Regulated investment company (RIC). A RIC's income from a derivative contract with respect to a commodity index is not qualifying income for purposes of section 851(b)(2) of the Code if the income from the contract is not derived with respect to the RIC's business of investing in stocks, securities, or currencies. Such a contract is not a security for purposes of section 851(b)(2).

Section 351. The conclusion in Rev. Rul. 74-503 that a transferor's basis in transferee stock received in exchange for transferor stock is determined under section 362(a) of the Code is incorrect. The other conclusions in the ruling are under study. Rev. Rul. 74-503 revoked.

Japanese Yugen Kaisha (YK) and Tokurei Yugen Kaisha (TYK). A Yugen Kaisha, a Japanese business entity, which will become a Tokurei Yugen Kaisha under recently enacted Japanese legislation, will continue to be eligible to elect its U.S. entity classification under the check the box regulations.

Federal rates; adjusted federal rates; adjusted federal long-term rate and the long-term exempt rate. For purposes of sections 382, 642, 1274, 1288, and other sections of the Code, tables set forth the rates for January 2006.

Final regulations under section 1298 of the Code provide guidance for making certain elections for taxpayers that continue to be subject to the passive foreign investment company (PFIC) excess distribution regime of section 1291 even though the foreign corporation in which they own stock is no longer treated as a PFIC.

Temporary and proposed regulations under section 1297 of the Code provide guidance for making certain elections for taxpayers that continue to be subject to the passive foreign investment company (PFIC) excess distribution regime of section 1291 even though the foreign corporation in which they own stock is no longer treated as a PFIC. A public hearing on the proposed regulations is scheduled for March 22, 2006.

Temporary and proposed regulations under section 1297 of the Code provide guidance for making certain elections for taxpayers that continue to be subject to the passive foreign investment company (PFIC) excess distribution regime of section 1291 even though the foreign corporation in which they own stock is no longer treated as a PFIC. A public hearing on the proposed regulations is scheduled for March 22, 2006.

Extension of transition relief for certain partnerships and other pass-thru entities under section 470. This notice extends the transition relief under section 470 of the Code provided under Notice 2005-29, 2005-13 I.R.B. 796, to partnerships and certain other pass-thru entities that are treated as holding tax-exempt use property because of the application of section 168(h)(6), to taxable years that begin before January 1, 2006. Notice 2005-29 modified and superseded.

This procedure explains the manner in which taxpayers may request an advance pricing agreement (APA) from the APA Program within the Office of the Associate Chief Counsel (International), the manner in which such a request will be processed by the APA Program, and the effect and administration of APAs. Rev. Proc. 2004-40 superseded.

This procedure supersedes Rev. Proc. 96-52, 1996-2 C.B. 372. It describes the qualifications necessary to become an acceptance agent and the procedures that an acceptance agent applicant must follow for purposes of entering into an acceptance agent agreement with the IRS. Rev. Proc. 96-52 superseded.

The December 2005 revision of Form 8609, Low-Income Housing Credit Allocation and Certification, contains changes from the previous revision. Form 8609-A, Annual Statement for Low-Income Housing Credit, is replacing Schedule A (Form 8609).

Japanese Yugen Kaisha (YK) and Tokurei Yugen Kaisha (TYK). A Yugen Kaisha, a Japanese business entity, which will become a Tokurei Yugen Kaisha under recently enacted Japanese legislation, will continue to be eligible to elect its U.S. entity classification under the check the box regulations.

In Rev. Rul. 74-503, 1974-2 C.B. 117, corporation X transferred shares of its treasury stock to corporation Y in exchange for newly issued shares of Y stock. In the exchange, X obtained 80 percent of the only outstanding class of Y stock. Rev. Rul. 74-503 concludes that the basis of the X treasury stock received by Y is zero and the basis of the newly issued Y stock received by X is zero.

Rev. Rul. 74-503 states that X’s basis in the Y stock received in the exchange is determined under § 362(a) of the Internal Revenue Code. This conclusion is incorrect. Accordingly, Rev. Rul. 74-503, 1974-2 C.B.117, is revoked, effective December 20, 2005. The other conclusions in the ruling, including the conclusions that X’s basis in the Y stock received in the exchange and Y’s basis in the X stock received in the exchange are zero, are under study.

Under the authority of § 7805(b), the Service will not challenge a position taken prior to December 20, 2005, with respect to a transaction occurring prior to such date, by a taxpayer that reasonably relied on the conclusions in Rev. Rul. 74-503. See § 601.601(d)(2)(v) of the Statement of Procedural Rules.

Rev. Rul. 74-503, 1974-2 C.B. 117, is revoked.

The principal author of this revenue ruling is Mary Goode of the Office of Associate Chief Counsel (Corporate). For further information regarding this revenue ruling, contact Ms. Goode at (202) 622-7930 (not a toll-free call).

If a corporation enters into a derivative contract that provides for a total-return exposure on a commodity index, does income from the derivative contract satisfy the test described in section 851(b)(2) of the Internal Revenue Code?

R is a management company registered under the Investment Company Act of 1940 (the “’40 Act”), 15 U.S.C. section 80a-1 et seq., as amended, and has elected under section 851(b)(1) of the Code to be a regulated investment company (RIC) taxable under subchapter M, part I, of the Code. R invests substantially all of the funds it receives from shareholders in debt instruments. R also enters into contracts (“Derivatives”) with various counterparties pursuant to Master Agreements under which it will pay an amount equal to the 3-month U.S. Treasury bill rate plus a spread and pursuant to which it will receive (or pay) an amount based on the total return gain (or loss) on a commodity index. The aggregate amount of the index on which the return on the Derivatives is based is approximately equal to the aggregate amount R has invested in its debt instruments. The payment obligation on each Derivative is settled monthly by the receipt (in the event of a gain) or payment (in the event of a loss) of cash, in the net amount due under the contract, and each monthly measuring period constitutes a separate derivative contract under the Master Agreements.

Section 851(b)(2) of the Code provides that a corporation shall not be considered a RIC for any taxable year unless it meets an income test (the “qualifying income requirement”). Under this test, at least 90 percent of its gross income must be derived from certain enumerated sources.

In addition, section 851(b)(3) of the Code provides that a corporation shall not be considered a RIC for any taxable year unless it meets an asset test (the “asset test”). Under this test, at least 50 percent of its total assets must be represented by cash, cash items, Government securities, securities of other RICs, and “other securities.” The “other securities” are generally limited with respect to any one issuer to an amount not greater than 5 percent of the value of the RIC’s total assets and to not more than 10 percent of the outstanding voting securities of the issuer.

Prior to the enactment of the Tax Reform Act of 1986 (the “1986 Act”), section 851(b)(2) identified qualifying income as “dividends, interest, payments with respect to securities loans (as defined in section 512(a)(5)), and gains from the sale or other disposition of stock or securities.” Section 851 did not contain its own definition of the term “securities,” but section 851(c)(5) provided that, for purposes of the asset test, “all other terms shall have the same meaning as when used” in the ’40 Act.

The 1986 Act expanded the definition of RIC qualifying income in a number of ways: by adding a cross-reference to the definition of “securities” in the ’40 Act; by adding gains from the sale or other disposition of foreign currencies; and by adding an “other income” provision. As so amended, section 851(b)(2) defines qualifying income, in relevant part, as—

Section 851(b) further provides that, for this purpose, “the Secretary may by regulation exclude from qualifying income foreign currency gains which are not directly related to the company’s principal business of investing in stock or securities (or options and futures with respect to stock or securities).”

The ’40 Act defines “security” as—

15 U.S.C. § 80a-2(a)(36) (2000).

A derivative contract with respect to a commodity index is not a security for purposes of section 851(b)(2). Under the facts above, R’s income from such a contract is not qualifying income for purposes of section 851(b)(2) because the income from the contract is not derived with respect to R’s business of investing in stocks, securities or currencies.

Under the authority of section 7805(b)(8), the holding of this revenue ruling will not be applied adversely with respect to amounts of income that a taxpayer recognizes on or before June 30, 2006.

The principal author of this revenue ruling is Dale S. Collinson of the Office of the Associate Chief Counsel (Financial Institutions & Products). For further information regarding this revenue ruling, contact him at (202) 622-3900 or Susan Thompson Baker at (202) 622-3930 (not toll-free calls).

This revenue ruling provides various prescribed rates for federal income tax purposes for January 2006 (the current month). Table 1 contains the short-term, mid-term, and long-term applicable federal rates (AFR) for the current month for purposes of section 1274(d) of the Internal Revenue Code. Table 2 contains the short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFR) for the current month for purposes of section 1288(b). Table 3 sets forth the adjusted federal long-term rate and the long-term tax-exempt rate described in section 382(f). Table 4 contains the appropriate percentages for determining the low-income housing credit described in section 42(b)(2) for buildings placed in service during the current month. Table 5 contains the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of section 7520. Finally, Table 6 contains the deemed rate of return for transfers made during calendar year 2006 to pooled income funds described in § 642(c)(5) that have been in existence for less than 3 taxable years immediately preceding the taxable year in which the transfer was made.

Internal Revenue Service (IRS), Treasury.

Temporary regulation.

This document contains temporary regulations that provide certain elections for taxpayers that continue to be subject to the PFIC excess distribution regime of section 1291 even though the foreign corporation in which they own stock is no longer treated as a PFIC under section 1297(a) or (e). The regulations are necessary to provide guidance about purging the PFIC taint for such foreign corporations. The regulations will affect U.S. persons that hold stock in a PFIC. The text of these temporary regulations also serves as the text of the proposed regulations set forth in the notice of proposed rulemaking (REG-133446-03) on this subject in this issue of the Bulletin.

Effective Date: These regulations are effective December 8, 2005.

Applicability Date: For dates of applicability, see §§1.1291-9T(k), 1.1297-3T(f), and 1.1298-3T(f).

Ethan Atticks at (202) 622-3840 (not a toll-free number).

Accordingly, 26 CFR parts 1 and 602 are amended as follows:

The principal author of these regulations is Ethan Atticks, Office of Associate Chief Counsel (International). However, other personnel from the IRS and Treasury Department participated in their development.

* * * * *

Internal Revenue Service (IRS), Treasury.

Final regulations.

This document contains final regulations that provide specific elections that give relief to certain United States persons that continue to be subject to the PFIC excess distribution regime of section 1291 even though the foreign corporation in which they hold stock no longer satisfies the definition of a PFIC under section 1297(a). The final regulations affect U.S. persons owning stock in a PFIC.

Effective Date: These regulations are effective December 8, 2005.

Applicability Date: For dates of applicability, see §1.1298-3(f).

Ethan Atticks at (202) 622-3840 (not a toll-free number).

Accordingly, 26 CFR parts 1 and 602 are amended as follows:

The principal author of this regulation is Ethan Atticks, Office of Associate Chief Counsel (International). However, other personnel from the IRS and Treasury Department participated in their development.

* * * * *

Will a Japanese Yugen Kaisha business entity (“YK”) that becomes a Japanese Tokurei Yugen Kaisha business entity (“TYK”) pursuant to the Kaisha Ho, Law No. 86 of 2005 (Company Law) and the Seibi Ho, Law No. 87 of 2005 (the Law Concerning the Coordination, Etc., of Associated Laws in Connection with the Enforcement of the Companies Law) (Coordination Law), as promulgated on July 26, 2005, remain an eligible entity for purposes of § 301.7701-1 through 3 of the Procedure and Administration Regulations?

On July 26, 2005, the Japanese Diet reorganized Japanese corporate law through the promulgation of the Company Law and the Coordination Law, which were passed on June 29, 2005. Pursuant to the Coordination Law, the YK will be abolished as a Japanese corporate entity. All YKs in existence as of the effective date of the Coordination Law will continue as TYKs, a special type of Kabushiki Kaisha business entity (“KK”) under the Company Law. The effective date of these laws will be determined by a Cabinet enforcement order; however, the provisions will be effective no later than January 26, 2007. After the effective date of the new laws, no new YKs or TYKs may be formed.

Section 301.7701-2(a) defines the term “business entity” as any entity recognized for federal tax purposes (including an entity with a single owner that may be disregarded as an entity separate from its owner under § 301.7701-3) that is not properly classified as a trust under § 301.7701-4 or otherwise subject to special treatment under the Code. A business entity with two or more members is classified for federal tax purposes as either a corporation or a partnership. A business entity with only one owner is classified as a corporation or is disregarded. However, § 301.7701-2(b)(8) provides that certain foreign business entities are always classified as corporations for federal tax purposes (per se corporations). Under § 301.7701-2(b)(8), a KK is a per se corporation. Further, a YK is an eligible entity, for which an entity classification election can be made under § 301.7701-3.

Based on the Company Law and Coordination Law promulgated on July 26, 2005, TYKs are not per se corporations described in § 301.7701-2(b)(8) and will be classified in the same manner as YKs were prior to the effective date of the new Japanese corporate law. Therefore, a YK that becomes a TYK will remain an eligible entity for purposes of § 301.7701-1 through 3.

A Japanese YK that becomes a Japanese TYK, pursuant to the Company Law and the Coordination Law, as promulgated on July 26, 2005, will remain an eligible entity for purposes of § 301.7701-1 through 3.

The principal author of this revenue ruling is Ronald M. Gootzeit of the Office of Associate Chief Counsel (International). For further information regarding this revenue ruling, contact Ronald M. Gootzeit at (202) 622-3860 (not a toll-free call).

This notice extends by one year the transition relief provided in Notice 2005-29, 2005-13 I.R.B. 796, under § 470 of the Internal Revenue Code to partnerships and other pass-thru entities that are treated as holding tax-exempt use property as a result of the application of § 168(h)(6).

Section 848 of the American Jobs Creation Act of 2004, Pub. L. No. 108-357, 118 Stat. 1418, 1602, enacted on October 22, 2004, added § 470, which imposed new limitations on the deductibility of losses relating to tax-exempt use property. Under § 470(c)(2), “tax-exempt use property” has the meaning provided under § 168(h) (with certain modifications). Under § 168(h)(6), if any property that is not otherwise “tax-exempt use property” under § 168(h) is owned by a partnership that has both a tax-exempt entity and a person who is not a tax-exempt entity as partners, and any allocation to the tax-exempt entity of partnership items is not a qualified allocation, an amount equal to the tax-exempt entity’s proportionate share of the property generally is treated as tax-exempt use property. Section 168(h)(6)(E) provides that rules similar to those applicable to partnerships in determining whether property is tax-exempt use property apply to other pass-thru entities. Section 470 generally applies to leases entered into after March 12, 2004.

Notice 2005-29 provides transition relief to partnerships and other pass-thru entities that are treated by § 470 as holding tax-exempt use property as a result of the application of § 168(h)(6). Specifically, Notice 2005-29 provides that in the case of partnerships and pass-thru entities described in § 168(h)(6)(E), for taxable years that begin before January 1, 2005, the Internal Revenue Service will not apply § 470 to disallow losses associated with property that is treated as tax-exempt use property solely as a result of the application of § 168(h)(6).

The Treasury Department and the Service understand that Congress is considering possible legislation that would affect the application of § 470 to certain transactions involving partnerships and other pass-thru entities.

In the case of partnerships and pass-thru entities described in § 168(h)(6)(E), for taxable years that begin before January 1, 2006, the Service will not apply § 470 to disallow losses associated with property that is treated as tax-exempt use property solely as a result of the application of § 168(h)(6). Abusive transactions involving partnerships and other pass-thru entities remain subject to challenge by the Service under other provisions of the tax law.

Notice 2005-29 is modified and superseded.

For further information regarding this notice, contact John Aramburu of the Office of the Associate Chief Counsel (Income Tax & Accounting) at (202) 622-4960 (not a toll-free call).

.01 This revenue procedure explains the manner in which taxpayers may request an advance pricing agreement (“APA”) from the APA Program within the Office of the Associate Chief Counsel (International), the manner in which such a request will be processed by the APA Program, and the effect and administration of APAs. This revenue procedure updates and supersedes Revenue Procedure 2004-40, 2004-2 C.B. 50.

.01 The APA Program provides a voluntary process whereby the Internal Revenue Service (“Service”) and taxpayers may resolve transfer pricing issues under § 482 of the Internal Revenue Code (“Code”), the Income Tax Regulations (“the regulations”) thereunder, and relevant income tax treaties to which the United States is a party in a principled and cooperative manner on a prospective basis. The APA process increases the efficiency of tax administration by encouraging taxpayers to come forward and present to the Service all the facts relevant to a proper transfer pricing analysis and to work towards a mutual agreement in a spirit of openness and cooperation. The prospective nature of APAs lessens the burden of compliance by giving taxpayers greater certainty regarding their transfer pricing methods, and promotes the principled resolution of these issues by allowing for their discussion and resolution in advance before the consequences of such resolution are fully known to taxpayers and the Service.

.02 The APA Program’s central goal is the prompt, proper, and fair resolution of APA requests and renewals consistent with the principles of sound tax administration.

.03 The APA Program reserves the right not to accept an APA request or to terminate consideration of an APA request if the request or the continued development of the case is contrary to the principles of sound tax administration.

.04 An APA is an agreement between a taxpayer and the Service in which the parties set forth, in advance of controlled transactions, the best transfer pricing method (“TPM”) within the meaning of § 482 of the Code and the regulations. The agreement specifies the controlled transactions or transfers (“covered transactions”), TPM, APA term, operational and compliance provisions, appropriate adjustments, critical assumptions regarding future events, required APA records, and annual reporting responsibilities.

.05 The taxpayer’s participation in the APA process is entirely voluntary. In some cases, the Service may approach a taxpayer to discuss the advantages of an APA.

.06 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 reports to the Associate Chief Counsel (International) who exercises general oversight over the APA Program. The APA Director, directly or by delegation, may take any action - not contrary to statute, regulation, or treaty - necessary to carry out the provisions of this revenue procedure. The APA Director may modify the provisions contained in this revenue procedure (for example, time limits or content of an APA request) if that modification would be consistent with sound tax administration.

.07 Under the APA request procedure, the taxpayer proposes a TPM and provides data intended to show that the TPM constitutes the appropriate application of the best method rule under the § 482 regulations. The Service, through an APA Team, evaluates the APA request by analyzing all relevant data and information submitted with the initial request and at any time thereafter.

.08 Taxpayers may request a bilateral, multilateral, or, if appropriate, a unilateral APA. A bilateral or multilateral APA involves a request for an APA between the taxpayer and the Service, accompanied by a request for a mutual agreement between relevant competent authorities. A unilateral APA involves only an agreement between the taxpayer and the Service. Where possible, in the interest of sound tax administration and to ensure that no potential for double taxation results from an APA, an APA should be concluded on a bilateral or multilateral basis between the competent authorities through the mutual agreement procedure of the relevant income tax treaty or treaties.

.09 The APA Policy Board establishes policy on matters of substantial genuine importance pertaining to the APA Program. It consists of the Associate Chief Counsel (International), the APA Director, the Director, International (Large and Mid-Size Business (LMSB) Operating Division), Treasury’s International Tax Counsel, and other senior officials.

.10 In a bilateral or multilateral case, the APA Program prepares a recommended negotiating position for the U.S. Competent Authority. The negotiating position serves as a basis for discussions with the relevant foreign competent authority or authorities under the mutual agreement article of the applicable income tax treaty or treaties. Prior to finalizing its recommendation, the APA Program, through the Team Leader (see section 6.03), conveys the substance of the APA Team’s position to the taxpayer to provide an opportunity for the taxpayer to comment. The Team Leader, in coordination with other members of the APA Team, considers the merits of the taxpayer’s timely received comments in finalizing the recommended position.

.11 If the U.S. Competent Authority and the relevant foreign competent authority or authorities reach a mutual agreement, the taxpayer and the Service may execute one or more APAs consistent with that mutual agreement.

.12 In appropriate cases, the TPM may be applied to tax years prior to those covered by the APA (“rollback” of the TPM, see section 8). The Service’s policy is to use rollbacks whenever feasible based on the consistency of the facts, law, and available records for the prior years. This policy does not apply to unilateral APA requests in which a rollback would decrease taxable income on a return filed for a taxable year not covered by the APA (see § 1.482-1(a)(3)).

.13 Filing an APA request does not suspend any examination or other enforcement proceedings. The APA Program will coordinate its activities with those of other Service proceedings to avoid duplicative information requests to the taxpayer, enhance the efficiency of Service operations, and reduce overall taxpayer compliance burdens.

.01 General Principles

A taxpayer may request a prefiling conference (“PFC”) with the APA Program to discuss informally the suitability of an APA.

.02 Discussion Topics

The taxpayer may use a PFC to clarify what information, documentation, and analyses are likely to be necessary for the Service to consider an APA request. Among the areas of discussion are the covered transactions, the potentially applicable TPMs, the probability of agreement among the competent authorities, and the APA Program’s schedule and method for coordinating and evaluating the request. To provide for the efficient use of taxpayer resources, PFCs are recommended in order to ensure that the APA request is appropriate and focuses on relevant issues.

.03 Scheduling

A taxpayer or its representative may contact the APA Program Office in Washington, D.C. or California to schedule a PFC. The taxpayer or its representative should propose three alternative dates, and should generally allow two weeks before the first proposed date. The telephone and facsimile numbers are:

.04 PFC May be Named or Anonymous

The taxpayer may request a PFC either on an identified or anonymous basis.

.05 Participation

If a taxpayer identifies itself, representatives of the Service Operating Division with responsibility for the taxpayer’s return normally will participate in the PFC. Representatives from Appeals and the Division Counsel field offices may also attend. In the case of a PFC regarding a bilateral APA request, a Competent Authority analyst may attend. If a taxpayer initially requests a PFC on an anonymous basis but prior to the meeting chooses to identify itself, the meeting may be rescheduled to permit necessary Service personnel to attend. When requesting a PFC on an identified basis, the taxpayer must inform the APA Program whether transactions similar or related to those to be covered by the proposed APA are currently under consideration by a Service Operating Division, an Appeals Office, a Division Counsel, or an Associate Chief Counsel.

.06 Prefiling Submission

A taxpayer must send a brief prefiling submission to the relevant APA Program Office in Washington, D.C. or California that lists the persons attending the PFC for the taxpayer (first names only or job titles are sufficient if the PFC will be on an anonymous basis) and that outlines and describes the issues to be discussed. This brief submission should be provided at least one week in advance of the PFC. If the document is twenty pages or less, it may be sent by facsimile; but if it exceeds twenty pages, eight copies (or if anonymous, only three copies) and one original should be delivered.

.01 Introduction

A complete APA request is essential to a timely and efficient APA process. In the APA Program’s experience, a complete APA request may save many months of case processing time and hundreds of hours of labor, as it allows the APA Team to narrow its focus immediately to the core issue or issues and avoids delays caused by the need to supplement the original APA request. The goal of completing a unilateral APA or a recommended negotiating position within 12 months (see section 6.01) is predicated in large part on the assumption that the taxpayer has submitted a complete APA request.

A complete APA request should provide the information specified below and all other information reasonably necessary to permit the APA Program to evaluate fully the taxpayer’s proposed TPM. The level of detail required will depend on the particular facts and circumstances of each case and should be governed by relevancy and materiality considerations (keeping in mind that the request should provide enough information to allow the reader to concur that a matter is not relevant or material). The detailed information supporting the APA request should be tailored to the specific facts relating to the taxpayer, the proposed covered transactions, and relevant legal authority. It should also take into account discussions with the APA Program in any PFC.

An APA request will normally be considered not “substantially complete” for purposes of sections 4.07, 4.12, 6.01, and 6.03 unless the request contains the information required below (as may be modified by agreement of the parties).

.02 General Principles

.03 Factual, Legal, and Analytical Items for All Proposed APAs

Unless otherwise agreed, each APA request must include an appropriate discussion of the items set forth below.

.04 Specific Items for a Cost Sharing Arrangement

In addition to the items in section 4.03, an APA request related to a cost sharing arrangement (“CSA”) must include:

.05 Critical Assumptions

The taxpayer should propose and describe any relevant critical assumptions. A critical assumption is any fact the continued existence of which is material to the taxpayer’s proposed TPM, whether related to the taxpayer, a third party, an industry, or business and economic conditions. Critical assumptions might include, for example, a particular mode of conducting business operations, a particular corporate or business structure, a range of expected business volume, or the relative value of foreign currencies.

.06 Contents of Annual Report

Section 11.01 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. Consideration should be given to all items listed in Appendix C to the APA Program’s current Model APA.

.07 Term and First Year of APA

.08 Request for Competent Authority Consideration

[Name of taxpayer(s)] consents to the disclosure to the competent authority of [name of foreign country] and the competent authority’s staff of any or all of the items of information set forth or enclosed in the [bilateral/multilateral] APA request for the taxable year(s) [and accompanying rollback request for relief from economic double taxation of income for the taxable years ], and any further submissions, within the limits contained in the [name of treaty].

.09 Perjury Statement

.10 Signatures

The taxpayer or the taxpayer’s authorized representative must sign the APA request. If an authorized representative is to sign, the taxpayer and representative must satisfy the relevant instructions on signatures in Rev. Proc. 2005-1, 2005-1 I.R.B. 1 (or its successor).

.11 Mailing, Deliveries, Copies, and Office Location

.12 User Fees.

.01 Any information submitted by a taxpayer in connection with its APA request must be true, correct, and accurate (see section 4.09). If the APA Program determines that it needs additional information to analyze the APA request, the APA Program may require the taxpayer to provide such information.

.02 A taxpayer has an obligation to update on a timely basis all material facts and information that it submits in connection with its APA request. In addition, while an APA request is pending and after an APA is executed, a taxpayer is under a continuing duty to timely supplement its disclosures if the taxpayer discovers that information that it provided in connection with an APA request was false, incorrect, or incomplete in some material respect. If a taxpayer discovers such an error or omission after the APA is executed, the taxpayer must disclose the error or omission in its next-filed annual report (see section 11.01(1)).

.03 While the APA request is pending, the taxpayer should be prepared to update the financial data for the selected comparables as new or revised data become available.

.04 If a taxable year is completed while the APA request is pending, the taxpayer should be prepared to update its APA submission following the close of the taxable year by demonstrating the application of the proposed TPM to the taxpayer’s actual financial results for that year.

.05 Failure by a taxpayer to provide all materials required by this revenue procedure in its APA request (see section 4), or requested by the APA Program while the request is pending, can cause significant delays in case processing and may result in rejection of the APA under section 6.10.

.01 General

The processing of an APA request follows one of two paths, depending on whether the request is for a bilateral or multilateral APA, or for a unilateral APA. The scheduling of due diligence, analysis, discussion, agreement, and drafting is designed to complete the recommended U.S. negotiating position (bilateral or multilateral APA request), or a unilateral APA, within 12 months from the date the full request was filed. The filing of a full APA request includes not only the payment of a user fee, but also the receipt by the APA Program of the materials specified in sections 4.02 through 4.10. Significant analysis of the APA request will not begin until a substantially complete request has been filed.

.02 Initial Contact

After receiving an APA request, a representative of the APA Program will contact the taxpayer or its representative to discuss any preliminary questions the APA Program may have, or to ask for any additional information or documents necessary in order to initiate processing of the request. The taxpayer must supply the additional information and documents, accompanied by the perjury statement described in section 4.09, by the date specified by the APA Program, as extended for good cause.

.03 Designation of Team Leader

Upon the receipt of a substantially complete APA request, the APA Director will designate a Team Leader to oversee the APA Team’s activities in processing the request. If a prefiling conference was held with the taxpayer, the Team Leader generally will be designated from among the APA Program staff attending the prefiling conference.

.04 Formation of APA Team

The Team Leader will organize the APA Team, which normally consists of the following personnel: the Team Leader, an APA Program economist and/or a Service Operating Division economist, an LMSB international examiner, a Division Counsel attorney, and, in bilateral or multilateral cases, a competent authority analyst. In appropriate cases, an LMSB international technical advisor, the international examiner’s manager, and other Service Operating Division personnel familiar with the taxpayer may serve on the APA Team. If the APA or a rollback of the APA affects taxable years in Appeals, the appropriate Appeals Officer will be invited to participate. The APA Team Leader will assure that copies of the APA request are distributed to all Team members for review.

.05 Function of APA Team

The function of the APA Team is the following: (1) for a bilateral or multilateral APA, to develop, in consultation with the taxpayer and consistent with sound tax administration, a competent authority negotiating position that it can recommend for approval, and (2) for a unilateral APA, to make best efforts, consistent with sound tax administration, to develop an APA that the APA Program can recommend for approval by the Associate Chief Counsel (International). The Service Operating Division field office responsible for the taxpayer’s income tax return will be provided an opportunity to review and comment on the recommended U.S. competent authority negotiating position in the case of a bilateral or multilateral APA, and the proposed APA in the case of a unilateral APA.

.06 Due Diligence and Analysis

The APA Team 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 other provisions of the Code.

.07 Schedule for Discussion and Drafting

.08 Execution

Signature of an APA by the APA Director and the taxpayer will constitute agreement to the APA. For purposes of executing the APA, each taxpayer that is a member of a consolidated group (as defined in § 1.1502-1) must comply with the provisions of § 1.1502-77. The person signing the APA request on behalf of the taxpayer must satisfy the requirements of section 4.09(2).

.09 Withdrawing the Request

The taxpayer may withdraw the request at any time before the execution of the APA. The user fee generally will not be refunded if the taxpayer withdraws its APA request after the due diligence process has been initiated.

.10 Rejecting the Request

The APA Program may decline either to accept any APA request or to execute any APA after a request has been accepted. If the APA Program declines to execute an APA after the due diligence process has been initiated, the Service normally will retain the user fee, although the fee may be returned if the APA Program determines that such action would be appropriate under the circumstances. If the APA Program proposes to reject an APA request, the taxpayer will be granted one conference of right with the APA Director. Other conferences may be granted at the APA Director’s discretion.

.01 When any of the parties to a request are entitled to obtain assistance 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 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. 2002-52, 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 should submit APA requests and related correspondence simultaneously to the Service and to foreign competent authorities involved in the requests.

.02 The purpose of a competent authority agreement is to avoid double taxation or taxation not in accordance with the relevant income tax treaty or treaties. If such an agreement is not acceptable to the taxpayer, the taxpayer may withdraw the APA request (see section 6.09). If the competent authorities are unable to reach an agreement, the taxpayer may withdraw its request or, at its discretion, the Service may negotiate and enter into a unilateral APA with the taxpayer (see section 7.06).

.03 The taxpayer must cooperate with the Service and the U.S. competent authority, pursuant to the standards set forth in Rev. Proc. 2002-52 and any other applicable revenue procedures.

.04 Taxpayers have an affirmative obligation to identify relevant concerns that may impact competent authority negotiation of an APA request. For example, it may be necessary for the Service to request sensitive confidential data (including material that may constitute a trade secret), which if disclosed, could harm the taxpayer’s competitive position. If the taxpayer identifies such sensitive information, the Service will work with the taxpayer in developing a mechanism to permit consideration or verification by the treaty partner or partners of the information while still preserving its confidentiality.

.05 When the competent authorities enter into an agreement covering an APA, the Service will, to the extent appropriate, 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 To minimize taxpayer and governmental uncertainty and administrative cost, bilateral or multilateral APAs are generally 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. In some circumstances, procedures agreed upon with particular foreign competent authorities, or the requirements of proper relations with treaty partners, may preclude unilateral APAs.

.07 Section 7.05 of Rev. Proc. 2002-52 provides in part that, if a taxpayer reaches a settlement on an issue 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. 2002-52 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 that 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 the APA’s TPM (as discussed in sections 2.12 and 8 of this revenue procedure), section 7.05 of Rev. Proc. 2002-52 will apply to the rollback years in the regular manner.

.01 Application of the TPM to tax years prior to those covered by the APA (“rollback” of the TPM) may be an effective means of enhancing voluntary compliance and of using available resources to address unresolved transfer pricing issues. The taxpayer may request that the Service consider a rollback (a “rollback request”) in connection with a particular APA request. Under regularly applicable procedures, the Service may determine that the same or a similar TPM as that agreed to in an APA should be applied to prior years even in the absence of a rollback request. When applying the TPM to prior years, adjustments may be made to reflect differences in facts, economic conditions, and applicable legal rules. Those adjustments may be made regardless of whether the taxpayer or the Service initiated the rollback request.

.02 The taxpayer may make a rollback request in its APA request or at any time prior to the execution of the APA. The principles set forth in section 2.12 generally will govern the Service’s consideration of the request. The balance of prospectivity and retroactivity of the total number of years covered by the proposed overall agreement, and the status of any on-going examination, will also be given consideration in the Service’s decision to entertain a rollback request. Rollbacks requested after submission of the APA request must be in writing and addressed to the APA Director.

.03 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. 2002-52 (or its successor). The Office of Associate Chief Counsel (International), the Service Operating Division field office involved, 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. 2002-52 (or its successor), 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. As necessary to reach a competent authority agreement, the Service may require that the rollback be applied to one or more specified years if accelerated competent authority is to be granted. In exercising its discretion over the conduct of accelerated competent authority consideration, the U.S. Competent Authority will seek to implement the policy concerning APA rollbacks stated in section 2.12.

.04 Rollback requests submitted in connection with a bilateral or multilateral APA and involving a taxable year under the jurisdiction of Appeals will be deemed to constitute an application for simultaneous Appeals and competent authority consideration. That application is described in section 8 of Rev. Proc. 2002-52 and is subject to the rules of that section. The Office of Associate Chief Counsel (International), Appeals, and the U.S. Competent Authority will coordinate consideration of the request. In exercising its discretion in a simultaneous Competent Authority-Appeals proceeding, the U.S. Competent Authority will seek to implement the policy concerning APA rollbacks stated in section 2.12. Taxpayers are encouraged to request accelerated competent authority consideration under section 8.03 above, in conjunction with an application for the simultaneous Appeals and competent authority process.

.05 Subject to the policy stated in section 2.12, the Service official with jurisdiction over the taxable year subject to the rollback has discretion as to whether the rollback is applied. That official may be either the Service Operating Division executive responsible for the taxpayer’s income tax return, the National Chief of Appeals, the U.S. Competent Authority (for matters subject to competent authority negotiations), or the Division Counsel (for matters pending litigation). Except to the extent inconsistent with this revenue procedure, APA rollbacks will be implemented using regularly applicable procedures for resolving tax issues. Such procedures include but are not limited to closing agreements and other settlement documents and Forms 870 and 870AD.

.01 Special Provisions Available to Small Business Taxpayers

At the request of a small business taxpayer (“SBT”), the APA Program may apply any or all of the provisions in this section. A SBT is any U.S. taxpayer with total gross income of $200 million or less, as determined under section 4.12(6). In addition, SBT procedures will be available for APAs that cover small transactions described in section 4.12(5). Although transactions involving valuable intangible property or CSAs would not ordinarily be appropriate for these SBT procedures (because of the complexity of valuing such intangibles), the APA Program will consider employing special procedures for such transactions on a case-by-case basis.

.02 PFC Procedures

.03 Items Required for an SBT APA Request

Before an SBT submits an APA request, the APA Program and the SBT may agree to reduce or eliminate specific items that would otherwise be required by section 4.

.04 Locale and Number of Meetings for SBT APA Requests

The APA Program will endeavor to hold meetings with the SBT at a location convenient to the SBT. To minimize the number of meetings, teleconferences will be employed whenever feasible.

.05 Assistance in Economic Analysis

At the SBT’s request, the APA Program will assist the SBT in the selection and evaluation of comparables, as well as the computation of any appropriate adjustments to comparables.

.06 APA

For unilateral APA requests, a SBT should submit a proposed draft APA in a form substantially similar to the APA Program’s current Model APA (see Announcement 2005-27, 2005-16 I.R.B. 918, 950). The electronic component of the APA request should include a “redline” version showing the differences between the Model APA and the SBT’s proposed draft APA (see section 4.02(6)).

.07 APA Program’s Consideration of Other Alternative Procedures

The APA Program may consider other procedures suggested by the SBT to reduce the SBT’s administrative and financial burden, consistent with the objectives of the APA Program and the requirements of § 482.

.01 An APA is a binding agreement between the taxpayer and the Service. See sections 2.01 - 2.04.

.02 If the taxpayer complies with the terms and conditions of the APA, the Service will not contest the application of the TPM to the subject matter of the APA except as provided in this revenue procedure. The taxpayer remains otherwise subject to U.S. income tax laws and applicable income tax conventions.

.03 An APA will have no legal effect except with respect to the taxpayer, taxable years, and transactions to which the APA specifically relates.

.04 Unless provided otherwise by written agreement or regulations, the Service and the taxpayer may not introduce the APA or non-factual oral and written representations made in conjunction with the APA request as evidence in any judicial or administrative proceeding regarding any tax year, transaction, or person not covered by the APA. This paragraph does not preclude the Service and the taxpayer from agreeing to roll back the APA TPM, or the Service’s use of any non-factual material otherwise discoverable or obtained other than in the APA process merely because the parties considered the same or similar material in the APA process.

.05 Unless provided otherwise by written agreement or regulations, the Service and the taxpayer may not introduce a proposed, cancelled, or revoked APA, or any non-factual oral or written representations or submissions made during the APA process, as an admission by the other party, in any judicial or administrative proceeding regarding any taxable year of the requested APA term. This paragraph does not preclude the Service’s use of any non-factual material otherwise discoverable or obtained other than in the APA process merely because the APA Program and the taxpayer considered the same or similar material in the APA process.

.01 Annual Reports

.02 APA Primary Adjustments, Secondary Adjustments, and Revenue Procedure Treatment

.03 Examination

.04 Record Retention

.05 Revising the APA

.06 Revoking or Canceling the APA

.07 Change in Case Law, Statute, Regulation, or Treaty

If applicable U.S. case law, statutes, regulations, or treaties change the federal income tax treatment of any matter covered by the APA, the new case law, statute, regulation, or treaty provision supersedes inconsistent terms and conditions of the APA.

.01 A taxpayer may request renewal of an APA using the procedures for initial APA requests. To expedite the preparation and evaluation of an APA renewal request, however, taxpayers are encouraged to request a prefiling conference to discuss with the APA Program the suitability of streamlined submission requirements. Taxpayers are encouraged to file the renewal request nine months before the expiration of the APA term.

.02 The APA Program will endeavor to expedite the processing of a renewal APA. Expedited processing will be most likely where the taxpayer demonstrates that the following conditions exist: (a) substantially the same law and policy applied to the existing APA; (b) no substantial differences exist between the taxpayer’s proposed TPM and the TPM under the existing APA; (c) no material changes occurred in the taxpayer’s facts or circumstances since the parties entered into the existing APA; and (d) for a bilateral APA, a rollback or closed year considerations did not influence the TPM in the existing APA.

.03 If the conditions in the prior paragraph exist, the APA Team begins its evaluation of the renewal APA by considering the continuing applicability of the existing APA, using updated comparables as appropriate. The APA Team will focus on any changed facts and circumstances. While the APA Team will endeavor to streamline the renewal process, certain cases may require additional analysis. That is, experience and insight gained from applying the TPM to actual data (for example, APA annual reports) may provide insight that indicates the need to modify the TPM. The APA Program will use its best efforts to advise the taxpayer at a prefiling conference whether a streamlined APA renewal process will be achievable.

.01 An APA, any background information related to the APA, and the taxpayer’s APA request for that APA, are return information and are confidential. See §§ 6103, 6105, 894, and 7852(d).

.02 An APA, any background information related to the APA, and the taxpayer’s APA request, are not “written determinations,” and they are not open to public inspection. See § 6110.

.03 The Secretary must prepare an annual report for public disclosure. See § 521(b) of the Ticket to Work and Work Incentives Improvement Act of 1999, Pub. L. 106-170, 113 Stat. 1860, 1925. That report includes specifically designated information concerning all APAs, but in a form that does not identify taxpayers or their trade secrets or proprietary or confidential business or financial information.

.04 An APA, any annual reports, and any factual information contained in the background files is subject to exchange of information under income tax treaties or tax information exchange agreements in accordance with the terms of such treaties and agreements (including terms regarding relevancy, confidentiality and the protection of trade secrets). In cases where the exchange of information would be discretionary, information may be exchanged to the extent consistent with sound tax administration and the practices of the relevant foreign competent authority, including where relevant the existence and application by the foreign competent authority of rules similar to those described in sections 10.04 and 10.05.

Rev. Proc. 2004-40, 2004-2 C.B. 50, is superseded.

This revenue procedure will apply to all APA requests, including requests for renewal, received on or after February 1, 2006. By agreement, this revenue procedure may apply to any APA resulting from an APA request pending on such date.

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 are in sections 3.06, 4, 5, 8.03, 11.01, 11.02(1), 11.04, 11.05 and 12.01. 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 8200 hours.

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 230.

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.

The principal authors of this document are various members of the Advance Pricing Agreement Program of the Office of Associate Chief Counsel (International). For further information regarding this revenue procedure, please contact Mr. Craig A. Sharon or Mr. Craig R. Gilbert at (202) 435-5220 (not a toll-free number).

This revenue procedure describes the application procedures for becoming an acceptance agent and the requisite agreement that an acceptance agent must execute with the IRS. Persons may wish to become an acceptance agent for purposes of facilitating the issuance of (1) IRS individual taxpayer identification numbers (ITINs) to alien individuals who are ineligible to obtain social security numbers (SSNs), or (2) employer identification numbers (EINs) to other foreign persons who need an EIN for Federal tax purposes. This revenue procedure supersedes Rev. Proc. 96-52, 1996-2 C.B. 372.

The four major changes to the revenue procedure for becoming an acceptance agent are as follows:

.01 Acceptance agent applicants may be required to submit to suitability checks, as explained in section 6 of this revenue procedure.

.02 An acceptance agent agreement entered into after the publication of this revenue procedure will expire on December 31 of the fourth full calendar year after the year in which the agreement goes into effect, as explained in section 7.02(8)(a) of this revenue procedure. Accordingly, acceptance agents will have to periodically reapply to retain their acceptance agent status.

.03 Existing acceptance agent agreements in effect on the date of publication of this revenue procedure will expire on December 31, 2006, as explained in section 8 of this revenue procedure. Acceptance agents subject to those expiring agreements must reapply to retain their acceptance agent status.

.04 Acceptance agents may request to be included on a public list of acceptance agents published periodically by the IRS, as explained in section 4.02(3)(b)(vii) of this revenue procedure.

.01 Section 301.6109-1(d)(3) of the Procedure and Administration Regulations provides general procedures for an alien individual to obtain an ITIN that require the submission of an application form (Form W-7), together with documentation considered as evidence of the alien individual’s identity and alien status. Section 301.6109-1(d)(2) of the regulations provides general procedures for obtaining an EIN that require the submission of an application form (Form SS-4) together with any supplementary statement as may be required. The regulations require that an applicant for an ITIN or an EIN furnish the information required by the form, the accompanying instructions, and any applicable regulations. An applicant for an ITIN or an EIN may submit the application form directly to the IRS or, as provided in §301.6109-1(d)(3)(iv), may apply with the assistance of an acceptance agent.

.02 In Rev. Proc. 96-52, the IRS provided guidance regarding the qualification requirements for acceptance agents and the execution of an agreement between an acceptance agent and the IRS. Acceptance agents facilitate and expedite the issuance of ITINs and EINs by verifying the foreign status and identity of the applicants. Since the program’s inception, hundreds of acceptance agents have successfully assisted individuals who are ineligible to obtain SSNs to obtain ITINs. The IRS is pleased with the success of the acceptance agent program and values the contributions made by acceptance agents. This revenue procedure modifies screening requirements to ensure that acceptance agents are adequately qualified to serve ITIN and EIN applicants. Acceptance agent applicants now may be required to undergo a suitability check, which includes a review of their tax filing histories to ensure compliance with their tax obligations and, in some cases, a credit history and FBI background check. The new procedures also call for the acceptance agent agreement to expire at the end of the fourth full calendar year. These new requirements are intended to ensure that ITIN and EIN applicants continue to receive assistance from credible and responsible acceptance agents.

For purposes of this revenue procedure, the terms listed below are defined as follows.

.01 An acceptance agent is a person (i.e., an individual or an entity) who, pursuant to a written agreement with the IRS, is authorized to assist alien individuals and other foreign persons in obtaining ITINs or EINs from the IRS. See section 4.01 of this revenue procedure for the role of an acceptance agent. A person acting in its capacity as an acceptance agent does not act as an agent of the IRS and is not authorized to hold itself out as an agent of the IRS.

.02 A certifying acceptance agent is a person (i.e., an individual or an entity) who, pursuant to a written agreement with the IRS, is authorized to assist alien individuals and other foreign persons in obtaining ITINs from the IRS and who also assumes a greater responsibility than an acceptance agent in facilitating the application process for obtaining ITINs. The certifying acceptance agent process does not apply to obtaining EINs. See section 5.01 of this revenue procedure for the role of a certifying acceptance agent. A person acting in its capacity as a certifying acceptance agent does not act as an agent of the IRS and is not authorized to hold itself out as an agent of the IRS.

.03 An alien individual is an individual who is not a citizen or a national of the United States (U.S.).

.04 A foreign person is a nonresident alien individual, a foreign corporation, a foreign partnership, a foreign trust, a foreign estate, or any other person that is not a U.S. person.

.05 Alien status refers to an individual’s status as a non-U.S. citizen or non-U.S. national.

.06 Identity refers to the fact of being the same individual as is represented, claimed, or described.

.07 TIN (taxpayer identifying number) refers to both ITINs and EINs.

.08 Form W-7 refers to IRS Form W-7, Application for IRS Individual Taxpayer Identification Number, including the Spanish-language version, IRS Form W-7(SP).

.09 Form SS-4 refers to IRS Form SS-4, Application for Employer Identification Number.

.01 Role of acceptance agent. The role of an acceptance agent is to facilitate the application process for the issuance of TINs to alien individuals and other foreign persons who need TINs for Federal tax purposes. An acceptance agent facilitates the ITIN application process by forwarding the completed Form W-7 (together with the required documentary evidence) to the IRS at the address listed in the Form W-7 instructions. An acceptance agent facilitates the EIN application process by submitting to the IRS a Form SS-4 (together with any supplementary statement if required) by following one of the procedures described in the Form SS-4 instructions.

.02 Application process for acceptance agent.

(1) Eligible persons. Persons eligible to become acceptance agents include a financial institution defined in section 265(b)(5) of the Internal Revenue Code (Code) or §1.165-12(c)(1)(iv) of the regulations, a college or university that is an educational organization defined in §1.501(c)(3)-1(d)(3)(i), a federal agency defined in section 6402(g) of the Code, persons that provide assistance to taxpayers in the preparation of their tax returns, and any other person or categories of persons that may be authorized by regulations or IRS procedures. An eligible person may be a U.S. person or a foreign person.

(2) Pre-application conference. Prior to submitting a formal application, a person interested in becoming an acceptance agent may, but is not required to, request a telephone or in-person conference with the IRS to explore informally the benefits and burdens associated with the role of an acceptance agent. Requests for pre-application conferences should be directed to the Commissioner of the Wage and Investment Division at (404) 338-8963 (not a toll-free number).

(3) Written application.

(a) Where to apply. A person may apply to become an acceptance agent by submitting a written request to:

(b) Content of application. The application shall indicate that the person is requesting permission to execute an agreement with the IRS pursuant to §301.6109-1(d)(3)(iv) of the regulations, and in accordance with this revenue procedure. The application shall include the following information:

(i) The applicant’s complete legal name, street address, city, state, country, zip code, EIN, and SSN or ITIN if an individual, and Electronic Filing Identification Number (EFIN), if available. All acceptance agents must have EINs. Therefore, if the applicant does not have an EIN, the applicant must obtain an EIN by following one of the procedures described in the Form SS-4 instructions;

(ii) A description of the type of person(s) the applicant expects to help obtain a TIN (e.g., visiting professors, nonresident gaming winners, etc.) and the approximate number of persons the applicant expects to help during each calendar year;

(iii) A description of the applicant, including the professional status of the applicant (e.g., financial institution, educational organization, federal agency, tax preparer, attorney, certified public accountant (CPA), etc.), the organizational status of the applicant (e.g., corporation, partnership, sole proprietorship, etc.) and if the applicant is an entity, the state, including the District of Columbia (or if outside the United States, the country) under whose laws the entity is created or organized;

(iv) A list of the offices or branches, if any, intended to be covered by the agreement and their locations, including mailing addresses;

(v) A description of the business relationship the applicant has with the persons whom it expects to assist in obtaining TINs;

(vi) The name, telephone number, fax number, and e-mail address of an individual the IRS can contact regarding the application; and

(vii) If the applicant assists with the preparation of tax returns, the applicant may request to be included on a public list of acceptance agents published periodically by the IRS.

(c) Standard application form. Application should be made on Form 13551 (revised), Application to Participate in the IRS Acceptance Agent Program.

(4) IRS review of application.

(a) Request for additional information. Upon review of the application, the IRS may request additional information.

(b) Determination and notification of status. The IRS will determine whether the applicant qualifies to become an acceptance agent and will notify the applicant in writing of this determination upon completion of a suitability check as described in section 6 of this revenue procedure. If the applicant is approved as an acceptance agent, the IRS will provide written instructions to the applicant regarding the procedures for entering into the acceptance agent agreement with the IRS.

.01 Role of a certifying acceptance agent. A certifying acceptance agent is a person that is authorized under an agreement with the IRS to submit a Form W-7 to the IRS on behalf of an ITIN applicant without furnishing supporting documentary evidence. Instead, when a certifying acceptance agent submits a Form W-7 to the IRS, it certifies to the IRS that it has reviewed the appropriate documentation evidencing the ITIN applicant’s identity and alien status, and that it is maintaining a record of such documentation. In addition, the certifying acceptance agent must certify that, to the best of its knowledge and belief, the documentation is authentic, complete, and accurate. As part of the certification, the certifying acceptance agent must describe the documentation upon which it is relying. The certification is not binding on the IRS, and, in appropriate cases, the IRS may request to see appropriate documentation before issuing an ITIN.

.02 Application process for certifying acceptance agent.

(1) Written application. IRS permission to act as a certifying acceptance agent is conditioned upon the acceptance agent’s agreeing to verify documentation supporting the identity and alien status of an ITIN applicant, maintain certain records, and submit certain information to the IRS upon request. As a result, in addition to the information required to be submitted with an application to become an acceptance agent as outlined in section 4.02(3) of this revenue procedure, an applicant also must state that it is applying for certifying acceptance agent status.

(2) Pre-application conference. Prior to submitting a formal application, a person interested in becoming a certifying acceptance agent may, but is not required to, request a telephone or in-person conference with the IRS. Such a conference provides an opportunity to address such matters as the scope of the agreement, corresponding obligations for the applicant that arise under the agreement, and the nature of documentation, record maintenance, and verification procedures that arise under the agreement. Requests for pre-application conferences should be directed to the Commissioner of the Wage and Investment Division at (404) 338-8963 (not a toll-free number).

.03 Agreement. The terms of a certifying acceptance agent agreement may vary from case to case depending upon such factors as local laws and practices, know-your-customer procedures, supervisory controls, and the types of internal controls and recordkeeping procedures in effect in the normal course of the business of the certifying acceptance agent. Generally, the certifying acceptance agent agreement will contain the terms and conditions necessary to insure proper administration of the process, described in section 7.02 of this revenue procedure, by which the IRS issues ITINs to alien individuals. The following terms for certifying acceptance agents are in addition to those outlined in section 7 of this revenue procedure for all acceptance agents.

(1) Procedures for collecting, reviewing, and maintaining a record of required documentation for assignment of an ITIN. A certifying acceptance agent agreement will describe the procedures by which the certifying acceptance agent will verify the identity and alien status of ITIN applicants and submit a certification to the IRS. To the extent possible, procedures already in place to identify persons for local regulatory purposes or as part of the certifying acceptance agent’s normal course of business will be used to support the representations made by the applicant regarding these matters. To the extent applicable, a certifying acceptance agent may use documentation evidencing citizenship, nationality, residency, or immigration status to support its determination of the alien status of ITIN applicants. The reliability of any documentation should be evaluated by the certifying acceptance agent on the basis of the type of information stated on the document, the source of the document, and the ease with which the document could be counterfeited. If the IRS determines that these requirements or practices are not sufficient, it may require that additional procedures and documentation be established.

The certifying acceptance agent will agree to maintain a record of the documentation obtained and reviewed pursuant to the obligations set forth in the agreement. All documentation submitted with respect to an ITIN applicant shall be maintained for a reasonable period, as prescribed in the agreement.

(2) Procedures for IRS compliance checks of certifications. A certifying acceptance agent must also agree to furnish supporting documentary evidence to the IRS upon request in such manner as the IRS and the certifying acceptance agent will establish. In order to conduct periodic compliance checks, the IRS may rely on sampling techniques and/or verification by random selection with ITIN recipients to assure reliability of the certifying acceptance agent’s certifications while limiting the disruption and burden to the acceptance agent. The certifying acceptance agent agreement will specify the manner in which IRS compliance checks will take place (i.e., either on site or through correspondence). Where the certifying acceptance agent resides outside of the United States, in appropriate cases, assistance may be obtained from the tax authorities of the country where the acceptance agent resides.

In general, applicants for approval as an acceptance agent or certifying acceptance agent must pass a suitability background check before being admitted into the acceptance agent program.

.01 Suitability Background Check.

(1) In general. Acceptance agent and certifying acceptance agent applicants will be subject to an IRS review of the applicant’s tax filing history to determine if the applicant is in full compliance with filing and payment responsibilities under the Internal Revenue Code and its regulations.

(2) Additional requirements.

(a) The acceptance agent or certifying acceptance agent applicant or the applicant’s representative who has the authority to sign the acceptance agent or certifying acceptance agent agreement, if applicable, will be subject to the following requirements:

(i) A credit history check; and

(ii) An FBI background check.

(b) Any individual who is authorized to practice before the IRS under Circular 230 and provides evidence of current professional status will not be subject to the requirements under section 6.01(2)(a)(i) or (ii) for purposes of becoming an acceptance agent or certifying acceptance agent.

.02 Exceptions.

(1) Financial institutions, as defined in section 265(b)(5) of the code or §1.165-12(c)(1)(iv) of the Income Tax Regulations, colleges and universities that qualify as educational organizations under §1.501(c)(3)-1(d)(3)(i), and casinos will not be subject to the requirements under section 6.01 of this revenue procedure, but the IRS may consider the tax filing history of the entity in evaluating an application from such entity;

(2) Applicants who have passed the suitability check for Electronic Return Originator (ERO) status and who remain in good standing with the IRS will not be subject to the requirements under section 6.01 of this revenue procedure; and

(3) Federal agencies, as defined in section 6402(g) of the Code, will not be subject to the requirements under section 6.01 of this revenue procedure.

.01 In general. An acceptance agent agreement described in §301.6109-1(d)(3)(iv)(A) of the regulations is an agreement between the IRS and a person authorized to act as an acceptance agent on behalf of an alien individual or other foreign person with respect to their need to obtain TINs from the IRS. The Commissioner of the Wage and Investment Division or his/her designee will sign the agreement on behalf of the IRS. If the acceptance agent is a person other than an individual, the agreement must be signed by an authorized representative of the acceptance agent.

.02 Terms and procedures. The terms of an acceptance agent agreement may vary depending upon such factors as the professional status of the applicant (e.g., financial institution, educational organization, U.S. federal agency, tax preparer, attorney, CPA, etc.), the organizational status of the applicant (e.g., corporation, partnership, sole proprietorship, etc.), and the place of residence or organization of the applicant (i.e., inside or outside the United States). The acceptance agent agreement will generally contain the following terms and conditions to ensure proper administration of the process by which the IRS issues TINs to alien individuals and other foreign persons.

(1) Procedures for providing TIN application forms. An acceptance agent shall agree to maintain a supply of Forms W-7 for obtaining ITINs, and of Forms SS-4 for obtaining EINs. The acceptance agent may use a substitute form that is approved by the IRS. For example, if the acceptance agent is a financial institution, the Form W-7 or Form SS-4 may be incorporated as part of an account opening package. See Rev. Proc. 2004-62, 2004-2 C.B. 730, for the procedures governing the use of substitute forms.

(2) Procedures for assisting in completion of TIN application forms. An acceptance agent shall agree to assist in the preparation of the TIN application form. For example, the acceptance agent should confirm that every item included on the application form has been completed and should assist the TIN applicant in understanding the information required by the application form. The acceptance agent should contact the IRS for assistance regarding any questions about the forms, application process, the requirement to have TINs, etc., that it cannot reasonably answer. Questions regarding such matters should be directed to the Commissioner of the Wage and Investment Division at (404) 338-8963 (not a toll-free number).

(3) Procedures for IRS communication with acceptance agent. The ITIN applicant’s signature on the Form W-7 authorizes the acceptance agent to communicate with the IRS regarding only the ITIN applicant’s application. The acceptance agent may act as an agent for the ITIN applicant with regard to any additional communication with the IRS that is necessary for completion of the application form. However, an EIN applicant must complete and execute Form 2848, Power of Attorney and Declaration of Representative, to authorize an acceptance agent to communicate with the IRS on the applicant’s behalf in connection with a completed Form SS-4 application.

(4) Procedures for submitting TIN application forms. An acceptance agent shall agree to submit promptly the TIN application forms or approved substitute forms (together with the required documentation for ITINs or the supplementary statement, if required, for EINs) to the IRS at the mailing address specified in the agreement.

(5) Procedures for collecting and reviewing required documentation for assignment of an ITIN. A Form W-7 must be accompanied by documentary evidence of the ITIN applicant’s alien status and identity. The types of acceptable documentary evidence may vary depending upon such factors as the ITIN applicant’s country of citizenship or nationality, the ITIN applicant’s residency at the time of the application (i.e., inside or outside the United States), etc. The acceptance agent must review the ITIN applicant’s documentation in order to determine whether the documentation is of a type which the IRS regards as reliable evidence of alien status and identity. Examples of acceptable documentary evidence are provided in the Form W-7 instructions. Generally, ITIN applicants must submit the required documentation during a personal interview with the acceptance agent. The agreement generally will require that original (or certified copies of the original) documentation be submitted to the IRS with Form W-7. All valid original documents will be returned to the acceptance agent. Copies of original documents, if allowed to be submitted under the acceptance agent agreement, will not be returned to the acceptance agent.

(6) Procedures for assisting taxpayers with notification procedures in the event of a change of alien status. When an acceptance agent knows that an individual assigned an ITIN has become eligible to obtain (or has, in fact, obtained) a SSN, such acceptance agent shall agree to inform the individual of the obligation to (1) apply for a SSN, (2) stop using the previously-assigned ITIN upon receipt of the new SSN, and (3) notify the IRS of this change in alien status. The acceptance agent’s duty with respect to this matter shall apply only to situations in which the acceptance agent has a continuing business relationship with the individual. An alien individual may become eligible to obtain a SSN if, for example, such individual has become a U.S. citizen or a permanent U.S. resident (i.e., “green card” holder), or is lawfully permitted to work in the United States.

(7) Procedures for IRS verification of compliance with acceptance agent agreement. The acceptance agent agreement will specify the procedures by which the IRS will verify the acceptance agent’s compliance with the agreement. In particular, the procedures must enable the IRS to verify that the acceptance agent has adequate procedures in effect to assist applicants properly. The procedures also must enable the IRS to verify that the acceptance agent is complying with any record retention requirements relating to the issuance of TINs. Verification of compliance with the acceptance agent agreement does not constitute an examination of the books and records of the acceptance agent.

(8) Procedures regarding expiration and termination of acceptance agent agreement.

(a) Expiration. An acceptance agent agreement shall be in effect on the date the agreement is signed by an authorized representative of the IRS and shall expire on December 31 of the fourth full calendar year after the year in which the agreement became effective. Acceptance agents subject to expiring agreements who wish to retain their acceptance agent status must enter into new acceptance agent agreements pursuant to the procedures set forth in this revenue procedure. In order to avoid a lapse in acceptance agent status, a new application should be filed with the IRS at least six months prior to the expiration of an acceptance agent agreement.

(b) Termination. In general, either the acceptance agent or the IRS may terminate the agreement after delivery of a notice of termination to the other party. The decision to terminate an agreement is solely within the discretion of the party giving such notice. However, the IRS generally will not terminate an agreement unless the acceptance agent knowingly fails to comply with procedures required by the agreement or to perform any duty or obligation required in the agreement (including failing to exercise due diligence under the agreement) and such failure constitutes material non-compliance. In addition, the IRS may terminate an agreement if the acceptance agent has misrepresented material information provided on its acceptance agent application or on a TIN application. Further, the IRS may terminate an agreement if the acceptance agent accepts a TIN application with knowledge that material information on the form is false. The acceptance agent may request that the IRS reinstate the acceptance agent agreement by submitting, within 30 days of termination, a written explanation to the ITIN Program Office, 401 West Peachtree Street, Atlanta, GA 30308, of how the acceptance agent proposes to correct the violation and, if appropriate, of how it proposes to modify its procedures to ensure that such a violation will not occur in the future. The IRS shall accept or reject the request, or make a counterproposal, within 30 days of receipt of the request. This decision is not subject to appeal.

Acceptance agent agreements and certifying acceptance agent agreements that are in effect on the date of the publication of this revenue procedure will expire on December 31, 2006. Acceptance agents and certifying acceptance agents subject to expiring agreements who wish to retain their acceptance agent status must enter into new acceptance agent agreements pursuant to the procedures set forth in this revenue procedure. To avoid a lapse in acceptance agent status, a new application should be filed with the IRS by June 30, 2006.

This revenue procedure is effective on the date of publication.

Rev. Rul. 96-52 is superseded.

The collection of information contained in this revenue procedure has 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 1545-1499.

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 collection of information contained in this revenue procedure is in section 4.02(3), section 5.02(1), and section 7.02(6). This information is required to assist the IRS in issuing TINs to certain alien individuals and foreign persons. In addition, this information will be used to enable the IRS to determine whether persons qualify as acceptance agents. The collection of information is required to obtain an acceptance agent agreement. The likely respondents are state or local governments, business or other for-profit institutions, federal agencies, and nonprofit institutions.

The estimated total annual reporting/recordkeeping burden is 24,960 hours.

The estimated average annual burden per respondent/recordkeeper is 3 hours, 12 minutes. The estimated number of respondents/recordkeepers is 8,000.

The estimated annual frequency of responses is on occasion.

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 26 U.S.C. 6103.

The principal author of this revenue procedure is Ethan A. Atticks of the Office of Associate Chief Counsel (International). For further information regarding this revenue procedure, contact the Commissioner of the Wage and Investment Division at (404) 338-8963 (not a toll-free call).

Internal Revenue Service (IRS), Treasury.

Notice of proposed rulemaking by cross-reference to temporary regulations, notice of proposed rulemaking, and notice of public hearing.

In this issue of the Bulletin, the IRS is issuing temporary regulations (T.D. 9232) that provide certain elections for taxpayers, who in limited circumstances, continue to be subject to the excess distribution regime of section 1291 even though the foreign corporation in which they own stock is no longer treated as a PFIC under section 1297(e). The regulations are necessary to provide guidance about purging the PFIC taint for such foreign corporations. The regulations will affect U.S. persons that hold stock in a PFIC. The text of those temporary regulations also serves as the text of these proposed regulations. This document also provides notice of a public hearing on these proposed regulations.

Written or electronic comments must be received by March 8, 2006. Outlines of topics to be discussed at the public hearing scheduled for March 22, 2006, at 10 a.m. must be received by March 1, 2006.

Send submissions to CC:PA:LPD:PR (REG-133446-03), room 5203, Internal Revenue Building, POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-133446-03), Courier’s Desk, Internal Revenue Building, 1111 Constitution Avenue, NW, Washington, DC, electronically via the IRS Internet site at www.irs.gov/regs or via the Federal Rulemaking Portal at http://www.regulations.gov (IRS REG-133446-03). The public hearing will be held in the Auditorium, Internal Revenue Building, 1111 Constitution Avenue, NW, Washington, DC.

Concerning the regulations, Ethan Atticks at (202) 622-3840, concerning submissions and the hearing, LaNita Van Dyke (202) 622-7180 (not toll-free numbers).

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

The principal author of this regulation is Ethan Atticks, Office of Associate Chief Counsel (International). However, other personnel from the IRS and Treasury Department participated in their development.

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This announcement is to advise housing credit agencies and building owners of changes reflected in the December 2005 revision of Form 8609, Low-Income Housing Credit Allocation and Certification, and to inform claimers of the low-income housing credit of new Form 8609-A, Annual Statement for Low-Income Housing Credit.

Generally, the December 2005 revision of Form 8609 is to be used for allocations made in 2005 or later. In the case of carryover allocations, the December 2005 revision of Form 8609 is to be used for buildings placed in service in 2005 or later. In the case of buildings financed with tax-exempt bonds, the December 2005 revision of Form 8609 is to be used for bonds issued or buildings placed in service in 2005 or later. However, if for 2005 the housing credit agency used the November 2003 revision of Form 8609, the housing credit agency does not have to issue an amended Form 8609.

With the December 2005 revision, Form 8609 is no longer attached to the building owner’s tax return for each year of the 15-year compliance period. Instead, the building owner will make a one-time submission of the appropriate revision of Form 8609 to the Low-Income Housing Credit Unit at the IRS Philadelphia campus. This one-time submission must take place by the due date (including extensions) of the first tax return with which the building owner is filing Form 8609-A. This one-time submission must be made even if the building owner has filed Form 8609 with a prior tax return.

The procedures are explained in detail on the December 2005 revision of Form 8609. Follow the submission instructions set forth in the December 2005 revision that correspond with the revision date found on the Form 8609 that the housing credit agency sent to you. The December 2005 revision of Form 8609 (including instructions) can be found at www.irs.gov.

Although a housing credit agency may have used the November 2003 revision of Form 8609 for 2005, the building owner still must follow the submission procedures detailed in the instructions on the December 2005 revision.

For tax years beginning after 2004, Form 8609-A replaces Schedule A (Form 8609), Annual Statement. Please see Form 8609-A for detailed instructions on completing and filing the form.