This document contains amendments to 26 CFR part 1. On October 31, 2008, the Treasury Department and the IRS published Notice 2008–99 (2008–47 IRB 1194) to designate a transaction and substantially similar transactions as Transactions of Interest under § 1.6011–4(b)(6) of the Income Tax Regulations and to ask for public comments on how the transactions might be addressed in published guidance. After studying the transaction and comments received from the public in response to Notice 2008–99, the Treasury Department and the IRS filed a notice of proposed rulemaking (REG–154890–03) relating to basis in interests in tax-exempt trusts in the Federal Register on January 16, 2014. No comments were received from the public in response to the notice of proposed rulemaking. No public hearing was requested or held. The proposed regulations are adopted without change by this Treasury decision.

These final regulations provide a special rule for determining the basis in certain CRT term interests in transactions to which section 1001(e)(3) applies. Such transactions are those in which the sale or other disposition of the CRT term interest is part of a transaction in which all interests in the CRT are transferred. In these cases, these final regulations provide that the basis of a term interest of a taxable beneficiary is the portion of the adjusted uniform basis assignable to that interest reduced by the portion of the sum of the following amounts assignable to that interest: (1) the amount of undistributed net ordinary income described in section 664(b)(1); and (2) the amount of undistributed net capital gain described in section 664(b)(2). These final regulations do not affect the CRT’s basis in its assets but rather are for the purpose of determining a taxable beneficiary’s gain arising from a transaction described in section 1001(e)(3). The rules in these final regulations are limited in application to charitable remainder annuity trusts and charitable remainder unitrusts as defined in section 664.

Notice 2008–99 provides that, when the Treasury Department and the IRS have gathered enough information to make an informed decision as to whether this transaction is a tax avoidance type of transaction, the Treasury Department and the IRS may take one or more actions, including removing the transaction from the transactions of interest category in published guidance, designating the transaction as a listed transaction, or providing a new category of reportable transaction. Because the Treasury Department and the IRS believe that these final regulations address the proper tax treatment of the transaction described in Notice 2008–99, transactions that are the same as, or substantially similar to, transactions described in Notice 2008–99 are no longer considered “transactions of interest,” effective for transactions entered into on or after January 16, 2014. However, the “transaction of interest” identification for transactions that are the same as, or substantially similar to, the transaction described in Notice 2008–99 continues to apply for transactions entered into before January 16, 2014, and to transactions entered into on or after January 16, 2014, pursuant to a binding commitment entered into before January 16, 2014. For example, disclosure and other obligations under sections 6011, 6111, and 6112 continue to apply for these transactions entered into before January 16, 2014, and to transactions entered into on or after January 16, 2014, pursuant to a binding commitment entered into before January 16, 2014.

These final regulations apply to sales and other dispositions of interests in CRTs occurring on or after January 16, 2014, except for sales or dispositions occurring pursuant to a binding commitment entered into before January 16, 2014. However, the fact that a sale or disposition occurred, or a binding commitment to complete a sale or disposition was entered into, before January 16, 2014, does not preclude the IRS from applying legal arguments available to the IRS before issuance of these final regulations in order to contest the claimed tax treatment of such a transaction.

The IRS notice cited in this preamble is published in the Internal Revenue Bulletin and is available at the IRS website at http://www.irs.gov or the Superintendent of Documents, U.S. Government Printing Office, Washington, D.C., 20402.

Certain IRS regulations, including this one, are exempt from the requirements of Executive Order 12866, as supplemented and reaffirmed by Executive Order 13563. Therefore, a regulatory impact assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these final regulations, and the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply to these final regulations because the final regulations do not impose a collection of information on small entities. Therefore, a Regulatory Flexibility Analysis is not required. Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed rulemaking preceding this regulation was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Accordingly, 26 CFR part 1 is amended as follows:

Paragraph 1. The authority citation for part 1 continues to read in part as follows:

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

Par. 2. Section 1.1001–1, paragraph (f)(4), is amended by removing the language “paragraph (c)” and adding “paragraph (d)” in its place.

Par. 3. Section 1.1014–5 is amended by:

1. In paragraph (a)(1), first sentence, removing the language “paragraph (b)” and adding “paragraph (b) or (c)” in its place.

2. Designating paragraph (c) as newly-designated paragraph (d) and adding paragraph (c).

3. In newly-designated paragraph (d), adding Example 7 and Example 8.

The additions read as follows:

This document contains amendments to 26 CFR part 1 under section 6081 of the Internal Revenue Code (Code) regarding extensions of time to file certain information returns. Effective for filing season 2017, this document removes § 1.6081–8 and adds new § 1.6081–8T. Section 1.6081–8 will remain in effect for filing season 2016. Section 1.6081–8 currently provides an automatic 30–day extension of time to file information returns on forms in the W–2 series (including Forms W–2, W–2AS, W–2G, W–2GU, and W–2VI), 1095 series, 1098 series, 1099 series, and 5498 series, and on Forms 1042–S and 8027, and allows an additional 30-day non-automatic extension of time to file those information returns in certain cases.

The temporary regulations § 1.6081–8T are substantially identical to the regulations § 1.6081–8 that will be removed, except that the temporary regulations: (1) add information returns on forms in the 1097 series and Forms 1094–C, 3921, and 3922 to the list of information returns with procedures prescribed by regulations for the extension of time to file; (2) remove information returns on forms in the W–2 series (except Form W–2G) from the list of information returns eligible for the automatic 30-day extension of time to file, and instead provide a single 30-day non-automatic extension of time to file those information returns; and (3) clarify that the procedures for requesting an extension of time to file in the case of forms in the 1095 series apply to information returns on Forms 1095–B and 1095–C, but not 1095–A.

The due dates imposed by statute, regulation, or form instruction for filing information returns on forms in the W–2 series, 1097 series, 1098 series, and 1099 series, and Forms 1094–C (when filed as a stand-alone information return), 1095–B, 1095–C, 3921, 3922, and 8027 on paper are either February 28 or the last day of February of the calendar year following the calendar year for which the information is being reported. The due date for filing these information returns electronically is March 31 of the calendar year following the calendar year for which the information is being reported. The information returns on forms in the 5498 series and the Form 1042–S, whether filed on paper or electronically, are due March 15 and May 31, respectively, of the calendar year following the calendar year for which the information is being reported. All of these information returns are filed with the IRS, except for information returns on forms in the W–2 series (other than Form W–2G), which are filed with the Social Security Administration. Filers who fail to timely and accurately file these information returns may be subject to penalties under section 6652 (regarding failure to file certain information returns), section 6693 (regarding failure to report on certain tax-favored accounts or annuities), or section 6721 (regarding failure to timely and accurately file information returns defined by section 6724(d)(1)).

Section 6081(a) generally provides that the Secretary may grant a reasonable extension of time, not to exceed 6 months, for filing any return, declaration, statement, or other document required by Title 26 or by regulation. The regulations under section 6081 generally provide rules for extensions of time to file returns. The regulations under § 1.6081–8 provide specific rules for extensions of time to file certain information returns.

Under § 1.6081–8(a), a person required to file certain information returns (the filer), or the person transmitting the return for the filer (the transmitter), can currently receive an automatic 30-day extension of time to file those information returns. A filer or transmitter obtains an automatic 30-day extension of time to file by submitting a Form 8809, “Application for Extension of Time to File Information Returns,” to the IRS on or before the due date of the information return.

Section 1.6081–8(d) also currently provides that a filer or transmitter that obtains an automatic 30-day extension of time to file may request an additional 30-day extension of time to file by submitting a second Form 8809 on or before the date that the automatic 30-day extension of time to file expires. That additional 30-day extension of time to file under § 1.6081–8(d) is not automatically granted by the IRS. Unlike requests to obtain an automatic 30-day extension of time to file under § 1.6081–8(a), a filer or transmitter that requests an additional 30-day extension of time to file under § 1.6081–8(d) is required to sign the Form 8809 under penalties of perjury and include an explanation of why an additional extension of time to file is needed. No further extensions of time to file are permitted under § 1.6081–8.

Employers eligible to file information returns on forms in the W–2 series on an expedited basis under § 31.6071(a)–1(a)(3)(ii) are not eligible to obtain the automatic 30-day extension of time to file those information returns under § 1.6081–8 because they received an automatic extension of time to file information returns on forms in the W–2 series under Rev. Proc. 96–57 (1996–2 CB 389), see § 601.601(d)(2)(ii)(b) of this chapter.

A filer or transmitter seeking an extension of time to furnish statements to recipients is required to separately request an extension of time to furnish the statements under rules applicable to those statements.

The IRS uses third-party information returns to increase voluntary compliance, verify accuracy of tax returns, improve collection of taxes, and combat fraud, including fraudulent refund claims filed by unscrupulous preparers and individuals using the stolen identities of legitimate taxpayers. Identity theft and refund fraud is a persistent and evolving threat to the nation’s tax system. It places an enormous burden on the United States Government, with the most painful and immediate impact being on the victims whose personal information is used to commit the crime and the most pervasive impact being an erosion of public confidence in the tax system.

Identity thieves often electronically file their fraudulent refund claims early in the tax filing season, using fictitious wage and other information of legitimate taxpayers. Unscrupulous preparers also electronically file early in the tax filing season, over-claiming deductions and credits and underreporting income for unwitting, as well as complicit, taxpayers. In many cases, the IRS is unable to verify the wage and other information reported on tax returns filed before April 15th, in part because the IRS does not receive the information returns reporting this information until later in the filing season.

Although paper information returns are generally due to be filed by February 28 or the last day of February of the calendar year following the calendar year for which the information is reported, an extension of time to file under § 1.6081–8 may currently extend the due date until the end of March or, if a non-automatic extension is also granted, the end of April. Similarly, although electronically-filed information returns are generally due by March 31 of the calendar year following the calendar year for which the information is reported, an extension of time to file under § 1.6081–8 may extend the due date until the end of April or, if a non-automatic extension is also granted, the end of May.

Receipt of information returns earlier in the filing season will improve the IRS’s ability to identify fraudulent refund claims and stop the refunds before they are paid. The United States Government Accountability Office (GAO) has cited the IRS’s receipt of information returns late in the filing season as a contributing factor in payment of fraudulent refunds due to identity theft and preparer misconduct. See GAO Report GAO–14–633, Identity Theft, Additional Actions Could Help IRS Combat the Large, Evolving Threat of Refund Fraud. Removing the automatic 30-day extension of time to file is an affirmative step to accelerate the filing of information returns so they are available earlier in the filing season for use in the IRS’s refund fraud detection processes.

Over the next several years, the IRS intends to remove the 30-day automatic extension of time to file certain information returns. Under § 1.6081–8T, which will not be effective until the 2017 filing season, the first information returns subject to these new rules are information returns on forms in the W–2 series (except Form W–2G). These information returns are particularly helpful to the IRS for identifying fraudulent identity theft refund claims and preventing their payout. This is because a significant portion of most taxpayers’ income and withholding information is reported on Forms W–2. Forms W–2 are also a major source of the false income and withholding that is reported by identity thieves and unscrupulous preparers. Having access to Forms W–2 earlier in the filing season will improve the IRS’s ability to conduct pre-refund matching and identify incidences of identity theft and tax refund fraud.

Accordingly, § 1.6081–8T provides a single 30-day non-automatic extension of time to file information returns on forms in the W–2 series (except Form W–2G) due in 2017 that the IRS may, in its discretion, grant if the IRS determines that an extension of time to file is warranted based on the filer’s or transmitter’s explanation attached to the Form 8809 signed under the penalties of perjury. The IRS anticipates that it will grant the non-automatic extension of time to file only in limited cases where the filer’s or transmitter’s explanation demonstrates that an extension of time to file is needed as a result of extraordinary circumstances or catastrophe, such as a natural disaster or fire destroying the books and records a filer needs for filing the information returns. If the IRS does not grant the extension of time to file, information returns filed after their due dates are not timely filed, regardless of whether the application for extension of time to file was filed timely.

The IRS intends to eventually remove the automatic 30-day extension of time to file the other forms listed in § 1.6081–8T and replace it with a single non-automatic 30-day extension of time to file. Therefore, proposed regulations set forth in the notice of proposed rulemaking on this subject in the Proposed Rules section in this issue of the Internal Revenue Bulletin would remove the automatic 30-day extension of time to file these other information returns. As currently drafted, the proposed regulations would affect information returns due January 1 of the calendar year beginning after the date of publication of final regulations in the Federal Register, but the preamble to those proposed regulations provides that final regulations will not be effective any earlier than the 2018 filing season.

Treasury and the IRS request comments on the appropriate timing of the removal of the automatic extension of time to file information returns covered by § 1.6081–8T, such as Form 1042–S, including whether special transitional considerations should be given for any category or categories of forms or filers relative to other forms or filers. Please follow the instructions in the “Comments and Requests for Public Hearing” section in the notice of proposed rulemaking accompanying these temporary regulations in this issue of the Internal Revenue Bulletin.

Section 1.6081–8T also updates the list of information returns that are currently covered by § 1.6081–8. Forms 3921 and 3922 are being added to § 1.6081–8T because these forms have been included on Form 8809 since the June 2009 revision, which coincided with the revision of the regulations requiring those forms under section 6039. See TD 9470 (74 FR 59087) November 17, 2009. Forms in the 1097 series are being added because they have similarly been included on Form 8809 since the September 2010 revision, which coincided with the publication of the notice requiring the filing of the only active form in the 1097 series, Notice 2010–28 (2010–15 IRB 541).

In addition, the Form 1094–C is being added to the list of forms in § 1.6081–8T. In most cases the Form 1094–C is filed as a mere transmittal with the Form 1095–C and, therefore, the due date of the Form 1094–C is the same as the Form 1095–C, including extensions. However, in certain cases, the Form 1094–C is filed as a stand-alone information return. See TD 9661, (79 FR 13231) March 10, 2014. When Form 1094–C is filed as a stand-alone information return, it is subject to the same rules regarding extensions of time to file as other information returns. Accordingly, Form 1094–C has been added to the list of forms subject to extension under § 1.6081–8T.

Section 1.6081–8T also replaces the general reference to the forms in the 1095 series that was added to § 1.6081–8 on March 10, 2014, by TD 9660 (79 FR 13220) with specific references to Forms 1095–B and 1095–C. Form 1095–A was not intended to be included in § 1.6081–8, because the timing rules for filing the Form 1095–A are governed by § 1.36B–5. See TD 9663 (79 FR 26113) May 7, 2014.

Certain IRS regulations, including this one, are exempt from the requirements of Executive Order 12866, as supplemented and reaffirmed by Executive Order 13563. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations.

Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby certified that this regulation will not have a significant economic impact on a substantial number of small entities. As stated in this preamble, these regulations remove the automatic 30-day extension of time to file information returns on Forms in the W–2 series (except for Form W–2G). Starting in filing season 2017, filers and transmitters may request only one 30-day extension of time to file Form W–2 by timely submitting a Form 8809, including an explanation of the reasons for requesting the extension and signed under penalty of perjury. Although the regulation may potentially affect a substantial number of small entities, the economic impact on these entities is not expected to be significant because filers who are unable to timely file as a result of extraordinary circumstances or catastrophe may continue to obtain a 30-day extension through the Form 8809 process. The form takes approximately 20 minutes to prepare and submit to the IRS. Pursuant to section 7805(f) of the Code, these regulations have been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business.

Accordingly, 26 CFR part 1 is amended as follows:

Paragraph 1. The authority citation for part 1 continues to read as follows:

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

Par. 2. Section 1.6081–8 is revised to read as follows:

Section 4980I(c)(1) provides that the coverage provider is liable for any applicable excise tax. The identity of the coverage provider depends on the type of coverage provided. Under the statute, in the case of applicable coverage provided under an insured group health plan, the coverage provider is the health insurance issuer. With respect to coverage under an HSA or an Archer MSA, the coverage provider is the employer. For all other applicable coverage, the coverage provider is “the person that administers the plan benefits.”

Section 4980I does not define the term “person that administers the plan benefits.” Section 4980I(f)(6) provides that the term “person that administers the plan benefits” includes the plan sponsor if the plan sponsor administers benefits under the plan, which indicates that the plan sponsor of a self-insured arrangement may be, but is not always, the person that administers benefits under the plan. The term, “person that administers the plan benefits,” is not used elsewhere in the Code, nor is it used elsewhere in the Affordable Care Act or in ERISA or the Public Health Service Act, both of which were amended by the Affordable Care Act. Because the term “person that administers the plan benefits” is not used in other statutory contexts, Treasury and IRS are considering two alternative approaches to determining the identity of the person that administers the plan benefits.^[3] Under either approach, it is anticipated that the person that administers the plan benefits will generally be an entity, rather than an individual, but for purposes of the discussion below, the relevant entity or individual is referred to as a “person.”

Under one approach, the person that administers the plan benefits would be the person responsible for performing the day-to-day functions that constitute the administration of plan benefits, such as receiving and processing claims for benefits, responding to inquiries, or providing a technology platform for benefits information. Treasury and IRS anticipate that this person generally would be a third-party administrator for benefits that are self-insured, except in the rare circumstance in which the employer or plan sponsor performs these functions, or owns the person that performs these functions. Comments are requested on the types of administrative functions that should be considered under this approach when determining the person that administers the plan benefits. Comments are also requested on whether the person that administers the plan benefits could be easily identified in most instances under this approach, or whether the identity of the person that administers the plan benefits would often be unclear because, for example, multiple parties (such as a pharmacy benefit administrator and a medical claims benefit administrator) perform the relevant functions with respect to a benefit package for which a single cost of applicable coverage will be determined as discussed in section IV.C of Notice 2015–16 (concerning potential approaches for determining the cost of applicable coverage). In addition, Treasury and IRS request comments on any other concerns this approach would raise.

Under the second approach that Treasury and IRS are considering, the person that administers the plan benefits would be the person that has the ultimate authority or responsibility under the plan or arrangement with respect to the administration of the plan benefits (including final decisions on administrative matters), regardless of whether that person routinely exercises that authority or responsibility. For purposes of this second approach, the relevant types of administrative matters over which the person that administers plan benefits would have ultimate authority or responsibility could include eligibility determinations, claims administration, and arrangements with service providers (including the authority to terminate service provider contracts). Treasury and IRS anticipate that the person with such ultimate administrative authority or responsibility under the plan or arrangement would be identifiable based on the terms of the plan documents and often would not be the person that performs the day-to-day routine administrative functions under the plan. Comments are requested on whether the person that administers the plan benefits would be easy to identify under this second approach in most circumstances or whether multiple parties have ultimate authority or responsibility for the different relevant administrative matters with respect to the same benefit package, and whether in most instances this approach would identify an appropriate person as the person that administers the plan benefits. Comments are requested on any other issues this approach would raise.

Comments are invited on the application of these approaches to collectively bargained multiemployer health plans.

Taxable period is defined under § 4980I(f)(8) to mean the calendar year or such shorter period as the Secretary may prescribe. The section provides that the Secretary may have different taxable periods for employers of varying sizes. Treasury and IRS anticipate that the taxable period will be the calendar year for all taxpayers.

To calculate the amount of any excise tax that a coverage provider may owe under § 4980I for a taxable period, an employer must determine the extent, if any, to which the cost of applicable coverage provided to an employee during any month of the taxable period exceeds the dollar limit. The employer then must notify both IRS and the coverage provider of the amount of the excess benefit, and the tax must be paid by the coverage provider. Accordingly, Treasury and IRS anticipate that employers will be required to determine the cost of applicable coverage provided during a taxable year sufficiently soon after the end of that taxable year to enable coverage providers to pay any applicable tax in a reasonably timely manner.

Section 4980I(d)(2)(A) provides that the cost of applicable coverage is to be determined using rules “similar to the rules of section 4980B(f)(4)” regarding the determination of the COBRA applicable premium. Section IV.C of Notice 2015–16 invited comments on potential approaches to determining the cost of applicable coverage. Treasury and IRS now invite further comments on any issues raised by the anticipated need to determine the cost of applicable coverage for a taxable period reasonably soon after the end of that taxable period.

Treasury and IRS anticipate that the potential timing issues are likely to be different for insured plans and self-insured plans, and will also be different for HSAs, Archer MSAs, health flexible spending arrangements (FSAs),^[4] and health reimbursement arrangements (HRAs). In the case of self-insured plans, for example, if the cost of applicable coverage is determined based on a period ending at or before the beginning of the applicable calendar year, then the necessary information should be available to the employer relatively soon after the applicable calendar year ends to permit it to calculate any excess benefit for each employee and allocate any excess benefit among coverage providers. In contrast, if the cost of applicable coverage is determined based on a period ending during or at the end of the applicable calendar year, the cost may be determinable only after the end of both the applicable calendar year and a subsequent run-out period during which employees may submit claims for reimbursement. In that case, an employer will need additional time to compute the cost of applicable coverage before it can calculate any excess benefit for each employee and allocate any excess benefit among coverage providers.

In addition, experience-rated arrangements may provide for payments to be made to or from an insurance company after the end of a coverage period that relate to the coverage provided during that coverage period. In other instances, the equivalent of those types of payments may be made through a premium discount for the next coverage period. Comments are requested on how those payments or discounts may be reflected in the cost of applicable coverage, including comments on any administrative issues that might arise if, for purposes of determining the cost of applicable coverage, the payments or discounts are attributed back to the original period of coverage (for which the taxable year might have ended) rather than accounted for during the period of coverage in which the amounts are paid or the discount applied. In addition, comments are requested on how employers are addressing these payments or discounts currently for purposes of determining COBRA applicable premiums. Taking into account the potential approaches to the determination of the cost of applicable coverage outlined in Notice 2015–16, as well as other issues with timing implications, Treasury and IRS request comments on the processes expected to be involved in calculating and allocating any excess benefit and the time period necessary to complete these processes.

As discussed in section III of this notice, the excise tax will be paid by the health insurance issuer for insured coverage and by the “person that administers the plan benefits” (which may, in some instances, be the employer) in the case of self-insured coverage. It is expected that, if a person other than the employer is the coverage provider liable for the excise tax, that person may pass through all or part of the amount of the excise tax to the employer in some instances. If the coverage provider does pass through the excise tax and receives reimbursement for the tax (the excise tax reimbursement), the excise tax reimbursement will be additional taxable income to the coverage provider. Because § 4980I(f)(10) provides that the excise tax is not deductible, the coverage provider will experience an increase in taxable income (that is not offset by a deduction) by reason of the receipt of the excise tax reimbursement. As a result, it is anticipated that the amount the coverage provider passes through to the employer may include not only the excise tax reimbursement, but also an amount to account for the additional income tax the coverage provider will incur (the income tax reimbursement).

In determining the cost of applicable coverage subject to the excise tax, § 4980I(d)(2)(A) provides that “any portion of the cost of such coverage which is attributable to the tax imposed under this section shall not be taken into account.” This indicates that the excise tax reimbursement should be excluded from the cost of applicable coverage, and it is anticipated that future regulations will reflect this interpretation.

Treasury and IRS are also considering whether some or all of the income tax reimbursement could be excluded from the cost of applicable coverage. However, Treasury and IRS are concerned that a methodology for excluding an income tax reimbursement may not be administrable, given the potential variability of tax rates and other factors among different coverage providers and potential difficulties in determining and excluding the reimbursement amount. Nonetheless, comments are requested on administrable methods for exclusion of the income tax reimbursement.

Because it may not be feasible to exclude amounts that are not separately billed, Treasury and IRS anticipate that coverage providers would be permitted to exclude the amount of any excise tax reimbursement or income tax reimbursement only if it is separately billed and identified as attributable to the cost of the excise tax. Separately billed amounts in excess of the excise tax reimbursement or the income tax reimbursement (as determined in the manner discussed in section V.D below) could not be excluded from the cost of applicable coverage (and, therefore, would be treated as part of the cost of applicable coverage). Comments are requested on any practical issues or legal barriers to passing through any or all of these amounts or to separately identifying these amounts, such as federal rating rules or state insurance law.

Coverage providers generally will not know the amount of any excise tax due with respect to applicable coverage provided for a taxable period (discussed in section V.A above) until after the end of the taxable period. As a result, Treasury and IRS expect that, as a practical matter, the coverage provider generally will be unable to bill for the excise tax reimbursement or the income tax reimbursement until the excise tax is paid by the coverage provider. However, comments are requested on whether there are alternative approaches that might allow for earlier billing of the amount but that would not give rise to undue administrative complexity or difficulty.

If Treasury and IRS conclude that an income tax reimbursement can be excluded from the cost of coverage, it is anticipated that the amount of the income tax reimbursement would be determined using a formula commonly used to calculate “tax gross-ups.” As mentioned previously, a coverage provider that passes the excise tax through to another party will have additional taxable income as a result of receipt of the excise tax reimbursement. If a coverage provider then also passes through the amount of the income tax due on the excise tax reimbursement, the reimbursement of that additional amount will further increase the taxable income of the coverage provider, and the coverage provider will owe additional income tax due to that reimbursement as well. The formula would take these additional taxes into account in determining the amount of the income tax reimbursement. Under the formula, the amount of the income tax reimbursement that would be excludable from the cost of applicable coverage would be:

In this formula, the “amount of tax” is the excise tax rate multiplied by the initial excess benefit calculated without regard to any portion of the cost of applicable coverage that the coverage provider identifies as arising from an excise tax reimbursement or an income tax reimbursement. For example, if the cost of applicable coverage without regard to the tax is $2,500 in excess of the dollar limit, a coverage provider would owe $1,000 as a § 4980I excise tax ($2,500 times the 40 percent rate). If the coverage provider’s marginal tax rate is 20 percent,^[5] the formula would divide $1,000 (the amount of the excise tax) by .8 (1–0.2), which equals $1,250; and then subtract $1,000 (the amount of the excise tax), which equals $250 ($1,250 – $1,000). Accordingly, the income tax reimbursement on an excise tax of $1,000 paid by a coverage provider with a marginal tax rate of 20 percent would be $250.

If it is determined that an income tax reimbursement can be excluded from the cost of applicable coverage, Treasury and IRS are considering two possible approaches for applying the formula described above. The first approach would use the coverage provider’s actual marginal tax rate in the formula. This approach could provide greater flexibility to taxpayers, but also could create administrative difficulties for IRS, coverage providers, and employers due to the extended time needed to determine a taxpayer’s marginal tax rate for any year, changes in a coverage provider’s marginal tax rate from year to year (including potential retroactive changes due to amended returns, audits, or other circumstances), and the fact that a coverage provider’s marginal tax rate is generally determined for its fiscal year, which may not be the same as the calendar year taxable period for which the cost of applicable coverage is determined. This approach could also create an additional administrative burden in cases in which multiple coverage providers are liable for tax for coverage offered by a given employer. Comments are requested on whether there are workable solutions to these administrative challenges that would permit Treasury and IRS to implement such an approach.

The second approach would prescribe, for purposes of applying the income tax reimbursement formula in a manner that is administrable, a standard marginal tax rate^[6] based on typical marginal tax rates applicable to different types of health insurance issuers. It is anticipated that the prescribed rates would reflect an approximately representative marginal rate that would be less than the statutory maximum rate. The prescribed rate for an insurer would be used in the income tax reimbursement formula rather than the coverage provider’s actual marginal tax rate. While more administrable, this approach may not permit some taxpayers to exclude from the cost of applicable coverage the total income tax reimbursement, but would permit other taxpayers to exclude from the cost of applicable coverage more than the total income tax reimbursement. Comments are requested on how these standard marginal tax rates might be determined, how many such rates might apply (for example, one for each of two or three categories of insurers) and for what types of insurers, and how this approach would affect particular segments of taxpayers.

Applicable coverage under § 4980I(d)(1)(A) is “coverage under any group health plan made available to the employee by an employer which is excludable from the employee’s gross income under section 106, or would be so excludable if it were employer-provided coverage (within the meaning of such section 106).” Applicable coverage includes coverage under certain HSAs, Archer MSAs, FSAs, or HRAs.

Section 4980I(a) imposes an excise tax equal to 40 percent of the excess benefit if an employee is covered under any applicable coverage of an employer at any time during a taxable period and there is any excess benefit with respect to the coverage. Under § 4980I(b)(1), an excess benefit means, with respect to any applicable coverage made available by an employer to an employee during any taxable period, the sum of the excess amounts determined for months during the taxable period. Under § 4980I(b)(2), the excess amount determined for any month is the excess (if any) of (A) the aggregate cost of the applicable coverage of the employee for the month over (B) an amount equal to 1/12 of the dollar limit for the calendar year in which the month occurs.

Section 4980I(d)(2)(D) provides that if the cost of applicable coverage is determined on other than a monthly basis, the cost is allocated to months in a taxable period on such basis as the Secretary may prescribe.

Treasury and IRS are considering an approach under which contributions to account-based plans would be allocated on a pro-rata basis over the period to which the contribution relates (generally, the plan year), regardless of the timing of the contributions during the period. Treasury and IRS anticipate that this allocation rule would apply to HSAs, Archer MSAs, FSAs, and HRAs that are applicable coverage. For example, if an employer contributes an amount to an HSA for an employee for a plan year, that contribution would be allocated ratably to each calendar month of the plan year, regardless of when the employer actually contributes the amount to the HSA. Similarly, if an employee elects to contribute to an FSA for a plan year, the employee’s total contributions would be allocated ratably to each calendar month of the plan year, even though the entire amount contributed for the plan year would be available to reimburse qualified medical expenses on the first day of the plan year. Comments are requested on this approach as well as alternative approaches.

Section 4980I(d)(2)(B) provides that in the case of applicable coverage consisting of coverage under an FSA, the cost of applicable coverage is equal to the sum of (i) the amount of any contributions made under a salary reduction election, plus (ii) the cost of applicable coverage under the generally applicable rules for determining the cost of applicable coverage with respect to any reimbursement under the arrangement in excess of the contributions made under the salary reduction agreement. Thus, the cost of applicable coverage of an FSA for any plan year would be the greater of the amount of an employee’s salary reduction or the total reimbursements under the FSA.

Under this general rule, in determining the portion of the cost of applicable coverage attributable to non-elective flex credits contributed to an FSA by an employer (either in combination with employee salary reduction contributions or without), the cost of the non-elective flex credit would be the amount that is actually reimbursed in excess of the employee’s salary reduction election for that plan year. For example, if an employee elects to make a salary reduction contribution to an FSA in the amount of $1,000 for a plan year and the employer makes a non-elective flex credit in the amount of $500 available to the employee under the FSA for that plan year, but the employee only has $1,200 in medical expenses reimbursed under the FSA for that plan year, the cost of applicable coverage for the FSA for the plan year would be $1,200 (comprised of the $1,000 salary reduction plus the additional $200 in reimbursements attributable to the non-elective flex credit provided by the employer) rather than the full $1,500 elected or available for the FSA for the plan year.

Under this rule, the cost of applicable coverage of the FSA would not be known until some point in time after the end of the taxable year. With respect to amounts carried over to a subsequent year, this rule would take such amounts into account in a later year if the reimbursements in the subsequent year exceeded the amount of employee salary reduction in the subsequent year.

To avoid the double counting associated with taking salary deferral amounts that are carried over from one year to another year into account in determining the cost of coverage in both the year of contribution and the subsequent year, which would be the result under the general rule outlined above, Treasury and IRS are considering providing a safe harbor. Under this safe harbor, the cost of applicable coverage for the plan year would be the amount of an employee’s salary reduction without regard to carry-over amounts. Unused amounts that are carried forward would be taken into account when initially funded by salary reduction but would be disregarded when used to reimburse expenses in a later year. For example, if an employee elected to reduce his salary by $1,200 to contribute to an FSA in a given year, the FSA’s cost of applicable coverage in that year would be $1,200 even if some or all of the $1,200 was not used to reimburse expenses in that year. Accordingly, if that same employee carried over $500 of unused funds that were used to reimburse expenses in the second year, and elected no new salary reduction for the second year, the FSA’s cost of applicable coverage in the second year would be $0.

The possible safe harbor described above would be limited to cases in which non-elective flex credits are not available for use in the FSA. To address situations in which non-elective flex credits are available under a cafeteria plan that includes an FSA, Treasury and IRS are considering a variation on the safe harbor that would allow an FSA with non-elective flex credits to be valued under the safe harbor described in the preceding paragraph in certain situations.

Under some cafeteria plan arrangements, an employee may elect to defer amounts to the cafeteria plan that exceed the § 125(i) limit for FSAs (for 2015, $2,550), and the employer may offer additional non-elective flex credits. These amounts may be allocated to pay for various benefits available under the cafeteria plan, such as reimbursements under an FSA, dependent care assistance, and health insurance. The possible variation on the safe harbor would provide that an FSA could be treated as funded solely by salary reduction if the amount elected by the employee for the FSA were less than or equal to the maximum amount permitted by § 125(i). For example, if an employee with a $1,000 non-elective flex credit available reduces salary by an additional $5,000 under a cafeteria plan and allocates $2,550 to the FSA, the FSA would be treated as funded solely by salary reduction. As a result, the cost of applicable coverage would be $2,550. Under the safe harbor proposal, the salary reduction taken into account would be counted only in the year an amount was elected for the FSA and, therefore, would be disregarded in later years if amounts were carried over. Comments are requested on the allocation of FSA amounts between non-elective flex credits and salary reduction when the total election for the FSA exceeds the maximum salary reduction amount permitted by § 125(i).

Treasury and IRS request comments concerning whether these potential approaches are administrable. In addition, comments are requested generally on the potential safe harbors described above and on any other issues arising from the valuation of FSAs.

Section 4980I(d)(1)(A) defines applicable coverage to include coverage under any group health plan made available to the employee by an employer that is excludable from the employee’s gross income under § 106 (or would be so excludable if it were employer-sponsored coverage).

Section 106 excludes employer-provided coverage under an accident or health plan from an employee’s gross income. For an employee who then receives reimbursement for medical expenses of the employee or his family under an employer-provided accident or health plan, § 105 further excludes those reimbursement amounts from the employee’s income. In the case of reimbursements paid to a highly-compensated individual under a self-insured plan that discriminates in favor of highly compensated individuals, however, § 105(h) provides that the exclusion does not apply to the extent that the amounts constitute an “excess reimbursement.” The amount of the excess reimbursement is included in the gross income of the highly compensated individuals.

Section 6051(a)(14) requires employers to report on the Form W–2, Wage and Tax Statement (Form W–2), the aggregate cost of applicable coverage as defined in § 4980I(d)(1). Notice 2012–9, 2012–4 IRB 315, currently permits employers to reduce the amount reported on the Form W–2 by any excess reimbursement included in gross income by application of § 105(h).

Although excess reimbursements currently can be excluded from the cost reported on the Form W–2, Treasury and IRS do not believe such amounts reduce the cost of applicable coverage subject to tax under § 4980I. It is the coverage (excludable from income under § 106), and not the resulting benefit (excludable from income under § 105), that is applicable coverage under § 4980I, and it is the cost of that coverage that is compared to the dollar limit to determine the amount of any excise tax under § 4980I. Inclusion of excess reimbursements in an employee’s income does not reduce the cost of applicable coverage subject to tax under § 4980I. Treasury and IRS anticipate that Notice 2012–9 will be modified in the future to make excess reimbursements subject to reporting under § 6051(a)(14) and that the forms and instructions will be modified to reflect this change. Taxpayers should continue to follow Notice 2012–9 until modification of that notice is issued.

To compare the employer’s premium cost with the national premium cost, it will be necessary to establish the age and gender characteristics of the national workforce. To determine the age and gender distribution of the national workforce, Treasury and IRS are considering using the Current Population Survey as summarized in Table A–8a, Employed Persons and Employment-Population Ratios by Age and Sex, Seasonally Adjusted (Table A–8a), published annually by the Department of Labor Bureau of Labor Statistics. This publication provides the number of individuals participating in the labor force by five-year age-bands (up to age 75 and over) and the ratio of male to female workers in each age-band. Treasury and IRS request comments on whether Table A–8a and the Current Population Survey more generally is an appropriate source of data for the age and gender characteristics of the national workforce for purposes of § 4980I and whether other sources of data for the age and gender characteristics of the national workforce should be considered.

To determine the age and gender characteristics of a particular employer’s population, Treasury and IRS are considering a requirement that an employer use the first day of the plan year as a snapshot date for determining the composition of its employee population. In other words, an employer would be required to determine the age and gender of each employee as of the first day of the plan year and that distribution of age and gender characteristics would apply for purposes of the age and gender adjustment. Comments are requested on the administrability of this approach, whether it is likely to result in a representative age and gender distribution, and whether employers should be permitted to choose a different date other than the first day of the plan year to determine the age and gender characteristics of its employees. If employers were permitted to choose a different date, it is anticipated that the employer would not be permitted to vary the date from one taxable year to the next. To the extent that commenters recommend that employers be permitted to use a date other than the first day of the plan year, Treasury and IRS ask that the commenters address why permitting the use of a different date will result in a more accurate representation of the age and gender characteristics of an employer’s workforce, whether flexibility in determining the snapshot date is susceptible to abuse, and any administrability issues associated with requiring a specific date or permitting flexibility in the choice of date.

Treasury and IRS anticipate that IRS will formulate and publish adjustment tables to facilitate and simplify the calculation of the age and gender adjustment. The following approach is being considered for the development of these tables and the calculation of the age and gender adjustment. All adjustments and calculations would be determined separately for self-only coverage and for other than self-only coverage.

1. Determination of average cost for FEHPB coverage. The average cost of applicable coverage under the FEHBP (FEHBP average cost) would be determined by aggregating all claims expenses of the FEHBP standard option and dividing the total by the number of coverage units. Each employee policyholder would be a coverage unit.

2. Determination of average cost for each age and gender group. Claims expense data would be sorted into groups, separating the population into male and female coverage units and further separating each gender population into multi-year age-bands. For example, the dollar amount of claims for all male individuals between the ages of 30 and 34 would be added together. The dollar amount of claims for each group would then be divided by the number of coverage units in that age and gender group to yield the average cost for that group (group average cost). A group average cost would be calculated in this way for each of the age and gender groups.

3. Determination of group ratios. Each group average cost would be divided by the FEHBP average cost to establish the ratio (group ratio) of the group average cost to the FEHBP average cost. The group ratio would be expressed as a fraction or percentage and would be determined periodically, but less frequently than annually.

4. Determination of group premium cost. The group ratio would be multiplied by the most recent annual premium cost of the FEHBP standard option to determine the annual premium cost for each age and gender group (group premium cost). The dollar amounts representing each group premium cost would then be used to populate the adjustment tables, to be published annually.

5. Determination of national premium cost. To determine the national premium cost, each group premium cost would be multiplied by the fraction of employees in the national workforce who are in that group. The product of each of these calculations would be added together to yield the national premium cost, which would be a single dollar amount that would be published annually.

6. Determination of the employer’s premium cost. Each employer would determine the fraction of its employees who are in each age and gender group. The employer would then multiply the group premium cost from the relevant adjustment table by the fraction of its employees in each group. The product of each of these calculations would be added together to yield the employer’s premium cost, which would be a single dollar amount.

7. Determination of adjustment. The employer’s premium cost would then be compared to the national premium cost. If the employer’s premium cost exceeds the national premium cost, the excess dollar amount would be added to the dollar limit for that employer for purposes of determining the amount of any excess benefit.

With respect to step one, two different approaches are under consideration. One approach would rely on actual claims data from the FEHBP standard option. An alternative approach would rely on national claims data reflecting plans with a design similar to that of the FEHBP standard option. It is anticipated that only one approach will be adopted and that it will be applied in a uniform manner.

Treasury and IRS seek comments on this approach to the age and gender adjustment, including the alternative approaches to step one and whether the approach to the age and gender adjustment should take into account the age rating scale adopted in regulations for the individual and small group market.

Section 4980I(c)(4)(A) imposes a notification requirement on the employer. Specifically, that section requires the employer to calculate for each taxable period the amount of the excess benefit subject to the tax imposed by § 4980I(a) and the applicable share of that excess benefit for each coverage provider, and to notify the Secretary and each coverage provider of the amount so determined for each coverage provider at the time and in the manner as the Secretary may prescribe.

Treasury and IRS are considering both the form in which that information must be provided to the various coverage providers and IRS, and the time at which that information must be provided. Comments are requested on the administrative and other issues raised by this notice requirement, taking into account that this process may be affected by the rules governing the period over which the cost of applicable coverage is determined as discussed in section V.B of this notice.

Treasury and IRS anticipate that calculation errors that affect the cost of applicable coverage may, in some instances, affect multiple coverage providers due to the allocation of the tax. Comments are invited on how instances of reallocation might be mitigated or avoided.

Section 4980I(c)(1) provides that each coverage provider is liable for the excise tax on its applicable share of the excess benefit with respect to an employee for any taxable period, but does not specify the time and manner in which the excise tax is paid. Treasury and IRS are considering designating the filing of Form 720, Quarterly Federal Excise Tax Return, as the appropriate method for the payment of the tax. Although Form 720 generally is filed quarterly, under this approach a particular quarter of the calendar year would be designated for the use of Form 720 to pay the excise tax under § 4980I.^[7]

This revenue procedure provides guidance on the process of requesting and obtaining assistance under U.S. tax treaties from the U.S. competent authority, acting through the Advance Pricing and Mutual Agreement Program and the Treaty Assistance and Interpretation Team of the Deputy Commissioner (International), Large Business & International Division of the Internal Revenue Service. This revenue procedure updates and supersedes Rev. Proc. 2006–54, 2006–2 C.B. 1035, and is being issued concurrently with Rev. Proc. 2015–41, 2015–35 I.R.B. 263, which provides guidance with respect to advance pricing agreements.

A proposed version of this revenue procedure was released for public comment in Notice 2013–78, 2013–50 I.R.B. 633. This final revenue procedure is issued following consideration of all public comments received by the IRS and the Treasury Department. This revenue procedure also reflects modifications based on continuing internal monitoring of the administrative procedures of the U.S. competent authority to ensure that the administration of U.S. tax treaties is consistently principled, effective, and efficient.

The principal differences between this final revenue procedure and the proposed version in Notice 2013–78 may be summarized as follows:

(1) This revenue procedure limits the scope of requests to which mandatory pre-filing procedures apply to requests involving taxpayer-initiated positions. See section 3.02.

(2) To ensure that taxpayers have broad access to the U.S. competent authority to resolve disputes under U.S. tax treaties, taxpayers will not be required under this revenue procedure to expand the scope of a competent authority request to include interrelated issues as a condition of receiving competent authority assistance. Taxpayers may still be required to provide information that will allow the U.S. competent authority to evaluate the appropriateness of the relief sought under the applicable U.S. tax treaty in light of the taxpayer’s positions on interrelated issues. See section 2.04.

(3) This revenue procedure clarifies that the U.S. competent authority may consult with taxpayers with respect to certain additional issues that may arise in connection with competent authority requests, such as issues relevant to the determination of foreign tax credits and repatriation payments. See sections 2.03 and 4.02(2).

(4) This revenue procedure provides additional guidance on requesting discretionary determinations under the limitation on benefits articles of U.S. tax treaties, including time frames for taxpayers to provide notification of material changes in fact or law and the introduction of a triennial statement procedure to maintain a favorable grant of discretionary benefits. See section 3.06(2).

(5) Consistent with the objective of providing taxpayers with broad access to the U.S. competent authority to resolve disputes under U.S. tax treaties, the U.S. competent authority will not condition assistance on the taxpayer’s notification of the U.S. competent authority, or on obtaining its concurrence, with respect to signing a standard Form 870 with IRS Examination. Similarly, a taxpayer will not be required to obtain the U.S. competent authority’s agreement prior to entering into a closing agreement or similar agreement with IRS Examination, but in these cases the assistance provided by the U.S. competent authority will be limited to seeking correlative relief from the foreign competent authority, thus potentially not eliminating double taxation. See section 6.03.

(6) This revenue procedure provides additional information about the process followed by the U.S. competent authority in conducting its review under the simultaneous appeals procedure. See section 6.04(2).

(7) This revenue procedure clarifies and refines the bases on which the U.S. competent authority may decline to accept a competent authority request or may cease providing assistance, consistent with U.S. tax treaty policy that taxpayers should have broad access to the U.S. competent authority to resolve instances of taxation not in accordance with the applicable U.S. tax treaty. See section 7.02.

(8) This revenue procedure increases the user fee for requests for discretionary LOB relief from $27,500 to $37,000. This increase is implemented in two phases. First, the user fee will increase to $32,500 for requests filed on or after October 30, 2015 and prior to September 30, 2016. The fee will further increase to $37,000 for requests filed on or after September 30, 2016. See section 14.02.

(9) This revenue procedure substantially restructures the proposed guidance in Notice 2013–78 to improve clarity, readability, and organization.

Unless indicated by context or otherwise, section references are to the sections of this revenue procedure.

If a deadline under this revenue procedure falls on a Saturday, Sunday, or legal holiday in the District of Columbia, the deadline is extended to the next succeeding day that is not a Saturday, Sunday, or legal holiday in the District of Columbia.

For purposes of this revenue procedure, the following terms have the meanings set forth in this section.

(1) The U.S. Competent Authority. U.S. tax treaties designate the Secretary of the Treasury or his delegate as the competent authority with respect to the United States. The Secretary of the Treasury has delegated that authority through the Commissioner of the IRS to the Deputy Commissioner (International), LB&I. The authority to act on behalf of the Deputy Commissioner (International), LB&I as the U.S. competent authority has been delegated to the Assistant Deputy Commissioner (International), LB&I. See Treasury Order 150–10 and Delegation Order 4–12 (Rev. 2), IRM 1.2.43 (or successor delegation order). Authority to act as the U.S. competent authority with regard to certain competent authority issues has been delegated to the directors of TPO and APMA. The U.S. competent authority has authority to apply the provisions of U.S. tax treaties. The U.S. competent authority endeavors to do so in a manner that is consistent with U.S. tax treaty obligations and that secures the appropriate tax bases of the United States and its treaty partners, prevents fiscal evasion, and provides taxpayers broad access to competent authority assistance in accordance with considerations of principled, effective, and efficient tax administration. The U.S. competent authority also has authority to interpret the provisions of U.S. tax treaties, but only with the concurrence of the Associate Chief Counsel (International).

(2) Mutual Agreement Procedure Articles. The mutual agreement procedure articles of U.S. tax treaties grant taxpayers the right to request the assistance of the U.S. competent authority when the taxpayer believes that the actions of the United States or a treaty country result or will result in the taxpayer being subject to taxation not in accordance with the applicable U.S. tax treaty. This situation typically arises as a result of U.S.- or foreign-initiated adjustments resulting from an examination, but can arise from other U.S.- or foreign-initiated actions (such as withholding of tax by a withholding agent) or from a taxpayer-initiated position. The U.S. competent authority will endeavor to resolve competent authority issues arising under the mutual agreement procedure articles of U.S. tax treaties through consultations with the applicable foreign competent authority(ies) but in some cases may resolve such issues unilaterally (see, e.g., section 8.02). There is no authority for the U.S. competent authority to provide relief with respect to U.S. tax or to provide other assistance related to taxation arising under the tax laws of a foreign country or the United States unless such authority is granted by a treaty. The grant of such authority by the mutual agreement procedure articles of U.S. tax treaties is separate from and in addition to the authority under such articles for the U.S. competent authority to consult generally with foreign competent authorities to resolve difficulties or doubts regarding treaty interpretation or application, irrespective of whether the consultation relates to a current matter involving a specific taxpayer.

(3) Roles of APMA and TAIT. The U.S. competent authority conducts the competent authority process through two offices, APMA and TAIT. APMA has primary responsibility for cases arising under the business profits and associated enterprises articles of U.S. tax treaties. An example of a competent authority issue handled by APMA is the double tax that could be incurred as a result of an allocation made by the IRS under section 482 of the Code or by a foreign tax authority under an equivalent provision in its domestic law. TAIT has primary responsibility for cases arising under all other articles of U.S. tax treaties. TAIT also has primary responsibility for cases arising under U.S. tax treaties with respect to estate and gift taxes. APMA and TAIT each can consider cases arising under the permanent establishment articles of U.S. tax treaties, and both offices will coordinate and collaborate on such cases and on any other cases as appropriate.

This revenue procedure pertains only to requests for assistance arising under U.S. tax treaties. For procedures for requesting assistance of the U.S. competent authority in addressing inconsistencies in tax treatment by the IRS and a U.S. territory, see Rev. Proc. 2006–23, 2006–1 C.B. 900.

The U.S. competent authority is available for informal consultations with taxpayers (including consultations in which the taxpayer chooses to be anonymous) regarding any competent authority issue. Any informal advice provided by the U.S. competent authority through such consultations is advisory only and is not binding on the IRS. The U.S. competent authority also is available for informal consultations on issues that arise in connection with competent authority issues, even where such issues are not themselves competent authority issues. For example, a taxpayer may consult the U.S. competent authority on FTC issues, which may cover, when appropriate, considerations surrounding administrative or other steps that may be available to the taxpayer in the foreign jurisdiction. See Treas. Reg. § 1.901–2(e)(5) and Rev. Rul. 92–75.

Competent authority issues may be similar, or recur, over successive audit cycles. Taxpayers, the IRS, and foreign tax authorities may want to use competent authority resolutions as a framework for managing such similar or recurring competent authority issues. APMA will encourage (but will not formally request or require) taxpayers to extend competent authority resolutions forward into APAs. Also, APMA may request or encourage that taxpayers expand their APA requests to cover competent authority or ACAP years. For further discussion of the relationships between the competent authority and APA processes, see Rev. Proc. 2015–41.

The U.S. competent authority generally holds in-person meetings with most foreign competent authorities. These meetings are typically scheduled several months in advance. In addition, the U.S. competent authority frequently communicates with foreign competent authorities about competent authority cases outside of scheduled in-person meetings. In order to facilitate reaching a competent authority resolution, the taxpayer should remain in contact with its assigned U.S. competent authority representative throughout the competent authority process, particularly when a tentative competent authority resolution has been reached (see sections 9.02 and 9.03).

A taxpayer can withdraw its competent authority request at any time, either in full or with respect to particular competent authority issues. If the taxpayer withdraws its competent authority request with respect to particular competent authority issues, the U.S. competent authority, in turn, will decide whether to continue to provide competent authority assistance with regard to any competent authority issues that remain. For any issues no longer under consideration by the U.S. competent authority, the U.S. competent authority will return jurisdiction to the relevant office(s) within the IRS. See section 6.02.

This section sets forth the general procedures and requirements for filing competent authority requests. This section also addresses pre-filing procedures. Unless otherwise indicated, the procedures and requirements of this section apply to all types of competent authority requests. Detailed instructions on preparing competent authority requests specific to APMA or TAIT are set forth in the Appendix to this revenue procedure. With regard to any competent authority request, the U.S. competent authority will provide assistance only after the request is complete, either as initially filed or as supplemented (see section 3.05(1)). For a discretionary LOB request, the taxpayer also must pay the correct user fee (see sections 3.06(2)(f) and 14) after the U.S. competent authority has accepted the request. Taxpayers should note that some U.S. tax treaties contain specific timing requirements for competent authority requests (e.g., requiring taxpayers to submit a treaty notification within a specified time frame; see section 12). Any specific requirement set forth in the applicable U.S. tax treaty takes precedence over any conflicting provision in this revenue procedure. Taxpayers also should be aware that making certain agreements with the IRS or a foreign tax authority may preclude or limit access to the competent authority process (see sections 6.03, 6.04, and 7.02(3)). Further, taxpayers are advised to take such actions as are necessary to preserve whatever rights they may have available under domestic law in either the United States or the treaty country if the U.S. competent authority ultimately denies competent authority assistance (see section 7.02) or a competent authority resolution is not reached.

Whether a taxpayer is eligible to file a competent authority request is determined by reference to the U.S. tax treaty under which competent authority assistance is sought. Taxpayers who are eligible to file a request for assistance from the U.S. competent authority may do so only in accordance with this revenue procedure.

The U.S. competent authority will endeavor to minimize administrative burdens on taxpayers filing small case competent authority requests (as described in section 5.02). A taxpayer that seeks an exemption from the usual competent authority request content requirements of section 3 with respect to a small case competent authority request should contact TAIT or APMA, as appropriate. Even if the U.S. competent authority initially agrees to abbreviate the usual competent authority request requirements, the U.S. competent authority may subsequently require the taxpayer to supplement its competent authority request with any or all of the information required under section 3, as well as any other information or documents the U.S. competent authority determines is needed to evaluate the request.

This section discusses coordination of the competent authority process with administrative and judicial proceedings associated with U.S.-initiated actions. Specific guidance is also provided on when the scope of assistance of the U.S. competent authority may be limited and the circumstances under which access to the U.S. competent authority may be denied with respect to U.S.-initiated actions.

The U.S. competent authority will assume exclusive jurisdiction within the IRS over all competent authority issues in a competent authority request that it has accepted. Any further administrative action by the IRS (e.g., assessment and collection procedures) with respect to the competent authority issues in the competent authority case will be suspended unless the U.S. competent authority instructs otherwise. Standard administrative procedures will continue to apply to issues over which the U.S. competent authority has not assumed jurisdiction. If the U.S. competent authority decides to cease providing assistance regarding a competent authority issue (see section 7.02), the U.S. competent authority will return jurisdiction over the issue to the relevant office(s) within the IRS. See also sections 2.08 and 9.03.

Nothing in this revenue procedure limits the ability of a taxpayer to obtain IRS Appeals review of a competent authority issue set forth in its competent authority request if, with respect to that competent authority issue, (a) the U.S. competent authority rejects the request or terminates the competent authority process, (b) the taxpayer withdraws its request for competent authority assistance, (c) the competent authorities do not reach a competent authority resolution, or (d) the taxpayer does not accept the terms of the competent authority resolution.

If, prior to the effective date of this revenue procedure, either (a) the IRS has issued a 30-day letter notifying a taxpayer of the right to request IRS Appeals consideration of a competent authority issue or (b) the competent authority issue is before IRS Appeals, the procedures and time frames set forth in section 7.02 of Rev. Proc. 2006-54 will apply to such competent authority issue.

The U.S. competent authority will acknowledge to the taxpayer in writing that it has received the taxpayer’s competent authority request. The acknowledgment will indicate whether the competent authority request is complete and whether the U.S. competent authority accepts the competent authority request. The acknowledgment also will provide the name and contact information of the assigned U.S. competent authority representative(s) and any supplemental instructions (e.g., payment of the user fee in the case of a discretionary LOB request that has been accepted (see section 14.02)). The U.S. competent authority will notify the foreign competent authority when a competent authority request has been accepted.

The U.S. competent authority may decline to accept a competent authority request or may cease providing assistance at any point after the competent authority process has commenced. The U.S. competent authority will notify and, as appropriate, consult with the relevant foreign competent authority before taking such action. Circumstances in which the U.S. competent authority may decline to accept a competent authority request or may cease providing assistance include, but are not limited to, the following:

(1) The taxpayer has failed to comply with the procedural requirements set forth in this revenue procedure, such as those listed in section 2.04, section 3, and the Appendix, after having been provided reasonable opportunity to correct (if possible) or remedy any deficiencies in its competent authority request or in its other submissions during the competent authority process.

(2) The taxpayer is not eligible for the treaty benefit or for the assistance requested according to a plain reading of the U.S. tax treaty (such as by failing to be a resident of either contracting state).

(3) The taxpayer’s conduct before or after filing its competent authority request has undermined or has been prejudicial to the competent authority process, including but not limited to conduct that has significantly impeded the ability of (a) IRS Examination, the U.S. competent authority, or any other part of the IRS, or the foreign tax authority, to adequately examine the competent authority issues for which assistance has been requested or (b) the U.S. or foreign competent authority to undertake substantive consideration of and resolve the competent authority case. Examples of such conduct include:

(a) The taxpayer agreed to or acquiesced in a foreign-initiated adjustment, or entered into a unilateral APA with a foreign tax authority, involving significant legal or factual issues in a manner that impeded the U.S. competent authority from engaging in full and fair consultations with the foreign competent authority on the competent authority issues.

(b) The taxpayer entered into a unilateral APA with the IRS when the competent authority issue could reasonably and practically have been covered if the taxpayer had instead pursued a bilateral APA (see Rev. Proc. 2015–41, section 2.02(4)(d)).

(c) The taxpayer rejected a request to extend the period of limitations for assessment of tax for taxable periods (including ACAP years) covered by the competent authority request.

(d) The taxpayer has failed to comply with the provisions of sections 6.03, 6.04, and 6.05 governing coordination between the competent authority process and administrative and judicial proceedings or has pursued its rights within such proceedings and within the competent authority process in a way that has undermined or is prejudicial to the competent authority process.

(e) The taxpayer has presented new material information or evidence during the competent authority process that reasonably could have been presented to IRS Examination during the examination of the taxable years covered by the competent authority request.

(f) In competent authority requests or competent authority cases involving taxpayer-initiated positions, the taxpayer failed to request the assistance of the foreign competent authority and the U.S. competent authority in a timely manner in relation to the taxable year for which relief is sought, or the taxpayer otherwise has pursued competent authority assistance in a way that has undermined or prejudiced the competent authority process or has impeded the U.S. or foreign competent authority from engaging in full and fair consultations on the competent authority issue(s).

The U.S. competent authority’s decision as to whether a competent authority request is complete, or to deny, suspend, or terminate assistance, is final and not subject to administrative review. See also section 3.06(2)(b) regarding denial of discretionary LOB relief.

In general, the U.S. competent authority will evaluate a competent authority request involving a non-U.S.-initiated action on the basis of the justifications for the action prepared by the foreign tax authority or foreign competent authority (or, in the case of a taxpayer-initiated position, on the basis of the justifications for the position given by the taxpayer) and the analyses of such justifications prepared by the taxpayer or other IRS offices. The U.S. competent authority typically will engage in consultations with the foreign competent authority on the justification for, and appropriate extent of, correlative relief that it may provide. In cases involving foreign-initiated actions, the U.S. competent authority may grant correlative relief without such consultations if it is satisfied on the basis of its own review and assessment that the foreign-initiated action is justified under the U.S. tax treaty (e.g., the action represents a reasonable application of the arm’s length standard in a transfer pricing case).

In general, the U.S. competent authority will evaluate a competent authority request involving a U.S.-initiated action in light of justifications for the action developed by IRS Examination, views received through SAP review, if any, and any analyses of the action prepared by the taxpayer or other IRS offices. If the action appears to be justified and the U.S. competent authority determines that it is not itself able to arrive at a satisfactory resolution of the competent authority issues (e.g., by withdrawing an adjustment in part or in full), then the U.S. competent authority will begin consultations with the foreign competent authority.

This section discusses possible outcomes of the competent authority process and the steps to close a competent authority case. The outcome of most competent authority cases will be a competent authority resolution that provides the taxpayer with complete or partial relief from taxation not in accordance with the U.S. tax treaty. If the U.S. and foreign competent authorities are unable to reach a competent authority resolution, the competent authority case may be eligible for resolution through arbitration under the terms of the applicable U.S. tax treaty (see generally section 10).

If the U.S. and foreign competent authorities reach a tentative competent authority resolution, it will be presented to the taxpayer for consideration. Whether the tentative competent authority resolution is conveyed to the taxpayer in writing or by other means will depend upon the stage, size, and complexity of the competent authority case. The taxpayer will be given adequate opportunity to respond affirmatively as to whether the taxpayer accepts or rejects the terms. However, the competent authorities may deem the taxpayer to have rejected the tentative competent authority resolution if the taxpayer does not timely accept it. Subject to any applicable disclosure constraints, the competent authorities may respond to questions that the taxpayer asks about the positions and views of the competent authorities underlying the tentative competent authority resolution, including specific questions about computations and similar aspects of implementing its terms. Resolution of such questions may require further consultations between the competent authorities. The purpose of such consultations is to address the implementation of the tentative competent authority resolution, not to renegotiate the underlying agreement.

If the taxpayer rejects the tentative competent authority resolution (either by notifying the U.S. or foreign competent authority or by failing to timely accept it) and either the U.S. or foreign competent authority is unwilling to consult further, then the U.S. competent authority will formally close the case. The taxpayer may then pursue all domestic remedies otherwise available to it with respect to the competent authority issue(s) in the United States or the treaty country. If there are multiple competent authority issues covered by the tentative competent authority resolution, the taxpayer, subject to the consent of the competent authorities, may accept the agreement reached on one or more competent authority issues while rejecting an agreement on other issues covered by the tentative competent authority resolution. Generally, if the taxpayer accepts a tentative resolution of a competent authority issue, it must accept the resolution of that issue for all of the covered years (including ACAP years if applicable). Where appropriate, the competent authorities may permit the taxpayer to accept the resolution only for particular years (e.g., for competent authority years but not ACAP years). To the extent that the taxpayer rejects the competent authority resolution, the U.S. competent authority will return jurisdiction over the competent authority issue(s) to the relevant offices within the IRS.

If the taxpayer accepts the terms of the tentative competent authority resolution, the U.S. competent authority will proceed to formally close the case. The U.S. competent authority will not recognize a competent authority resolution as being final and binding on the IRS until the tentative competent authority resolution has been reviewed and approved within the office of the U.S. competent authority and the competent authority case has been formally closed by both competent authorities. Once the competent authority resolution has been finalized, the U.S. competent authority will direct the relevant offices within the IRS to begin implementing its terms. To the extent authorized under the applicable U.S. tax treaty, the competent authority resolution will be implemented notwithstanding any time limits or other procedural limitations under the Code and regulations. When appropriate, the IRS may request that the taxpayer execute a closing agreement reflecting the terms of the competent authority resolution. See Rev. Proc. 68–16, 1968–1 C.B. 770 (as modified by Rev Proc. 94–67, 1994–2 C.B. 800).

In arbitration treaties, the mutual agreement procedure article requires that the competent authorities refer certain competent authority cases to mandatory arbitration in the event direct consultation does not lead to a competent authority resolution within a prescribed time period. The mutual agreement procedure article in arbitration treaties sets forth detailed rules regarding the resolution of cases that are eligible for arbitration as prescribed by the relevant treaty. This section addresses general procedural issues associated with mandatory arbitration that is undertaken as part of the competent authority process. Taxpayers should consult the mutual agreement procedure article under the applicable U.S. tax treaty to determine whether it is an arbitration treaty and the extent to which mandatory arbitration applies under such treaty.

Determining the “commencement date” under an arbitration treaty is important because arbitration proceedings begin after a specified time period, typically two years, following the commencement date unless both competent authorities agree to a different date. In general, the commencement date for a case is the earliest date on which the information necessary to undertake substantive consideration for a competent authority resolution has been received by both competent authorities. The U.S. competent authority generally takes the position that it has received all information necessary to undertake substantive consideration for a competent authority resolution only when it has received a complete competent authority request as described in this revenue procedure. The U.S. competent authority will notify the taxpayer as to the commencement date once it has been established by the U.S. and foreign competent authorities.

The arbitration proceedings will not begin before the date by which both competent authorities have received properly executed non-disclosure agreements from all concerned persons (as defined in the applicable arbitration treaty), their authorized representatives, and their agents. The U.S. competent authority will provide the taxpayer and all concerned persons with a form for the non-disclosure agreement.

Arbitration treaties allow both competent authorities to agree, at any time prior to the start of an arbitration proceeding, that a particular case is not suitable for arbitration. The U.S. competent authority will notify the taxpayer of any such determination.

The taxpayer may submit its analysis and view of the case to the arbitration panel through the U.S. competent authority to the extent permitted under the applicable arbitration treaty.

The U.S. competent authority will notify the taxpayer of the arbitration panel’s determination. If the taxpayer accepts the arbitration panel’s determination, its terms will constitute a competent authority resolution.

If a taxpayer rejects the determination of an arbitration panel, does not accept the determination within the deadline mandated under the applicable arbitration treaty, or has been notified that a case has been determined not to be suitable for arbitration, then upon closure of the competent authority case, the taxpayer may pursue any rights that remain available under domestic law in either the United States or the treaty country.

Most U.S. tax treaties provide that competent authority resolutions are to be implemented by the United States and the treaty country notwithstanding any time limits or other procedural limitations under the domestic law of either country. A minority of U.S. tax treaties may not allow the U.S. competent authority to waive such limitations. Further, in any particular case, domestic barriers may be waived only if a competent authority request is accepted and a competent authority resolution is reached. For these reasons, and because circumstances not under the control of the taxpayer or the U.S. or foreign competent authority may impede the implementation of a competent authority resolution, it is advisable as a general matter for the taxpayer or a member of the taxpayer’s controlled group to take protective measures under applicable domestic law to increase the likelihood that a competent authority resolution in its competent authority case can be implemented in both treaty countries and to protect any rights of access to alternative remedies outside of the competent authority process from being barred by administrative, legal, or procedural barriers. This section sets forth procedures and guidelines for taking such protective measures.

A protective claim made in the form of a letter or a competent authority request that complies with the provisions of this revenue procedure will meet the filing requirements for a valid claim for credit or refund under section 6402 of the Code and the regulations thereunder with respect to the competent authority issues set forth in the claim, so long as the letter or request is filed before the expiration of the applicable statutory period of limitations for filing claims for credit or refund under the Code.

A number of U.S. tax treaties provide that a mutual agreement under the mutual agreement procedure article of the treaty shall be implemented notwithstanding any time or other procedural limitations in the domestic law of the parties to the treaties, provided that certain notification requirements are satisfied. For example, if a formal request for competent authority assistance has been submitted to the competent authority of one country, but not the other, then notice generally must be provided to the competent authority of the other country within the number of years specified in the treaty. See, e.g., United States-Canada Income Tax Convention (1980), Article XXVI(2). A taxpayer seeking assistance of the foreign competent authority under such a treaty with regard to a foreign-initiated adjustment must ensure that a treaty notification is received by the U.S. competent authority within the time set forth in the treaty.

For purposes of this revenue procedure, a treaty notification to the U.S. competent authority may be made either as a part of a taxpayer’s competent authority request (see section 2.02, Tab 3 of the Appendix) or by letter to the U.S. competent authority. If a letter is used, one printed copy and one electronic copy of the letter must be submitted to APMA or TAIT, as appropriate. The taxpayer may include a second printed copy of the letter, together with a self-addressed stamped envelope. Upon receipt of the treaty notification letter, the U.S. competent authority will date stamp the second printed copy and return it to the taxpayer for its records. The electronic copy of the treaty notification letter must follow the rules for media and format of electronic submissions described in section 2.03 of the Appendix. A template of a letter suitable for making a treaty notification may be obtained by contacting the U.S. competent authority.

With regard to a U.S.-initiated adjustment under a U.S. tax treaty with a notification requirement, the taxpayer must ensure that a notification is received by the foreign competent authority within the time set forth in the treaty. The notification should be made in accordance with any applicable procedures prescribed by the treaty country. The U.S. competent authority is not responsible for notifying a foreign competent authority that it has received a competent authority request.

After initially filing a treaty notification in the form of a letter and before filing its competent authority request, the taxpayer must annually notify the U.S. competent authority until a complete competent authority request has been filed. The annual notification must be submitted to APMA or TAIT as appropriate following the close of each taxable year ending after the taxable year in which the taxpayer submitted the treaty notification but no later than the date on which the taxpayer timely files a tax return for such taxable year (see section 1.03 for the rule applicable to deadlines). The annual update must be titled “Treaty Notification Annual Update under Section 12 of Rev. Proc. 2015–40.” The annual update must refer to prior treaty notifications.

The taxpayer may consolidate an initial protective claim and an initial treaty notification into a single letter or in a competent authority request. A template of a letter suitable for consolidating an initial protective claim and treaty notification may be obtained by contacting APMA or TAIT, as appropriate. The taxpayer also may consolidate an annual protective claim notification and annual treaty notification in a single letter. In whatever manner such initial or annual notifications are consolidated, the title of the submission must clearly indicate the dual function of the submission as a protective claim and treaty notification (see section 11.05).

Requests for advance rulings regarding the interpretation of a U.S. tax treaty, as distinguished from competent authority requests under this revenue procedure, must be submitted to the Associate Chief Counsel (International) according to the provisions of the applicable revenue procedure governing such submissions. See Rev. Proc. 2015–1, 2015–1 I.R.B. 1, and Rev. Proc. 2015–7, 2015–1 I.R.B. 231.

Neither the U.S. competent authority nor any other office within the IRS will issue an advance ruling on the effect of the provisions of a U.S. tax treaty on the application of the domestic tax laws of a treaty country.

Except as otherwise provided in this section, no user fee is required for a competent authority request.

A $32,500 user fee is required for all requests for discretionary LOB relief as described in section 3.06(2) filed on or after October 30, 2015 and prior to September 30, 2016. A $37,000 user fee is required for all requests for discretionary LOB relief as described in section 3.06(2) filed on or after September 30, 2016. See Rev. Proc. 2015–1 (and successor guidance). The fee must be paid as specified in section 14.03, as supplemented by instructions set forth in the acknowledgment provided to the applicant as described in section 7.01. The fee will apply regardless of whether the request is for an initial determination, a renewal of a favorable determination issued prior to the effective date of this revenue procedure, or a supplemental determination. If a competent authority request requires discretionary LOB relief for two or more entities, a separate user fee will be charged for each entity.

Within 30 days of receipt of a complete submission for a request for discretionary LOB relief, the U.S. competent authority will notify the applicant whether it accepts or rejects the request for assistance. No user fee will be charged unless and until the U.S. competent authority notifies the applicant that it formally accepts the request. If the U.S. competent authority accepts the request, the taxpayer must pay the applicable user fee or fees electronically using the Pay.gov website within 60 days of the notification of the acceptance (see section 1.03 for the rule applicable to deadlines). Upon receipt of the user fee, the U.S. competent authority will commence analysis of the case.

A competent authority request consists of a request letter and attachments. The contents of the request letter vary by the type of competent authority request, but generally consist of information about the taxpayer and about the competent authority issues involved in the request. The contents of the attachments vary by type of competent authority request, but generally consist of required authorizations, disclosures, consents, and notifications.

The taxpayer must provide a complete competent authority request. In order to be complete, the competent authority request must follow the instructions set forth in this Appendix. If the taxpayer believes a required item is not applicable to its competent authority request, this must be shown as “N/A” or “Not Applicable” (as opposed to being left blank). If the taxpayer maintains that it is unable to provide the required item or seeks an exception to the filing requirement, it must provide a statement of its reasons for not providing the item or its basis for the exception it seeks (as opposed to leaving the entry blank). The U.S. competent authority may permit exceptions to the filing requirements in this Appendix on a case-by-case basis. See also the rules in section 5.01 governing small case competent authority requests.

A competent authority request filed with APMA also must include the following attachments after the request letter, separated and ordered as indicated in this section.

Competent authority requests filed with TAIT should follow the instructions and requirements on content and structure of competent authority requests filed with APMA, except as modified by this section. Requests filed with TAIT do not need to include the material listed under Tab 8 found in section 2.02 of this Appendix. Applicants seeking discretionary LOB relief and pension plan determinations should provide the additional information described in sections 3.03 and 3.04 of this Appendix. Applicants seeking to file a request concerning Article XIII(8) of the U.S.-Canada Treaty should also consult Rev. Proc. 98–21, 1998–1 C.B. 585. With regard to this and other aspects of filing a competent authority request with TAIT, the taxpayer may contact TAIT for further information prior to filing its competent authority request. If a competent authority request does not arise through the mutual agreement article of a U.S. tax treaty and is neither a discretionary LOB request nor a pension plan request, the taxpayer should consult with TAIT. See section 3.05(2) of this Appendix for information on how to contact TAIT.

If a case is presented by a foreign competent authority and no corresponding competent authority request has been filed with TAIT in accordance with the revenue procedure, TAIT may require that the relevant U.S. taxpayer, if any (or, if none, the foreign person) file a competent authority request in accordance with the revenue procedure.

In addition to following the requirements in section 2.02 of this Appendix as modified by section 3.01, an applicant filing a discretionary LOB request also must include an additional section in its request letter addressing the following:

In addition, a discretionary LOB request must contain the four additional attachments listed in the following table, separately tabbed:

For a pension plan request, in addition to following the instructions and requirements in section 2.02 of this Appendix, as modified by section 3.01, the taxpayer also must include an additional section (Part 4) in its request letter explaining why the foreign pension plan should be deemed to “generally correspond” to a pension plan recognized for tax purposes in the United States. In addition, a pension plan request must contain the three additional attachments listed in the following table, separately tabbed:

(1) Format. The taxpayer must provide two copies of its competent authority request in the same manner and format as filing requests to APMA as described in section 2.03 of this Appendix, except as otherwise permitted by TAIT for small case competent authority requests (see section 5 of the revenue procedure). One copy must be an original printed submission containing signed originals of the request letter and attachments. One copy must be an electronic copy of the contents of the original printed submission on CD or flash drive or similar acceptable electronic storage medium.

(2) Address and Other Contact Information for TAIT. Competent Authority requests filed with TAIT must be sent to the following address.

All mail should be sent to this mailing address, including regular mail, express mail, overnight mail, and mail sent by USPS, FedEx, UPS, or any other carrier. Additional contact information is as follows.

This revenue procedure provides guidance on the process of requesting and obtaining advance pricing agreements from the Advance Pricing and Mutual Agreement program (“APMA”), a constituent office of the U.S. competent authority, within the office of the Deputy Commissioner International, Large Business & International Division. This revenue procedure also provides guidance on administration of executed APAs. This revenue procedure updates and supersedes Rev. Proc. 2006–9, 2006–1 C.B. 278, as modified by Rev. Proc. 2008–31, 2008–1 C.B. 1133, which is also superseded. This revenue procedure is being released in conjunction with Rev. Proc. 2015–40, 2015–35 I.R.B. 236, which provides procedures and guidance on the process of requesting assistance from the U.S. competent authority under the provisions of U.S. tax treaties.

A proposed version of this revenue procedure was released for public comment in Notice 2013–79, 2013–2 C.B. 653. This revenue procedure is issued following consideration of all public comments received by the IRS and the Treasury Department and also reflects the continuing internal monitoring and modifications of APMA’s administrative procedures to ensure that the administration of APAs is consistently principled, effective, and efficient.

The principal differences between this final revenue procedure and the proposed version in Notice 2013–79 may be summarized as follows:

(1) This revenue procedure clarifies that if APMA requires, as a condition of continuing with the APA process, that the taxpayer expand the proposed scope of its APA request to cover interrelated matters (interrelated issues in the same years, covered issues or interrelated issues in other years, and covered issues or interrelated issues in the same or other years as applied to other countries), APMA will do so with due regard to considerations of principled, effective, and efficient tax administration and only after considering the views of the taxpayer and the applicable foreign competent authority. Further, APMA will communicate to the taxpayer any concerns about interrelated matters and possible scope expansion as early as possible. Examples are provided of interrelated matters. See section 2.02(4).

(2) In the interest of efficient tax administration, rollback years may be formally covered within an APA. A rollback will be included in an APA when a rollback is either requested by the taxpayer and approved after coordination and collaboration between APMA and other offices within the IRS or, in some cases, is required by APMA, after coordination and collaboration with other offices within the IRS, as a condition of beginning or continuing the APA process. See sections 2.02(4)(c), 3.03(2), 3.08, and 5.02.

(3) This revenue procedure provides expanded guidance as to when an APA request will be considered complete. See section 3.03(3).

(4) The required contents of APA requests that were specified in the Appendix of the proposed revenue procedure have been refined but generally retained, which APMA continues to view as necessary to conduct informed and efficient evaluations of APA requests.

(5) As stated in Notice 2013–79, taxpayers are required to execute consent agreements to extend the period of limitations for assessment of tax for each year of the proposed APA term, and the required consent could be either general or restricted. This revenue procedure expressly provides that APMA will coordinate and collaborate with other offices within the IRS and with the taxpayer on the type of consent the taxpayer will be instructed to execute, which, if restricted, will follow standardized language provided by APMA. This revenue procedure also provides that in certain cases, only general consents will be used. See section 2.03(3).

(6) This revenue procedure increases the user fees for APA requests and provides that total user fees may be reduced for multiple APA requests filed by the same controlled group within a sixty-day period. See section 3.03(2) of the Appendix.

(7) This revenue procedure substantially restructures the proposed guidance in Notice 2013–79 to improve clarity, readability, and organization.

Unless indicated by context or otherwise, section references are to the sections of this revenue procedure.

If a deadline under this revenue procedure falls on a Saturday, Sunday, or a legal holiday in the District of Columbia, the deadline is extended to the next succeeding day that is not a Saturday, Sunday, or legal holiday in the District of Columbia.

As used in this revenue procedure, certain acronyms and other terms have the meanings set forth in this section.

APMA may be contacted with general or specific questions about this revenue procedure by one of the means identified in the Appendix. Unless otherwise instructed by APMA, any item (e.g., an APA request or a pre-filing memorandum) that the taxpayer either is required or chooses to file with APMA must be sent to APMA at the address listed in the Appendix.

(1) In February 2012, the IRS established APMA to oversee its APA program and to act as the representative office of the U.S. competent authority responsible for handling competent authority cases arising under the business profits and associated enterprises articles of U.S. tax treaties. APMA also has shared responsibility for cases arising under the permanent establishment articles of U.S. tax treaties. See section 2.01(3) of Rev. Proc. 2015–40. In accordance with its mission, APMA endeavors to administer the programs within its jurisdiction in a manner that is consistent with U.S. tax treaty obligations and that secures the appropriate tax bases of the United States and its treaty partners, prevents fiscal evasion, promotes consistency and reasonableness in outcomes, and provides taxpayers access to competent authority assistance and to the APA process in accordance with considerations of principled, effective, and efficient tax administration.

(2) APMA’s APA program provides a voluntary process whereby the IRS and taxpayers may resolve transfer pricing issues and issues for which transfer pricing principles may be relevant in a principled and cooperative manner on a prospective basis. Ancillary issues such as interest and penalties may also be resolved, but only to the extent to which APMA has authority under the Code or under a U.S. tax treaty to resolve the issues. The APA process increases the efficiency of tax administration by encouraging taxpayers to come forward and present all the facts necessary for a proper evaluation of their proposed covered issues and to work towards a resolution of such issues in a spirit of openness and cooperation. The voluntary and prospective nature of the APA process lessens the burden of compliance by giving taxpayers greater certainty regarding covered issues 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 either taxpayers or the IRS. As such, the APA process is intended to address issues that are ongoing in nature or have already arisen (or, based on firm commitments, are expected to arise). Conversely, the APA process is not available for addressing hypothetical or merely contemplated issues. In particular, the taxpayer will not be permitted to use the APA process to obtain an advance view of the IRS’s likely treatment of particular transactions (for example, business restructurings or intangible development arrangements) the taxpayer may be considering.

(3) The APMA Director, directly or by delegation, may take any action – not contrary to statute, regulation, or treaty – necessary to carry out the intent of this revenue procedure. Such actions include, but are not limited to, declining to initiate or suspending or terminating the APA process (see section 4.02(1)) and modifying the application of provisions contained in this revenue procedure in particular cases (for example, regarding time limits). Such actions are not subject to administrative review.

(4) Scope of APAs

(a) In General. A taxpayer’s APA request will include one or more covered issues, as applied to certain proposed taxable years, and (in the case of bilateral and multilateral APA requests) involving one or more foreign competent authorities. In evaluating the taxpayer’s request, in some cases APMA may also need to consider additional, interrelated issues, additional taxable years (including potential rollback years, see sections 2.02(4)(c) and 5.02), or additional treaty countries (collectively, “interrelated matters”) in order to reach a resolution that is in the interest of principled, effective, and efficient tax administration. APMA will endeavor to communicate to the taxpayer any concern about interrelated matters, and any possible need to expand the scope of the APA (as discussed below), as early as possible in the APA process. APMA may do so, for example, when the taxpayer’s proposed covered issues are most reliably evaluated together with other issues. See Treas. Reg. §§ 1.482–1(f)(2)(i), 1.482–7(g)(2)(iv). For specific examples of interrelated matters, see section 2.02(4)(b). In cases requiring consideration of interrelated matters, APMA will endeavor to reach a resolution of the taxpayer’s proposed covered issues, but only to the extent that such resolution is consistent with the treatment of the identified interrelated matters. Further, after considering the views of the taxpayer and (if applicable) the foreign competent authority(ies) in such cases, APMA may decide that it is not in the interest of principled, effective, and efficient tax administration to reach a resolution on the taxpayer’s proposed covered issues without also reaching a resolution on such identified interrelated matters. In these circumstances APMA may condition its acceptance, continued consideration, or resolution of an APA request upon the agreement of the taxpayer (and, if applicable, of the foreign competent authority(ies)) to expand the scope of the APA.

(b) Examples of Interrelated Matters. APMA will always consider the taxpayer’s particular facts and circumstances and the scope of the covered issue(s) as proposed in the APA request before deciding that interrelated matters also need to be considered. However, it is possible to identify some common fact patterns in which APMA will be more likely to so decide.

(i) Assume that the taxpayer proposes to cover a company’s license of intangible property in certain years to a second company in the same controlled group, when that intangible property had been sold in an earlier year by the second company (the licensee) to the first company (the licensor). In such a case, APMA might consider that the ongoing license should be evaluated in a manner consistent with the evaluation performed for the previous sale (for example, using the same underlying assumptions unless there were specific reasons why certain assumptions would have changed in the interim).

(ii) The taxpayer might propose to cover the compensation for services provided by one company to a second company in the same controlled group, when providing the services requires using intangible property that had been transferred in an earlier year from the first company to the second company as part of a business restructuring. In such a case, APMA might seek to ensure that the services are valued in a manner consistent with the valuation done in connection with the restructuring, in the absence of some factual reason why the valuations should not be consistent.

(iii) In evaluating a platform contribution transaction (“PCT”) in a cost sharing arrangement under Treas. Reg. § 1.482–7, APMA might also consider whether the intangible development costs in that arrangement are being properly shared.

(iv) Assume that the taxpayer makes a bilateral APA request to cover sales of goods from a manufacturer in a treaty country to a U.S. distributor that is in the same controlled group, when the U.S. distributor, in turn, resells most of these goods to a distributor in another country (which may or may not be a treaty country) that is in the same controlled group. Before agreeing to a price that the U.S. distributor should pay to the manufacturer, APMA might consider the price that this distributor receives for its resale.

(v) Other examples of types of APA requests that could involve interrelated matters are listed among those for which a pre-filing memorandum is required in section 3.02(4), such as cases involving transactions within a global trading arrangement or involving hybrid entities or entities disregarded for U.S. tax purposes.

(c) Rollbacks; Coordination between APAs and Competent Authority Cases. An APA is primarily a means to resolve coverable issues for prospective years (as defined in section 3.03(2)). However, an APA can also be “rolled back” to cover one or more earlier taxable years. When rollback years are included, the APA term will then comprise both rollback years and prospective years (see sections 3.03(2) and 3.08). Rollback years are defined in section 3.03(2), and rollbacks are further discussed in section 5.02. Rollback years need not be, but typically are, the subject of an ongoing or anticipated competent authority case under Rev. Proc. 2015–40. In recognition of these connections, APMA views APAs and competent authority resolutions under Rev. Proc. 2015–40 as being two interconnected means by which taxpayers can manage and address transfer pricing and other cross-border tax issues for which transfer pricing principles may be relevant. Accordingly, APMA will endeavor to address APA requests and competent authority requests under Rev. Proc. 2015–40 in a way that will achieve substantive and procedural consistency between the APA process and the competent authority process under Rev. Proc. 2015–40, and that will provide resolution and certainty across taxable years for taxpayers and the IRS. For example, when warranted by similarity of facts and circumstances across taxable years, APMA will encourage and in some cases require (see section 2.02(4)(a)) a taxpayer to expand the scope of its APA request to include a rollback when a comprehensive resolution of coverable issues would further the interests of principled, effective, and efficient tax administration. Conversely, when a taxpayer that has sought APMA’s assistance for a competent authority case under Rev. Proc. 2015–40, APMA may request (but will not require) that the taxpayer also pursue ACAP to extend the competent authority resolution from that case to cover one or more of its ACAP years (see section 2.04 of Rev. Proc. 2015–40). In such cases, APMA may also encourage (but will not formally request or require) the taxpayer to further extend the competent authority resolution into an APA as a means of obtaining certainty in future taxable years (see section 2.05 of Rev. Proc. 2015–40). The relationship between APAs, competent authority cases under Rev. Proc. 2015–40, and ACAP is addressed in more detail in section 5 and in Rev. Proc. 2015–40.

(d) Preference for Bilateral and Multilateral APAs. APMA’s interest in coordinating APAs and competent authority cases under Rev. Proc. 2015–40 is also reflected in its preference for bilateral and multilateral APAs over unilateral APAs. To minimize taxpayer and governmental uncertainty and administrative cost, bilateral and multilateral APAs are generally preferable to unilateral APAs. If a taxpayer requests a unilateral APA to cover any issue that could be covered under a bilateral or multilateral APA under the applicable tax treaty(ies), the taxpayer must explain in a pre-filing memorandum (see section 3.02(4)) why it believes that a unilateral APA is appropriate to cover that issue. The taxpayer might state, for example, that it believes that there is no APA process with the treaty country, or that the taxpayer’s proposed covered issues involve so many treaty countries that the taxpayer believes that bilateral APAs or a multilateral APA would be impractical. After taking into account the taxpayer’s views expressed in the memorandum (and in a pre-filing conference if one is held, see section 3.02), APMA will inform the taxpayer whether it will accept a unilateral APA request. APMA may reject a taxpayer’s unilateral APA request for various reasons, particularly when accepting it would contravene procedures and practices established with particular treaty partners. Further, even if APMA and a taxpayer sign a unilateral APA, APMA might subsequently decline to consider a competent authority request for an issue that could reasonably and practically have been covered if the taxpayer had instead pursued a bilateral or multilateral APA. See section 7.02 of Rev. Proc. 2015–40. This would particularly be the case when APMA has already expended resources and fully considered the taxpayer’s arguments in reaching a unilateral APA and when a reasonably foreseeable outcome of the competent authority case would be a reduction in U.S. taxable income beyond the level to which APMA and the taxpayer had agreed in the unilateral APA. In the same vein, under the example described in section 2.02(4)(b)(iv), if the taxpayer is unwilling to expand the scope of the APA request to include the competent authority of a second treaty country, and APMA nevertheless is willing to reach an APA, APMA might subsequently decline to consider a MAP request concerning the resale of the goods to the distributor in that second treaty country. In deciding whether to pursue a bilateral or multilateral APA rather than a unilateral APA, or to expand the scope of the APA request to include the competent authority of a second treaty country, taxpayers should bear in mind that a failure to timely request competent authority assistance may adversely affect the availability of the foreign tax credit. See Treas. Reg. § 1.901–2(e)(5) and Rev. Rul. 92–75, 1992–2 C.B. 197.

(5) APMA is available for informal consultations with taxpayers within or outside of the APA process. Such consultations may address potential covered issues, and the APA process in general. Statements or representations, whether oral or written, made by APMA in connection with such consultations are informal only and are not binding on the IRS. Such consultations may be by telephone, written, and/or in person. Such consultations may relate to taxpayers whose identities remain anonymous to APMA, and in such cases may include participation of a taxpayer’s officers or employees on an anonymous basis.

(1) To initiate the APA process, the taxpayer must (i) meet the pre-filing requirements set forth in section 3.02, as applicable, (ii) submit a complete APA request, as explained in section 3.04(1), and (iii) pay the correct user fee, as described in section 3.05 and as instructed in the Appendix.

(2) Throughout the APA process, the taxpayer must supplement its APA request and provide updated information in accordance with sections 3.09 and 3.10.

(3) Throughout the APA process, the taxpayer and the IRS will execute consent agreements as necessary to extend the period of limitations for assessment of tax for each proposed APA year (including both proposed prospective years and proposed rollback years). Each required consent agreement will be either general or restricted, as specified in this section. A restricted consent will not be appropriate for a proposed APA year for which an issue other than the proposed covered issues is under ongoing or potential examination by the IRS.

(a) Requirement for APA Request. As of the date the APA request is filed, the remaining period of limitations for assessment of tax for each proposed APA year must be at least two years. If the remaining period of limitations for a proposed APA year is less than two years from such date, then the request must contain an executed general consent to extend the period of limitations for assessment of tax for the proposed APA year(s) to at least two years.

(b) Ongoing Requirement. For each proposed APA year, as the APA process progresses, the taxpayer must submit executed consents to the IRS to extend the period of limitations for assessment of tax as specified in this section 2.03(3)(b). An executed consent must be submitted no later than twelve months before the end of the remaining period of limitations. Unless the taxpayer is otherwise instructed by APMA, each such consent must extend such period by at least one year. In most cases, the taxpayer should submit a general consent for this purpose. However, if there are no issues other than the proposed covered issues under examination by the IRS for a proposed APA year, then the taxpayer may request a restricted consent under this ongoing requirement. Requests for restricted consents must be made in writing no later than fifteen months before the end of the remaining period of limitations, and include the taxpayer’s views on why a restricted consent is appropriate in light of its circumstances. APMA will then coordinate and collaborate with other offices within the IRS and inform the taxpayer of the type of consent to be executed (general or restricted). Any restricted consent will be on a form provided by APMA.

(4) An APA request, and an APA, must be signed by each entity that comes within the definition of “taxpayer” in section 1.04. Any requirement in this revenue procedure applicable to the “taxpayer” is applicable to each such entity, except as agreed between APMA and the taxpayer.

This section sets forth procedures, rules, and guidelines relevant to filing an APA request. This section also addresses the taxpayer’s obligations before and after filing the request. Instructions on preparing and filing an APA request are also set forth in the Appendix.

(1) General. In the interest of making the APA process effective and efficient, APMA invites, and in some cases requires, the taxpayer to meet with APMA in a pre-filing conference prior to filing the APA request. For the same reason, APMA invites, and sometimes requires, the taxpayer to submit a pre-filing memorandum prior to filing the APA request. Pre-filing requirements are set forth in sections 3.02(3) through 3.02(7).

(2) APA Requests Eligible for Small Case APA User Fee. The pre-filing requirements set forth in sections 3.02(3) through 3.02(7) do not apply to APA requests that are eligible for the small case APA user fee. A taxpayer that seeks to file such an APA request may submit the small case APA user fee together with a complete APA request, or may first contact APMA to discuss filing an abbreviated APA request or to discuss any other procedural or substantive issue.

(3) Requesting Pre-filing Conferences. A taxpayer that wishes to hold a pre-filing conference with APMA must submit its request as part of a mandatory pre-filing memorandum filed pursuant to section 3.02(4) or an optional pre-filing memorandum filed pursuant to section 3.02(5).

(4) Mandatory Pre-filing Memoranda. A pre-filing memorandum that identifies the taxpayer must be filed if:

(a) the taxpayer wishes to file a unilateral APA request to cover an issue that could be covered under a bilateral or multilateral APA under the pertinent tax treaty(ies) (see section 2.02(4)(d));

(b) the taxpayer seeks permission to file an abbreviated APA request pursuant to section 3.04(2); or

(c) the covered issue(s) proposed by the taxpayer will, or could reasonably be expected to, involve any of the following: (i) the license or other transfer of intangibles in connection with, or the development of intangibles under, an intangible development arrangement, (ii) a global trading arrangement, (iii) a business restructuring, or the use of intangibles whose ownership changed as a result of a business restructuring, or (iv) unincorporated branches, pass-through entities, hybrid entities, or entities disregarded for U.S. tax purposes.

This section is not intended to limit anonymous informal consultations with APMA as described in section 2.02(5). For example, a taxpayer might engage in informal consultations as described in section 2.02(5), including submitting an anonymous memorandum, and subsequently file a pre-filing memorandum that identifies the taxpayer and otherwise satisfies the requirements for a mandatory pre-filing memorandum.

(5) Optional Pre-filing Memoranda. A taxpayer may voluntarily submit a pre-filing memorandum in cases other than those set forth in section 3.02(4). Although not required, APMA generally recommends that a pre-filing memorandum be submitted for APA requests that may present novel or complex substantive or procedural issues, and APA requests for which APMA could reasonably have concerns regarding interrelated matters (see section 2.02(4)). Optional pre-filing memoranda may be submitted on an anonymous basis. APMA generally recommends, however, that optional pre-filing memoranda be provided on a named basis so as to facilitate a more informed understanding of the procedural and substantive issues that may arise during the APA process.

(6) Contents of Pre-filing Memorandum. A mandatory pre-filing memorandum must have a length and content appropriate to the size and complexity of the covered issue(s) proposed by the taxpayer, and must be primarily in memorandum form but may be accompanied by diagrams, slides, spreadsheets, and similar supporting materials. An optional pre-filing memorandum must have a length and content appropriate to the substantive or procedural issues the taxpayer wishes to raise with APMA, and may be in a format chosen by the taxpayer. Whether mandatory or optional, a pre-filing memorandum must also do the following:

(a) State whether the taxpayer seeks a pre-filing conference and, if so, the issues the taxpayer wishes to discuss;

(b) Propose at least three possible dates for a pre-filing conference that normally would be at least two weeks after the date that the pre-filing memorandum is submitted, if either the pre-filing memorandum is mandatory (whether or not the taxpayer seeks a pre-filing conference, which might be required by APMA) or the pre-filing memorandum is optional and the taxpayer seeks a pre-filing conference;

(c) Include covered issue diagrams if the pre-filing memorandum is mandatory;

(d) If mandatory and if submitted pursuant to sections 3.02(4)(b) and 3.04(2)(a) to seek permission to file an abbreviated APA request, must (i) specify any information, documents, or other materials the taxpayer proposes to omit from its APA request, (ii) present the taxpayer’s arguments that the information, documents, or other materials the taxpayer proposes to omit from its APA request are not necessary for APMA’s evaluation of the APA request, including if applicable the taxpayer’s arguments that the applicable law, facts and circumstances, economic conditions, proposed covered issue(s) and method(s), and other factors relevant to the proposed APA years are substantially the same as those relevant to the current APA or the competent authority resolution as the case may be (see sections 5.01 and 8), and (iii) in the case of a proposed renewal APA, summarize in a table the results and adjustments under the current APA, in absolute and (as applicable) percentage terms (e.g., operating margin), with comparison to any arm’s length points or ranges specified in the APA, and also summarize any proposed changes in terms from the current APA;

(e) List the name and contact information for the taxpayer’s point of contact and, unless the pre-filing memorandum is submitted on an anonymous basis, provide, as necessary, a Form 2848 authorizing the point of contact to represent the taxpayer in connection with the APA request or a Form 8821 authorizing the point of contact to inspect or receive confidential tax information about the taxpayer in connection with the APA request; and

(f) Identify all open back years of the taxpayer and which of such years, if any, are under examination by the IRS.

(7) Place for Submission of Pre-filing Memorandum. Two printed copies and one electronic copy of the pre-filing memorandum must be submitted to APMA at the address provided in section 4 of the Appendix. The electronic copy of the pre-filing memorandum must follow the rules for media and format of electronic submissions described in section 2 of the Appendix.

(8) Actions Taken with Respect to Pre-filing Conferences and Memoranda.

(a) APMA will notify the taxpayer whether it will accept or decline the taxpayer’s request to hold a pre-filing conference. APMA may also require a pre-filing conference to follow a mandatory pre-filing memorandum even if the taxpayer did not request a conference. If APMA decides to hold a pre-filing conference, the conference will address procedural and substantive issues pertinent to the APA request. During the conference, the taxpayer should be prepared to discuss the relevant facts and circumstances surrounding the issue(s), method(s), and terms and conditions it proposes to cover in the APA, and (if applicable) the taxpayer’s justification for its request to file an abbreviated APA request. If APMA decides against holding a pre-filing conference, it will direct the taxpayer to proceed with its APA request (see section 3.04(2) regarding the situation in which the taxpayer has sought permission to file an abbreviated APA request).

(b) Unless the taxpayer has submitted a mandatory pre-filing memorandum pursuant to section 3.02(4), which requires identification of the taxpayer, or has otherwise identified the taxpayer, a pre-filing conference may be held on an anonymous basis. APMA generally recommends, however, that pre-filing conferences be held on a named basis to facilitate a more informed discussion of procedural and substantive issues that may arise during the APA process.

(9) Informal Advice in Pre-filing Conference. Statements or representations made by APMA in a pre-filing conference are informal and are, therefore, not binding on the IRS (see section 2.02(5)).

(1) In General. APAs are intended to apply primarily to prospective years, as defined in section 3.03(2). APMA normally expects an APA request to be filed early enough such that the proposed APA term would cover at least five prospective years (see section 3.08). This section 3.03 gives rules applicable to filing deadlines and determinations. These rules reference section 3.04, which provides guidance on the content and form of complete APA requests.

(2) Prospective Years, Rollback Years, and Filing Deadline of Complete APA Request. An APA term will comprise prospective years and rollback years (if any). Except as provided in section 3.03(2)(b), a prospective year is a taxable year in an APA term (or a requested APA term) for which the taxpayer has filed a complete APA request, or an APA request that is considered complete (see section 3.03(3)), as of a date that is no later than the applicable return date (as defined in section 3.03(2)(a)) for that taxable year. Any APA year, or proposed APA year, ending before the first prospective year will be a rollback year (see generally section 5.02). Depending on the taxable years that the taxpayer proposes be covered by the APA term and depending upon the date that APMA considers the taxpayer’s APA request to be complete, the first prospective year of the APA may or may not be the same as what is proposed by the taxpayer. For example, the taxpayer may file its APA request intending that a certain taxable year be the first prospective year of the APA. If, however, APMA determines the APA request is not complete as of the applicable return date for that taxable year, then the taxable year the taxpayer intended to be the first prospective year will be considered to be a proposed rollback year. APMA will determine which proposed APA year will be the first prospective year according to the provisions of this section.

(a) Applicable Return Date. If the taxpayer timely files its U.S. return for a taxable year, the applicable return date for that year is the later of (i) the actual filing date, and (ii) the U.S. return’s due date prescribed by statute without regard to extensions. If the taxpayer does not timely file its U.S. return for a taxable year, the applicable return date for that year is the U.S. return’s due date prescribed by statute without regard to extensions.

(b) Special Filing Deadline Rule for Bilateral and Multilateral APA Requests.

An additional filing deadline applies in the case of bilateral and multilateral APA requests. In order to better coordinate the timing of discussions on bilateral and multilateral APAs with foreign competent authorities, the taxpayer should file a complete bilateral or multilateral APA request (or be considered to have filed such a complete request under section 3.03(3)) no later than 60 days after a corresponding bilateral or multilateral request proposing to cover substantially the same coverable issue(s) and APA years has been filed with a foreign competent authority. For this purpose, the filing of a corresponding request with a foreign competent authority shall be understood to mean the filing of a substantive request with that foreign competent authority rather than the mere filing of a notice of intent to file a substantive request. If the taxpayer does not meet the deadline for filing stated in this section 3.03(2)(b), then the first APA year that otherwise would be a prospective year under the rules of this section 3.03(2) will be considered to be a rollback year. If the taxpayer misses that deadline by more than one year, then the first two or more APA years (as determined by APMA in its discretion) that otherwise would be prospective years under the rules of this section 3.03(2) will be considered to be rollback years.

(3) Date as of Which APA Request Considered Complete.

(a) In General. In certain cases, a complete APA request will be considered to be filed on a date earlier than the date on which it is actually filed. Specifically, the curing of certain deficiencies in an APA request could relate back to the original filing date (see section 3.04(1)). The curing of an incorrect user fee could in exceptional cases relate back to the original date of payment (see section 3.05). The filing of an APA request will in certain cases relate back to the date on which the user fee was paid (see section 3.03(3)(b)). More than one of these provisions just cited could apply in combination to the same APA request. For example, a complete APA request could be considered to have been filed by a particular date if (i) the user fee is paid by that date, (ii) an APA request is filed within the 120-day period specified in section 3.03(3)(b), and (iii) that APA request is not complete when filed, but prompt supplementation to cure minor deficiencies as specified in section 3.04(1) renders the APA request complete. As stated in section 3.04(1), APMA’s decision of whether, and when, an APA request is complete or considered complete is not subject to administrative review.

(b) “Dollar File” Requests. For purposes of this section, APMA will consider a complete APA request as having been filed by a particular date if (i) the correct user fee is paid (within the meaning of section 7502(a) of the Code) by such date, and (ii) a complete APA request is filed within 120 days of such date. APMA may agree to extend such 120-day period by 30 days for good cause if the taxpayer requests such an extension before the 120-day period expires.

(1) In General. The Appendix sets forth the required contents of an APA request, identifies the order in which such contents should be presented, and provides information and instructions on other administrative matters relevant to filing a request. APMA will consider an APA request to be complete if it (1) is accompanied by payment of the correct user fee as specified in section 3.05, (2) contains all the information required by the Appendix (subject to any exceptions agreed to by APMA), and (3) proposes covered methods that provide a reasonable basis on which to consider resolution of the proposed covered issues. For this purpose, a subsequent remedy of minor deficiencies, made promptly under the circumstances, will relate back to the time of original filing. In exceptional circumstances, APMA may also allow a subsequent remedy of substantial deficiencies, made promptly under the circumstances, to relate back to the time of original filing. (Regarding deficiencies in the payment of the user fee, see section 3.05(3).) APMA’s decision of whether, and when, a complete APA request is filed or considered filed is not subject to administrative review. Any questions about filing an APA request not addressed in this section or in section 2 should be directed to APMA.

(2) Abbreviated APA Requests. The taxpayer must obtain prior permission from APMA to file an abbreviated APA request. An abbreviated APA request that the taxpayer files without such permission will not be considered a complete APA request under this section 3.04. An abbreviated APA request might be appropriate for expansion of a competent authority request under Rev. Proc. 2015–40 into APA years under the circumstances described in section 5.01(2), for APA renewals under the circumstances described in section 8, in certain circumstances for APA requests eligible for the small case user fee as specified in section 3.04 of the Appendix, and in other, exceptional circumstances. In evaluating the taxpayer’s request to file an abbreviated APA request, APMA will consider that in most cases it can most efficiently process an APA request when the APA request itself contains all documents reasonably needed to evaluate that request, even if some of those documents have been submitted before to the IRS. Before requesting permission to file an abbreviated APA request, the taxpayer should consider whether the documents that it proposes to omit from the APA request could alternatively be provided as exhibits to that request.

(a) Abbreviated APA Requests Not Eligible for Small Case APA User Fee. To request permission to file an abbreviated APA request that is not eligible for the small case APA user fee as specified in section 3.04 of the Appendix, the taxpayer must file a pre-filing memorandum as described in sections 3.02(4) and 3.02(6)(d). After reviewing the pre-filing memorandum and (if applicable) holding a pre-filing conference (see section 3.02(8)(a)), APMA will inform the taxpayer either that APMA will accept an abbreviated APA request (in which case APMA will instruct the taxpayer on the content of the request), or that APMA will require a complete APA request.

(b) Abbreviated APA Requests Eligible for Small Case APA User Fee. To request permission to file an abbreviated APA request that is eligible for the small case APA user fee, the taxpayer may contact APMA informally to discuss the proposed contents of the request. After discussion with the taxpayer and consideration of any written material submitted by the taxpayer, APMA will inform the taxpayer either that APMA will accept an abbreviated APA request (in which case APMA will instruct the taxpayer on the content of the request), or that APMA will require a complete APA request.

(3) Any information submitted by a taxpayer in connection with its APA request must be true, correct, and complete (see the Appendix). All exhibits and documents included in or referred to in the APA request must be explained, as necessary, in sufficient detail to make their contents readily understandable. Such an explanation might include, for example, definitions of terms used, explanations of the goal and flow of calculations, the sources of data, and the identity of a document’s creator and the purpose for which it was created.

(1) The user fee requirements and rules of application are set forth in the Appendix. A taxpayer that seeks a decision on the user fee applicable to its APA request must contact APMA informally or submit a pre-filing memorandum.

(2) The taxpayer must pay the applicable user fee no later than the date it files the APA request. User fees must be paid through the Pay.gov website.

(3) APMA will notify the taxpayer if it has paid less than the correct user fee. In such a case, the taxpayer has the option of making up the difference or withdrawing its APA request and receiving a refund of the amount it has paid. In exceptional cases, APMA may allow the remedy of the insufficient user fee to relate back to the date that the insufficient user fee was paid for purposes of determining when a complete APA request is considered to be filed (see section 3.03(3)).

For proposed covered issues, a protective claim for credit or refund may be made by including the claim in a bilateral or multilateral APA request. To be a valid protective claim for credit or refund, the protective claim must fulfill the requirements of section 11.02(3) of Rev. Proc. 2015–40. See section 11 of Rev. Proc. 2015–40 and the Appendix. For purposes of the annual notification requirement of section 11.05 of Rev. Proc. 2015–40, a protective claim included in a bilateral or multilateral APA request shall be deemed to be continuously filed for as long as the subject matter of that claim is under consideration by APMA as part of that APA request.

The submission of a complete APA request, updated and supplemented in accordance with the requirements of this section 3, will be a factor taken into account in determining whether the taxpayer has met the documentation requirements of Treas. Reg. § 1.6662–6(d)(2)(iii) for the proposed APA years. Submission of a complete APA request does not, in itself, suspend examination or enforcement proceedings. Although APMA will coordinate within the IRS to minimize duplicative requests in conducting its due diligence, the taxpayer remains obligated to respond to information document requests issued, and according to deadlines set, by other IRS offices in any examination or enforcement proceedings.

The APA term will comprise all of the prospective years and rollback years (if any) covered by the APA. In its APA request, the taxpayer must propose a term for the APA that is appropriate to the proposed covered issue(s) and to the commercial factors surrounding the taxpayer’s industry and line(s) of business. Although the appropriate APA term will be determined on a case-by-case basis, an APA request typically should propose at least five prospective years, unless the taxpayer states a compelling reason to include fewer years. Additionally, in the interest of principled, effective, and efficient tax administration, APMA typically will seek to set the APA term so there are at least three unexpired years (i.e., years that have not yet ended) remaining in the APA term upon the execution of the APA (in the case of a unilateral APA) or upon the execution of the underlying competent authority resolution (in the case of a bilateral or multilateral APA). APMA may require that the taxpayer agree to extend the APA term in order to achieve that goal. In the case of a bilateral or multilateral APA, any proposed term extension will be coordinated with the relevant foreign competent authority(ies).

(1) The information, documents, and materials required for APA requests that are identified in the Appendix might not exhaust the items an APA team needs to evaluate a given APA request. If the APA team determines that it needs additional information to analyze the APA request, the taxpayer will be asked, and thereby required, to provide such information. The taxpayer (or, as the case may be, related foreign taxpayers) must respond similarly to requests made by a foreign competent authority, as applicable. The APA team will endeavor to present focused, targeted requests for additional information. To the extent possible, the APA team will request information that the taxpayer would be likely to maintain in its normal course of business or information that is readily accessible or could be produced without placing undue burdens on the taxpayer. In this regard, the APA team will discuss and consider reasons offered by the taxpayer to modify the request or to provide other, but still responsive, information to that which was requested.

(2) In general, the taxpayer should be prepared to provide both (or all) competent authorities with any written responses, analyses, or other documents that it provides to one competent authority, whether such materials are provided in response to a request from a competent authority or are submitted voluntarily by the taxpayer in support of its APA request. In the interest of minimizing administrative burdens, the APA team will work with the taxpayer during the APA process as necessary to find efficient procedures for disseminating such materials to the competent authorities, such as using indexes to catalogue the materials that have been provided to each competent authority.

(1) After the APA request is filed, any material errors or material omissions in the APA request or in supplemental submissions must be promptly corrected or remedied.

(2) The taxpayer must timely notify APMA of all material changes and updates to information previously submitted in connection with the APA request. The taxpayer must also submit any information or documents discovered or created during the APA process that are material to the APA request.

(3) Any financial data that are produced in connection with the APA request during the APA process, and that relate to the application of the proposed covered methods to the proposed covered issues, must be updated annually or on a schedule that is mutually acceptable to the taxpayer and to APMA. In addition, the APA request must be supplemented with a demonstration of the application of the proposed covered method(s) to the actual financial results of the applicable members of the proposed covered group for each taxable year completed while the APA request is pending. Such a supplemental submission must be provided within 180 days of the close of the taxpayer’s taxable year, or by a date that is mutually acceptable to the taxpayer and to APMA. APMA recognizes that additional time may be appropriate if the covered methods require data from foreign parties that have different taxable years than the taxpayer. APMA may, at its discretion, grant an extension or modify these requirements if the taxpayer provides written notification before the date the supplemental submission would otherwise be due.

The taxpayer may withdraw its APA request at any time before it executes the APA. APMA generally will not refund user fees if the taxpayer withdraws its APA request after APMA has begun its due diligence.

APMA will notify the taxpayer in writing that it has received the APA request. The letter will also provide the name and contact information of the APA team leader to whom the request has been assigned. In addition, the letter will: (1) state that the request is complete and that the APA process will proceed (and, if applicable, that the taxpayer must take certain administrative or procedural steps pertaining to the APA request), (2) state that the request is provisionally accepted but that the APA process will not proceed until specified deficiencies in the request have been addressed, or (3) state that the request is rejected and describe the circumstances, if any, under which the request might be accepted.

(1) APMA may decline to enter into or continue with the APA process, either at the outset by rejecting the APA request or by terminating or suspending the APA process after it has accepted the APA request. APMA may take such actions if, for example, any of the circumstances described in, or similar to those described in, section 7.02 of Rev. Proc. 2015–40 are present, including failure to include the materials required by this revenue procedure in the APA request (see section 3) or the materials requested by the APA team during the APA process. APMA also will terminate the APA process for a requested unilateral APA if agreement cannot be reached on the APA’s terms. For requested bilateral and multilateral APAs, APMA may terminate the APA process if a competent authority resolution is not reached; however, in some cases APMA and the taxpayer might then agree to execute a unilateral APA.

(2) If APMA declines to continue with the APA process after the process has begun, APMA will determine whether to refund the taxpayer’s user fee. APMA will base its decision on various considerations, including the extent of the due diligence and analysis the APA team had undertaken before further assistance is denied.

(3) APMA’s decision to decline to initiate, or to suspend or terminate, the APA process is not subject to administrative review.

(1) The APA team leader will contact the taxpayer once APMA has determined that the APA request is complete and that the APA process should continue. In most cases, the next step in the APA process is to hold an opening conference. However, depending on its experience and familiarity with the proposed covered issue(s) and method(s) and other aspects of the APA request, the APA team may determine that an opening conference is not needed. Generally, the APA team will forego an opening conference only if it has no substantial disagreement with what the APA request proposes. If the APA team decides to hold an opening conference, the APA team leader will work with the taxpayer to set a date for the conference. The APA team may request that the taxpayer provide responses to specific questions from the APA team about the APA request before the opening conference or at the opening conference. The APA team leader may set or agree to a due date before the opening conference for such responses and may postpone the opening conference if the responses are not provided by that date.

(2) An opening conference is intended to facilitate the APA team’s understanding of the facts and circumstances underlying the taxpayer’s proposed covered issue(s), covered method(s), and terms and conditions. The opening conference may also involve a discussion of the taxpayer’s reasons for its selection of its proposed covered method(s). The APA team may also explore matters potentially interrelated with the proposed covered issues and discuss the possibility of including additional coverable issues, treaty countries, or years in the APA (see section 2.02(4)). At the opening conference, the taxpayer should be prepared to discuss the APA request in detail and to respond as fully as possible to questions about the facts and the proposals. In many cases, the discussion will focus on the taxpayer’s responses to the APA team’s questions provided in advance of the opening conference (see section 4.03(1)).

(3) The opening conference may also cover procedural matters, including whether a case plan will facilitate the APA team’s evaluation of the taxpayer’s APA request, and, if so, at what point in the APA process it may be useful for the APA team to adopt a case plan. Ordinarily, a case plan will be adopted to facilitate efficient processing of the taxpayer’s APA request. With or without a case plan, the APA team will endeavor to move through the APA process efficiently, given the scope and complexity of the proposed APA and the due diligence and analysis the APA team needs to undertake. In preparing a case plan, the APA team and the taxpayer will discuss milestones, which will depend on the nature of the covered issue(s), the quality of the APA request and any responses already provided by the taxpayer, and the further due diligence and analysis required. The time estimates for these milestones as reflected in a case plan are subject to revision. The time required to achieve milestones can be affected by various factors including (a) the quality and timeliness of information provided by the taxpayer, (b) the need to consider interrelated matters (see section 2.04(4)), (c) the emergence of unanticipated issues (for example, because of a change in the facts), (d) in the case of bilateral or multilateral APA requests, when the foreign competent authority(ies) are prepared to discuss the case, and (e) the ease with which an agreement can be reached with the taxpayer for unilateral APA requests or with the foreign competent authority(ies) for bilateral and multilateral APA requests.

(1) In evaluating a bilateral or multilateral APA request, the APA team will consider requests from, and may invite or require, the taxpayer to make presentations jointly to the APA team and to the foreign competent authority(ies). The provision of such information simultaneously to all competent authorities could facilitate efficient case processing. The APA team will consult as needed with the foreign competent authority(ies) as to its interest in joint presentations, and will notify the taxpayer accordingly.

(2) During the APA process, the APA team may also request teleconferences or in-person meetings with the taxpayer to discuss questions or concerns the APA team may have about the taxpayer’s APA request, or to discuss the APA team’s provisional views on the request or aspects of the request. The APA team may also invite the taxpayer to provide written responses to memoranda discussing such issues. For example, the APA team may invite the taxpayer to respond to questions or concerns the APA team has about the discount rate the taxpayer has chosen for a discounted cash flow analysis and to provide its comments regarding a different discount rate that the APA team considers a viable alternative. Depending on the case, the APA team may simultaneously provide such invitation to the taxpayer and a copy to the foreign competent authority(ies) and invite the taxpayer to direct its responses to both the foreign competent authority(ies) and the APA team.

(3) The APA team may reach a point in the APA process when it prepares to formally present its view on the APA request to the foreign competent authority(ies). At this point, the APA team will convey the substance of its views to the taxpayer, generally in a paper or memorandum having a length, content, and format appropriate to the scope and duration of the APA process and to the size and complexity of the proposed covered issue(s) and method(s) and other relevant facts and circumstances surrounding the case. In some cases, the APA team may present the paper or memorandum to the taxpayer for its comment before the APA team formally presents its views to the foreign competent authority(ies). In other cases, the APA team may issue the paper or memorandum simultaneously to the taxpayer and to the foreign competent authority(ies). The taxpayer would then be invited to provide its comments to both the APA team and the foreign competent authority(ies) for their discussion and consideration towards reaching a competent authority resolution. The decision as to which approach is taken is within the discretion of the APA team.

(4) The APA team will then endeavor with the foreign competent authority(ies) to reach a competent authority resolution that will underlie the APA that will be executed between the taxpayer and the IRS. The mutual agreement procedure article in arbitration treaties requires that the competent authorities refer certain cases to mandatory arbitration in the event direct discussion between the competent authorities does not lead to a mutual agreement within a prescribed time period. Taxpayers requesting bilateral or multilateral APAs should consult the mutual agreement procedure article under the applicable U.S. tax treaty to determine whether it is an arbitration treaty and the extent to which mandatory arbitration applies to cases initiated by bilateral or multilateral APA requests under such treaty. See section 10 of Rev. Proc. 2015–40.

Many of the steps involved in the evaluation and presentation stage of the APA process as applied to unilateral APA requests are similar to those relating to bilateral and multilateral APA requests. For example, at various points the APA team may invite the taxpayer to respond, either orally or in writing, as appropriate, to its questions or concerns about, or provisional views on, the APA request. The primary difference is that, in the case of a unilateral APA request, the APA team and the taxpayer will proceed directly to finalize an APA after the APA team has completed its due diligence and evaluation of the APA request and the APA team and the taxpayer have agreed to the APA’s covered issue(s), covered method(s), and terms and conditions.

With regard to either a unilateral APA or a bilateral or multilateral APA, the agreement will become effective on the date when it is has been executed by both the IRS and each entity included within the definition of the taxpayer in section 1.04, and the APA then will have effect as provided therein. When an APA’s covered group includes a member of a consolidated group other than the common parent (as defined in Treas. Reg. § 1.1502–1), the common parent must sign the APA as provided in Treas. Reg. § 1.1502–77. The person who signs an APA for a corporation must be an authorized officer of that corporation, have personal knowledge of the APA’s covered issue(s), covered method(s), and terms and conditions, perform duties not limited to obtaining letter rulings or determination letters from the IRS or entering into APAs, and have authorization to sign that corporation’s income tax return pursuant to section 6062 of the Code. An APA for a non-corporate taxpayer must be signed by an individual who has personal knowledge of the APA’s covered issue(s), covered method(s), and terms and conditions, and who is authorized to sign that taxpayer’s income tax return pursuant to section 6061 or 6063 of the Code, as applicable. In the case of a partnership, APMA may additionally require that some or all partners sign the APA. Any questions about the required signatory or signatories of an APA should be directed to the APA team leader.

APMA’s evaluation of the APA request will not constitute an examination or inspection of the taxpayer’s books and records under section 7605(b) or other provisions of the Code.

(1) Under Rev. Proc. 2015–40, APMA may propose that a taxpayer pursue ACAP to extend a competent authority resolution in its competent authority case to one or more ACAP years. APMA may also discuss with the taxpayer the possibility of extending the competent authority resolution forward into an APA.

(2) A request to extend a competent authority resolution under Rev. Proc. 2015–40 forward into an APA may be made either by filing a complete APA request, or by filing an abbreviated APA request with APMA’s permission pursuant to section 3.04(2). An abbreviated APA request might be appropriate provided that the taxpayer establishes that the applicable law, facts and circumstances, economic conditions, proposed covered issue(s) and method(s), and other relevant factors surrounding the taxpayer’s proposed APA years are reasonably expected to be substantially the same as such factors surrounding the years in its competent authority case under Rev. Proc. 2015–40.

(1) An APA is primarily a means to resolve coverable issues for prospective years. However, an APA may apply the covered methods (with appropriate modifications, if necessary) to one or more earlier, rollback years. (See generally, section 3.03.) Typically the taxpayer requests a rollback, but APMA may also consider a rollback even in the absence of a taxpayer’s request.

(2) A rollback request generally should be included in the taxpayer’s APA request (see the Appendix). APMA may, in its discretion, consider a later written request for a rollback.

(3) Whether included in the APA request or in a subsequent written request, the rollback request must include the same kind of information regarding the proposed rollback years that is required to be submitted regarding the proposed prospective years.

(4) After coordinating and collaborating with other offices within the IRS, APMA will inform the taxpayer whether its rollback request has been accepted for consideration. Except in unusual circumstances, APMA will not agree to cover a closed filed year with a rollback of a unilateral APA request. For a rollback that is requested in conjunction with a bilateral or multilateral APA request, APMA will (i) agree to cover an open filed year only if it would agree to accept a competent authority or ACAP request covering such year (see section 7.02 of Rev. Proc. 2015–40), and (ii) agree to cover a closed filed year only if it would agree to accept a competent authority or ACAP request covering such year and only if the applicable U.S. tax treaty(ies) allows the corresponding competent authority resolution to be implemented in that filed year.

(5) Regardless of whether the taxpayer pursues a rollback request, APMA reserves the right to coordinate with applicable IRS offices to pursue a rollback to any or all of the taxpayer’s open back years. In general, APMA will consider taking such action where there is sufficient similarity in relevant facts and circumstances across the proposed prospective years and the taxpayer’s open back years. APMA will inform the taxpayer in writing, either before the APA process begins or at any time during the APA process, whether it will pursue a rollback and the back years it will seek to cover. If the taxpayer refuses to accept a rollback, and after considering the taxpayer’s reasons for the refusal, APMA may decline to initiate the APA process or may suspend or terminate the process if it has already begun (see section 2.02(4)(a)). Even if APMA does not require a rollback, APMA might still condition its agreement to an APA on the APA’s terms being consistent with the tax treatment of issues in what might otherwise have been one or more rollback years (see section 2.02(4)(a)).

(6) A rollback request submitted in connection with a bilateral or multilateral APA request is subject to the provisions regarding coordination with IRS Appeals set forth in section 6.04 of Rev. Proc. 2015–40, and is subject to the requirement that the taxpayer submit a waiver of ex parte communication (see Appendix, section 1.03, Exhibit 4).

(7) A taxpayer’s rollback request submitted in connection with a bilateral or multilateral APA request and involving a taxable period and issue that are either designated for litigation, in litigation, or the subject of a judicial determination or litigation settlement, or involving a taxable period for which the taxpayer otherwise is in litigation concerning its federal tax liability will be governed by the provisions regarding coordination set forth in section 6.05 of Rev. Proc. 2015–40.

An APA is a binding agreement between the taxpayer and the IRS.

If the taxpayer complies with the APA terms and conditions, the IRS will not contest the application of the covered method(s) to the covered issue(s) of the APA except as provided in this revenue procedure. The taxpayer remains otherwise subject to U.S. income tax laws and applicable U.S. tax treaties.

Except as otherwise provided in this section, an APA will have no legal effect except with respect to the taxpayer, taxable years, and issues to which the APA specifically relates. If a covered issue is the transfer of intangible property (which does not constitute a platform contribution transaction as defined in Treas. Reg. § 1.482–7(b)(1)(ii)) within the meaning of Treas. Reg. § 1.482–4, the APA may provide that such transfer will not be subject to periodic adjustments, during or after the APA term, under Treas. Reg. § 1.482–4(f)(2) or (6). If a covered issue is a platform contribution transaction, the APA may provide that such transaction will not be treated as a Trigger PCT within the meaning of Treas. Reg. § 1.482–7(i)(6)(i) for purposes of making periodic adjustments, during or after the APA term, under Treas. Reg. § 1.482–7(i)(6).

Unless provided otherwise by written agreement or regulations, the IRS 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, issue, or person not covered by the APA. This paragraph does not preclude the IRS and the taxpayer from agreeing to roll back the APA’s covered method(s), or the IRS’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.

Unless provided otherwise by written agreement or regulations, the IRS 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 IRS’s use of any non-factual material otherwise discoverable or obtained other than in the APA process merely because APMA and the taxpayer considered the same or similar material in the APA process.

(1) Reporting of Income and APA Primary Adjustments. The taxpayer’s reporting of income, deductions, credits, allowances, basis, or any other item or element affecting taxable income during the APA term must clearly reflect the application of the covered method(s) to the covered issue(s). In some cases, such reporting for an APA year will require an adjustment to the amounts shown in the taxpayer’s books and records for that APA year and/or to the amounts reflected on a U.S. return (APA primary adjustment). An “APA primary adjustment” for an APA year must be reported (a) on a timely-filed U.S. return for such APA year, (b) on an amended U.S. return for such APA year that is filed within 120 days of the APA’s effective date, or (c) by an alternative means that is specified in the APA. Manners (b) and (c) in the previous sentence are permitted only if the original U.S. return for such APA year is timely filed no later than 60 days after the APA’s effective date. For an APA year for which the taxpayer reports an adjustment under manner (b) or (c), the computation of any required estimated tax installments for the taxable year will not take into account the APA primary adjustment and any related adjustments (see section 7.01(2)). Further, for such an APA year, the taxpayer will not be subject to the failure to pay penalties under sections 6651 and 6655 of the Code, or the failure to make timely deposit of taxes penalty under section 6656 of the Code, by reason of the APA primary adjustment and any related adjustments.

(2) Conforming Adjustments and Repatriation of Funds. This section 7.01(2) applies only to APA primary adjustments that arise from applying a covered method that addresses the allocation of income, deductions, credits, allowances, basis, or any other item or element affecting taxable income between members of a controlled group. (Such allocation generally would be governed for U.S. tax purposes by section 482 or 367(d) of the Code, as modified by any applicable treaty provision.) Thus, this section 7.01(2) would not apply, for example, to APA primary adjustments attributable to a U.S. permanent establishment of a foreign corporation.

(a) Need for Conforming Adjustments; Payment of Funds. For an APA primary adjustment, a further adjustment is needed to conform the accounts of the affected members of the controlled group (conforming adjustment). In some cases the “conforming adjustment” can be accomplished by a payment of funds between the affected members; such payment is referred to as a repatriation of funds when the affected members are in different countries.

(b) Application of Rev. Proc. 99–32. Rev. Proc. 99–32, 1999–2 C.B. 296, or successor guidance, will govern the repatriation of funds to conform the accounts following an APA primary adjustment, unless the competent authority repatriation specified in section 7.01(2)(c) applies to that APA primary adjustment.

(c) Competent Authority Repatriation. For bilateral and multilateral APAs, APMA will apply the rules and principles set forth in section 4.02 of Rev. Proc. 2015–40 governing competent authority repatriation to determine the terms of any repatriation of funds to conform the accounts following an APA primary adjustment, if competent authority repatriation is agreed to as part of the competent authority resolution underlying the APA. APMA will not include competent authority repatriation as part of the competent authority resolution unless the following two conditions are satisfied: (i) no person (whether or not a “United States taxpayer” within the meaning of Rev. Proc. 99–32 or successor guidance) that will make or receive repatriation payments would be barred from making or receiving repatriation payments under the principles of section 3.01 or 3.03 of Rev. Proc. 99–32 or successor guidance, and (ii) the taxpayer explicitly requests competent authority repatriation in its APA request, or in a supplemental written submission filed with APMA prior to a tentative competent authority resolution being reached.

(d) Implementation in APA. Whether unilateral, bilateral, or multilateral, the APA will specify the terms of conforming adjustments, including, but not limited to, the terms of any repatriation of funds.

(e) Documentation in annual reports. The taxpayer must document how the conforming adjustment for any APA primary adjustment is made, including the relevant amounts, timing, and manner of all payments and deemed payments, and must disclose these facts in the APA annual report for the APA year to which the APA primary adjustment relates (see section 7.02).

(1) An APA annual report must be filed for each APA year. The report must demonstrate the taxpayer’s compliance with the APA terms and conditions, including the amount of any APA primary adjustment for a given APA year. The report must also include all other items required by the APA and should disclose any pending requests to renew, modify, or cancel the APA. In addition, the report must identify and correct any materially false, incorrect, or incomplete information submitted during the APA process that the taxpayer discovers during the APA year.

(2) The taxpayer must file annual reports on or before the later of (i) the fifteenth day of the twelfth month following the close of the APA year, and (ii) 90 days after the effective date of the APA. APMA may agree to alternative filing dates if requested by the taxpayer. For bilateral and multilateral APAs, APMA may require the taxpayer to simultaneously file a copy of the annual report with the applicable foreign competent authority(ies).

(3) The taxpayer must file one original annual report containing a signed original of the “penalties of perjury” declaration, one printed copy of the contents of the original annual report, and one electronic copy of the contents of the original annual report. The taxpayer must file all three copies of the annual report with APMA at the address set forth in the Appendix. The electronic copy of the annual report must follow the rules for media and format of electronic submissions described in the Appendix. Upon request, the taxpayer must file additional printed copies.

(4) The taxpayer will be notified if it is necessary to clarify or complete the information submitted in the annual report. The taxpayer must supply the additional information by the date specified in the notice.

(5) Any request that the taxpayer receives to clarify or complete information in an annual report is not an examination or the commencement of an examination of the taxpayer for purposes of section 7605(b) of the Code or any other provision of the Code.

(6) The taxpayer must amend its annual report within 45 days after becoming aware of any information that is materially incomplete or incorrect or of any incorrect application of the covered method(s) presented in the report.

(7) APMA may, at its discretion, grant an extension to submit the annual report if the taxpayer provides written notification of its request before the due date and explains the circumstances necessitating the extension.

(8) The annual report must contain the following declarations, as applicable:

(9) The taxpayer must sign the declaration(s) according to the instructions in the Appendix regarding perjury statements.

(10) Failure to file an annual report that is timely, complete, and accurate may be grounds for canceling or revoking the APA under section 7.06.

(1) With respect to the covered issue(s), the IRS will not reconsider the covered method(s) but will instead limit the examination of a taxpayer’s income tax return in any given APA year to, and may require that the taxpayer establish, the following: (i) the taxpayer’s compliance with the APA terms and conditions, (ii) the accuracy of the APA annual report’s material representations, and (iii) the correctness of the supporting data and computations used to apply the covered method(s).

(2) The IRS may audit and propose adjustments to the taxpayer’s results as determined under the APA’s covered method(s) without affecting the APA’s validity or applicability. The taxpayer may agree with the proposed adjustments in the same manner as any other adjustment, in which case the IRS will assess any resulting additional tax or refund any resulting overpayment of tax accordingly. If it does not agree with the proposed adjustment, the taxpayer may contest it through available administrative and judicial procedures. The taxpayer must include the audit adjustments as finally determined for the purpose of applying the covered method(s), and must then make any resulting APA primary adjustments.

(1) The taxpayer must maintain books and records that are sufficiently detailed to verify that it has complied with the APA terms and conditions. The taxpayer’s compliance with this paragraph fulfills the record-keeping requirements of sections 6038A and 6038C of the Code as applied to the covered issue(s).

(2) Upon examination of the covered issue(s), IRS may request that the taxpayer submit additional information or translate specific documents within 30 days. The IRS may extend this period for good cause. The fact that a non-U.S. jurisdiction may impose a penalty upon the taxpayer or other person for disclosing any such requested material will not constitute reasonable cause for noncompliance with the IRS’s request.

(1) An APA may be revised by agreement of the parties, and any such revision is effective upon the date of the execution of the revision. APMA may agree to revise an APA in lieu of canceling or revoking it.

(2) If APMA is willing to agree to a revision proposed by the taxpayer to a bilateral or multilateral APA, it will seek the consent of the applicable foreign competent authority(ies) with respect to the revision. If the U.S. and foreign competent authority(ies) agree to such revision, or agree to another revision acceptable to the taxpayer, then APMA will agree with the taxpayer to revise the APA. If the U.S. and foreign competent authority(ies) cannot so agree, the APA remains in force without revision. However, in some cases APMA and the taxpayer may then agree, for U.S. domestic purposes, to (i) revise the APA with respect to one or more APA years, or (ii) cancel the APA as of a specific date.

(1) APMA may revoke an APA due to fraud or malfeasance (as those terms are used in section 7121 of the Code), or disregard (as that term is used in sections 6662(b)(1) and (c) of the Code) by the taxpayer in connection with the APA, including, but not limited to, fraud, malfeasance, or disregard involving (i) material facts in the request or subsequent submissions (including an annual report) or (ii) lack of good faith compliance with the APA terms and conditions.

(2) APMA may cancel an APA due to the taxpayer’s misrepresentation, mistake with respect to a material fact, failure to state a material fact, failure to file a timely annual report, or lack of good faith compliance with the APA terms and conditions.

(3) Unless the parties agree to revise the APA, APMA will cancel an APA in the event of a failure of a critical assumption or a material change in governing case law, statute, regulation, or applicable treaty.

(4) For purposes of this section 7.06(1) and (2), APMA will consider facts material if, for example, knowledge of the facts could reasonably have resulted in an APA with significantly different terms and conditions. With respect to annual reports, APMA will consider facts material if, for example, knowledge of the facts would have resulted in (a) a materially different allocation of income, deductions, or credits than those reported in the annual report, or (b) the failure to meet a critical assumption.

(5) APMA may waive cancellation if the taxpayer can show good faith and reasonable cause and agrees to make all adjustments proposed to correct for the misrepresentation, mistake regarding a material fact, failure to state a material fact, or noncompliance.

(6) If APMA revokes an APA, the revocation relates back to the first day of the first APA year. The IRS may (a) determine deficiencies in income taxes and additions thereto, (b) deny relief under Rev. Proc. 99–32 or successor guidance, (c) allow the taxpayer relief under Rev. Proc. 99–32 or successor guidance, but determine the interest on any account receivable established under section 4.01 of Rev. Proc. 99–32 or successor guidance without mutual agreement or correlative relief, (d) revoke the APA as an “egregious case” under Rev. Rul. 80–231, 1980–2 C.B. 219, to deny the taxpayer a foreign tax credit, and (e) deny a request for relief submitted under Rev. Proc. 2015–40. APMA will seek to coordinate these or any other actions concerning the revocation of a bilateral or multilateral APA with the foreign competent authority(ies).

(7) APMA’s cancellation of an APA generally is effective as of the beginning of the taxable year in which the critical assumption failed or the beginning of the taxable year to which the misrepresentation, mistake regarding a material fact, failure to state a material fact, or noncompliance relates. If, however, the cancellation results from a change in case law, statute, regulation, U.S. tax treaty, or coordination agreement, the cancellation generally is effective at the beginning of the year that contains the effective date of the change in case law, statute, regulation, U.S. tax treaty, or coordination agreement.

(8) For periods following the effective date of the cancellation, the APA has no further force and effect with respect to the IRS and the taxpayer for U.S. income tax purposes. APMA will seek to coordinate any action concerning the cancellation of a bilateral or multilateral APA with the foreign competent authority(ies).

.07 Change in Case Law, Statute, Regulation, or Treaty. If controlling 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 any inconsistent terms and conditions of the APA.

A request to renew a current APA may be made either by filing a complete APA request or by filing an abbreviated APA request with APMA’s permission pursuant to section 3.04(2). An abbreviated APA request might be appropriate if the taxpayer can establish to APMA’s satisfaction that the applicable law, facts and circumstances, economic conditions, proposed covered issue(s) and method(s), and other relevant factors surrounding the current APA are reasonably expected to be substantially the same as those in the proposed renewal APA years.

Taxpayers are encouraged to file a request to renew a current APA at least nine months before the expiration of the final APA year.

An APA, any background information relating to an APA, and the taxpayer’s APA request and any supplementary materials submitted in conjunction with the APA request are return information and are confidential. See sections 6103, 6105, 894, and 7852(d) of the Code.

An APA, any background information relating to an APA, an APA request, and any supplementary materials submitted in conjunction with the APA request are not “written determinations” and are not open to public inspection. See section 6110 of the Code.

The Secretary must prepare an annual report for public disclosure. See section 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, in a form that does not identify taxpayers, their trade secrets, or proprietary or confidential business or financial information.

APAs, annual reports, and factual information contained in APA requests are subject to exchange of information under U.S. tax treaties or U.S. income 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 in which the exchange of information would be discretionary, information may be exchanged to the extent consistent with principled, effective, and efficient tax administration and the practices of the relevant foreign competent authority(ies), including where relevant the existence and application by the foreign competent authority(ies) of rules similar to those described in sections 6.04 and 6.05.

This revenue procedure will apply to all APA requests filed under this revenue procedure. An APA request filed after August 31, 2015 may instead be filed under Rev. Proc. 2006–9 only if a substantially complete APA request is filed under that revenue procedure no later than December 29, 2015. For purposes of this section, the 120-day allowance in section 4.07(2) of Rev. Proc. 2006–9 shall not apply in determining the date on which a substantially complete APA request is considered filed under Rev. Proc. 2006–9. APA requests filed on or before December 29, 2015 should clearly state under which revenue procedure they are filed.

Rev. Proc. 2006–9 is retroactively amended so that rollbacks (within the meaning of section 8 of Rev. Proc. 2006–9) may be implemented and given legal effect in an APA (within the meaning of Rev. Proc. 2006–9 as modified by Rev. Proc. 2008–31, 2008–1 C.B. 1133). This retroactive amendment applies to any APA governed by Rev. Proc. 2006–9 that includes such a rollback.

An APA request must include a request letter followed by the exhibits presented in the order as listed in this section. This section contains cross-references to parts of the request letter (e.g., PART 2.1) and to particular exhibits (e.g., Exhibit 3). The required exhibits may be followed by any other exhibits the taxpayer believes are necessary or useful to facilitate APMA’s review of its APA request. An original of the request letter, signed and dated by the taxpayer or the taxpayer’s authorized representative, must be included in one of the three required printed copies of the APA request (see section 2 of this Appendix). If the taxpayer’s authorized representative signs the original of the request letter, the taxpayer and authorized representative must satisfy the relevant instructions on signatures in Rev. Proc. 2005–1, 2005–1 I.R.B. 1 or successor guidance. The request letter and the exhibits must contain or respond to the required statements, descriptions, explanations, and other requested information. If the taxpayer believes a required item is not applicable to its APA request, this must be shown as “N/A” or “Not Applicable” (as opposed to being left blank). If the taxpayer maintains that it is unable to provide the required item or seeks an exception to the filing requirement, it must provide a statement of its reasons for not providing the item or its basis for the exception it seeks (as opposed to leaving the entry blank). APMA may permit exceptions to the filing requirements in this Appendix on a case-by-case basis.

The request letter must be presented according to the instructions and structure set forth below, and must include a table of contents giving the page on which each part and subpart begins.

The APA request must also include the following exhibits after the request letter, separated and ordered as indicated. Additional exhibits may be provided as needed. The taxpayer should be prepared to translate, upon request, material in exhibits that is presented in a foreign language. While all of the exhibits must be included as part of a complete APA request, certain exhibits are required to be produced in both printed and electronic forms; other exhibits need be produced only in electronic form (see section 2 of this Appendix). The description of Exhibit 7, the “penalties of perjury” declaration, is written so as to accommodate such a declaration accompanying both an APA request and a supplemental submission.

The taxpayer must provide copies of its APA request as follows: one (1) original, bound printed submission containing signed originals of the request letter and “penalties of perjury” declaration and, as applicable, of the authorization forms, consent to disclosure, and e-mail authorization, together with copies of all other required printed information, two (2), as applicable, original signed consents to extend the period of limitations for assessment of tax that are required under section 3.03(3) of the revenue procedure, placed in a separate, clearly labeled envelope, two (2) bound photocopies of the contents of the original printed submission, and three (3) electronic copies of the contents of the original printed submission, together with the required electronic-only attachments, on CD or flash drive or similar acceptable electronic storage medium. All of these originals and copies of the APA request must be filed with APMA at the address set forth in section 4 of this Appendix. Upon request, the taxpayer must provide additional electronic copies and/or bound photocopies of the contents of the original printed submission.

Each printed copy of the APA request must contain (i) the request letter, and (ii) Exhibits 1 through 15. The exhibits must be tabbed and ordered as presented in section 1 of this Appendix. If an exhibit is not applicable to the APA request, a statement to this effect must be included in the relevant tabbed section. The original signed consents to extend the period of limitations for assessment of tax should be individually stapled as needed, with all such consents bound together with a binder clip.

(1) The electronic copies of the APA request must contain (i) the request letter, and (ii) Exhibits 1 through 22 and any additional exhibits. The exhibits should consist of separate electronic files named in a manner that corresponds to the exhibit numbers and descriptive captions presented in section 1 of this Appendix. If an exhibit is not applicable to the APA request, a statement to this effect must be included in the electronic file.

(2) The electronic copies of the APA request must include the request letter in both Microsoft Word (“Word”) and in Adobe Portable Document (“.pdf”) formats. Exhibit 15 must be provided in Word format. All other exhibits readily available in Word or Microsoft Excel (“Excel”) format should be provided in those forms as applicable, instead of, or in addition to, .pdf format.

(3) All electronic documents provided in conjunction with an APA request and throughout the APA process must be searchable, unless the file is not readily available in searchable form (e.g., a photocopy of an intercompany agreement).

(4) All documents presented in Excel format must be provided with formulas and internal cell references intact.

(5) For some APA requests (especially complex APA requests), the taxpayer may choose to additionally provide a bookmarked .pdf file that includes the entire contents of the APA request. In some cases, APMA may require that the taxpayer provide such a file.

User fees must be paid through the Pay.gov website. Instructions on making user fee payments are available on the APMA website. APMA will not consider an APA request complete, and will hold the APA request in suspense, until the correct user fee is paid through the Pay.gov website.

Subject to the provisions of this section, a separate user fee is required for each APA request submitted by each controlled group. For this purpose, a multilateral request is considered to be a set of bilateral requests for each country involved.

(1) In General. The user fee amounts are as follows:

(a) $60,000 for each APA request, except as otherwise specified in this section;

(b) $35,000 for each request to renew an APA that does not propose a substantial expansion of the APA’s scope or a substantial change in the covered method(s) (other than updating of the results under the covered method(s)), provided that the pertinent facts remain substantially the same, unless such renewal is eligible for the small case APA user fee;

(c) $30,000 for each APA request eligible for the small case APA user fee; and

(d) $12,500 for each amendment to a current unilateral, bilateral, or multilateral APA.

(2) Multiple Requests. If multiple APA requests are filed by the same controlled group within a sixty-day period, the maximum total fee charged will be $60,000, plus $30,000 for each foreign competent authority involved (if any) beyond the first two.

An APA request is eligible for the small case APA user fee only if all of the following apply: (i) the controlled group has sales revenues, within the meaning of Treas. Reg. § 1.482–5(d)(1), of less than $500 million in each of its most recent three back years, (ii) the aggregate value of the proposed covered issue(s) is not expected to exceed $50 million in any given year of the proposed APA years, (iii) the aggregate value of any transfer of rights in, or rights to use, intangibles is not expected to exceed $10 million in any given year of the proposed APA years, and (iv) no proposed covered issue involves intangible property arising from, or otherwise related to, an intangible development arrangement.

For purposes of section 3.03 of this Appendix, an amendment includes coverage of additional issues, material changes to a proposed covered method, and any other material additions or changes to the terms and conditions of the APA. APMA will not impose this amendment fee if APMA or a foreign competent authority initiates the request to amend the proposed covered issue(s) or method(s).

Temporary regulations § 1.6081–8T in the Rules and Regulations section of this issue of the Internal Revenue Bulletin will amend 26 CFR part 1 by removing the automatic extension of time to file information returns on forms in the W–2 series (except Form W–2G), effective for filing season 2017. The temporary regulations will allow only a single 30-day non-automatic extension of time to file these information returns that the IRS may, in its discretion, grant if the IRS determines that an extension of time to file is warranted based on the filer’s or transmitter’s explanation attached to a Form 8809, “Application for Extension of Time to File Information Returns,” signed under penalties of perjury. The temporary regulations will also add Forms 3921, 3922, 1094–C, and forms in the 1097 series to the list of information returns covered by § 1.6081–8T(a) and clarify that Forms 1095–B and 1095–C, but not Form 1095–A, are covered by the rules in § 1.6081–8T(a).

These proposed regulations would remove the automatic 30-day extension of time to file the information returns listed in § 1.6081–8T(a) and allow only a single non-automatic extension of time to file all information returns listed in § 1.6081–8T.

The IRS anticipates that, as described in the temporary regulations with respect to forms in the W–2 series (other than Forms W–2G), under the proposed regulations, the IRS will grant the non-automatic 30-day extension of time to file information returns listed in § 1.6081–8(a) only in limited cases where the filer’s or transmitter’s explanation demonstrates that an extension of time to file is needed as a result of extraordinary circumstances or catastrophe, such as a natural disaster or fire destroying the books and records a filer needs for filing the information returns.

Treasury and the IRS request comments on the appropriate timing of the removal of the automatic 30-day extension of time to file information returns covered by these proposed regulations, such as Form 1042–S, including whether special transitional considerations should be given for any category or categories of forms or filers relative to other forms or filers. Although these regulations are proposed to be effective for requests for extensions of time to file information returns due on or after January 1 of the calendar year immediately following the date of publication of a Treasury decision adopting these rules as final regulations in the Federal Register, removal of the automatic 30-day extension of time to file will not apply to information returns (other than forms in the W–2 series except Forms W–2G) due any earlier than January 1, 2018. Please follow the instructions in the “Comments and Requests for Public Hearing” portion of this preamble.

The temporary regulations affect taxpayers who are required to file information returns on forms in the W–2 series (except Forms W–2G) and need an extension of time to file. These proposed regulations also affect taxpayers who need an extension of time to file any of the information returns listed in § 1.6081–8T(a).

The substance of the temporary regulations is incorporated in these proposed regulations. The preamble to the temporary regulations explains these amendments. These proposed regulations would also expand the rules in § 1.6081–8T(b) to the other information returns, which are listed in § 1.6081–8T(a).

The regulations, as proposed, would apply to requests for extensions of time to file information returns due on or after January 1 of the calendar year immediately following the date of publication of a Treasury decision adopting these rules as final regulations in the Federal Register.

Certain IRS regulations, including this one, are exempt from the requirements of Executive Order 12866, as supplemented and reaffirmed by Executive Order 13563. 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) does not apply to these proposed regulations.

Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby certified that this proposed rule, if adopted, would not have a significant economic impact on a substantial number of small entities. As stated in this preamble, the proposed regulations would remove the automatic 30-day extension of time to file certain information returns (Form W–2G, 1042–S, 1094–C, 1095–B, 1095–C, 1097 series, 1098 series, 1099 series, 3921, 3922, 5498 series, and 8027). Under the proposed regulations, filers and transmitters would be permitted to request only one 30-day extension of time to file these information returns by timely submitting a Form 8809, including an explanation of the reasons for requesting the extension and signed under penalty of perjury. Although the proposed regulation may potentially affect a substantial number of small entities, the economic impact on these entities is not expected to be significant because filers who are unable to timely file as a result of extraordinary circumstances or catastrophe may continue to obtain a 30-day extension through the Form 8809 process, which takes approximately 20 minutes to prepare and submit to the IRS. Pursuant to section 7805(f) of the Internal Revenue Code, this notice of proposed rulemaking has been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Before these proposed regulations are adopted as final regulations, consideration will be given to any comments that are submitted timely to the IRS as prescribed in the preamble under the “Addresses” heading. Treasury and the IRS request comments on all aspects of the proposed regulations. All comments submitted will be made available at www.regulations.gov or upon request. A public hearing will be scheduled if requested in writing by any person that timely submits written comments. If a public hearing is scheduled, notice of the date, time, and place for the public hearing will be published in the Federal Register.

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

Paragraph 1. The authority citation for part 1 continues to read as follows:

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

Par. 2. Section 1.6081–8 is revised to read as follows: