Director with responsibility for

the taxpayer’s returns shall be provided

an opportunity to review and comment

on the draft APA in the case of a

unilateral APA, and the proposed initial

US competent authority negotiating position in the case of a bilateral or

multilateral APA. Signature of an APA

by the Associate Chief Counsel (International) and the taxpayer will constitute

agreement to the APA.

.06 Withdrawing the Request.

The taxpayer may withdraw the request at any time before the execution

of the APA. Pursuant to the principles of

Rev. Proc. 96–1 (or its successors),

including but not limited to section

14.09 thereof, the user fee generally will

not be refunded if the taxpayer withdraws its request for an APA.

.07 Rejecting the Request.

The Service may decline either to

accept any APA request or to execute

any APA, as requested, after a request

has been accepted. If the Service declines to execute an APA after the

request has been initiated, the Service

normally will retain the user fee, although the fee may be returned if the

Service determines that such action

would be appropriate under the circumstances. If the Service proposes to reject

an APA request, the taxpayer will be

granted one conference of right. Other

conferences may be granted at the Service’s discretion.

SEC. 7. COMPETENT AUTHORITY

CONSIDERATION

.01 When any of the parties to a

request are entitled to seek relief under

the mutual agreement provision of a tax

treaty between a foreign country and the

United States, or under Rev. Proc. 89–8,

the competent authorities may enter into

15

agreements concerning the APA. Requests similar to APA requests that are

initiated through treaty partners or possession tax agencies and submitted to

the U.S. competent authority will be

processed under this revenue procedure

and Rev. Proc. 96–13, as appropriate. In

order to provide timely clarification of

factual issues, minimize the potential for

miscommunication, and assist in development of a multiple party agreement

on a timely basis, the Service will

generally initiate coordination among

the taxpayer, the Service, and the competent authorities of treaty partners at

the earliest possible stage of consideration of an APA request including,

where possible, the prefiling stage. In

this manner, the U.S. and foreign competent authorities can develop a joint

understanding of the case which should

facilitate negotiation and resolution of

competent authority issues. The taxpayer

should remain available throughout consideration of the request to assist the

Service in reaching agreement with the

foreign competent authority. Final agreement to the negotiated APA will be

sought among the taxpayer, the Service,

and the foreign competent authority. As

a general matter, the taxpayer is encouraged to submit APA requests and related

correspondence simultaneously to the

Service and to foreign competent authorities involved in the requests.

.02 The purpose of the competent

authority agreement is to avoid double

taxation. If such an agreement is not

acceptable to the taxpayer, the taxpayer

may withdraw the APA request (see

section 6.06 of this revenue procedure).

If the competent authorities are unable

to reach an agreement or the taxpayer

does not accept the competent authority

agreement, the Service will attempt to

negotiate a unilateral APA with the

taxpayer (see section 7.07 of this revenue procedure).

.03 The taxpayer must cooperate with

the Service and the U.S. competent

authority, pursuant to the standards set

forth in Rev. Proc. 96–13 and any other

applicable revenue procedures. Any information received or prepared by the

Service, including information furnished

by the taxpayer or the related foreign

entity, will be subject to the restrictions

on disclosure of tax related information

provided by U.S. law and the applicable

income tax convention.

.04 It may be necessary to request

sensitive confidential data (such as trade

secrets) which, if disclosed, could harm

the taxpayer’s competitive position. In

such cases, the parties will attempt to

negotiate a mechanism to permit verification by a foreign competent authority

without disclosing such information.

.05 When the competent authorities

enter into an agreement covering an

APA, the Service will, to the extent

practicable, agree to a mutual exchange

of information with the foreign competent authority concerning any subsequent

modifications, cancellation, revocation,

requests to renew, evaluation of annual

reports, or examination of the taxpayer’s

compliance with the terms and conditions of the APA. Bilateral APAs may

provide for simultaneous filing of the

annual report with the Service and with

the foreign tax administration.

.06 The U.S. competent authority will

seek to persuade the foreign competent

authority to use APA data only on terms

similar to those described in sections

10.04 and 10.05 of this revenue procedure.

.07 To minimize taxpayer and governmental uncertainty and administrative

cost, bilateral or multilateral APAs generally are preferable to unilateral APAs

when competent authority procedures

are available with respect to the foreign

country or countries involved. In appropriate circumstances, however, the Service may execute an APA with a taxpayer without reaching a competent

authority agreement. The taxpayer must

show sufficient justification for a unilateral APA. When a unilateral APA request involves taxpayers operating in a

country that is a treaty partner, the

Service may notify the treaty partner of

the filing of the request and provide the

treaty partner with other information

related to the request, under normal

rules governing the exchange of information under income tax treaties. In

some circumstances, procedures agreed

upon with particular foreign competent

authorities, or the requirements of

proper relations with treaty partners,

may preclude unilateral APAs.

.08 Section 7.05 of Rev. Proc. 96–13

provides in part that, if a taxpayer

reaches a settlement on an issue with

Counsel pursuant to a written agreement, the U.S. competent authority will

endeavor only to obtain a correlative

adjustment from a treaty country and

will not undertake any actions that

would otherwise change such agreement.

The restrictions imposed under section

7.05 of Rev. Proc. 96–13 with respect to

the discretion of the U.S. competent

authority to negotiate correlative relief

will not apply to a unilateral APA.

However, a unilateral APA may hinder

the ability of the U.S. competent authority to reach a mutual agreement which

will provide relief from double taxation,

particularly when a contemporaneous bilateral or multilateral APA request would

have been both effective and practical

(within the meaning of § 1.901–

2(e)(5)(i)) to obtain consistent treatment

of the APA matters in a treaty country.

(If there is a settlement with respect to

taxable years prior to the first year

subject to a unilateral APA based on

rollback of such APA‘‘s TPM (as discussed in sections 3.06 and 8 of this

revenue procedure), section 7.05 of Rev.

Proc. 96–13 will apply to such rollback

years in the regular manner.)

SEC. 8. ROLLBACKS

.01 The taxpayer may indicate in its

APA request, or at any time prior to the

completion of APA negotiations, that it

desires for the Service to consider using

the TPM of the APA to resolve transfer

pricing issues for years prior to the

earliest year covered by the APA. In

general, the principles set forth in section 3.06 of this revenue procedure will

govern the Service’s consideration of

this request (the ‘‘rollback request’’).

When a rollback request is made after

submission of the APA request, the

taxpayer must provide the request to the

APA Director at the address indicated in

section 5.13(2) of this revenue procedure.

.02 If a rollback request is submitted

in connection with a bilateral or multilateral APA, the rollback request will be

deemed to constitute an application for

accelerated competent authority consideration as described in section 7.06 of

Rev. Proc. 96–13. The Office of Associate Chief Counsel (International), the

District Director, and the U.S. competent authority will coordinate consideration of the request. The taxpayer’s

request must include all information

required for accelerated competent authority consideration under Rev. Proc.

96–13, subject to the rules set forth

therein. The taxpayer’s request can pertain to any years prior to the first year

to be covered under the requested APA,

except that, in order to facilitate effective competent authority negotiations,

the Service may require that, if accelerated competent authority consideration

is to be granted, it will apply to one or

more specified years. In exercising their

regular discretion over the conduct of

accelerated competent authority consid-

16

eration, Service officials shall seek to

implement the policy concerning APA

rollbacks stated in section 3.06 of this

revenue procedure.

.03 If a rollback request is submitted

in connection with a bilateral or multilateral APA and involves a taxable year

that is under the jurisdiction of Appeals,

the rollback request will be deemed to

constitute an application for simultaneous Appeals and competent authority

consideration as described in section 8

of Rev. Proc. 96–13 and will be subject

to the rules set forth therein. The Office

of Associate Chief Counsel (International), the Regional Director of Appeals, and the U.S. competent authority

will coordinate consideration of the request. In exercising their regular discretion over the conduct of simultaneous

Appeals and competent authority consideration, Service officials shall seek to

implement the policy concerning APA

rollbacks stated in section 3.06 of this

revenue procedure.

.04 Subject to the policy set forth in

section 3.06 of this revenue procedure,

the determination whether a rollback

shall be granted with respect to a taxable year is within the discretion of the

Service official with jurisdiction over

the taxable year subject to the rollback

— typically, either the District Director,

the Regional Director of Appeals, the

Assistant Commissioner (International)

(for matters subject to competent authority negotiations), or the District Counsel

(for matters under litigation). Except to

the extent inconsistent with this revenue

procedure, normal procedures for resolving tax issues, including but not limited

to closing agreements and other settlement documents and Forms 870 and

870AD, shall be used to implement APA

rollbacks.

SEC. 9. INDEPENDENT EXPERT

OPINION

.01 The taxpayer may be required to

provide at its own expense an independent expert, acceptable to both the taxpayer and the Service (and, in a bilateral

or multilateral proceeding, the foreign

competent authority or authorities) to

review and opine on the proposed TPM.

The taxpayer may suggest in its APA

request whether an independent expert is

needed, or the Service (or, if applicable,

the foreign competent authority) may

determine that an independent expert is

needed for the evaluation of the taxpayer’s request.

.02 For purposes of this revenue procedure, an expert is any person who, by

agreement between the taxpayer and the

Service (and, if involved, the foreign

competent authority), possesses expert

education or experience in a field of

study, industry or geographic area that is

relevant to the subject matter of the

taxpayer’s APA request.

.03 For purposes of this revenue procedure, an expert is independent if the

expert has not participated to any material extent in the development of the

request and has not in the past assisted

either the Service or the taxpayer in

matters substantially related to the request.

.04 If an expert is necessary, the

expert will critically analyze the taxpayer’s proposed TPM and render a written

opinion. The opinion will address any

questions and concerns raised by the

Service or the taxpayer (and, if involved, the foreign competent authority);

conclude whether the proposed TPM or

a revised version fairly supports and

produces an arm’s length approach; and

provide the basis for this opinion. However, the expert’s opinion will not be

binding on any of the parties. The

taxpayer and the Service (and, if involved, the foreign competent authority)

will have access to the expert’s report

and supporting documentation. The Service and the taxpayer shall both be kept

fully informed of any communications

between the other party and the independent expert, and receive copies of all

information provided by such other

party to the expert.

.05 If an independent expert is necessary, the taxpayer must provide a waiver

under § 6103(c) to the Service for purposes of discussing returns or return

information with the expert. The taxpayer must also ensure that the expert is

familiar with the provisions of this revenue procedure and that any opinion

rendered by the expert complies with

those provisions.

SEC. 10. LEGAL EFFECT

.01 An APA is a binding agreement

between the taxpayer and the Service.

.02 If the taxpayer complies with the

terms and conditions of the APA, the

Service will regard the results of applying the TPM as satisfying the arm’s

length standard, and, except as provided

in this revenue procedure, will not contest the application of the TPM to the

subject matter of the APA. The taxpayer

remains otherwise subject to U.S. in-

come tax laws and is entitled to any

benefits otherwise available under U.S.

income tax laws.

.03 Except to the extent provided by

regulations, an APA shall have no legal

effect except with respect to the taxpayer, taxable years and transactions to

which the APA specifically relates.

.04 Except as otherwise provided by

written agreement, regulations, or this

revenue procedure, neither the APA nor

any non-factual oral or written representations or submissions made in conjunction therewith may be introduced by the

taxpayer or the Service as evidence in

any judicial or administrative proceeding

in relation to any tax year, transaction,

or person not covered by the APA.

However, taxpayers should recognize

that the preceding sentence does not

preclude rollback of the APA TPM, nor

the discovery, use, or admissibility of

non-factual material otherwise discoverable or obtained other than in the APA

process merely because the same or

similar material was also included in the

APA or representations or submissions

made in connection with the APA or

presented during the APA process.

.05 Except as otherwise provided by

written agreement or regulations, if an

APA is not executed or if an executed

APA is later revoked or canceled, neither the APA or the proposal to use a

particular TPM, nor any non-factual oral

or written representations or submissions

made during the APA process, may be

introduced by the taxpayer or the Service as an admission by the other party

in any administrative or judicial proceeding for the taxable years for which

the APA was requested or executed.

However, taxpayers should recognize

that the preceding sentence does not

preclude the discovery, use, or admissibility of non- factual material otherwise

discoverable or obtained other than in

the APA process merely because the

same or similar material was also included in the APA or representations or

submissions made in connection with

the APA or presented during the APA

process.

SEC. 11. ADMINISTERING THE APA

.01 Annual Reports.

(1) For each taxable year covered by

the APA, the taxpayer must file a timely

and complete annual report describing

the taxpayer’s actual operations for the

year and demonstrating good faith compliance with the terms and conditions of

the APA. The report must include all

17

items called for by the APA, must

describe any pending or contemplated

requests to renew, modify or cancel the

APA, and must describe any compensating adjustments made pursuant to section 11.02 of this revenue procedure.

(2) The taxpayer shall file an original

and four copies of each report, no later

than 90 days after the time prescribed

by law (including extensions) for filing

the taxpayer’s Federal income tax return

for the year covered by the report, or by

such other date as is specified in the

APA, with the APA Director at the

address indicated in section 5.13(2) of

this revenue procedure. The taxpayer

may also be required to file a copy of

the annual report with the treaty partner

or partners with respect to a bilateral or

multilateral APA. The report must comply with sections 5.11 and 5.12 of this

revenue procedure.

(3) The Service will contact the taxpayer regarding an annual report only if

it is necessary to clarify or complete the

information contained in the annual report. Additional information must be

supplied by the date specified by the

Service, as extended for good cause.

Any contact between the taxpayer and

the Service for the purpose of clarifying

the information contained in the annual

report will not constitute an examination, or the commencement of any examination, of the taxpayer for purposes

of § 7605(b) or any other provision of

the Code.

.02 Compensating Adjustments.

(1) If the results of applying the TPM

differ from those contemplated by the

APA, the APA may permit the taxpayer

and its related foreign entity to make a

compensating adjustment. For example,

if the APA provides for a range of

expected operating results, and the actual operating results are outside that

range (but within any limits specified in

the APA), the APA may permit the

parties to make a compensating adjustment to bring the results to an agreed

upon point within the described range.

Such compensating adjustment should

be reflected on the taxpayer’s timely

filed (with extensions) federal income

tax return; if the taxpayer is not able to

make such adjustments in its original

return, the required compensating adjustment must in any event be made and

paid within 90 days of the date prescribed for filing such return (with extensions), and reflected on an amended

return filed within such period and the

timely filed annual report required by

section 11.01 of this revenue procedure.

To the extent the APA covers years for

which federal income tax returns were

filed before the APA was executed, the

taxpayer must make any required compensating adjustments in an amended

return or returns filed within, and pay

such compensating adjustments within,

90 days of entering into such APA.

(2) The taxable income and earnings

and profits of both the taxpayer and its

related foreign entity for a taxable year

covered by an APA will include all

income generated as a result of the TPM

as increased or decreased by any compensating adjustment for that year. A

compensating adjustment will be

deemed to have been made as of the last

day of the taxable year to which it

applies. For all U.S. income tax purposes, after taking into consideration

any compensating adjustment, the adjusted figures will be used. Provided

that the taxpayer has made a good faith

effort to comply with the TPM in such

manner as to avoid the need for compensating adjustments, and payments of

compensating adjustments are made

within the time specified in section

11.02(1) of this revenue procedure, (i)

the compensating adjustment will not be

taken into account in the computation of

any required estimated tax installments

for such year, (ii) the taxpayer will not

be subject to the failure to pay penalties

under § § 6651 and 6655 by reason of

the compensating adjustment, and (iii)

no interest will accrue on any receivable

or payable established to settle such

compensating adjustment. A compensating adjustment may, however, be taken

into account for purposes of redetermining any foreign tax credits in accordance

with § 901. Subject, where applicable,

to agreement between competent authorities, the taxpayer or the related

foreign entity may employ any method

that accords with section 4 of Rev. Proc.

65–17, 1965–1 C.B. 833 (as modified),

or any successor, for paying compensating adjustments, including checks, wire

transfers, offsets through intercompany

accounts, or recharacterized dividends.

All actions taken with respect to such

compensating adjustments must be

documented and disclosed in the annual

report.

(3) A ‘‘subsequent compensating adjustment’’ arises when the taxpayer or

the Service makes normal and routine

adjustments (for example, correction of

computational errors) to the determination and computation of the taxpayer’s

TPM during the taxable year or years

under the APA, as determined in accordance with the TPM. The generally

applicable Code rules relating to assessment, collection and refund of tax and

the principles of Rev. Proc. 65–17 (as

modified), or any successor, apply to

any resulting change in Federal income

tax liability because of a subsequent

compensating adjustment.

(4) When an agreement between

competent authorities is sought as part

of the APA request, the principles stated

in this section will be discussed with the

appropriate foreign competent authority

to seek to ensure substantially identical

treatment of the taxpayer’s related foreign entity.

(5) The Service and the taxpayer may

agree in an APA to modify the foregoing

provisions relating to compensating adjustments.

.03 Examination.

(1) If the District Director examines a

tax year covered by an APA, the examination of matters covered by the APA

will be limited to the factors in section

11.03(2) of this revenue procedure. The

District Director will not re-evaluate the

TPM itself.

(2) The District Director may require

the taxpayer to establish that (a) the

taxpayer has complied in good faith

with the terms and conditions of the

APA; (b) the material representations in

the APA and the annual reports remain

valid and accurately describe the taxpayer’s operations; (c) the supporting data

and computations used in applying the

TPM were correct in all material respects; (d) the critical assumptions underlying the APA remain valid; and (e)

the taxpayer has consistently applied the

TPM and met the critical assumptions.

(3) If the District Director determines

that any requirement in section 11.03(2)

of this revenue procedure has not been

satisfied, the issue will be submitted to

the Associate Chief Counsel (International) for resolution. The Associate

Chief Counsel (International) will decide

either to continue to apply the APA;

revoke the APA (see section 11.05 of

this revenue procedure); cancel the APA

(see section 11.06); or revise the APA

(see section 11.07).

(4) The District Director may, without securing the consent of the Associate Chief Counsel (International), propose normal and routine audit

adjustments, which are not related to

interpretation of the TPM, to the determination and computation of the operating results of the taxpayer’s TPM during

18

the taxable year or years under examination (as determined in accordance with

the TPM) without affecting the continued validity or applicability of the APA.

If the taxpayer agrees with the proposed

adjustments, they will be given effect

through payment of additional compensating adjustments. If the taxpayer does

not agree, the taxpayer may contest the

proposed adjustments through normal

administrative and judicial proceedings.

Any changes to compensating adjustments previously made by the taxpayer,

in respect of the taxable year or years

under examination, that arise as a result

of the audit adjustments made by the

District Director will be made within

ninety days of a final determination of

the audit adjustments. Any compensating adjustments and changes to compensating adjustments described in this section 11.03(4) will be treated as

subsequent compensating adjustments

for purposes of section 11.02 of this

revenue procedure.

.04 Record Retention.

(1) The taxpayer must maintain

books and records sufficient to enable

the Service to examine the taxpayer’s

compliance with the APA. The APA may

specify the books and records that are

necessary to fulfill this objective and

may specify that compliance with the

applicable provisions of the APA will

constitute compliance with the provisions of § § 6038A and 6038C with

respect to transactions covered by the

APA.

(2) Upon examination, information

requested by the Service must be made

available to the Service upon written

request within 30 days, and translations

must be provided within 30 days of a

request for translation of specific documents, both as extended for good cause.

The fact that a foreign jurisdiction may

impose a penalty upon the taxpayer or

other person for disclosing the material

will not constitute reasonable cause for

noncompliance with the Service’s request.

.05 Revoking the APA.

(1) The Associate Chief Counsel (International) may revoke the APA if there

has been fraud or malfeasance (as defined in § 7121) or disregard (as defined in § 6662(b)(1) and (c)) by the

taxpayer in connection with the APA,

including but not limited to fraud, malfeasance or disregard involving any of

the following: the material facts set

forth in the request or subsequent submissions (including the annual report),

or lack of good faith compliance with

the terms and conditions of the APA.

Material facts are those that, if known

by the Service, could reasonably have

resulted in a significantly different APA

(or no APA at all). The Associate Chief

Counsel (International) is not required to

revoke the APA and may require the

taxpayer to continue to abide by it.

(2) If the APA is revoked for any

reason, the revocation may be retroactive to the first day of the first taxable

year for which the APA was effective.

(3) If the APA is revoked for any

reason, the Service may determine deficiencies in income taxes and additions

thereto in accordance with applicable

provisions of the Code. In addition, (a)

relief under Rev. Proc. 65–17 may be

denied; (b) if the Service determines

that the taxpayer may avail itself of the

relief under Rev. Proc. 65–17, interest

on any account receivable established

under section 4.03 of that revenue procedure may be determined not to be

subject to mutual agreement or correlative relief; (c) the revocation of the APA

may be treated as an ‘‘egregious case’’

under Rev. Rul. 80–231, 1980–2 C.B.

219, with the result that the taxpayer

may be denied a foreign tax credit in

accordance with that ruling; and (d) the

unilateral relief provisions of Rev. Proc.

96–14, 1996–3 I.R.B. 41, may not be

available. When an APA has been the

subject of negotiation with a foreign

competent authority, the Service will

seek to coordinate any action concerning

revocation of the APA with the foreign

competent authority.

.06 Cancelling the APA.

(1) The Associate Chief Counsel (International) may cancel the APA if the

District Director, with the concurrence

of the Associate Chief Counsel (International), determines that there was a

misrepresentation, mistake as to a material fact, failure to state a material fact,

or lack of good faith compliance with

the terms and conditions of the APA

(but not fraud, malfeasance or disregard)

in connection with the request for the

APA, or in any subsequent submissions

(including the annual report). Material

facts are those that, if known by the

Service, would have resulted in a significantly different APA (or no APA at

all).

(2) The Associate Chief Counsel (International) may waive cancellation if

the taxpayer can show good faith and

reasonable cause to the satisfaction of

the Associate Chief Counsel (Interna-

tional), and if the taxpayer agrees to

make any adjustment proposed by the

Associate Chief Counsel (International)

to correct for the misrepresentation, mistake as to a material fact, failure to state

a material fact, or noncompliance. The

Associate Chief Counsel (International)

is not required to cancel the APA and

may require the taxpayer to continue to

abide by it.

(3) If the APA is cancelled under

section 11.06(1) of this revenue procedure, the cancellation will be effective

as of the beginning of the year in

respect of which the misrepresentation,

mistake as to a material fact, failure to

state a material fact, or noncompliance

occurs. If, however, the cancellation

results from a change in law or treaty,

as provided in section 11.07(1) of this

revenue procedure, the cancellation normally will be effective as of the effective date of the change in law or treaty.

(4) If the APA is cancelled for any

reason, then as of the effective date of

the cancellation the APA will cease to

be of any further force and effect with

respect to the taxpayer and the Service

for U.S. income tax purposes. After the

effective date of the cancellation, the tax

treatment of the transactions covered by

the APA will be subject to all U.S. tax

rules (including treaty rules) that otherwise apply. When an APA has been the

subject of negotiation with a foreign

competent authority, the Service will

seek to coordinate any action concerning

cancellation of the APA with the foreign

competent authority.

.07 Revising the APA.

(1) If a critical assumption has not

been met, or there has been a change in

law or treaty as described in section

11.09 of this revenue procedure, the

APA may be revised by agreement of

the parties. If such agreement cannot be

achieved, the APA will be cancelled.

(2) If a critical assumption has not

been met, the taxpayer must notify the

APA Director, including with the notification supporting documentation and a

statement whether a revision appears

appropriate. The taxpayer shall file the

notification at any time prior to the last

date permitted for filing the annual

report for the year in which the failure

to meet a critical assumption occurred.

In providing the notification, the taxpayer must follow the procedures contained in sections 5.11 through 5.13 of

this revenue procedure.

(3) If a critical assumption has not

been met, the taxpayer and the Service

19

will discuss how to revise the APA. If

the taxpayer and the Service cannot

execute a revised agreement, the APA

will be cancelled as of the beginning of

the taxable year in which the failure to

meet a critical assumption occurred. If

the Service and the taxpayer can agree

on a revised APA, the effective date of

the revised APA will be stated in the

new APA.

(4) If the Service and the taxpayer

agree to revise an APA that has been

subject to competent authority agreement, the revised APA will be submitted

to the U.S. competent authority in order

to seek the consent of the foreign competent authority to the revised APA. If

the foreign competent authority refuses

to accept the revised APA, or if the

competent authorities cannot agree on a

revised APA agreeable to all parties, the

taxpayer and the Service may: (a) agree

to continue to apply the existing APA,

(b) agree to apply the revised APA or

agree to further revision thereof, or (c)

agree to cancel the APA as of an agreed

date. If such agreement cannot be

achieved, the APA will be cancelled

pursuant to section 11.07(1) of this

revenue procedure.

.08 Renewing the APA.

A taxpayer may request renewal by

following the form and procedures that

apply to initial APA requests. The taxpayer must submit the user fee as

required under section 5.14 of this revenue procedure, and must provide appropriate supporting documentation with

the request. Unless otherwise agreed by

the Service, the taxpayer should file the

request to renew no later than nine

months before the expiration of the

initial term or any renewal term.

.09 Change in Law or Treaty.

If there is a change in any applicable

U.S. law or treaty that changes the

Federal income tax treatment of any

matter covered by the APA, the new law

or treaty provision supersedes the APA

to the extent the APA is inconsistent

therewith. The parties may revise the

APA under section 11.07 of this revenue

procedure to reconcile it with the new

law or treaty provision.

SEC. 12. DISCLOSURE

The information received or generated

by the Service during the APA process

relates directly to the existence and

amount of tax liability of the taxpayer

under the Internal Revenue Code. Therefore, the APA and such information are

subject to the confidentiality requirements of § 6103. In addition, the APA

and such information may be confidential pursuant to the provisions of income

tax conventions, or other rules applicable to communications with foreign

governments.

SEC. 13. EFFECT ON OTHER

DOCUMENTS

Rev. Proc. 91–22, 1991–1 C.B. 526,

is superseded. Rev. Proc. 96–13 is modified. Rev. Proc. 96–1 is modified.

SEC. 14. EFFECTIVE DATE

This revenue procedure will apply to

all APA requests, including requests for

renewal, received on or after December

31, 1996, except that (i) section 7.08

shall apply to all such APA requests and

APA requests that have been filed on or

after the effective date of Rev. Proc.

96–13, (ii) section 8.02 and/or section

8.03 may at the taxpayer’s request apply

to an APA request filed prior to such

date and with respect to which an APA

has not been concluded, and (iii) any

provision of section 5.14 may apply to a

request filed prior to such date and with

respect to which an APA has not been

concluded, if the taxpayer demonstrates

that such application is necessary to

avoid unfairness to the taxpayer.

SEC. 15. PAPERWORK REDUCTION

ACT

The collections of information contained in this revenue procedure have

been reviewed and approved by the

Office of Management and Budget in

accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under control

number 1545–1503.

An agency may not conduct or sponsor, and a person is not required to

respond to, a collection of information

unless the collection of information displays a valid control number.

The collections of information in this

revenue procedure are in sections 4.02,

5, 8.02, 9, 11.01, 11.02(1), 11.04, 11.07,

and 11.08. This information is required

to provide the Service sufficient information to evaluate and process the APA

request or request for renewal of an

existing APA, or to determine whether

the taxpayer is in compliance with the

terms and conditions of an APA. This

information will be used to evaluate the

proposed TPM, and the taxpayer’’s compliance with the terms and conditions of

any APA to which it is a party. The

collections of information are required

to obtain an APA. The likely respondents are business or other for-profit

institutions.

The estimated total annual reporting

and/or recordkeeping burden is 5,250

hours.

20

The estimated average burden for an

APA prefiling conference is 10 hours;

the estimated average burden for an

APA request is 50 hours; and the estimated average burden for preparation of

an annual report by a party to an APA is

15 hours. The estimated number of

respondents and/or recordkeepers is 160.

The estimated annual frequency of

responses is one request or report per

year per applicant or party to an APA,

except that a taxpayer requesting an

APA may also request a prefiling conference.

Books or records relating to a collection of information must be retained as

long as their contents may become material in the administration of any internal revenue law. Generally tax returns

and tax return information are confidential, as required by § 6103.

DRAFTING INFORMATION

The principal authors of this document are various members of the Advance Pricing Agreement Program Office of the Office of the Associate Chief

Counsel (International). For further information regarding this revenue procedure contact Ms. Carolyn Fanaroff or

Ms. Sherri New at (202) 874–4360 (not

a toll-free number).

Part IV. Items of General Interest

Notice of Proposed Rulemaking

and Notice of Public Hearing

Definition of Reasonable Basis

IA–42–95

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

SUMMARY: This document contains

proposed regulations relating to the

accuracy-related penalty regulations under chapter 1 of the Internal Revenue

Code. These amendments are necessary

to define reasonable basis and provide

corrections to final regulations relating to

the accuracy-related penalty under chapter 1 of the Internal Revenue Code. The

proposed regulations would affect all

taxpayers who file tax returns. This

document also provides notice of a public hearing on these proposed regulations.

DATES: Written or electronically generated comments must be received by

February 10, 1997. Outlines of topics to

be discussed at the public hearing

scheduled for February 25, 1997, must

be received by February 4, 1997.

ADDRESSES: Send submissions to:

CC:DOM:CORP:R (IA–42–95), room

5226, Internal Revenue Service, POB

7604, Ben Franklin Station, Washington,

DC 20044. In the alternative, submissions may be hand delivered between

the hours of 8 a.m. and 5 p.m. to:

CC:DOM:CORP:R (IA–42–95), Courier’s Desk, Internal Revenue Service,

1111 Constitution Avenue NW., Washington, DC., or electronically, via the

IRS Internet site at: http://www.irs.

ustreas.gov/prod/tax_regs/comments.

html. The public hearing will be held in

room 3313, Internal Revenue Building,

1111 Constitution Avenue NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations,

Nancy Romano, 202–622–6232 (not a

toll-free number). Concerning submissions and the public hearing, Michael L.

Slaughter, 202–622–7190 (not a toll-free

number).

SUPPLEMENTARY

INFORMATION:

Background

On September 1, 1995, the IRS issued

Treasury Decision 8617 (60 FR 45663),

setting forth final regulations relating to

the accuracy-related penalty under chapter 1 of the Internal Revenue Code.

These regulations provided guidance

concerning the reasonable basis standard

for purposes of the negligence penalty

(section 6662(b)(1)) and for purposes of

the disclosure exception to the penalties

for disregarding rules or regulations

(section 6662(b)(1)) and substantial understatement of income tax (section

6662(b)(2)). In the preamble to the final

regulations, Treasury requested comments and suggestions on providing further guidance on the reasonable basis

standard. Treasury has not received any

additional comment letters in response

to this request for comments. Previous

comments that were addressed in the

preamble to the final regulations published on September 1, 1995 have been

considered in drafting these proposed

regulations.

Explanation of Provision

Under the final regulations currently

in place, the reasonable basis standard is

‘‘significantly higher than the not frivolous standard applicable to preparers

under 6694.’’ These proposed regulations provide that the reasonable basis

standard is not satisfied by a return

position that is merely arguable or that

is merely a colorable claim. A return

position will generally satisfy the reasonable basis standard if it is reasonably

based on one or more of the authorities

set forth in § 1.6662–4(d)(3)(iii) (taking

into account the relevance and persuasiveness of the authorities, and subsequent developments). Additionally, the

proposed regulations clarify that if a

return position does not satisfy the reasonable basis standard, the reasonable

cause and good faith exception as set

forth in § 1.6664–4 may still provide

relief from the penalty.

Special Analyses

It has been determined that this notice

of proposed rulemaking is not a significant regulatory action as defined in EO

12866. Therefore, a regulatory assessment is not required. It also has been

determined that section 553(b) of the

Administrative Procedure Act (5 U.S.C.

chapter 5) and the Regulatory Flexibility

Act (5 U.S.C. chapter 6) do not apply to

these regulations, and, therefore, a

Regulatory Flexibility Analysis is not

21

required. Pursuant to section 7805(f) of

the Internal Revenue Code, this notice

of proposed rulemaking will be submitted to the Chief Counsel for Advocacy

of the Small Business Administration for

comment on its impact on small business.

Comments and Public Hearing

Before these proposed regulations are

adopted as final regulations, consideration will be given to any comments

that are submitted timely (in the manner

described under the ADDRESSES caption) to the IRS. All comments will be

available for public inspection and copying.

A public hearing has been scheduled

for February 25, 1997, at 10 a.m., in

room 3313, Internal Revenue Building,

1111 Constitution Avenue NW., Washington, DC. Because of access restrictions, visitors will not be admitted beyond the building lobby more than 15

minutes before the hearing starts.

The rules of 26 CFR 601.601(a)(3)

apply to the hearing.

Persons that wish to present oral

comments at the hearing must submit

written or electronically generated comments (in the manner described under

the ADDRESSES caption) by February

10, 1997, and submit an outline of the

topics to be discussed and the time

devoted to each topic by February 4,

1997.

A period of 10 minutes will be allotted to each person for making comments.

An agenda showing the scheduling of

speakers will be prepared after the deadline for receiving outlines has passed.

Copies of the agenda will be available

free of charge at the hearing.

Drafting Information

The principal author of these regulations is Robert J. Fitzpatrick, formerly

of the Office of the Assistant Chief

Counsel (Income Tax & Accounting),

IRS. However, other personnel from the

IRS and Treasury Department participated in their development.

*

*

*

*

*

Proposed Amendments to the Regulations

Accordingly, 26 CFR part 1 is proposed to be amended as follows:

1996–49

I.R.B.

PART 1—INCOME TAXES

Paragraph 1. The authority citation for

part 1 continues to read in part as

follows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 1.6662–0 is amended

by:

1. Revising the entry for § 1.6662–2.

2. Removing

the

entries

for

§§ 1.6662–3(b)(3)(i) and (ii).

3. Revising the entry for § 1.6662–

7(d). 4

. Removing

the

entries

for

§§ 1.6662–7(d)(1) and (2).

The amendments and revisions read

as follows:

§ 1.6662–0 Table of contents.

*

*

*

*

*

§ 1.6662–2 Accuracy-related penalty.

*

*

*

*

*

§ 1.6662–7 Omnibus Budget Reconciliation Act of 1993 changes to the

accuracy-related penalty.

*

*

*

*

*

*

*

(d) Reasonable basis.

*

*

*

§ 1.6662–3 Negligence or disregard of

rules or regulations.

*

*

*

*

(b)* * *(1) * * * A return position

that has a reasonable basis as defined in

paragraph (b)(3) of this section is not

attributable to negligence. * * *

*

*

*

*

*

(3) Reasonable basis. Reasonable basis is a relatively high standard of tax

reporting, that is, significantly higher

than not frivolous or not patently improper. The reasonable basis standard is

not satisfied by a return position that is

merely arguable or that is merely a

colorable claim. If a return position is

reasonably based on one or more of the

authorities set forth in § 1.6662–

4(d)(3)(iii) (taking into account the relevance and persuasiveness of the authorities, and subsequent developments),

the return position will generally satisfy

the reasonable basis standard even

though it may not satisfy the substantial

1996–49

I.R.B.

*

*

*

*

*

Par. 4. In § 1.6662–4, the second

sentence in paragraph (d)(2) is revised

to read as follows:

§ 1.6662–4 Substantial understatement

of income tax.

*

*

*

*

*

(d) * * *

(2) * * * The substantial authority

standard is less stringent than the more

likely than not standard (the standard

that is met when there is a greater than

50-percent likelihood of the position

being upheld), but more stringent than

the reasonable basis standard as defined

in § 1.6662–3(b)(3). * * *

*

Par. 3. Section § 1.6662–3 is

amended by:

1. Revising the third sentence in

paragraph (b)(1) introductory text.

2. Revising paragraph (b)(3).

The revisions read as follows:

*

authority standard as defined in

§ 1.6662–4(d)(2). In addition, the reasonable cause and good faith exception,

as set forth in § 1.6664–4, may provide

relief from the penalty, even if a return

position does not satisfy the reasonable

basis standard.

*

*

*

*

Par. 5. In 1.6662–7, paragraph (d) is

revised to read as follows:

§ 1.6662–7 Omnibus Budget Reconciliation Act of 1993 changes to the

accuracy-related penalty.

*

*

*

*

*

(d) Reasonable basis. For purposes of

§§ 1.6662–3(c) and 1.6662–4(e) and (f)

(relating to methods of making adequate

disclosure), the provisions of § 1.6662–

3(b)(3) apply in determining whether a

return position has a reasonable basis.

Par. 6. Section 1.6664–0 is amended

by:

1. Revising the entry for paragraph

(c)(2) of § 1.6664–4.

2. Removing the entries for paragraphs (c)(1)(iii), (c)(2)(i), and (c)(2)(ii)

of § 1.6664–4.

The revision reads as follows:

§ 1.6664–0 Table of contents.

*

*

*

*

*

§ 1.6664–4 Reasonable cause and good

faith exception to section 6662 penalties.

*

*

*

(c) * * *

22

*

*

(2) Advice defined.

*

*

*

*

*

Margaret Milner Richardson,

Commissioner of Internal Revenue.

(Filed by the Office of the Federal Register on

November 8, 1996, 8:45 a.m., and published in the

issue of the Federal Register for November 12,

1996, 61 F.R. 58020)

Section 482 — Allocations Between

Related Parties

Announcement 96–124

In Announcement 95–49, 1995–24

I.R.B. 13, the Service provided, for

public comment, a draft revision of Rev.

Proc. 91–22, 1991–1 C.B. 526, which

sets forth procedural rules for the Advance Pricing Agreement (‘‘APA’’) Program. The Service received several comments on Announcement 95–49 and is

issuing revised procedural rules in Rev.

Proc. 96–53 at page 9, this Bulletin.

The most significant changes to the

draft revenue procedure in Announcement 95–49 are as follows (with section

references to Rev. Proc. 96–53):

Sec. 3.06

Often, APA negotiations are used to

find a basis for resolving transfer pricing issues in years prior to the initial

year of the APA’s term (‘‘rollback’’ of

the APA). In response to comments, the

new revenue procedure indicates that the

taxpayer has the option whether or not

to request a rollback of the APA methodology. Taxpayers should, of course,

recognize that, even absent formal negotiations for a rollback, the Service may

determine under regularly applicable

procedures that the methodology used to

resolve an APA request also is appropriate for prior taxable years.

Sec. 3.07

In response to questions that sometimes arise in APA negotiations, section

3.07 clarifies that the initiation of an

APA request does not put into abeyance

pending examinations or other proceedings. Section 3.07 also instructs Service

personnel, wherever feasible, to coordinate the consideration of APA requests

with pending related proceedings, so as

to enhance the efficiency of Service

operations and reduce overall taxpayer

compliance burdens.

Sec. 3.09

Sec. 6.05(4)

Section 3.09 emphasizes the Service’s

willingness to adapt APA procedures to

the needs of particular taxpayers and

situations, and especially to the special

needs of small business taxpayers.

In response to comments, the revenue

procedure modifies and clarifies procedures to be followed when the Service

or taxpayer fail to conform to a Case

Plan and Schedule.

Sec. 5.09

Sec. 6.05(5)

The draft revenue procedure in Announcement 95–49 provided that an

APA request would be considered filed

on the date the user fee was paid,

provided that a substantially complete

request is filed within 120 days thereafter. In response to comments, section

5.09 provides that the Service may extend the 120-day period based on a

showing of substantial unforeseen circumstances.

Sec. 5.13

New mailing and delivery instructions

are provided to reflect current addresses

and Service procedures for handling

user fees.

Sec. 5.14

Section 5.14 makes technical corrections to the user fee rules for APAs

contained in Rev. Proc. 96–1, 1996–1

I.R.B. 8. In addition, section 5.14 provides guidelines for determining whether

an APA submission consists of a single

or multiple requests for purposes of the

user fee rules. The revenue procedure

also provides special lower fees for

certain specified categories of requests,

including certain smaller transactions,

routine renewals where material facts

and issues have not changed, and multilateral requests where the facts and

issues are essentially similar with respect to each foreign jurisdiction. As a

matter of clarification, the provision of

the reduced fee for certain multilateral

APA requests should not be read to

imply that user fees are charged with

respect to a taxpayer’s request for competent authority relief; rather, the fees

are charged with respect to the Service’s

analysis and consideration of the APA

requests.

Sec. 6.04

In response to comments, section 6.04

provides that, wherever reasonably feasible, if a prefiling conference has been

held with the taxpayer, the Service’s

Team Leader for considering the request

will be appointed from among the IRS

representatives at the prefiling conference.

In response to comments, section

6.05(5) enables the Service and taxpayer

APA Teams to modify the Case Plan

and Schedule by mutual agreement,

without prior approval of the APA Director, provided that progress is maintained toward completion of the case as

expeditiously as is feasible.

Sec. 6.05(6)

In response to comments, section

6.05(6) gives the Service and taxpayer

APA Teams additional flexibility concerning how to document the progress

of pending negotiations.

Secs. 6.06 & 6.07

These portions of the revenue procedure discuss the circumstances under

which user fees will be returned if the

taxpayer withdraws, or the Service rejects, an APA request. In general, user

fees will not be returned if a request is

withdrawn or rejected; however, the user

fee may be returned in the case of a

rejection if the Service determines return

of the fee to be appropriate.

Sec. 7.01

Section 7.01 contains changes designed to reflect the increasing coordination between treaty partners in the

evaluation of bilateral and multilateral

APA requests, including consultation at

the earliest stages of APA proceedings.

Sec. 7.08

Section 7.05 of Rev. Proc. 96–13,

1996–3 I.R.B. 31, provides in part that,

if a taxpayer reaches a settlement on an

issue with Counsel pursuant to a written

agreement, the U.S. competent authority

will endeavor only to obtain a correlative adjustment from a treaty country

and will not undertake any actions that

would otherwise change such agreements. This provision has caused taxpayers to ask whether the position of

Rev. Proc. 91–22, to the effect that by

obtaining a unilateral APA a taxpayer

does not limit its access to treaty relief,

23

remains in effect. Section 7.08 of the

new revenue procedure clarifies the interaction between a unilateral APA and

the taxpayer’s attempts to obtain treaty

relief through the competent authority

process. In general, the U.S. competent

authority will endeavor to reach agreement with a treaty partner to provide

relief from double taxation. However, a

unilateral APA may hinder the ability of

the U.S. competent authority to reach a

mutual agreement which will provide

relief from double taxation, particularly

when a contemporaneous bilateral or

multilateral APA request would have

been both effective and practical (within

the meaning of § 1.901–2(e)(5)(i)) to

obtain consistent treatment of the APA

matters in a treaty country.

Sec. 8

Section 8 of Rev. Proc. 96–53 provides new rules clarifying the treatment

of APA rollback requests, and coordinating APA rollback procedures with procedures for accelerated competent authority resolution and simultaneous Appeals

and competent authority consideration.

Such coordination would be necessary

in the case of ‘‘gap years,’’ i.e., tax

years for which returns have been filed

that are not covered by the APA request

but that are not yet under audit.

Sec. 11.02

Rev. Proc. 96–53, like Rev. Proc.

91–22, provides that in certain circumstances taxpayers may make compensating adjustments, after the end of a

taxable year, in order to achieve compliance with an APA. In general, the

obligation to make such compensating

adjustments does not affect the taxpayer’s estimated tax liability, and does not

result in other specified consequences,

for the taxable year. Section 11.02 of the

revenue procedure clarifies that this favorable treatment is available only when

the taxpayer has made a good-faith

effort to comply with the terms of the

APA. In addition, the revenue procedure

provides that the special treatment of

compensating adjustments applies to

compensating adjustments directly related to the taxpayer’s application of the

TPM, but not to ‘‘subsequent compensating adjustments,’’ which are subject

to normal procedures for assessment,

collection and refund.

1996–49

I.R.B.

Sec. 11.08

Commentators have asked for clarification concerning the type of review the

Service will apply to requests for renewal of APAs. In general, the Service

will seek to minimize the amount of

new information and analysis that taxpayers need to supply in connection

1996–49

I.R.B.

with renewal requests, and to the extent

consistent with applicable law and policies, will seek to maintain continuity

between original APAs and renewals.

The Service desires to receive comments at any time concerning how APA

procedures might be revised in the future to enhance the value of the APA

24

Program to taxpayers and to the Service.

Such comments should be sent to:

Advance Pricing Agreement Program

Internal Revenue Service

Attn: CC:INTL

Room 3501, 1111 Constitution Ave.,

N.W.

Washington, DC 20024

Definition of Terms

Revenue rulings and revenue procedures

(hereinafter referred to as ‘‘rulings’’)

that have an effect on previous rulings

use the following defined terms to describe the effect:

Amplified describes a situation where

no change is being made in a prior

published position, but the prior position

is being extended to apply to a variation

of the fact situation set forth therein.

Thus, if an earlier ruling held that a

principle applied to A, and the new

ruling holds that the same principle also

applies to B, the earlier ruling is amplified. (Compare with modified, below).

Clarified is used in those instances

where the language in a prior ruling is

being made clear because the language

has caused, or may cause, some confusion. It is not used where a position in a

prior ruling is being changed.

Distinguished describes a situation

where a ruling mentions a previously

published ruling and points out an essential difference between them.

Modified is used where the substance

of a previously published position is

being changed. Thus, if a prior ruling

held that a principle applied to A but not

to B, and the new ruling holds that it

applies to both A and B, the prior ruling

is modified because it corrects a published position. (Compare with amplified

and clarified, above).

Obsoleted describes a previously published ruling that is not considered determinative with respect to future transactions. This term is most commonly

used in a ruling that lists previously

published rulings that are obsoleted because of changes in law or regulations.

A ruling may also be obsoleted because

the substance has been included in regulations subsequently adopted.

Revoked describes situations where

the position in the previously published

ruling is not correct and the correct

position is being stated in the new

ruling.

Superseded describes a situation

where the new ruling does nothing more

than restate the substance and situation

of a previously published ruling (or

rulings). Thus, the term is used to

republish under the 1986 Code and

regulations the same position published

under the 1939 Code and regulations.

The term is also used when it is desired

to republish in a single ruling a series of

situations, names, etc., that were previously published over a period of time in

separate rulings. If the new ruling does

more than restate the substance of a

prior ruling, a combination of terms is

used. For example, modified and superseded describes a situation where the

substance of a previously published ruling is being changed in part and is

continued without change in part and it

is desired to restate the valid portion of

the previously published ruling in a new

ruling that is self contained. In this case

the previously published ruling is first

modified and then, as modified, is superseded.

Supplemented is used in situations in

which a list, such as a list of the names

of countries, is published in a ruling and

that list is expanded by adding further

names in subsequent rulings. After the

original ruling has been supplemented

several times, a new ruling may be

published that includes the list in the

original ruling and the additions, and

supersedes all prior rulings in the series.

Suspended is used in rare situations to

show that the previous published rulings

will not be applied pending some future

action such as the issuance of new or

amended regulations, the outcome of

cases in litigation, or the outcome of a

Service study.

Abbreviations

E.O.—Executive Order.

ER—Employer.

ERISA—Employee Retirement Income Security Act.

EX—Executor.

F—Fiduciary.

PHC—Personal Holding Company.

PO—Possession of the U.S.

FC—Foreign Country.

FICA—Federal Insurance Contribution Act.

Pub. L.—Public Law.

REIT—Real Estate Investment Trust.

FISC—Foreign International Sales Company.

FPH—Foreign Personal Holding Company.

F.R.—Federal Register.

FUTA—Federal Unemployment Tax Act.

FX—Foreign Corporation.

G.C.M.—Chief Counsel’s Memorandum.

GE—Grantee.

GP—General Partner.

GR—Grantor.

IC—Insurance Company.

I.R.B.—Internal Revenue Bulletin.

LE—Lessee.

LP—Limited Partner.

LR—Lessor.

Rev. Proc.—Revenue Procedure.

Rev. Rul.—Revenue Ruling.

S—Subsidiary.

S.P.R.—Statements of Procedural Rules.

Stat.—Statutes at Large.

T—Target Corporation.

T.C.—Tax Court.

T.D.—Treasury Decision.

TFE—Transferee.

TFR—Transferor.

T.I.R.—Technical Information Release.

TP—Taxpayer.

TR—Trust.

TT—Trustee.

M—Minor.

U.S.C.—United States Code.

Nonacq.—Nonacquiescence.

X—Corporation.

O—Organization.

Y—Corporation.

P—Parent Corporation.

Z—Corporation.

The following abbreviations in current use and

formerly used will appear in material published in

the Bulletin.

A—Individual.

Acq.—Acquiescence.

B—Individual.

BE—Beneficiary.

BK—Bank.

B.T.A.—Board of Tax Appeals.

C.—Individual.

C.B.—Cumulative Bulletin.

CFR—Code of Federal Regulations.

CI—City.

COOP—Cooperative.

Ct.D.—Court Decision.

CY—County.

D—Decedent.

DC—Dummy Corporation.

DE—Donee.

Del. Order—Delegation Order.

DISC—Domestic International Sales Corporation.

DR—Donor.

E—Estate.

EE—Employee.

25

PR—Partner.

PRS—Partnership.

PTE—Prohibited Transaction Exemption.

Numerical Finding List1

Court Decisions:

Revenue Procedures:

Bulletins 1996–27 through 1996–48

2058, 1996–34 I.R.B. 13

2059, 1996–34 I.R.B. 10

2060, 1996–34 I.R.B. 5

96–36, 1996–27 I.R.B. 11

96–37, 1996–29 I.R.B. 16

96–39, 1996–33 I.R.B. 11

96–40, 1996–32 I.R.B. 8

96–41, 1996–32 I.R.B. 9

96–42, 1996–32 I.R.B. 14

96–43, 1996–35 I.R.B. 6

96–44, 1996–35 I.R.B. 7

96–45, 1996–35 I.R.B. 12

96–46, 1996–38 I.R.B. 144

96–47, 1996–39 I.R.B. 10

96–48, 1996–39 I.R.B. 10

96–49, 1996–43 I.R.B. 74

96–50, 1996–47 I.R.B. 10

96–51, 1996–47 I.R.B. 10

96–52, 1996–48 I.R.B. 10

Announcements:

96–61, 1996–27 I.R.B. 72

96–62, 1996–28 I.R.B. 55

96–63, 1996–29 I.R.B. 18

96–64, 1996–29 I.R.B. 18

96–65, 1996–29 I.R.B. 18

96–66, 1996–29 I.R.B. 19

96–67, 1996–30 I.R.B. 27

96–68, 1996–31 I.R.B. 45

96–69, 1996–32 I.R.B. 38

96–70, 1996–32 I.R.B. 40

96–71, 1996–33 I.R.B. 16

96–72, 1996–33 I.R.B. 16

96–73, 1996–33 I.R.B. 18

96–74, 1996–33 I.R.B. 19

96–75, 1996–34 I.R.B. 29

96–76, 1996–34 I.R.B. 29

96–77, 1996–35 I.R.B. 15

96–78, 1996–35 I.R.B. 15

96–79, 1996–35 I.R.B. 15

96–80, 1996–35 I.R.B. 16

96–81, 1996–36 I.R.B. 13

96–82, 1996–36 I.R.B. 14

96–83, 1996–36 I.R.B. 14

96–84, 1996–36 I.R.B. 14

96–85, 1996–37 I.R.B. 20

96–86, 1996–37 I.R.B. 21

96–87, 1996–37 I.R.B. 21

96–88, 1996–38 I.R.B. 150

96–89, 1996–37 I.R.B. 22

96–90, 1996–37 I.R.B. 22

96–91, 1996–37 I.R.B. 23

96–92, 1996–38 I.R.B. 151

96–93, 1996–38 I.R.B. 151

96–94, 1996–38 I.R.B. 153

96–96, 1996–39 I.R.B. 41

96–97, 1996–39 I.R.B. 41

96–98, 1996–39 I.R.B. 42

96–99, 1996–39 I.R.B. 42

96–100, 1996–40 I.R.B. 10

96–101, 1996–40 I.R.B. 10

96–102, 1996–40 I.R.B. 11

96–103, 1996–40 I.R.B. 12

96–104, 1996–41 I.R.B. 10

96–105, 1996–42 I.R.B. 19

96–106, 1996–42 I.R.B. 23

96–107, 1996–42 I.R.B. 27

96–108, 1996–44 I.R.B. 15

96–109, 1996–43 I.R.B. 76

96–110, 1996–43 I.R.B. 77

96–111, 1996–44 I.R.B. 16

96–112, 1996–45 I.R.B. 7

96–113, 1996–44 I.R.B. 18

96–114, 1996–45 I.R.B. 7

96–115, 1996–45 I.R.B. 9

96–116, 1996–46 I.R.B. 12

96–117, 1996–46 I.R.B. 12

96–118, 1996–46 I.R.B. 12

96–119, 1996–46 I.R.B. 13

96–120, 1996–47 I.R.B. 12

96–121, 1996–47 I.R.B. 12

96–122, 1996–47 I.R.B. 13

96–125, 1996–48 I.R.B. 21

Delegation Orders:

155 (Rev. 4), 1996–40 I.R.B. 9

Notices:

96–36, 1996–27 I.R.B. 11

96–37, 1996–31 I.R.B. 29

96–38, 1996–31 I.R.B. 29

96–39, 1996–32 I.R.B. 8

96–40, 1996–33 I.R.B. 11

96–41, 1996–35 I.R.B. 6

96–42, 1996–35 I.R.B. 6

96–43, 1996–36 I.R.B. 7

96–44, 1996–36 I.R.B. 7

96–45, 1996–39 I.R.B. 7

96–46, 1996–39 I.R.B. 7

96–47, 1996–39 I.R.B. 8

96–48, 1996–39 I.R.B. 8

96–49, 1996–41 I.R.B. 6

96–50, 1996–41 I.R.B. 6

96–51, 1996–42 I.R.B. 6

96–52, 1996–42 I.R.B. 8

96–54, 1996–44 I.R.B. 13

96–55, 1996–47 I.R.B. 7

96–56, 1996–47 I.R.B. 7

96–57, 1996–47 I.R.B. 9

96–59, 1996–48 I.R.B. 10

Proposed Regulations:

CO–9–96, 1996–34 I.R.B. 20

CO–24–96, 1996–30 I.R.B. 22

CO–25–96, 1996–31 I.R.B. 30

CO–26–96, 1996–31 I.R.B. 31

FI–59–94, 1996–30 I.R.B. 23

FI–32–95, 1996–34 I.R.B. 21

FI–48–95, 1996–31 I.R.B. 36

FI–28–96, 1996–31, I.R.B. 33

GL–7–96, 1996–33 I.R.B. 13

IA–292–84, 1996–28 I.R.B. 38

IA–26–94, 1996–30 I.R.B. 24

IA–29–96, 1996–33 I.R.B. 14

INTL–4–95, 1996–36 I.R.B. 8

PS–39–93, 1996–34 I.R.B. 27

PS–22–96, 1996–33 I.R.B. 15

REG–208215–91, 1996–38 I.R.B. 145

REG–209803–95, 1996–44 I.R.B. 14

REG–209826–96, 1996–42 I.R.B. 10

REG–209827–96, 1996–37 I.R.B. 19

REG–245562–96, 1996–41 I.R.B. 8

REG–251520–96, 1996–48 I.R.B. 15

Public Laws:

104–117, 1996–34 I.R.B. 19

104–134, 1996–38 I.R.B. 7

104–168, 1996–38 I.R.B. 8

104–191, 1996–43 I.R.B. 7

104–193, 1996–46 I.R.B. 4

Railroad Retirement Quarterly Rate

1996–29 I.R.B. 14

1

A cumulative list of all Revenue Rulings, Revenue Procedures, Treasury Decisions, etc., published in Internal Revenue Bulletins 1996–1

through 1996–26 will be found in Internal Revenue Bulletin 1996–27, dated July 1, 1996.

26

Revenue Rulings:

96–33, 1996–27 I.R.B. 4

96–34, 1996–28 I.R.B. 4

96–35, 1996–31 I.R.B. 4

96–36, 1996–30 I.R.B. 6

96–37, 1996–32 I.R.B. 4

96–38, 1996–33 I.R.B. 4

96–39, 1996–34 I.R.B. 4

96–41, 1996–45 I.R.B. 4

96–42, 1996–35 I.R.B. 4

96–43, 1996–36 I.R.B. 4

96–44, 1996–38 I.R.B. 4

96–45, 1996–39 I.R.B. 5

96–46, 1996–39 I.R.B. 5

96–47, 1996–40 I.R.B. 7

96–48, 1996–40 I.R.B. 4

96–49, 1996–41 I.R.B. 4

96–50, 1996–42 I.R.B. 4

96–51, 1996–43 I.R.B. 5

96–52, 1996–45 I.R.B. 5

96–53, 1996–47 I.R.B. 4

96–54, 1996–47 I.R.B. 5

Tax Conventions:

1996–28 I.R.B. 36

1996–36 I.R.B. 6

1996–40 I.R.B. 8

Treasury Decisions:

8673, 1996–27 I.R.B. 4

8674, 1996–28 I.R.B. 7

8675, 1996–29 I.R.B. 5

8676, 1996–30 I.R.B. 4

8677, 1996–30 I.R.B. 7

8678, 1996–31 I.R.B. 11

8679, 1996–31 I.R.B. 4

8680, 1996–33 I.R.B. 5

8681, 1996–37 I.R.B. 17

8682, 1996–37 I.R.B. 4

8683, 1996–44 I.R.B. 9

8684, 1996–44 I.R.B. 4

8685, 1996–48 I.R.B. 4

Finding List of Current Action on

Previously Published Items1

Bulletins 1996–27 through 1996–48

*Denotes entry since last publication

Revenue Procedures:

80–27

Modified by

96–40, 1996–32 I.R.B. 8

87–32

Modified by

TD 8680, 1996–33 I.R.B. 5

92–20

Modified by

TD 8680, 1996–33 I.R.B. 5

95–16

Superseded by

96–48, 1996–39 I.R.B. 10

95–29

Superseded by

96–36, 1996–27 I.R.B. 11

95–29A

Superseded by

96–36, 1996–27 I.R.B. 11

95–30

Superseded by

96–42, 1996–32 I.R.B. 14

95–46

Superseded by

96–48, 1996–39 I.R.B. 10

96–41

Modified by

Notice 96–49, 1996–41 I.R.B. 6

96–46

Supplemented by

96–51, 1996–47 I.R.B. 10

1

A cumulative finding list for previously published

items mentioned in Internal Revenue Bulletins

1996–1 through 1996–26 will be found in Internal

Revenue Bulletin 1996–27, dated July 1, 1996.

27

Index

Internal Revenue Bulletins 1996–27

Through 1996–48

For index of items published during

the first six months of 1996, see

I.R.B. 1996–27, dated July 1, 1996.

The abbreviation and number in parenthesis following the index entry

refer to the specific item; numbers in

roman and italic type following the

parenthesis refer to the Internal Revenue Bulletin in which the item may

be found and the page number on

which it appears.

Key to Abbreviations:

RR

Revenue Ruling

RP

Revenue Procedure

TD

Treasury Decision

CD

Court Decision

PL

Public Law

EO

Executive Order

DO

Delegation Order

TDO

Treasury Department Order

TC

Tax Convention

SPR

Statement of Procedural

Rules

PTE

Prohibited Transaction

Exemption

EMPLOYMENT TAXES

Levy:

Table, exempt from levy on wages,

salary, and other income (Notice

56) 47, 7

Proposed regulations:

26 CFR 301.9100–1T—301.9100–3T

and intermediary sections, added;

extensions of time to make elections (IA–29–96) 33, 14

Railroad retirement:

Rate determination, quarterly (July 1,

1996) 29, 14

Regulations:

26 CFR 301.9100–1T—301.9100–3T

and intermediary sections, added;

extensions of time to make elections (TD 8680) 33, 5

ESTATE AND GIFT TAX

ADMINISTRATIVE

Proposed regulations:

26 CFR 20.2041–3, 20.2056(d)–2,

25.2511–1, 25.2514–3, 25.2518–1,

–2, amended; 20.2041–3, added;

disclaimer of interests and powers

(REG–208215–91) 38, 145

ESTATE AND GIFT TAXES

ADMINISTRATIVE—

Continued

Proposed regulations—Continued

26 CFR 301.9100–1T—301.9100–3T

and intermediary sections, added;

extensions of time to make elections (IA–29–96) 33, 14

ESTATE TAX

Proposed regulations:

26 CFR 20.2041–3(d)(6)(i), amended; 20.2041–3(d)(6)(iii), added;

20.2056(d)–2, amended; disclaimer

of interests and powers (REG–

208215–91) 38, 145

Regulations:

26 CFR 301.9100–1T—301.9100–3T

and intermediary sections, added;

extensions of time to make elections (TD 8680) 33, 5

EXCISE TAXES

Exempt organizations:

Excess benefit transactions engaged in

(Notice 46) 39, 7

Foreign insurance taxes (Ct.D 2060) 34, 5

Proposed regulations:

26 CFR 2652–1, amended; generation-skipping transfer tax (PS–22–

96) 33, 15

Regulations:

26 CFR 40.6011(a)–1, –2(b)(2),

40.6302(c)–1, –2, –3, –4, 40.9999–

1, 48.4082–2(a), 48.4083–1,

48.6715(a); amended; Subpart F of

49.4291–1, added; 40.6302(c)–5T,

48.6427–7, 301.6156–1, 301.6206–1,

301.6415–1—6421–1 and intermediary sections, 301.6423–1, 301.6675–

1, removed; 48.6714–1, redesignated, excise tax deposits (TD 8685)

48, 4

GIFT TAX

Proposed regulations:

26 CFR 25.2511–1, 25.2514–3,

25.2518–1, –2, amended; disclaimer of interests and powers (REG–

208215–91) 38, 145

INCOME TAX

Accounting methods (Notice 40) 33, 11

Bankruptcy; validity of liens (Ct.D

2059) 34, 10

Bonds:

Qualified mortgage bonds:

Mortgage credit certificates:

National median gross income

(RP 37) 29, 16

28

INCOME TAX—Continued

Claiming a refund, U.S. v. IBM (Notice

37) 31, 29

Covered compensation tables; 1997 (RR

53) 47, 4

Credits against tax:

Low-income housing (RP 46) 38,

144; (RP 51) 47, 10

Satisfactory bond, ‘‘bond factor’’

amounts for the period July through

September 1996 (RR 45) 39, 5

Educational assistance after termination

of employment (RR 41) 45, 4

Employee plans:

Funding:

Full funding limitations, weighted

average interest rate, June 1996

(Notice 36) 27, 11; July 1996

(Notice 38) 31, 29

Full funding limitation:

Weighted average interest rate for

August 1996, (Notice 43) 36, 7;

September 1996 (Notice 45) 39,

7; October 1996 (Notice 54) 44,

13; November 1996 (Notice 59)

48, 10

Limit on contributions and benefits;

cost-of-living adjustments (Notice

55) 47, 7

Nondiscrimination and coverage,

rollover (RR 48) 40, 4

Participant consent, significant detriment (RR 47) 40, 7

Section 414(u); retirement plans;

model amendments (RP 49) 43, 74

Tax-sheltered annuities; correction

program; extension (RP 50) 47, 10

Exempt organizations:

Group letter exemption (RP 40) 32, 8

Private inurement expressly prohibited

(Notice 47) 39, 8

Information returns, copies to the

public and increases to certain penalties (Notice 48) 39, 8

Forms:

Paper substitutes, Forms 1096, 1098,

1099 series, 5498, and W–2G (RP

42) 32, 14

Substitute printed, computer-prepared,

and computer-generated tax forms

and schedules (RP 48) 39, 8

Guidance for acceptance agent program

(RP 52) 48, 10

Health Insurance Portability and Accountability Act of 1996 (P.L. 104–

191) 43, 7

Income:

Controlled foreign corporation, partnership, subpart F income (Notice

39) 32, 8

INCOME TAX—Continued

INCOME TAX—Continued

INCOME TAX—Continued

Indian tribal casinos, information reporting (Notice 57) 47, 9

Inflation adjustment factor for 1996

(Notice 41) 35, 6

Inflation-indexed debt instruments (Notice 51) 42, 6

Insurance companies:

Differential earnings rate (RR 42) 35,

4

Loss reserves, discounting unpaid

losses (RP 44) 35, 7

Discounting estimated salvage recoverable (RP 45) 35, 12

Interest:

Investment:

Federal short-term, mid-term, and

long-term rates, July 1996 (RR

34) 28, 4; August 1996 (RR 37)

32, 4; September 1996 (RR 43)

36, 4; October 1996 (RR 49) 41,

4; November 1996 (RR 52) 45, 5

Rates, underpayments and overpayments beginning October 1, 1996

(RR 44) 38, 4

Inventories:

LIFO:

Price indexes, department stores,

May 1996 (RR 36) 30, 6; June

1996 (RR 39) 34, 4; July 1996

(RR 46) 39, 5; August 1996 (RR

50) 42, 4; September 1996 (RR

54) 47, 5

Low income housing credit:

Bond factor amounts, April–June

1996 (RR 33) 27, 4

FEMA (RR 35) 31, 4

Marginal production rates for 1996 (Notice 42) 35, 6

Omnibus Consolidated Recissions and

Appropriations Act of 1996 (PL 104–

134) 38, 7

Personal Responsibility and Work Opportunity Reconciliation Act of 1996

(PL 104–193) 46, 4

Pooled income fund; community trust;

maintenance requirement (RR 38) 33,

4

Proposed regulations:

26 CFR 1.61–8(b), revised; 1.451–

1(g), added; 1.467–1, amended;

1.467–4, amended; 1.467–0 through

–8, added; rental agreements (IA–

292–84) 28, 38

26 CFR 1.61–12(c), 1.163–7(c),

1.171–1—1.171–4, 1.1016–5(b), revised; 1.163–13, 1.171–5, added;

1.1016–9, removed; amortizable

bond premium (FI–48–95) 31, 36

Proposed regulations—Continued

26 CFR 1.148–5(d)(6)(iv)—(viii) and

intermediary sections; 1.148–

5(e)(2)(iv), added; arbitrage restrictions on tax-exempt bonds (FI–28–

96) 31, 33

26 CFR 1.166–3(a)(3), added; bad

debts modifications and dealer assignments of notional principal

contracts (FI–59–94) 30, 23

26 CFR 1.280B–1, added; structure,

definition (PS–39–93) 34, 27

26 CFR 1.367(e)–1, 1.6038B–

1(b)(2)(i); section 355 distributions

of stock and securities by domestic

corporations to foreign persons

(REG–209827–96) 37, 19

26 CFR 1.382–5, –8, added; 1.382–

2(a)(1)(iv), revised; consolidated returns, short taxable years for controlled groups (CO–26–96) 31, 31

26 CFR 1.401(a)(31)–1; 1.402(c)–2,

amended; relief from disqualification of plans accepting rollovers

(REG–245562–96) 41, 8

26 CFR 1.475(b)–1, –2, –4, 1.475(c)–1, –2, 1.475(e)–1, revised;

mark-to-market equity interests in

related parties and dealer-customer

relationship (FI–32–95) 34, 21

26 CFR 1.671–1(g), (h), 1.671–2(f),

1.1297–4, added; application of the

grantor trust rules to nonexempt

employees’ trusts (REG–209826–

96) 42, 10

26 CFR 1.861–8(e)(7)(iii), 1.865–1,

–2, 1.904–4(c)(2)(ii)(A) and (B),

added; 1.904–0, amended; stock

disposition loss allocation (INTL–

4–95) 36, 8

26 CFR 1.861–18, added; classification of certain transactions involving computer programs (REG

251520–96) 48, 15

26 CFR 1.1059(e)–1, added; extraordinary dividends; distributions to

corporate shareholders (CO–9–96)

34, 20

26 CFR 1.1202–0, –2, added; qualified small business stock (IA–26–

94) 30, 24

26 CFR 1.1502–15, –21, –22, –23,

added; consolidated returns, limitations on the use of certain losses

and deductions (CO–24–96) 30, 22

26 CFR 1.1502–90T—1.1502–99T

and intermediary sections, added;

consolidated group, net operating

loss carryforwards and built-in

losses and credits following ownership change, limitation (CO–25–96)

31, 30

Proposed regulations—Continued

26 CFR 1.6045–1, –2, 301.6011–2,

revised; magnetic media filing requirements for information returns

(REG–209803–95) 44, 14

26 CFR 301.9100–1T—301.9100–3T

and intermediary sections, added;

extensions of time to make elections (IA–29–96) 33, 14

Recommendation letters for nonsuit

settlements (Del. Order 155, Rev. 4)

40, 9

Refund claims; Tax Court; return not

filed (Ct.D. 2058) 34, 13

Regulated investment companies, preferential dividends (RP 47) 39, 10

Regulations:

26 CFR 1.110–3, added; debt instruments modifications (TD 8675) 29,

5

26 CFR 1.163–7(a), added; 1.446–4,

amended; 1.483–2T, removed;

1.483–4, added; 1.1001–1, revised;

1.1012–1(g), revised; 1.1271–0(b),

amended; 1.1272–1(c)(7), added;

1.1274–2(g), revised; 1.1274–2(i)

and (j), added; 1.1275–2(g), (h), (i),

(j), added; 1.1275–2T, removed;

1.1275–4, added; 1.1275–5(a)(5),

(6), added; 1.1275–5(c)(1), (5), revised; 1.1275–6, added; debt instruments with original issue discount,

contingent payments, anti-abuse

rule (TD 8674) 28, 7

26 CFR 1.166–3T, 1.1001–4T, added;

bad debts modifications and dealer

assignments of notional principal

contracts (TD 8676) 30, 4

26 CFR 1.367(e)–0; 1.367(e)–1, removed; 1.367(e)–0T, –1T, added;

section 355 distributions of stock

and securities by domestic corporations to foreign persons (TD 8682)

37, 4

26 CFR 1.382–5T, –8T, –2T(f)(1)(i)—

(iii) and intermediary sections,

added; 1.382–2, –2T, removed;

consolidated groups, short taxable

years for controlled groups (TD

8679) 31, 4

26 CFR 1.1254–2(d)(1)(ii), –3(b)(1)(i)

and (ii), –3(d)(1)(i) and (ii), revised; 1.1254–4, –6, amended;

treatment of gain from disposition

of interest in certain natural resource recapture property by S

corps and their shareholders (TD

8684) 44, 4

26 CFR 1.1394–0, –1, added;

enterprize zone facility bonds (TD

8673) 27, 4

29

INCOME TAX—Continued

INCOME TAX—Continued

INCOME TAX—Continued

Regulations—Continued

26 CFR 1.1502–0, –1, –2, –11, –21A,

–22A, –23A, –41A, revised; 1.1502–

15, –21, redesignated, 1.1502–21T,

–23T, –79A, added; 1.1502–79,

amended; consolidated returns, limitations on the use of certain losses

and deductions (TD 8677) 30, 7

26 CFR 1.1502–90T through –99T and

intermediary sections, added; consolidated groups, net operating loss

carryforwards and built-in losses and

credits following ownership change,

limitations (TD 8678) 31, 11

26 CFR 1.6045–1(q), –2, amended;

1.6045–1T, –2T, 301.6011–2T,

added; magnetic media filing requirements for information returns

(TD 8683) 44, 9

Regulations—Continued

26 CFR 301.6355–1, amended; sale

of seized property (GL–7–96) 33,

13

26 CFR 301.7503–1, amended; time

for performance of acts where last

day falls on Saturday, Sunday, or

legal holiday (TD 8681) 37, 17

26 CFR 301.9100–1T—301.9100–3T

and intermediary sections, added;

extensions of time to make elections (TD 8680) 33, 5

Returns:

Magnetic media reporting, Forms

1098, 1099, 5498, and W–2G (RP

36) 27, 11

Section 355 de minimis limitation (RP

43) 35, 6

Section 355 No Rule (RP 39) 33, 11

Statements required by brokers; correction (Notice 50) 41, 6

Tax benefits for individuals performing

services in certain hazardous duty

areas (PL 104–117) 34, 19

Tax conventions:

Fiji 40, 8

Russia 36, 6

Taxes, accrual of deduction (RR 51)

43, 5

Tax-exempt bonds; arbitrage (RR 41)

32, 9; (Notice 49) 41, 6

Tax treatment of partnership items correction (Notice 44) 36, 7

Taxpayer Bill of Rights 2 (PL 104–168)

38, 8

Work opportunity tax credit (Notice 52)

42, 8

30