Internal Revenue Bulletin 2004-29 (PDF rendition): IRS Announcements

us-irs-announcements-irb-2004-29-pdfInternal Revenue Bulletin 2004-29 (PDF rendition): IRS AnnouncementsGuidance

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing. Whole bulletin rendition: numbered items are identified below; other legal material and publisher context remain included. This is not a new standalone advance release.

Bulletin No. 200
4-29
July 19, 2004
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
Notice 2004–46, page 46.
This notice requests comments on whether debit cards may
be used to provide qualified transportation fringes described
under section 132(f) of the Code.
Notice 200
4–47, page 48.
This notic
e relieves health insurance providers from preparing
IRS Form 10
99–H, “Health Coverage Tax Credit (HCTC) Ad-
vance Paym
ents,” unless they affirmatively retain that obliga-
tion. A con
tractor of the IRS will prepare the form and file it
with the S
ervice and furnish copies to taxpayers.
EMPLOYEE PLANS
Announcement 2004–58, page 66.
Relative value regulations; effective dates; notices; qual-
ified joint and survivor annuities.This announcement post-
pones, in certain circumstances, the effective date of the rela-
tive value regulations. In addition, it responds to questions that
have been raised in connection with the regulations. Finally, the
announcement states the intention of the Treasury and the Ser-
vice to clarify the interaction between the QJSA requirements
and the requirements of section 417(e)(3).
EXCISE TAX
Announcement 2004–61, page 67.
This announcement publishes an advance notice of proposed
rulemaking requesting comments and information about cur-
rent technologies, services, and methods for transmitting voice
and data communications for purposes of section 4251 of the
Code.
TAX CONVENTIONS
Announcement 2004–60, page 43.
Guidance on effective dates under Japan treaty.Acopy
of the news release issued by the Director, International (U.S.
Competent Authority), on June 23, 2004, is set forth.
ADMINISTRATIVE
Notice 2004–47, page 48.
This notice relieves health insurance providers from preparing
IRS Form 1099–H, “Health Coverage Tax Credit (HCTC) Ad-
vance Payments,” unless they affirmatively retain that obliga-
tion. A contractor of the IRS will prepare the form and file it
with the Service and furnish copies to taxpayers.
Rev. Proc. 2004–39, page 49.
This document sets forth procedures for determining whether
a qualified residential rental project is in compliance with the
applicable set-aside requirements contained in section 142(d)
of the Code during the qualified project period (as defined in
section 142(d)(2)(A)).
Rev. Proc. 2004–40, page 50.
This procedure explains the manner in which taxpayers may
request an advance pricing agreement (APA) from the APA Pro-
gram within the Office of the Associate Chief Counsel (Interna-
tional), the manner in which such a request will be processed
by the APA Program, and the effect and administration of APAs.
Rev. Proc. 96–53 and Notice 98–65 superseded.
Actions Relating to Court Decisions is on the page following the Introduction.
Fi
nding Lists begin on page ii.

The IRS Mission
Provide America’s taxpayers top quality service by helping
them understand and meet their tax responsibilities and by
applying the tax law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod-
ify, or amend any of those previously published in the Bulletin.
All published rulings apply retroactively unless otherwise indi-
cated. Procedures relating solely to matters of internal man-
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—19
86 Code.
This part i
ncludes rulings and decisions based on provisions of
the Intern
al Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Sec-
retary (Enforcement).
Part IV
.—Items of General Interest.
This par
t includes notices of proposed rulemakings, disbar-
ment an
d suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The c
ontents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402.
July 19, 20042004–29 I.R.B.

Actions Relating to Decisions of the Tax Court
It is the policy of the Internal Rev-
enue Service to announce at an early date
whether it will follow the holdings in cer-
tain cases. An Action on Decision is the
document making such an announcement.
An Action on Decision will be issued at
the discretion of the Service only on unap-
pealed issues decided adverse to the gov-
ernment. Generally, an Action on Decision
is issued where its guidance would be help-
ful to Service personnel working with the
same or similar issues. Unlike a Treasury
Regulation or a Revenue Ruling, an Action
on Decision is not an affirmative statement
of Service position. It is not intended to
serve as public guidance and may not be
cited as precedent.
Actions on Decisions shall be relied
upon within the Service only as conclu-
sions applying the law to the facts in the
particular case at the time the Action on
Decision was issued. Caution should be
exercised in extending the recommenda-
tion of the Action on Decision to similar
cases where the facts are different. More-
over, the recommendation in the Action on
Decision may be superseded by new legis-
lation, regulations, rulings, cases, or Ac-
tions on Decisions.
Prior to 1991, the Service published
acquiescence or nonacquiescence only in
certain regular Tax Court opinions. The
Service has expanded its acquiescence
program to include other civil tax cases
where guidance is determined to be help-
ful. Accordingly, the Service now may
acquiesce or nonacquiesce in the holdings
of memorandum Tax Court opinions, as
well as those of the United States District
Courts, Claims Court, and Circuit Courts
of Appeal. Regardless of the court decid-
ing the case, the recommendation of any
Action on Decision will be published in
the Internal Revenue Bulletin.
The recommendation in every Action
on Decision will be summarized as ac-
quiescence, acquiescence in result only,
or nonacquiescence. Both “acquiescence”
and “acquiescence in result only” mean
that the Service accepts the holding of
the court in a case and that the Service
will follow it in disposing of cases with
the same controlling facts. However, “ac-
quiescence” indicates neither approval
nor disapproval of the reasons assigned
by the court for its conclusions; whereas,
“acquiescence in result only” indicates
disagreement or concern with some or all
of those reasons. “Nonacquiescence” sig-
nifies that, although no further review was
sought, the Service does not agree with
the holding of the court and, generally,
will not follow the decision in disposing
of cases involving other taxpayers. In
reference to an opinion of a circuit court
of appeals, a “nonacquiescence” indicates
that the Service willnot follow the hold-
ing on a nationwide basis. However, the
Service will recognize the precedential
impact of the opinion on cases arising
within the venue of the deciding circuit.
The Actions on Decisions published in
the weekly Internal Revenue Bulletin are
consolidated semiannually and appear in
the first Bulletin for July and the Cumula-
tive Bulletin for the first half of the year. A
semiannual consolidation also appears in
the first Bulletin for the following January
and in the Cumulative Bulletin for the last
half of the year.
The Commissioner ACQUIESCES in
result only in the following decision:
Tax Analysts v. Internal Revenue
Service,
1
215 F. Supp.2d 192 (D.D.C. 2002),
reversed,
350 F.3d 100 (D.C. Cir. 2003)
1
Acquiescence in result only relating to whether letter rulings issued by theService that deny or revoke an organization’s tax exempt status are subject to public inspection under I.R.C. section
6110.
2004–29 I.R.B.July 19, 2004

Part I. Rulings and Decisions Under the Internal Revenue Code
of 1986
Section 35.—Health
Insurance Costs of Eligible
Individuals
Health insurance providers need not prepare IRS
Form 1099–H, “Health Coverage Tax Credit (HCTC)
Advance Payments”, unless they affirmatively retain
that obligation. See Notice 2004-47, page 48.
Section 482.—Allocation
of Income and Deductions
Among Taxpayers
26 CFR 1.482: Allocations of income and deductions
among taxpayers.
A revenue procedure describes the manner in
which taxpayers may request an advance pricing
agreement (“APA”) fromthe APA Program within
the Office of the Associate Chief Counsel (Interna-
tional), the manner in which such a request will be
processed by the APA Program, and the effect and
administration of APAs. See Rev. Proc. 2004-40,
page 50.
Section 7527.—Advance
Payment of Credit for
Health Insurance Costs of
Eligible Individuals
Health insurance providers need not prepare IRS
Form 1099–H, “Health Coverage Tax Credit (HCTC)
Advance Payments”, unless they affirmatively retain
that obligation. See Notice 2004-47, page 48.
2004–29 I.R.B.42July 19, 2004

Part II. Treaties and Tax Legislation
Subpart A.—Tax Conventions and Other Related Items
Guidance on Effective Dates
Under Japan Treaty
Announcement 2004–60
Following is a copy of the News Re-
lease issued by the Director, International
(U.S. Competent Authority), on June 23,
2004 (IR–2004–82).
Guidance Relating to July 1st
Application of New U.S.-Japan Income
Tax Treaty
IR–2004–82, June 23, 2004
WASHINGTON — Today, the Inter-
nal Revenue Service and the Japanese
National Tax Agency respectively have
issued guidance regarding the commence-
ment of application of the new income tax
treaty between the United States and Japan
in each country.
The United States–Japan tax treaty, which
was signed on November 6, 2003, entered
into force on March 30, 2004. Pursuant
to Article 30, the treaty generally is ap-
plicable with respect to withholding taxes
on July 1, 2004. In the case of U.S. with-
holding taxes, the treaty is applicable for
amountspaidorcreditedonorafterJuly
1st. In the case of Japanese withholding
taxes, the treaty is applicable for amounts
taxable on or after July 1st.
The guidance issued today by the IRS pro-
vides illustrative examples regarding the
application of the new treaty in the case of
U.S. withholding taxes on dividends, in-
terest, and royalties. Incorporated in the
guidance is an attachment prepared by the
Japanese National Tax Agency providing
similar illustrative examples regarding the
application of the new treaty in the case of
Japanese withholding taxes on dividends,
interest, and royalties. The Japanese Na-
tional Tax Agency also has issued guid-
ance providing these illustrative examples
and incorporating the U.S. illustrative ex-
amples as an attachment.
The text of the Guidance is as follows:
Guidance regarding the Commencement of Application
of the New Tax Convention between the United States and Japan
June 23, 2004
Internal Revenue Service
In the United States, the provision with respect to taxes withheld at source in paragraph 2 of Article 30 of the Convention between
the Government of the United States of America and the Government of Japan for the Avoidance of Double Taxation and the
Prevention of Fiscal Evasion with respect to Taxes on Income (“the Convention”), entered into force on March 30, 2004, for
amounts (such as dividends, interest, and royalties) to be paid before, on or after July 1, 2004, provides for the commencement of
application of the Conventionas indicated in Attachment 1.
In Japan, the commencement of application is as indicated in Attachment 2, which was prepared by the Japanese National Tax
Agency.
N
ote
Paragraph 2 of Article 30 of the Convention states:
2. This Convention shall be applicable:
(a) in Japan
(i) with respect to taxes withheld at source:
(aa) for amounts taxable on or after July 1 of the calendar year in which the Convention
enters into force, if the Convention enters into force before April 1 of a calendar year; or
(bb)...
(ii) ...;and
(b) in the United States:
(i) with respect to taxes withheld at source:
(aa)foramountspaidorcreditedonorafter July 1 of the calendar year in which the
Convention enters into force, if the Convention enters into force before April 1 of
a calendar year; or
(bb)...
(ii) ....
July 19, 2004432004–29 I.R.B.

Attachment 1
Commencement of Application of the New U.S.-Japan Income Tax Convention in the United States
(With respect to Taxes Withheld at Source regarding Investment Income)
Internal Revenue Service
The Convention shall be applicable with respect to taxes withheld at source for amounts paid or credited on or after July 1,
2004. Therefore, the Convention is applicable to the amount of investment income (dividends, interest, and royalties) paid or,
where amounts are credited, credited on or after that date.
Specifically, the date on which an amount is paid or credited for the purposes of the Convention is as follows:
DIVIDENDS
In the case of all dividends (including interim dividends),amountsarepaidorcreditedonthedateonwhichtheyare
paid or, where amounts are credited, on the date on which they are credited.
Interest and Royalties
In the case of interest or royalties, amounts are paid or credited on the date on which they are paid or, where amounts
are credited, on the date on which they are credited.When an amount is paid (for example in the case where an
amount required to be paid by contract on a specified dateactually is paid on a later date) shall be determined on the
basis of United States tax law.
Examples:
D
ividends
1. U.S. Company A has a fiscal year that ends on March 31, 2004. At a shareholders’ meeting on June 25, 2004, Company A
declares dividends. Company A pays the dividends on July 5, 2004.
These dividends are paid or credited on July 5, 2004.
I
nterest
2. U.S. Company B has an obligation to pay to a financial institution interest on a debt-claim. The interest is payable in quarterly
installments due at the end of each quarter. In accordance with the terms of the debt-claim, the interest is paid on June 30, 2004.
This interest is paid or credited on June 30, 2004.
3. U.S. Company C has an obligation to pay to a financial institution interest on a debt-claim. The interest is payable in
installments three times a year, due at the end of April, August, and December. In accordance with the terms of the debt-claim, the
interest is paid on August 31, 2004.
This interest is paid or credited on August 31, 2004.
R
oyalties
4. U.S. Company D has an obligation to payroyalties to Japanese Company E. Pursuant to a license agreement, the royalties
are determined based on sales over six-month periods ending June 30 and December 31, and are payable within 15 days of the end
of each six-month period. In accordance with the termsof the license, royaltiesare paid on July 5, 2004.
These royalties are paid orcreditedonJuly5,2004.
5. U.S.CompanyFhasanobligationtopayroyalties to Japanese Company G. Pursuant toa license agreement, the royalties are
determined based on sales over six-month periods ending March 31 and September 30 and are payable within 15 days of the end
of each six-month period. In accordance with the terms ofthe license, royalties are paid on October 5, 2004.
These royalties are paid or credited on October 5, 2004.
2004–29 I.R.B.44July 19, 2004

(Unofficial Translation)
Attachment 2
Commencement of Application of the New Japan-U.S. Income Tax Convention in Japan
(With respect to Taxes Withheld at Source regarding Investment Income)
National Tax Agency
The Convention shall be applicable with respect to taxes withheld at source for amounts taxable on or after July 1, 2004.
Therefore, the Convention is applicable to the amount of investment income (dividends, interest, and royalties) “due to be
received” on or after that date.
Specifically, the date on which an amount is due to be received for purposes of the Convention is as follows:
DIVIDENDS
The date of the shareholders’ meeting where dividends aredeclared. (In Japan a company’s ordinary shareholders’
meeting is held within three months after the end of the fiscal year in accordance with the Commercial Code.)
As for interim dividends, the date of the resolution by the board of directors. If an effective date is specified
regarding the resolution, that effective date (which must be a date within three months after the date determined in
the company’s articles of incorporation).
Interest and Royalties
If the date of payment is stipulated in a contract, that date; if not, the date on whichthe interest or royalties
are actually paid.
Examples:
D
ividends
1. Japanese Company A has a fiscal year that ends on March 31, 2004. At a shareholders’ meeting on June 25, 2004, Company
A declares dividends. Company A pays the dividends on July 5, 2004.
These dividends are taxable on June 25, 2004.
I
nterest
2. Japanese Company B has an obligation to pay to a financial institution interest on a debt-claim. The interest is payable
in quarterly installments due at the end of each quarter. In accordance with the terms of the debt-claim, the interest is paid on
June 30, 2004.
This interest is taxable on June 30, 2004.
3. Japanese Company C has an obligation to pay to a financial institution interest on a debt-claim. The interest is payable in
installments three times a year, due at the end of April, August, and December. In accordance with the terms of the debt-claim, the
interest is paid on August 31, 2004.
This interest is taxable on August 31, 2004.
R
oyalties
4. Japanese Company D has an obligation to pay royalties to U.S. Company E. Pursuant to a license agreement, the royalties
are determined based on sales over six-month periods ending June 30 and December 31, and are payable within 15 days of the end
of each six-month period. In accordance with the termsof the license, royaltiesare paid on July 5, 2004.
These royalties are taxable on July 5, 2004.
5. Japanese Company F has an obligation to pay royalties to U.S. Company G. Pursuant to a license agreement, the royalties are
determined based on sales over six-month periods ending March 31 and September 30 and are payable within 15 days of the end
of each six-month period. In accordance with the terms ofthe license, royalties are paid on October 5, 2004.
These royalties are taxable on October 5, 2004.
July 19, 2004452004–29 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
Request for Comments on the
Use of Debit Cards to Provide
Qualified Transportation
Fringes Under Section 132(f)
Notice 2004–46
PURPOSE
Employers and others have asked for
clarification of their ability to use debit
cards to provide their employees with
qualified transportation fringes described
under § 132(f). Qualified transporta-
tion fringes include transportation in a
commuter highway vehicle (vanpooling),
any transit pass, and qualified parking
(collectively referred to herein as “transit
benefits”) meeting the requirements of
§ 132(f). Qualified transportation fringes
are excluded from the employee’s gross
income and from wages for purposes of
employment tax.
A qualified transportation fringe in-
cludes cash reimbursement for trans-
portation in a commuter highway vehicle
and qualified parking. However, under
§ 132(f)(3), a qualified transportation
fringe does not include cash reimburse-
ment for a transit pass if a voucher or
similar item that may be exchanged only
for a transit pass is readily available for
direct distribution by the employer to
the employer’s employees. Thus, in
circumstances wherevouchers are read-
ily available, an employer must provide
vouchers to its employees in order for a
transit pass benefit to be excludable from
gross income and wages under § 132(f).
If a qualified transportation fringe can be
provided through cash reimbursement,
the employer must use abona fidereim-
bursement arrangement. To meet the re-
quirements for such an arrangement, first
the payment must be a reimbursement,
and not an advance. See § 1.132–9(b)
Q/A–16(a). Second, the employee must
substantiate to the employer that an ex-
pense for a transit benefit was actually
incurred. See § 1.132–9(b) Q/A–16(c).
There are monthly limits on the dollar
value of qualified transportation fringe
benefits that an employer may provide to
an employee and exclude from the em-
ployee’s income and wages. The monthly
limits vary depending upon the type of
benefit, and are currently $195 per month
for qualified parking and $100 per month
for transit passes.
Treasury and the Service are seeking in-
formation about how debit card technol-
ogy works. The operation of the tech-
nology is directly relevant to answering a
number of questions that arise when ap-
plying the qualified transportation fringe
benefit regulations. For example, should
a debit card be considered a voucher that
may be exchanged exclusively for a tran-
sit pass? If so, should employers be barred
from using cash reimbursement to provide
transit passes to their employees as quali-
fied transportation fringe benefits, even if
vouchers are not otherwise readily avail-
able? If a debit card can be used to pur-
chase more than one kind of fringe benefit,
does an employer provide an advance or
a reimbursement when it provides a debit
card for use in purchasing various trans-
portation benefits? Can a debit card sys-
tem be established to keep amounts des-
ignated for different types of transit ben-
efits separate to ensure that the statutory
monthly limits applicable to the different
types of benefits are not exceeded?
The Service and Treasury request com-
ments on the issues described below, and
any other comments on the use of a debit
card to provide transit benefits, from all
persons affected by this issue, including
employers, employees, transit operators,
voucher providers, debit card providers,
and third party administrators.
BACKGROUND
Section 132(a)(5) provides that any
fringe benefit that is a qualified trans-
portation fringe is excluded from gross
income.
Section 132(f)(1) provides that the term
“qualified transportation fringe” means (1)
transportation in a commuter highway ve-
hicle between home and work, (2) any
transit pass, and (3) qualified parking. The
amount of the fringe benefit which may be
excluded from gross income and wages is
currently limited to $100 per month for the
aggregate of transportation in a commuter
highway vehicle and transit passes, and
$195 per month for qualified parking. See
§ 132(f)(2); Rev. Proc. 2003–85, 2003–49
I.R.B. 1184.
Section 132(f)(5)(A) provides that a
transit pass means any pass, token, fare-
card, voucher or similar item entitling a
person to transportation (or transportation
at a reduced price) if such transportation is
on mass transit facilities or is provided by
any person in the business of transporting
persons for compensation or hire in a com-
muter highway vehicle. See § 132(f)(5)(B)
for the definition of a commuter highway
vehicle.
Section 132(f)(3) provides that a qual-
ified transportation fringe includes a cash
reimbursement by an employer to an em-
ployee for transit benefits. However, a
qualified transportation fringe includes
cash reimbursement by an employer to
an employee for a transit pass only if a
voucher or similar item which may be
exchanged only for a transit pass is not
readily available for direct distribution by
the employer to the employee.
Income Tax Regulations § 1.132–9(b)
Q/A–16(b)(2) provides that a transit sys-
tem voucher is an instrument that may be
purchased by employers from a voucher
provider that is accepted by one or more
mass transit operators in an area as fare
media or in exchange for fare media. Un-
der § 1.132–9(b) Q/A–16(b)(3), a voucher
provider is any person in the trade or busi-
ness of selling transit system vouchers to
employers, or any transit system operator
that sells vouchers to employers for the
purpose of direct distribution to employ-
ees.
Section 1.132–9(b) Q/A–16(b)(4) pro-
vides that a voucher or similar item is
readily available for direct distribution by
an employer to employees if and only if
the employer can obtain it from a voucher
provider who does not impose fare media
charges greater than 1 percent of the aver-
age annual value of the voucher for a tran-
sit system, or does not impose other restric-
tions causing the voucher not to be consid-
ered readily available. See § 1.132–9(b)
Q/A–16(b)(5) and (b)(6).
Section 1.132–9(b) Q/A–16(a) pro-
vides that the term qualified transporta-
tion fringe includes cash reimbursement
for transportation in a commuter high-
way vehicle, transit passes (if permitted),
2004–29 I.R.B.46July 19, 2004

and qualified parking, provided the re-
imbursement is made under abona fide
reimbursement arrangement. A payment
made before the date an expense has been
incurred or paid is not a reimbursement,
even if the employee certifies in advance
that the employee will incur expenses at
some future date. Under § 1.132–9(b)
Q/A–16(c), abona fidereimbursement ar-
rangement is an arrangement under which
the employee must substantiate to the em-
ployer within a reasonable period of time
that an expense for transit benefits has
been paid.
Section 1.132–9(b) Q/A–18 provides
that no substantiation is required if the
employer distributes a transit pass (includ-
ing a voucher) in-kind to the employer’s
employees.
In Rev. Rul. 2003–43, 2003–1 C.B.
935, the Service held that under certain cir-
cumstances employer-provided expense
reimbursements may be made through a
debit or credit card, or certain other elec-
tronic media, and be excludable from gross
income under § 105. The use of a debit
card, by itself, generally was not found
to be sufficient to meet the substantiation
requirement under § 105(b). Instead, in
addition to requiring that the Merchant
Codes for the debit cards be restricted,
the employee is required to substanti-
ate the expense incurred, albeit after the
initial transaction. In addition, under
certain circumstancesthe substantiation
requirement can be met without additional
substantiation. First, a payment made
at a doctor’s office in the amount of a
copayment is deemed to satisfy the sub-
stantiation requirement. Second, recurring
expenses that have been previously ac-
tually substantiated are deemed to meet
the substantiation requirement. Third,
real-time verification at the point of sale is
deemed to meet the substantiation require-
ment. Other than copayments, recurring
expenses, and real-time substantiation, the
revenue ruling requires that expenses paid
through a debit card be treated as condi-
tional pending confirmation of the charge.
ISSUES ON WHICH COMMENTS ARE
SPECIFICALLY REQUESTED
1. Given existing technology, un-
der what circumstances, if any, should a
debit card be considered the equivalent
of a voucher or similar item described
in § 132(f)(5)(A)? We understand that a
debit card may be restricted for use only at
merchants with certain Merchant Codes or
specific merchant card terminals. Would
a rule that required use of a debit card
to be limited to merchants with certain
Merchant Codes or merchant card termi-
nals be administrable? Would such a rule
provide adequate controls consistent with
the statutory objective of ensuring that
amounts are only used to provide tran-
sit pass benefits within the meaning of
§ 132(f)(5)(A)? For example, under what
circumstances could a debit card with
Merchant Code restrictions be used to pur-
chase something other than a transit pass
within the meaning of § 132(f)(5)(A)? In
addition, under what circumstances should
a debit card be restricted for use only at a
particular merchant card terminal in order
to be considered a voucher or similar item
for purposes of § 132(f)(3)?
2. If a debit card is a voucher or simi-
lar item, should the availability of the debit
card in an area in which a voucher or sim-
ilar item is otherwise not readily available
preclude cash reimbursement for a tran-
sit pass in that area? For example, in
Metropolitan Area A, a voucher or sim-
ilar item is not considered readily avail-
able because fare media charges imposed
by voucher providers in A exceed 1 per-
cent of the average annual value of vouch-
ers for a transit system. However, the
charges associated with using a debit card
in A that is the equivalent of a voucher or
similar item are less than 1 percent of the
annual value of the debit card for the transit
system. Should the debit card be consid-
ered a readily available voucher in A for
purposes of § 132(f)(3), and thus preclude
cash reimbursement for a transit pass in A?
3. Is it appropriate to allow the use of
recurring transaction substantiation such
as that described in Rev. Rul. 2003–43
to meet the requirement under § 132(f)(3)
that a transit pass benefit be provided
through distribution of a voucher or sim-
ilar item instead of cash reimbursement?
For example, in circumstances in which
fare media may be purchased from a mer-
chant who is not in the trade or business
of providing transportation services, and
thus does not have a Merchant Category
Code indicating that the merchant sells
only transit passes,e.g., a convenience
store, under what circumstances, if any,
should recurring transaction substantiation
be deemed to satisfy the requirement that
a voucher or similar item be distributed?
4. Under what circumstances should an
expense related to transportation in a com-
muter highway vehicle, a transit pass (as-
suming cash reimbursement is permitted),
or qualified parking paid with a debit card
be considered to be abona fidereimburse-
ment (i.e., not an advance), and considered
adequately substantiated within the mean-
ing of § 1.132–9(b) Q/A–16(c)?
5. Under what circumstances, if any,
couldadebitcardbeusedtoprovide
multiple qualified transportation fringes
(e.g., qualified parking and a transit pass),
and adequately ensure that the respec-
tive applicable statutory monthly limits
for qualified transportation fringes are
not exceeded? Given existing technol-
ogy (such as multiple purses on a debit
card, and Merchant Code technology),
is it possible, and, if so, how is it pos-
sible, to ensure that amounts designated
for a particular benefit are used for the
intended benefit, and thus that the sepa-
rate applicable statutory monthly limits
for transportation in a commuter highway
vehicle and transit passes, and qualified
parking are not exceeded? For example,
if an employer provides through the use
of a debit card a $150 monthly benefit for
parking and a $100 monthly benefit for
transit passes, how may use of the debit
card be restricted to ensure that the respec-
tive applicable statutory monthly limits
for qualified parking and other qualified
transportation fringes are not exceeded?
DATES: Written and electronic comments
must be submitted by October 19, 2004.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (Notice 2004–46), Room
5203, Internal Revenue Service, P.O. Box
7604, Ben Franklin Station, Washing-
ton, DC 20044. Submissions may also
be hand-delivered Monday through Fri-
day between the hours of 8 a.m. and
4 p.m. to the Courier’s Desk at 1111
Constitution Avenue, NW, Washington,
DC 20224, Attn: CC:PA:LPD:PR (No-
tice 2004–46), Room 5203. Alterna-
tively, taxpayers may send submissions
electronically directly to the Service at:
Notice.comments@irscounsel.treas.gov.
All materials submitted will be available
for public inspection and copying.
July 19, 2004472004–29 I.R.B.

FOR FURTHER INFORMATION
CONTACT: Concerning submissions,
Guy Traynor at (202) 622–7180. Con-
cerning this notice, John Richards of the
Office of the Associate Chief Counsel (Tax
Exempt & Government Entities) at (202)
622–6040 (not toll-free calls).
Information Reporting for
Advance Payments of Health
Coverage Tax Credit
Notice 2004–47
PURPOSE
This notice provides that the HCTC
Transaction Center (Transaction Center),
as an administrator of the Health Coverage
Tax Credit (HCTC), will file and furnish
the information returns and statements re-
quired by § 6050T of the Internal Revenue
Code, unless the health insurance provider
notifies the Transaction Center that the
provider will file and furnish information
returns and statements.
BACKGROUND
Health Credit
Section 35 provides that under certain
conditions, individuals affected by foreign
trade competition or receiving benefits
from the Pension Benefit Guaranty Corpo-
ration may claim the HCTC for a portion
of their health insurance expenses. The
credit is 65 percent of the eligible in-
dividual’s expenses for qualified health
insurance coverage.
Advance Payment of the Health Credit
Section 7527 provides for advance pay-
ment of the credit, in the form of payments
from the Treasury Department to the indi-
vidual’s health insurance provider. Such
payments reduce the premiums the indi-
vidual would otherwise owe the provider
and, accordingly, reduce the amount of the
HCTC available to be claimed on the eli-
gible individual’s income tax return.
Information Reporting of Advance
Payments
Section 6050T requires the providers to
file information returns with the Service
reporting advance payments the providers
receive from the Treasury Department,
and to furnish the insureds an information
statement showing the information filed
with the Service. The returns required of
providers under § 6050T must contain,
among other things, the name, address,
and taxpayer identification number of in-
sureds who have been declared eligible
to benefit from the advance payments de-
scribed in § 7527. The information returns
and statements required by § 6050T enable
the Service and taxpayers to ensure that
taxpayers do not claim excessive credits
on their income tax returns. Form 1099–H,
Health Coverage Tax Credit (HCTC) Ad-
vance Payments, has been developed for
providers to use in meeting this reporting
obligation.
ADMINISTRATION OF THE
PROGRAM
The Treasury Department is admin-
istering the HCTC program by using a
HCTC Customer Contact Center and a
HCTC Transaction Center to perform var-
ious administrative duties relating to the
program. The Transaction Center will,
among other things, collect the insured’s
portion of the premium and forward the to-
tal premium, which includes the advance
payment, to health insurance providers
through health plan administrators.
INFORMATION REPORTING
OBLIGATIONS OF HEALTH
INSURANCE PROVIDERS UNDER
THE HCTC PROGRAM
Under the program developed to ad-
minister the HCTC advance payment pro-
gram, the Transaction Center will know
the amount of those advance payments,
and the identity of the individuals who
benefit from the payments. Accordingly,
the Transaction Center will have the infor-
mation that the health insurance provider
would otherwise have to file with the Ser-
vice (and furnish to the insureds) pursuant
to § 6050T. The Treasury Department and
the Service believe that it is in the interest
of sound tax administration to allow health
insurance providers to use the Transaction
Center to satisfy their information re-
porting obligations under § 6050T and
not require the providers to file informa-
tion returns with the Service or furnish
information statements to the insureds.
A health insurance provider receiving
advance payments from the Transaction
Center will be deemed to have elected
to have the Transaction Center file these
information returns and furnish these
statements unless the provider notifies the
Transaction Center that the provider will
file Forms 1099–H with the Service and
furnish those forms to insured individu-
als. Therefore, unless the health insurance
provider notifies the Transaction Center
that the provider will file and furnish in-
formation returns and statements under
§ 6050T, the Transaction Center will take
those actions instead. The Transaction
Center may be contacted for this purpose
by calling 1–866–628–4282.
WAIVER OF PENALTIES
Section 6724(a) authorizes the Service
to waive any penalties for failures to com-
ply with § 6050T if such failures resulted
from reasonable cause and not willful
neglect. The Service will not assert the
penalties imposed by §§ 6721 and 6722
for information returns and statements re-
quired to be filed and furnished regarding
advance payments made to health insur-
ance providers against providers that elect
to allow the Transaction Center to file
and furnish Forms 1099–H. If a health
insurance provider does not elect to allow
the Transaction Center to file and furnish
Forms 1099–H, the normal rules for seek-
ing a penalty waiver under §6724(a) will
apply. (See § 301.6724–1 of the Regula-
tions on Procedure and Administration.)
CONTACT FOR INFORMATION
The principal author of this notice is
Nathan Rosen of the Office of the Asso-
ciate Chief Counsel (Procedure & Admin-
istration), Administrative Provisions and
Judicial Practice Division. For further in-
formation regarding this notice, contact
Nathan Rosen at (202) 622–4910 (not a
toll-free call).
2004–29 I.R.B.48July 19, 2004

26 CFR 1.103–8(b): Qualified residential rental
projects.
(Also: sections 142(d) and 145(d).)
Rev. Proc. 2004–39
SECTION 1. PURPOSE
This revenue procedure provides guid-
ance to States and local governments that
issue bonds to which section 142(d) of the
Internal Revenue Code applies. It sets
forth procedures for determining whether
a residential rental project is in compli-
ance with the applicable set-aside require-
ments contained in section 142(d) during
the qualified project period (as defined in
section 142(d)(2)(A)).
SECTION 2. BACKGROUND
.01 Section 103(a) provides that except
as provided in section 103(b), gross in-
come does not include interest on any State
or local bond.
.02 Section 103(b)(1) provides that sec-
tion 103(a) does not apply to any private
activity bond that is not a qualified bond
(within the meaning of section 141).
.03 Section 141(e)(1)(A) and (G) pro-
vides that an exempt facility bond or a
qualified 501(c)(3) bond may be a quali-
fied bond.
.04 Section 142(a)(7) provides that the
term “exempt facility bond” includes any
bond issued as part of an issue 95 percent
or more of the net proceeds of which are
to be used to provide qualified residential
rental projects.
.05 Section 142(d)(1) provides that the
term “qualified residential rental project”
means any project for residential rental
property if, at all times during the quali-
fied project period, such project meets the
requirements under section 142(d)(1)(A)
or (B) (the “set-aside requirements”),
whichever is elected by the issuer at the
time of the issuance of the issue with re-
spect to such project.
.06 A project meets the requirements of
section 142(d)(1)(A) if 20 percent or more
of the residential units in the project are
occupied by individuals whose income is
50 percent or less of area median gross
income.
.07 A project meets the requirements of
section 142(d)(1)(B) if 40 percent or more
of the residential units in the project are
occupied by individuals whose income is
60 percent or less of area median gross
income. Under section 142(d)(6), in the
case of a project located in a city having
5 boroughs and a population in excess of
5,000,000, section 142(d)(1)(B) is applied
by substituting “25 percent” for “40 per-
cent”.
.08 Section 142(d)(2)(A) provides that
the term “qualified project period” means
the period beginning on the first day on
which 10 percent of the residential units in
the project are occupied and ending on the
latest of (i) the date that is 15 years after
the date on which 50 percent of the res-
idential units in the project are occupied,
(ii) the first day on which no tax-exempt
private activity bond issued with respect to
the project is outstanding, or (iii) the date
on which any assistance provided with re-
spect to the project under section 8 of the
United States Housing Act of 1937 termi-
nates.
.09 Section 142(d)(3) contains rules
for purposes of determining whether an
increase in the income of individuals
that occupy a residential unit will cause
the individuals to no longer qualify as
low-income tenants. For this purpose,
section 142(d)(4) contains special rules
for deep rent skewed projects. Section
142(d)(4)(B)(i) defines the term deep rent
skewed project as a project in which,
among other requirements, 15 percent or
more of the low-income units in the project
are occupied by individuals whose income
is 40 percent or less of area median gross
income.
.10 In the Tax Reform Act of 1986,
1986–3 (Vol. 1) C.B. 519–575 (the “1986
Act”), Congress reorganized sections 103
and 103A of the Internal Revenue Code
of 1954 (the “1954 Code”) regarding tax-
exempt bonds into sections 103 and 141
through 150 of the Internal Revenue Code
of 1986. Congress intended that to the
extent not amended by the 1986 Act, all
principles of pre-1986 Act law would con-
tinue to apply to the reorganized provi-
sions. 2 H.R. Conf. Rep. No. 841, 99th
Cong., 2d Sess. II–686 (1986), 1986–3
(Vol. 4) C.B. 686. The regulations pro-
mulgated pursuant to section 103(b)(4)(A)
of the 1954 Code (the predecessor to sec-
tion 142(d)) continue to apply for purposes
of section 142(d) except as otherwise mod-
ified by the 1986 Act or subsequent law.
.11 Under § 1.103–8(b)(7)(ii) of the In-
come Tax Regulations, if the issue date
of the bonds occurs after the first day on
which at least 10 percent of the residential
units in the project are occupied, then the
qualified project period begins on the issue
date of the bonds.
.12 Under § 1.103–8(b)(6)(i), if a
project does not comply with the set-aside
requirements continuously during the
qualified project period, the project will
not be a qualified residential rental project
(as of the issue date of the bonds that
financed the project), unless the noncom-
pliance is corrected within a reasonable
period. Under § 1.103–8(b)(6)(ii), a rea-
sonable period is at least 60 days after
the noncompliance is first discovered or
would have been discovered by the ex-
ercise of reasonablediligence. Section
1.103–8(b)(6)(i) provides that if noncom-
pliance is not corrected within a reasonable
period, subsequent compliance does not
alter the taxable status of the bonds that
financed the project.
.13 Section 145(a) provides, in general,
that the term “qualified 501(c)(3) bond”
means any private activity bond issued as
part of an issue if (1) all property that is
to be provided by the net proceeds of the
issue is to be owned by a 501(c)(3) or-
ganization or a governmental unit, and (2)
such bond would not be a private activity
bond if (A) 501(c)(3) organizations were
treated as governmental units with respect
to their activities that do not constitute un-
related trades or businesses, determined by
applying section 513(a), and (B) sections
141(b)(1) and (2) were applied by substi-
tuting “5 percent” for “10 percent” each
place it appears and by substituting “net
proceeds” for “proceeds” each place it ap-
pears.
.14 Section 145(d)(1) provides, in gen-
eral, that a bond that is part of an issue is
not a qualified 501(c)(3) bond if any por-
tion of the net proceeds of the issue are
to be used directly or indirectly to pro-
vide residential rental property for family
units. Section 145(d)(2) provides, in part,
that section 145(d)(1) shall not apply to
any bond issued as part of an issue if the
portion of such issue that is to be used di-
rectly or indirectly toprovide residential
rental property for family units is to be
used to provide qualified residential rental
projects (as defined in section 142(d)).
July 19, 2004492004–29 I.R.B.

.15 The IRS and Treasury Depart-
ment have received comments requesting
guidance regarding the application of the
set-aside requirements during the qualified
project period. For example, guidance has
been requested regarding whether residen-
tial units in a newly-constructed project
may only be leased to low-income tenants
until low-income tenants occupy the re-
quired percentage ofall residential units
in the project, or whether a project com-
plies with the set-aside requirements if
low-income tenants occupy the required
percentage of occupied residential units.
Moreover, guidance also has been re-
quested regarding whether the set-aside
requirements apply when an existing
project is acquired, or whether there is a
transition period before the project must
comply with the set-aside requirements.
The comments indicate that the lack of
guidance on these questions and the re-
sulting uncertainty may be limiting the
development of low-income rental hous-
ing.
SECTION 3. DEFINITIONS
.01Available unitsmeans residential
units in a residential rental project that are
actually occupied and residential units in
the project that are unoccupied and have
been leased at least once after becoming
available for occupancy, provided that (a)
in the case of an acquisition of an exist-
ing residential rentalproject, a residential
unit that is unoccupied on the later of (i) the
date the project is acquired or (ii) the issue
date of the first bonds is not an available
unit and does not become an available unit
until it has been leased for the first time af-
ter such date, and (b) a residential unit that
is not available for occupancy due to reno-
vations is not an available unit and does not
become an available unit until it has been
leased for the first time after the renova-
tions are completed.
.02First bondsmeans the first issue of
bonds to which section 142(d) applies is-
sued to finance the acquisition of an exist-
ing residential rental project.
.03Low-income tenantsmeans individ-
uals occupying a residential unit whose in-
come satisfies the applicable income limit
under section 142(d)(1)(A) or (B) and, if
applicable, section 142(d)(4)(B)(i).
.04Set-aside requirementsis defined in
section 2.05 of this revenue procedure.
SECTION 4. SCOPE
This revenue procedure provides guid-
ance to States and local governments that
issue bonds to which section 142(d) of the
Internal Revenue Code applies. It sets
forth procedures for determining whether
a residential rental project is in compliance
with the applicable set-aside requirements
during the qualified project period.
SECTION 5. APPLICATION
.01General rule for set-aside require-
ments. Beginning on the first day of the
qualified project period (i.e.,thelaterof
the first day on which at least 10 percent of
all of the residential units in the project are
occupied or the issue date of the bonds),
the set-aside requirements apply to the to-
tal number of available units.
.02Special rule for certain existing
projects. This section 5.02 applies to the
acquisition of an existing residential rental
project unless more than 90 percent of
the residential units in the project are
not available units (for example, because
residential units are not available for oc-
cupancy due to renovations) at any time
within 60 days after the later of (1) the
date the project is acquired or (2) the issue
date of the first bonds. For a period of
12 months beginning on the issue date of
the first bonds (the “transition period”),
the failure to satisfy the set-aside require-
ments as described in section 5.01 will
not cause the project to not be a qualified
residential rental project. If the set-aside
requirements are not satisfied on the last
date of the transition period, such failure
will cause the project to not be a qualified
residential rental project as of the issue
date(s) of the bonds issued to finance the
project unless all bonds issued to finance
the project are redeemed as soon as possi-
ble, but in no event later than 18 months
after the issue date of the first bonds.
SECTION 6. EFFECTIVE DATE
This revenue procedure is applicable to
bonds sold on or after July 19, 2004, that
are subject to section 142(d). In addition,
subject to the applicable effective dates for
the corresponding statutory provisions, an
issuer may apply this revenue procedure to
any bonds (1) sold before July 19, 2004,
that are subject to section 142(d), or (2)
subject to section 103(b)(4)(A) of the 1954
Code.
SECTION 7. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Rose M. Weber, Division
Counsel/Associate Chief Counsel (Tax
Exempt and Government Entities). How-
ever, other personnel from the IRS and
Treasury Department participated in the
development of this revenue procedure.
For further information regarding this rev-
enue procedure, contact Ms. Weber at
(202) 622–3980 (not a toll-free call).
Section 482.—Allocation of Income and Deductions Among Taxpayers
Rev. Proc. 2004–40
TABLE OF CONTENTS
Section 1: Purpose
.................................................................................................. 51
Section 2: Principles of the APA Program............................................................................... 51
Section 3: Prefiling Conferences....................................................................................... 52
Section 4: Content of APA Requests.................................................................................... 53
2004–29 I.R.B.50July 19, 2004

Section 5: Processing of APA Requests.................................................................................. 57
Section 6: Competent Authority Consideration........................................................................... 58
Section 7: Rollback of TPM........................................................................................... 59
Section 8: Small Business Taxpayer APAs............................................................................... 60
Section 9: Legal Effect of the APA..................................................................................... 61
Section 10: Administering the APA.................................................................................... 61
Section 11: Renewing the APA........................................................................................ 64
Section 12: Disclosure................................................................................................ 64
Section 13: Effect on Other Documents................................................................................. 64
Section 14: Effective Date............................................................................................ 64
Section 15: Paperwork Reduction Act.................................................................................. 64
Drafting Information................................................................................................ 65
SECTION 1: PURPOSE
.01 This revenue procedure explains the
manner in which taxpayers may request an
advance pricing agreement (“APA”) from
the APA Program within the Office of the
Associate Chief Counsel (International),
the manner in which such a request will
be processed by the APA Program, and the
effect and administration of APAs. This
revenue procedure updates and supersedes
Revenue Procedure 96–53, 1996–2 C.B.
375, and Notice 98–65, 1998–2 C.B. 803.
SECTION 2: PRINCIPLES OF THE
APA PROGRAM
.01The APA Program provides a volun-
tary process whereby the Internal Revenue
Service (“Service”) and taxpayers may re-
solve transfer pricing issues under § 482
of the Internal Revenue Code (“Code”),
the Income Tax Regulations (“the regu-
lations”) thereunder, and relevant income
tax treaties to which the United States is
a party in a principled and cooperative
manner on a prospective basis. The APA
process increases the efficiency of tax ad-
ministration by encouraging taxpayers to
come forward and present to the Service
all the facts relevant to a proper trans-
fer pricing analysis and to work towards
a mutual agreement in a spirit of open-
ness and cooperation. The prospective na-
ture of APAs lessens the burden of compli-
ance by giving taxpayers greater certainty
regarding their transfer pricing methods,
and promotes the principled resolution of
these issues by allowing for their discus-
sion and resolution in advance before the
consequences of suchresolution are fully
known to taxpayers and the Service.
.02The APA Program’s central goal is
the prompt, proper, and fair resolution of
APA requests and renewals consistent with
the principles of sound tax administration.
.03The APA Program reserves the right
not to accept an APA request or to termi-
nate consideration of an APA request if
the request or the continued development
of the case is contrary to the principles of
sound tax administration.
.04An APA is an agreement between
a taxpayer and the Service in which the
parties set forth, in advance of controlled
transactions, the best transfer pricing
method (“TPM”) within the meaning of
§ 482 of the Code and the regulations.
The agreement specifies the controlled
transactions or transfers (“covered trans-
actions”), TPM, APA term, operational
and compliance provisions, appropriate
adjustments, criticalassumptions regard-
ing future events, required APA records,
and annual reporting responsibilities.
(1) APAs are intended to supplement
traditional administrative, judicial, and
treaty mechanisms for resolving transfer
pricing issues.
(2) Taxpayers formally initiate the
process for APAs. Thereafter, APAs re-
quire discussions among the taxpayer, one
or more associated enterprises, and one
or more tax administrations, including the
Service.
(3) Ordinarily, an APA is reached only
on the proposed covered transactions. In
some cases, however, the APA Program
may require that the scope of the proposed
covered transactions be expanded or con-
tracted, or may determine that the TPM
proposed by the taxpayer is not appropri-
ate for some subset of the proposed cov-
ered transactions.
.05The taxpayer’s participation in the
APA process is entirely voluntary. In some
cases, the Service may approach a taxpayer
to discuss the advantages of an APA.
.06The APA Program is under the
immediate supervision of a Director (the
“APA Director”) within the Office of the
Associate Chief Counsel (International).
The APA Director reports to the Asso-
ciate Chief Counsel (International) who
exercises general oversight over the APA
Program. The APA Director, directly or
by delegation, may take any action — not
contrary to statute, regulation, or treaty —
necessary to carry out the provisions of
this revenue procedure. The APA Director
may modify the provisions contained in
this revenue procedure (for example, time
limits, or content of an APA request), if
that modification would be consistent with
sound tax administration.
.07Under the APA request procedure,
the taxpayer proposes a TPM and provides
data intended to show that the TPM consti-
tutes the appropriate application of the best
method rule under the § 482 regulations.
July 19, 2004512004–29 I.R.B.

The Service through an APA Team evalu-
ates the APA request by analyzing all rele-
vant data and information submitted with
the initial request and at any time there-
after.
.08Taxpayers may request a bilateral,
multilateral, or, if appropriate, a unilateral
APA. A bilateral or multilateral APA in-
volves a request for an APA between the
taxpayer and the Service, accompanied by
a request for a mutual agreement between
relevant competent authorities. A unilat-
eral APA involves only an agreement be-
tween the taxpayer and the Service. Where
possible, in the interest of sound tax ad-
ministration and to ensure that no potential
for double taxation results from an APA,
an APA should be concluded on a bilateral
or multilateral basis between the compe-
tent authorities through the mutual agree-
ment procedure of the relevant treaty.
.09In a bilateral or multilateral case, the
APA Program prepares a recommended
negotiating position for the U.S. Compe-
tent Authority. The negotiating position
serves as a basis for discussions with the
relevant foreign competent authority or au-
thorities under the mutual agreement ar-
ticle of the applicable income tax treaty
or treaties. Prior to finalizing its recom-
mendation, the APA Program through the
Team Leader (see section 5.03) conveys
the substance of the APA Team’s position
to the taxpayer to provide an opportunity
for the taxpayer to comment. The Team
Leader, in coordination with other mem-
bers of the APA Team, considers the mer-
its of the taxpayer’s timely received com-
ments in finalizing the recommended posi-
tion.
.10If the U.S. Competent Authority and
the relevant foreign competent authority or
authorities reach a mutual agreement, the
taxpayer and the Service may execute one
or more APAs consistent with that mutual
agreement.
.11The APA Policy Board establishes
policy on matters of substantial general
importance pertaining to the APA Pro-
gram. It consists of the Associate Chief
Counsel (International), the APA Direc-
tor, the Director, International (Large and
Mid-Size Business (LMSB) Operating
Division), Treasury’s International Tax
Counsel, and other senior officials.
.12In appropriate cases, the TPM may
be applied to tax years prior to those cov-
ered by the APA (“rollback” of the TPM,
see section 7). The Service’s policy is to
use rollbacks whenever feasible based on
the consistency of the facts, law, and avail-
able records for the prior years. This pol-
icy does not apply to unilateral APA re-
quests in which a rollback would decrease
taxable income on a return filed for a tax-
able year not covered by the APA (see
§ 1.482–1(a)(3)).
.13Filing an APA request does not sus-
pend any examination or other enforce-
ment proceedings. The APA Program will
coordinate its activities with those of other
Service proceedings to avoid duplicative
information requests to the taxpayer, en-
hance the efficiency of Service operations,
and reduce overall taxpayer compliance
burdens.
SECTION 3: PREFILING
CONFERENCES
.01 General Principles
A taxpayer may request a prefiling con-
ference (“PFC”) with the APA Program
to discuss informally the suitability of an
APA.
.02 Discussion Topics
The taxpayer may use a PFC to clar-
ify what information, documentation, and
analyses are likely to be necessary for
the Service to consider an APA request.
Among the areas of discussion are the
covered transactions, the potentially appli-
cable TPMs, the probability of agreement
among the competent authorities, and the
APA Program’s schedule and method for
coordinating and evaluating the request.
To provide for the efficient use of tax-
payer resources, PFCs are recommended
in order to ensure that the APA request is
appropriate and focuses on relevant issues.
.03 Scheduling
A taxpayer or its representative may
contact the APA Program Office in Wash-
ington, D.C. or California to schedule a
PFC. The taxpayer or its representative
should propose three alternative dates, and
should generally allow two weeks before
the first proposed date. The telephone and
facsimile numbers are:
W
ashington,DCCalifornia
voice: (202) 435–5220(949) 360–3486
facsimile: (202) 435–5238(949) 360–3446
.04 PFC May be Named or Anonymous
The taxpayer may request a PFC either
on an identified or anonymous basis.
.05 Participation
If a taxpayer identifies itself, represen-
tatives of the Service Operating Division
with responsibility for the taxpayer’s re-
turn normally will participate in the PFC.
Representatives from Appeals and the Di-
vision Counsel field offices may also at-
tend. In the case of a PFC regarding a
bilateral APA request, a Competent Au-
thority analyst may attend. If a taxpayer
initially requests a PFC on an anonymous
basis but prior to the meeting chooses to
identify itself, the meeting may be resched-
uled to permit necessary personnel to at-
tend. When requesting a PFC on an iden-
tified basis, the taxpayer must inform the
APA Program whether transactions simi-
lar or related to those to be covered by the
proposed APA are currently under consid-
eration by a Service Operating Division,
Appeals, Division Counsel, or Associate
Chief Counsel.
.06 Prefiling Submission
A taxpayer must send a brief prefil-
ing submission to the relevant APA Pro-
gram Office in Washington, D.C. or Cal-
ifornia that lists the persons attending the
PFC for the taxpayer (first names only,
pseudonyms, or job titles are sufficient if
on an anonymous basis) and that outlines
and describes the issues to be discussed.
This brief submission should be provided
at least one week in advance of the PFC.
If the document is twenty pages or less, it
may be sent by facsimile; but if it exceeds
2004–29 I.R.B.52July 19, 2004

twenty pages, eight copies (or if anony-
mous, only three copies) and one original
should be delivered.
SECTION 4: CONTENT OF APA
REQUESTS
.01 General Principles
(1) For purposes of requesting an
APA, each taxpayer that is a member of a
consolidated group (as defined in Treasury
Regulations §1.1502–1) must comply with
the provisions of § 1.1502–77.
(2) All materials submitted with the
APA request become part of the APA Pro-
gram’s case file and will not be returned.
Therefore, the taxpayer’s original docu-
ments should not be submitted.
(3) The taxpayer must submit copies
of any documents relating to the proposed
TPM. All materials submitted must be
properly labeled, indexed, and referenced
in the request. Any previously submitted
documents that the taxpayer wishes to
associate with the request must be refer-
enced.
(4) The APA request must include a
comprehensive table of contents.
(5) If the records or documents to be
submitted are too voluminous for transmit-
tal with the request, the taxpayer must de-
scribe the contents of such items in the
request and confirm that the items will
promptly be made available upon request.
(6) All documents submitted in a for-
eign language must be accompanied by an
accurate English translation.
(7) All documents in the APA request
that are available in electronic format
should be submitted, on either a CD-ROM
or diskette, along with the paper submis-
sion. Suitable formats include Microsoft
Word, Excel, PowerPoint, and Adobe
Portable Document Format. Other for-
mats may be arranged on a case-by-case
basis.
(8) The user fee should be submitted at
the same time as the request, unless pre-
viously submitted. The taxpayer should
also provide a justification of the user fee
amount with a demonstration of its calcu-
lation. See sections 4.11 and 4.12.
(9) The APA request should provide
all information reasonably necessary to
permit the APA Program to evaluate fully
the taxpayer’s proposed TPM. Failure by a
taxpayer to provide all materials required
by this revenue procedure in its APA re-
quest, or requested by the APA Program
during the negotiation process, may result
in rejection of the APA.
(10) The taxpayer must describe in de-
tail in its APA request the transactions it
intends to cover under the APA and, if ap-
plicable, how those transactions relate in
context to other related party transactions
that the taxpayer does not intend to cover.
(11) If the APA request is unilateral and
involves transactions with an entity in a
treaty jurisdiction, the taxpayer must pro-
vide an explanation of why the request is
not bilateral.
(12) The taxpayer is under a duty to
supplement its APA submission to correct
and/or to update all material facts and in-
formation in its APA submission or in any
supporting documentation. This supple-
mental submission (or submissions) must
be made within 30 days of request by the
APA Program and, in any event, prior to
the commencement of Competent Author-
ity negotiations (in the case of a bilateral
or multilateral APA) and execution of the
APA (in all cases).
.02 Explanation of the Proposed TPM
(1) The taxpayer must provide a de-
tailed explanation and analysis of why the
proposed TPM is the best method within
the meaning of § 1.482–1(c).
(2) The request should illustrate appli-
cation of each proposed TPM by applying
it, in a consistent format, to the prior three
taxable years’ financial and tax data of the
parties to the covered transactions. If his-
torical data cannot be used to illustrate a
TPM (for example, when the TPM applies
to a new product or business), the request
should include an illustration based on pro-
jected or hypothetical data, as well as a de-
scription of the source of the data. If cover-
age of three taxable years is inappropriate
for any reason, the taxpayer should provide
data for an appropriate period and explain
why the period was chosen.
(3) If a taxable year is completed while
the APA is pending, the taxpayer must up-
date its APA submission within 120 days
following the close of the taxable year by
demonstrating the application of the pro-
posed TPM to its actual financial results
for that year.
.03 Factual and Legal Items for All Pro-
posed APAs
The detailed information supporting the
APA request should be tailored to the spe-
cific facts relating to the taxpayer, the pro-
posed covered transactions, and relevant
legal authority. It should also take into ac-
count discussions with the APA Program
in a PFC. Unless otherwise agreed, each
request must include, in addition to any
other items specified in this revenue pro-
cedure, the following items:
(1) The names, addresses, telephone
and facsimile numbers, taxpayer iden-
tification numbers (if applicable), and
both the Standard Industrial Classification
(SIC) and the North American Industry
Classification System (NAICS) codes re-
ported on the most recently filed federal
tax returns (if applicable) of (a) the orga-
nizations, trades, and businesses engaging
in the proposed covered transactions, and
(b) the controlling taxpayer of the parties,
if the controlling taxpayer is not itself
engaging in the proposed covered transac-
tions.
(2) The controlling taxpayer’s indus-
try (for example, Heavy Manufacturing
and Transportation) within LMSB; or if the
taxpayer files its tax returns with the Small
Business/Self-Employed (SB/SE) Operat-
ing Division, a statement to that effect.
(3) A properly completed Form 2848
(Power of Attorney and Declaration of
Representative) for any person authorized
to represent the taxpayer in connection
with the request, disregarding if appro-
priate the line 3 instruction limiting the
authorization to three future tax periods. If
the taxpayer or the taxpayer’s authorized
representative retains any other person
(for example, a law firm, accounting firm,
or economic consulting firm) to assist the
taxpayer in pursuing the APA request,
such taxpayer must also provide a sepa-
rate written authorization for disclosures
to the person and such person’s employ-
ees during the APA Team’s consideration
of the request, according to the instruc-
tions in § 301.6103(c)–1. Such written
authorization may be made by completing
Form 8821 (Tax Information Authoriza-
tion), disregarding, if appropriate, the line
3 instruction limiting the authorization to
three future tax periods.
(4) A description of the general his-
tory of business operations, worldwide
July 19, 2004532004–29 I.R.B.

organizational structure, ownership, capi-
talization, financial arrangements, princi-
pal businesses, the place or places where
such businesses are conducted, and ma-
jor transaction flows of the parties to the
proposed covered transactions. The de-
scription must also identify any branches
or entities disregarded for tax purposes
(see § 301.7701–3) that are involved in
the proposed covered transactions.
(5) A description and analysis of the
transactions covered by the APA request,
as well as the estimated dollar value of
each of the proposed covered transactions
for each year of the proposed term of the
APA.
(6) A statement whether the tested
party has commission sales income. If
the APA request involves commission
income, the taxpayer must propose and
analyze whether, under the facts and cir-
cumstances, it is appropriate to: (a) cover
the commission sales income, but sepa-
rately test it; (b) segregate the commission
sales income and exclude it from the
APA; (c) propose a TPM consistent with a
sales function; or, (d) adjust the financial
statement data and results to account for
the functional differences between com-
mission sales transactions and buy-sell
transactions.
(7) For each party to the proposed cov-
ered transactions, a detailed analysis of:
(a) the functions and economic
activities performed;
(b) the assets employed;
(c) the economic costs incurred;
(d) the risks assumed;
(e) relevant contractual terms;
(f) relevant economic conditions;
and
(g) relevantnon-recognition
transactions.
(8) Representative financial and tax
data of the parties to the proposed covered
transactions for the last three taxable years
(or more years if relevant to the proposed
TPM), together with other pertinent data
and documents in support of the TPM.
This item may include (but need not be
limited to) data from the following:
(a) Form 5471 (Information Re-
turn of U.S. Persons With Respect to Cer-
tain Foreign Corporations);
(b) Form 5472 (Information Re-
turn of a 25% Foreign-Owned U.S. Corpo-
ration or a Foreign Corporation Engaged
in a U.S. Trade or Business);
(c) income tax returns;
(d) financial statements;
(e) annual reports to stockholders;
(f) other pertinent U.S. and for-
eign government filings (for example, cus-
toms reports or SEC filings);
(g) existing pricing, distribution,
or licensing agreements;
(h) marketing and financial stud-
ies;
(i) documentation prepared in
consideration of § 6662(e); and
(j) company-wide accounting
procedures, budgets, projections, business
plans, and worldwide product line or busi-
ness segment profitability reports.
(9) The functional currency of the par-
ties to the proposed covered transactions
and their foreign currency exchange risk.
(10) The taxable year of each party to
the proposed covered transactions.
(11) A description of significant finan-
cial accounting methods employed by the
parties that have a bearing on the proposed
TPM.
(12) An explanation of any relevant fi-
nancial and tax accounting differences be-
tween the U.S. and the foreign countries
involved.
(13) A discussion of any relevant statu-
tory provisions, tax treaties, court deci-
sions, regulations, revenue rulings, or rev-
enue procedures thatrelate to the appro-
priateness of the proposed TPM for the re-
quested APA. For cases in which the tax-
payer requests a rollback, the discussion
should include a statement whether the pe-
riod of limitations for the rollback years
has expired in the U.S. or foreign coun-
tries, and if not, when the periods of limi-
tations do expire.
(14)
(a) A statement describing all
previous and current issues at the exam-
ination, Appeals, judicial, or competent
authority levels that relate to the proposed
TPM, including an explanation of the tax-
payer’s and the government’s positions
and any resolution of the issues.
(b) If the taxpayer is requesting a
rollback that involves any issues relevant
to the proposed covered transactions that
are unresolved and still under consider-
ation by Appeals, the taxpayer must in-
clude with its APA request a waiver of its
right to be present during communications
between the Appeals Office and the APA
Team members (as described in section
5.04). See Rev. Proc. 2000–43, 2000–2
C.B. 404. The following language satis-
fies this requirement:
Waiver ofEx ParteCommunication:
[Name of taxpayer(s)] agrees to the
participation of the Appeals Office in
the consideration of this APA request,
and hereby waives its right to be present
during, or participate in, communica-
tions related to the APA request or the
proposed covered transactions between
the Appeals Office and the APA Team
members.
(15) A statement describing any APAs
with, or rulings by, foreign tax authori-
ties relating to the proposed covered trans-
actions (or any pending requests for such
APAs or rulings) and, if requested, copies
of such APAs or rulings.
(16) An economic analysis or study of
the general industry pricing practices and
economic functions performed within the
markets and geographical areas covered by
the APA request.
(17) A list of the taxpayer’s competitors
and a discussion of any uncontrolled trans-
actions, lines of business or types of busi-
nesses comparable or similar to those ad-
dressedintherequest.
(18) A detailed presentation of the re-
search efforts and criteria used to identify
and select possible independent compara-
bles. This presentation should include a
list of potential comparables and an ex-
planation of why each was either accepted
or rejected. The taxpayer may request an
APA even though no comparable uncon-
trolled prices, transactions, or companies
can be identified. In such cases, a tax-
payer must demonstrate that the proposed
TPM otherwise satisfies the requirements
of § 482 and this revenue procedure.
(19) Detailed financial data (and li-
censes or other agreements, if applicable)
on the selected independent comparables
in print and electronic formats. For exam-
ple, if the proposed TPM uses the compa-
rable uncontrolled price (CUP) method,
the comparable pricing information should
be included; for the comparable uncon-
trolled transaction (CUT) method, the
comparable license agreements should be
included; and for the comparable profits
method (CPM), the annual and multiple
year period results using the selected profit
level indicator should be included.
(a) The taxpayer should be pre-
pared to update the comparables data, if re-
2004–29 I.R.B.54July 19, 2004

quested, following 90 days after the close
of its fiscal year.
(b) In addition, if pertinent, the
taxpayer should demonstrate considera-
tion of alternative measurements of prof-
itability and return on investment (for
example, gross profit margin or markup,
ratio of gross income to total operating
expenses, net operating profit margin, or
return on assets).
(20) A detailed explanation of any
adjustments to the selected compara-
bles, such as accounting for product line
segregations, differences in accounting
practices, functional differences relating
to activities performed, assets employed,
risks assumed, costs incurred, volume or
scale differences, and differing economic
and market conditions.
.04 Specific Items for a Cost Sharing
Arrangement
In addition to the items in section 4.03,
an APA request related to a cost sharing
arrangement (“CSA”) must include:
(1) A copy of the CSA and a statement
that the CSA conformswith the require-
ments of §1.482–7(b).
(2) A specific description of intangi-
ble development costs for all participants
under the CSA. Such description should
include a description of the costs included
and excluded (for example, costs of tech-
nology acquired from third parties; the
treatment of stock-based compensation
under the CSA; non-product specific de-
velopment costs; costs associated with
abandoned projects; costs associated with
specific stages of product development;
relevant labor, material, and overhead
costs; and support and administrative
costs); a description of any services per-
formed for participants that will be in-
cluded in intangible development costs
(for example, contract research) and how
those services would be taken into ac-
count; and, for a representative period, a
breakdown of total costs incurred, and the
costs borne by each participant, according
to the CSA.
(3) The basis (as described in
§ 1.482–7(f)(3)(ii)) used to measure an-
ticipated benefits, the projections used to
estimate benefits, and why such basis and
projections yield the most reliable estimate
of reasonably anticipated benefits.
(4) The method used to calculate each
participant’s share of intangible develop-
ment costs; the reason why that method
can reasonably be expected to reflect that
participant’s share of anticipated benefits;
and a statement of the circumstances under
which the participants’ shares of intangible
development costs will be adjusted to ac-
count for changes in economic conditions,
business operations and practices, and the
ongoing development of intangibles under
the CSA.
(5) The accounting method used to de-
termine the costs and benefits of the intan-
gible development (including the method
used to translate foreign currencies).
(6) Each participant’s sales, cost of
sales, operating expenses, research and
development costs, and operating profit
(historical for the five most recently com-
pleted taxable years and projected for two
taxable years) with regard to the product
area covered by the CSA.
(7) A description of any amounts to be
received from nonparticipants for the use
of covered intangibles (for example, as a
royalty pursuant to a license agreement)
and how the participants would take into
account such amounts.
(8) Representative internal manu-
als, directives, guidelines, and similar
documents prepared for purposes of im-
plementing or operating the CSA (for
example, research and development com-
mittee meeting minutes, market studies,
economic impact analyses, capital ex-
penditure budgets, engineering studies, re-
ports and studies of trends and profitability
in the industry, and financial analyses for
financing and cash flow purposes).
(9) A description of any prior research
undertaken in the intangible development
area; the amount of any buy-in or buy-out
payment (as defined in §1.482–7(g)(2));
a complete economic analysis to support
the payment; the method used to deter-
mine the amount of the payment (that is,
the method used to value the pre-existing
intangible property and to calculate any
royalty, lump sum, or installment pay-
ments); and an analysis demonstrating
that the method used constitutes the best
method under §1.482–1(c).
(10) The treatment of cost sharing
and buy-in or buy-out payments for U.S.
income tax purposes (for example, the
source and character of those payments).
(11) Evidence of the participants’ com-
pliance with the reporting requirements
under §1.482–7(j) of the cost sharing reg-
ulations.
(12) Taxpayers requesting an APA that
covers a CSA but does not cover the re-
lated buy-in transaction, or an APA that
covers a buy-in transaction but does not
cover the related CSA, must provide the
reasons why an APA limited in this manner
is consistent with the principles of the APA
process, as set forth in this revenue proce-
dure. The APA Program will evaluate the
requests to ensure their consistency with
the principles of this revenue procedure
and sound tax administration. If an APA
request is limited to covering only buy-in
payments, the APA must include the criti-
cal assumption that the CSA to which the
buy-in payments relate meets the § 482
regulatory requirements for CSAs.
.05 Critical Assumptions
The taxpayer should propose and de-
scribe any relevant critical assumptions. A
critical assumption is any fact the contin-
ued existence of which is material to the
taxpayer’s proposed TPM whether related
to the taxpayer, a third party, an indus-
try, or business and economic conditions.
Critical assumptions might include, for ex-
ample, a particular mode of conducting
business operations, a particular corporate
or business structure, a range of expected
business volume, or the relative value of
foreign currencies.
.06 Contents of Annual Report
Section 10.01 provides that the tax-
payer must file an annual report for each
taxable year covered by the APA. The
taxpayer should propose in the request a
list of items to be included in each report.
Consideration should be given to all items
listed in Appendix C to the APA Program’s
current Model APA (see Announcement
2004–26, 2004–15 I.R.B. 743, 768).
.07 Term
(1) The taxpayer must propose a term
for the APA appropriate to the industry,
products, and transactions involved. Al-
though the appropriate APA term is deter-
mined on a case-by-case basis, a request
for an APA should propose an APA term of
at least five years unless the taxpayer states
a compelling reason for a shorter term.
Additionally, the APA Program strives to
have at least three prospective years re-
maining in the term upon the execution of
July 19, 2004552004–29 I.R.B.

an APA (in the case of a unilateral APA)
or completion of the APA Program’s rec-
ommended negotiating position for Com-
petent Authority (in the case of a bilat-
eral or multilateral APA), except in un-
usual circumstances. Accordingly, taxpay-
ers should anticipate that the APA Program
may require their agreement to extend the
proposed term of an APA if necessary to
ensure such prospectivity.
(2) The taxpayer must file its APA re-
quest within the time prescribed by statute
(including extensions) for filing its Fed-
eral income tax return for the first pro-
posed APA year. An APA request will be
considered filed on the date the required
user fee is paid (within the meaning of
§ 7502(a)), provided that a substantially
complete APA request is filed with the
APA Program within 120 days of the return
due date (including extensions) for the first
proposed APA year. Because of the need to
begin the processing of the APA request in
a manner that ensures appropriate prospec-
tivity, the APA Director will consider ex-
tending the 120 day period pursuant to sec-
tion 2.06 only in unusual circumstances.
In the event the APA Program’s evalua-
tion of an APA request is delayed due to a
lack of responsiveness or timeliness by the
taxpayer subsequent to the filing of its re-
quest, the APA Director may deem the tax-
payer’s APA request to have been filed for
purposes of this paragraph on a date sub-
sequent to its actual filing.
.08 Request for Competent Authority
Consideration
(1) The taxpayer must state whether
any of the parties to the proposed cov-
ered transactions are residents of or con-
duct activities in a treaty partner country
or U.S. possession, and whether the tax-
payer proposes an agreement among com-
petent authorities (see section 6 for guide-
lines). For purposes of this revenue pro-
cedure, “competent authority” includes the
Director, International (LMSB) and desig-
nated foreign competent authorities under
income tax treaties to which the U.S. is a
party, and also includes the Director, Inter-
national (LMSB) acting as the U.S. Com-
petent Authority with respect to a posses-
sion tax agency described in Rev. Proc.
89–8, 1989–1 C.B. 778, as well as a des-
ignated possession tax official within the
meaning of that revenue procedure.
(2) If the taxpayer requests a bilateral
or multilateral APA, the taxpayer’s request
must include the information described in
section 4.05(a) and (b) and, in a separate
document, section 4.05(n), of Rev. Proc.
2002–52, 2002–2 C.B. 242 (or its suc-
cessor), or similar information pursuant
to a request for relief under Rev. Proc.
89–8. The following wording satisfies sec-
tion 4.05(n) of Rev. Proc. 2002–52:
[Name of taxpayer(s)] consents to
the disclosure to the competent author-
ity of [name of foreign country] and
the competent authority’s staff of any
or all of the items of information set
forth or enclosed in the [bilateral/multilat-
eral] APA request for the taxable year(s)
[and accompany-
ing rollback request for relief from eco-
nomic double taxation of income for the
taxable years
],
and any further submissions, within the
limits contained in the [name of treaty].
.09 Perjury Statement
(1) The taxpayer must include in any
APA request and supplemental submission
a declaration in the following form:
Under penalties of perjury, I declare that
I have examined this [APA request] [sup-
plemental submission relating to this APA
request] including accompanying docu-
ments, and, to the best of my knowledge
and belief, the [APA request] [supplemen-
tal submission] contains all the relevant
facts relating to the [APA request] [sup-
plemental submission], and such facts are
true, correct, and complete.
(2) The declaration must be signed by
the person or persons on whose behalf the
request is being made and not by the tax-
payer’s representative. The person signing
for a corporate taxpayer must be an autho-
rized officer of the taxpayer who has per-
sonal knowledge of the facts, whose duties
are not limited to obtaining letter rulings
or determination letters from the Service,
or negotiating APAs, and who is autho-
rized to sign the taxpayer’s income tax re-
turn pursuant to § 6062. The person sign-
ing for any other person must be an indi-
vidual who has personal knowledge of the
facts, and who is authorized to sign in ac-
cordance with §§ 6061 or 6063, as appli-
cable.
(3) While the APA request is pending
and after it is executed, a taxpayer is un-
der a duty to timely supplement its disclo-
sures if the taxpayer discovers that in some
material respect the information provided
was incomplete, inaccurate, or incorrect,
or that the facts or business practices as de-
scribed in the materials or statements sub-
mitted in support of the APA request have
changed or will change. Failure to do so
may be considered fraud, malfeasance, or
misrepresentation with respect to a mate-
rial fact, or failure to state a material fact.
.10 Signatures
The taxpayer or the taxpayer’s autho-
rized representative must sign the APA re-
quest. If an authorized representative is to
sign, the taxpayer and representative must
satisfy the relevant instructions on signa-
tures in Rev. Proc. 2004–1, 2004–1 I.R.B.
1 (or its successor).
.11 Mailing, Deliveries, Copies, and
Office Location
(1) User fees (accompanied by an
identifying cover letter) must be sent to:
Internal Revenue Service
Attn: CC:DOM:CORP:T
P.O. Box 7604
Ben Franklin Station
Washington, D.C. 20044
The fee payment may also be hand deliv-
ered to the drop box at the 12th Street en-
trance of 1111 Constitution Avenue, N.W.,
Washington, DC.
(2) All other communications must be
mailed or delivered as follows (unless ar-
ranged otherwise, for example, mailing to
the California office):
Office of Associate Chief Counsel
(International)
Advance Pricing Agreement Program
Attn: CC:INTL:APA; MA2–266
1111 Constitution Avenue, N.W.
Washington, D.C. 20224
(3) The taxpayer must provide the
original and eight copies of its APA re-
quest and any supplemental materials
submitted while the request is pending.
(4) The APA Program is located at:
799 9th Street, N.W.
Washington, D.C. 20001
.12 User Fees
(1) The following general principles
apply to user fees for APA requests.
2004–29 I.R.B.56July 19, 2004

(a) A separate user fee is required
for each APA request.
(b) A separate APA request con-
cerns a specific TPM and distinct facts,
such that a review of the facts will deter-
mine the suitability of the TPM and all
other methodologies under consideration.
(c) A single filing may include
more than one APA request and may re-
quire more than one user fee. A reduced
user fee will apply to additional APA re-
quests. The maximum user fee for any
filing involving more than one APA re-
quest is $50,000.
(d) User fees are made payable to
the United States Treasury.
(e) For user fee purposes, a multi-
lateral APA request will normally be con-
sidered as multiple bilateral APA requests.
The user fee for the first bilateral request
will be determined under the principles of
section 4.12(2). The user fee for the other
foreign jurisdictions will be treated as ad-
ditional bilateral requests to which a re-
duced user fee will apply.
(f) A unilateral APA request will
normally be considered as only one APA
request even though it may involve a pric-
ing issue in more than one foreign juris-
diction. If separate analyses are required
for each foreign jurisdiction, the unilateral
APA request may be treated as multiple
APA requests for which reduced user fees
will apply to the additional requests.
(g) For purposes of determining
the applicable user fee in accordance with
section 4.12(2), the gross income of a
taxpayer includes the gross income of
all organizations, trades, or businesses
owned or controlled directly or indirectly
by the same interests controlling the tax-
payer. Gross income must be computed
for the last full (12 month) taxable year
ending before the date the taxpayer filed
the APA request. If the information on the
taxpayer’s gross income for the last full
taxable year is not available, the taxpayer
must use its projected gross income for the
first year of the APA term.
(h) The APA Director may request
an additional user fee after submission of
an APA request if the request does not meet
the criteria for the user fee amount initially
paid by the taxpayer. The taxpayer may
either pay the additional fee and continue
the APA process or withdraw the request.
(i) If a taxpayer requests substan-
tial changes to the originally proposed
TPM or proposed covered transactions
during the processing of the APA request,
the APA Director may consider the request
an entirely new APA request and an addi-
tional user fee may be required. Generally,
no additional user fee will be imposed if
substantial changes are requested by the
Service or by a foreign competent author-
ity.
(2) The following user fees apply to
APA requests.
(a) The user fee for an original
APA request or a non-routine renewal from
a taxpayer with gross income of $1 billion
or more is $25,000,and each additional
separate request is $7,500.
(b) The user fee for an original
APA request or a non-routine renewal from
a taxpayer with gross income of at least
$200 million and less than $1 billion is
$15,000, and each additional separate re-
quest is $7,500.
(c) The user fee for each separate
APA request or renewal request from a tax-
payer with gross income of less than $200
million is $5,000.
(d) The user fee for the request
for a routine APA renewal (that is, where
the material facts, critical assumptions,
and proposed TPM have not substantially
changed) from a taxpayer with gross in-
come of at least $200 million is $7,500.
(e) If the taxpayer’s gross income
is at least $200 million, but the transaction
or transactions in the APA request involve
either (i) tangible property and/or services
with a total annual value not in excess of
$50 million, or (ii) payments for intangible
property not in excess of $10 million an-
nually, the user fee for each separate APA
request or renewal is $5,000 (“small trans-
actions”).
(f) The following chart summa-
rizes the above user fees:
Taxpayer’s Gross
Income or
Transactions
Original Request
or Non-Routine
Renewal
Each Additional
Separate Request
Routine
Renewal
$1 billion or more$25,000$7,500$7,500
$200 million to $1 billion$15,000$7,500$7,500
Less than $200 million$5,000$5,000$5,000
Small Transactions
$5,000$5,000$5,000
SECTION 5: PROCESSING OF APA
REQUESTS
.01 General
The time for processing an APA request
follows one of two paths, depending on
whether the request is for a bilateral or
multilateral APA, or for a unilateral APA.
The scheduling of due diligence, analysis,
discussion, agreement, and drafting is de-
signed to complete the recommended U.S.
negotiating position (bilateral or multilat-
eral APA request), or a unilateral APA,
within 12 months from the date the full re-
quest was filed. The filing of a full APA
request includes not only the payment of a
user fee, but also the receipt by the APA
Program of the materials specified in sec-
tions 4.01 through 4.10. Significant fac-
tual analysis of the APA request will not
begin until a full request has been filed.
.02 Initial Contact
After receiving an APA request, a rep-
resentative of the APA Program will con-
tact the taxpayer or representative to dis-
cuss any preliminary questions the APA
Program may have, or to ask for any ad-
ditional information or documents neces-
sary in order to initiate processing of the
request. Additional information and docu-
ments must be supplied by the date speci-
fied by the APA Program, as extended for
July 19, 2004572004–29 I.R.B.

good cause, accompanied by the perjury
statement as set forth in section 4.09.
.03 Designation of Team Leader
Shortly after receiving the taxpayer’s
APA request and any required user fees,
the APA Director will appoint a Team
Leader to review the request. If a prefiling
conference was held with the taxpayer,
the Team Leader generally will be ap-
pointed from among the APA Program
staff attending the prefiling conference.
The Team Leader will oversee the APA
Team’s activities in processing the APA
request.
.04 Formation of APA Team
The Team Leader will organize the APA
Team, which normally consists of the fol-
lowing personnel: the Team Leader, an
APA Program economist and/or a Service
Operating Division economist, an LMSB
international examiner, a Division Counsel
attorney, and a competent authority ana-
lyst in bilateral cases. In appropriate cases,
the international examiner’s manager and
other Service Operating Division person-
nel familiar with the taxpayer may partic-
ipate in the APA Team. If the APA may
affect taxable years in Appeals, the appro-
priate Appeals Officer will be invited to
participate. The APATeam Leader will as-
sure that copies of the APA request are dis-
tributed to all Team members for review.
.05 Function of APA Team
The function of the APA Team is the
following: (1) for a bilateral or multilat-
eral APA, to develop, in consultation with
the taxpayer and consistent with sound tax
administration, a competent authority ne-
gotiating position that it can recommend
for approval, and (2) for a unilateral APA,
to make best efforts, consistent with sound
tax administration, to develop an APA that
it can recommend for approval by the As-
sociate Chief Counsel (International). The
Service Operating Division field office re-
sponsible for the taxpayer’s income tax re-
turn will be provided an opportunity to re-
view and comment on the recommended
U.S. competent authority negotiating posi-
tion in the case of a bilateral or multilateral
APA, and the proposed APA in the case of
aunilateralAPA.
.06 Due Diligence and Analysis
The APA Team will evaluate the tax-
payer’s APA request by discussing it with
the taxpayer, verifying the data supplied,
and requesting additional supporting data
if necessary. The evaluation of the re-
quest will not constitute an examination
or inspection of the taxpayer’s books and
records under § 7605(b) or other provi-
sions of the Code.
.07 Schedule for Discussion and Draft-
ing
(1) The APA Team will arrange with
the taxpayer for an initial meeting to take
place within 45 days from the assignment
of an APA Team Leader (and following re-
ceipt of the APA request). The function
of the initial meeting is to review the tax-
payer’s facts, to discuss and clarify issues,
and to reach agreement on the scope and
nature of the APA Team’s due diligence.
(2) In connection with the initial meet-
ing, the APA Team and the taxpayer will
agree on a Case Plan, to which both Ser-
vice and taxpayer personnel will be ex-
pected to adhere. The Case Plan may
identify issues raised by the APA Team’s
initial review of the APA request. Firm
dates should be agreed upon for resolv-
ing all outstanding issues, and case mile-
stones should be cited. Case milestones
include: (a) submission of any necessary
additional information by the taxpayer; (b)
any planned site visits or interviews; (c)
evaluation of the information by the Ser-
vice; (d) negotiation dates; and (e) presen-
tation of the competent authority negoti-
ating position or recommended agreement
to the APA Director. To minimize delays
caused by the need to coordinate different
parties’ schedules on short notice, the time
and place of future meetings required for
any steps in the case should be agreed upon
at the initial meeting and established in the
Case Plan.
(3) The time scheduled for completion
of the case milestones will depend to some
extent on the scope and complexity of the
particular case. In the case of bilateral or
multilateral requests, the Service will seek
to work with the competent authority of
the treaty partner or the U.S. possession
involved to minimize the time needed for
competent authority resolution.
(4) Failures to meet case milestones
will be addressed promptly. The APA Di-
rector will assist in remedying any difficul-
ties to ensure a course of action to meet
case milestones. Substantial or persistent
failure by the taxpayer to comply with the
Case Plan may be treated by the APA Pro-
gram as a withdrawal of the APA request.
In this event, if the taxpayer wishes to con-
tinue to pursue the APA, it must refile the
request and pay a new user fee.
(5) In some circumstances, develop-
ment of the case will suggest to both the
APA Team and the taxpayer that they ad-
just some milestone dates. To preserve
flexibility, the APA Team and the taxpayer
may amend the Case Plan by mutual agree-
ment, consistent with the need to complete
the case expeditiously.
.08 Execution
Signature of an APA by the APA Direc-
tor and the taxpayer will constitute agree-
ment to the APA. For purposes of execut-
ing the APA, each taxpayer that is a mem-
ber of a consolidated group (as defined in
§ 1.1502–1) must comply with the provi-
sions of § 1.1502–77. The person sign-
ing the APA request on behalf of the tax-
payer must satisfy the requirements of sec-
tion 4.09(2).
.09 Withdrawing the Request
The taxpayer may withdraw the request
at any time before the execution of the
APA. The user fee generally will not be re-
funded if the taxpayer withdraws its APA
request after the due diligence process has
been initiated.
.10 Rejecting the Request
The APA Program may decline either to
accept any APA request or to execute any
APA after a request has been accepted. If
the APA Program declines to execute an
APA after the due diligence process has
been initiated, the Service normally will
retain the user fee, although the fee may
be returned if the APA Program determines
that such action would be appropriate un-
der the circumstances. If the APA Program
proposes to reject an APA request, the tax-
payer will be granted one conference of
right with the APA Director. Other con-
ferences may be granted at the APA Direc-
tor’s discretion.
SECTION 6: COMPETENT
AUTHORITY CONSIDERATION
.01When any of the parties to a re-
quest are entitled toobtain assistance un-
der the mutual agreement provision of a
tax treaty between a foreign country and
the United States, or under Rev. Proc.
2004–29 I.R.B.58July 19, 2004

89–8, the competent authorities may en-
ter into agreements concerning the APA.
Requests similar to APA requests that are
initiated through treaty partners or posses-
sion tax agencies and submitted to the U.S.
competent authority will be processed un-
der this revenue procedure and Rev. Proc.
2002–52, as appropriate. In order to pro-
vide timely clarification of factual issues,
minimize the potential for miscommunica-
tion, and assist in development of a multi-
ple party agreement on a timely basis, the
Service will generally initiate coordination
among the taxpayer, the Service, and the
competent authoritiesof treaty partners at
the earliest possible stage of consideration
of an APA request including, where pos-
sible, the prefiling stage. In this manner,
the U.S. and foreign competent authori-
ties can develop a joint understanding of
the case, which should facilitate negotia-
tion and resolution of competent author-
ity issues. The taxpayer should remain
available throughout consideration of the
request to assist the Service in reaching
agreement with the foreign competent au-
thority. Final agreement to the negotiated
APA will be sought among the taxpayer,
the Service, and the foreign competent au-
thority. As a general matter, the taxpayer
should submit APA requests and related
correspondence simultaneously to the Ser-
vice and to foreign competent authorities
involved in the requests.
.02The purpose of a competent author-
ity agreement is to avoid double taxation
or taxation not in accordance with the rel-
evant income tax treaty. If such an agree-
ment is not acceptable to the taxpayer, the
taxpayer may withdraw the APA request
(see section 5.09). If the competent author-
ities are unable to reach an agreement, the
taxpayer may withdraw its request or, at its
discretion, the Service may negotiate and
enter into a unilateral APA with the tax-
payer (see section 6.06).
.03The taxpayer must cooperate with
the Service and the U.S. competent author-
ity, pursuant to the standards set forth in
Rev. Proc. 2002–52 and any other appli-
cable revenue procedures.
.04Taxpayers have an affirmative obli-
gation to identify relevant concerns that
may impact competent authority negotia-
tion of an APA request. For example, it
may be necessary for the Service to re-
quest sensitive confidential data (includ-
ing material that may constitute a trade se-
cret), which if disclosed, could harm the
taxpayer’s competitive position. If the
taxpayer identifies such sensitive informa-
tion, the Service will work with the tax-
payer in developing a mechanism to permit
consideration or verification by the treaty
partner of the information while still pre-
serving its confidentiality.
.05When the competent authorities en-
ter into an agreement covering an APA,
the Service will, to the extent appropri-
ate, agree to a mutual exchange of in-
formationwiththeforeigncompetentau-
thority concerning any subsequent modifi-
cations, cancellation, revocation, requests
to renew, evaluation of annual reports, or
examination of the taxpayer’s compliance
with the terms and conditions of the APA.
Bilateral APAs may provide for simulta-
neous filing of the annual report with the
Service and with the foreign tax adminis-
tration.
.06To minimize taxpayer and gov-
ernmental uncertainty and administrative
cost, bilateral or multilateral APAs gener-
ally are preferable to unilateral APAs when
competent authority procedures are avail-
able with respect to the foreign country or
countries involved. In appropriate circum-
stances, however, the Service may execute
an APA with a taxpayer without reaching
a competent authority agreement. The tax-
payer must show sufficient justification for
a unilateral APA. In some circumstances,
procedures agreed upon with particular
foreign competent authorities, or the re-
quirements of proper relations with treaty
partners, may preclude unilateral APAs.
.07Section 7.05 of Rev. Proc. 2002–52
provides in part that, if a taxpayer reaches
a settlement on an issue pursuant to a writ-
ten agreement, the U.S. competent author-
ity will endeavor only to obtain a correla-
tive adjustment from a treaty country and
will not undertake any actions that would
otherwise change such agreement. The re-
strictions imposed under section 7.05 of
Rev. Proc. 2002–52 with respect to the
discretion of the U.S. competent authority
to negotiate correlative relief will not ap-
ply to a unilateral APA. However, a uni-
lateral APA may hinder the ability of the
U.S. competent authority to reach a mu-
tual agreement which will provide relief
from double taxation, particularly when a
contemporaneous bilateral or multilateral
APA request would have been both ef-
fective and practical (within the meaning
of § 1.901–2(e)(5)(i)) to obtain consistent
treatment of the APA matters in a treaty
country. If there is a settlement with re-
spect to taxable years prior to the first year
subject to a unilateral APA based on roll-
back of the APA’s TPM (as discussed in
sections 2.12 and 7 of this revenue proce-
dure), section 7.05 of Rev. Proc. 2002–52
will apply to the rollback years in the reg-
ular manner.
SECTION 7: ROLLBACK OF TPM
.01Application of the TPM to tax years
priortothosecoveredbytheAPA(“roll-
back” of the TPM) may be an effective
means of enhancing voluntary compliance
and of using available resources to address
unresolved transfer pricing issues. The
taxpayer may request that the Service con-
sider a rollback (a “rollback request”) in
connection with a particular APA request.
Under regularly applicable procedures, the
Service may determine that the same or a
similar TPM as that agreed to in an APA
should be applied to prior years even in the
absence of a rollback request. When ap-
plying the TPM to prior years, adjustments
may be made to reflect differences in facts,
economic conditions, and applicable legal
rules. Those adjustments may be made re-
gardless of whether the taxpayer or the Ser-
vice initiated the rollback request.
.02The taxpayer may make a rollback
request in its APA request or at any time
prior to the execution of the APA. The
principles set forth in section 2.12 gen-
erally will govern the Service’s consid-
eration of the request. The balance of
prospectivity and retroactivity of the total
number of years covered by the proposed
overall agreement, and the status of any
on-going examination, will also be given
consideration in the Service’s decision to
entertain a rollback request. Rollbacks re-
quested after submission of the APA re-
quest must be in writing and addressed to
the APA Director.
.03If a rollback request is submitted
in connection with a bilateral or multi-
lateral APA, the rollback request will be
deemed to constitute an application for ac-
celerated competent authority considera-
tion as described in section 7.06 of Rev.
Proc. 2002–52 (or its successor). The
Office of Associate Chief Counsel (Inter-
national), the ServiceOperating Division
field office involved, and the U.S. Compe-
July 19, 2004592004–29 I.R.B.

tent Authority will coordinate considera-
tion of the request. The taxpayer’s request
must include all information required for
accelerated competent authority consider-
ation under Rev. Proc. 2002–52 (or its
successor), subject tothe rules set forth
therein. The taxpayer’s request can pertain
to any years prior to the first year to be cov-
ered under the requested APA. As neces-
sary to reach a competent authority agree-
ment, the Service may require that the roll-
back be applied to one or more specified
years if accelerated competent authority is
to be granted. In exercising its discretion
over the conduct of accelerated competent
authority consideration, the U.S. Compe-
tent Authority will seek to implement the
policy concerning APA rollbacks stated in
section 2.12.
.04Rollback requests submitted in con-
nection with a bilateral or multilateral APA
and involving a taxable year under the ju-
risdiction of Appeals will be deemed to
constitute an application for simultaneous
Appeals and competent authority consid-
eration. That application is described in
section 8 of Rev. Proc. 2002–52 and is
subject to the rules of that section. The
Office of Associate Chief Counsel (Inter-
national), Appeals, and the U.S. Compe-
tent Authority will coordinate considera-
tion of the request. In exercising its discre-
tion in a simultaneous Competent Author-
ity-Appeals proceeding, the U.S. Compe-
tent Authority will seek to implement the
policy concerning APA rollbacks stated in
section 2.12. Taxpayers are encouraged
to request accelerated competent author-
ity consideration under section 7.03 above,
in conjunction with an application for the
simultaneous Appeals and competent au-
thority process.
.05Subject to the policy stated in sec-
tion 2.12, the Service official with juris-
diction over the taxable year subject to the
rollback has discretion as to whether the
rollback is applied. That official may be ei-
ther the Service Operating Division execu-
tive responsible for the taxpayer’s income
tax return, the National Chief of Appeals,
the U.S. Competent Authority (for mat-
ters subject to competent authority negoti-
ations), or the Division Counsel (for mat-
ters pending litigation). Except to the ex-
tent inconsistent with this revenue proce-
dure, APA rollbacks will be implemented
using regularly applicable procedures for
resolving tax issues. Such procedures in-
clude but are not limited to closing agree-
ments and other settlement documents and
Forms 870 and 870AD.
SECTION 8: SMALL BUSINESS
TAXPAYER APAs
.01 Special Provisions Available to
Small Business Taxpayers
At the request of a small business tax-
payer (“SBT”), the APA Program may
apply any or all of the following pro-
visions in this section. A SBT is any
U.S. taxpayer with total gross income of
$200 million or less, as determined un-
der section 4.12(1)(g). In addition, SBT
procedures will be available for APAs
that cover small transactions described in
section 4.12(2)(d). Although transactions
involving valuable intangible property or
CSAs would not ordinarily be amenable
to these SBT procedures due to the com-
plexity of valuing such intangibles, the
APA Program will consider employing
special procedures for such transactions
on a case-by-case basis.
.02 PFC Procedures
(1) Under ordinary conditions, a tax-
payer contemplating an APA may request
a PFC with the APA Program. If a PFC is
requested, the APA Program provides in-
formal advice to the taxpayer regarding the
taxpayer’s proposal, but ordinarily does
not begin its due diligence evaluation in
earnest until the taxpayer formally files an
APA request along with the appropriate
user fee. In contrast, the APA Program will
commence its due diligence analysis of a
SBT at the front end of the process to ac-
celerate the conclusion of the APA negoti-
ations.
(2) The APA Program and a SBT may
hold a PFC to determine as early as possi-
ble the best method for the SBT’s proposed
covered transactions. The APA Program
will need a detailed description of the un-
derlying facts and the proposed TPM for
the SBT’s proposed covered transactions
at least 60 days prior to the scheduled con-
ference. The SBT may provide the infor-
mation it maintains under § 6662(e) to sat-
isfy this requirement. Prior to its prefil-
ing submission, the SBT must consult with
the APA Program to determine the infor-
mation required to evaluate the SBT’s cov-
ered transactions.
(3) An APA Team will evaluate the
APA prefiling information to determine
items of concern and the additional docu-
mentation needed to evaluate the request.
The SBT will be advised of the APA
Team’s initial conclusions before the PFC
so that it can address these items before or
at the conference.
(4) At the PFC, the SBT and APA
Program will agree on a schedule with the
objective of finalizing the recommended
negotiating position for a bilateral APA,
or concluding a unilateral APA, within
six months of the date the SBT files its
APA request. The APA Program expects
that performing this analysis earlier in the
process should result in a reduced number
of post-filing meetings and supplemental
information requests.
.03 Items Required for an SBT APA Re-
quest
Before an SBT submits an APA request,
the APA Program and the SBT may agree
to reduce or eliminate specific items that
would otherwise be required by section 4.
.04 Locale and Number of Meetings for
SBT APA Requests
The APA Program will endeavor to
hold meetings with the SBT at a location
convenient to the SBT. To minimize the
number of meetings, teleconferences will
be employed whenever feasible.
.05 Assistance in Economic Analysis
At the SBT’s request, the APA Pro-
gram will assist the SBT in the selection
and evaluation of comparables, as well as
the computation of any appropriate adjust-
ments to comparables.
.06 APA
For unilateral APA requests, a SBT
should submit a proposed draft APA in
a form substantially similar to the APA
Program’s current Model APA (see An-
nouncement 2004–26, 2004–15 I.R.B.
743, 765). The electronic component of
the APA request should include a “redline”
version showing the differences between
the Model APA and the SBT’s proposed
draft (see section 4.01(7)).
.07 APA Program’s Consideration of
Other Alternative Procedures
The APA Program may consider other
procedures suggested by the SBT to re-
duce the SBT’s administrative and finan-
2004–29 I.R.B.60July 19, 2004

cial burden, consistent with the objectives
of the APA Program and the requirements
of § 482.
SECTION 9: LEGAL EFFECT OF THE
APA
.01An APA is a binding agreement be-
tween the taxpayer and the Service. See
sections 2.01 - 2.04.
.02If the taxpayer complies with the
terms and conditions of the APA, the Ser-
vice will not contest the application of the
TPM to the subject matter of the APA ex-
cept as provided in this revenue procedure.
The taxpayer remains otherwise subject to
U.S. income tax laws and applicable in-
come tax conventions.
.03An APA shall have no legal effect
except with respect to the taxpayer, taxable
years, and transactions to which the APA
specifically relates.
.04Unless provided otherwise by writ-
ten agreement or regulations, the Service
and the taxpayer may not introduce the
APA or non-factual oral and written rep-
resentations made in conjunction with the
APA request as evidence in any judicial or
administrative proceeding regarding any
tax year, transaction, or person not cov-
ered by the APA. This paragraph does not
preclude the Service and the taxpayer from
agreeing to roll back the APA TPM, or the
Service’s use of any non-factual material
otherwise discoverable or obtained other
than in the APA process merely because
the parties considered the same or similar
material in the APA process.
.05Unless provided otherwise by writ-
ten agreement or regulations, the Service
and the taxpayer may not introduce a
proposed, cancelled, or revoked APA, or
any non-factual oral or written represen-
tations or submissions made during the
APA process, as an admission by the other
party in any judicial or administrative
proceeding regarding any taxable year of
the requested APA term. This paragraph
does not preclude the Service’s use of any
non-factual material otherwise discover-
able or obtained other than in the APA
process merely because the APA Program
and the taxpayer considered the same or
similar material in the APA process.
SECTION 10: ADMINISTERING THE
APA
.01 Annual Reports
(1) For each taxable year covered by
the APA, the taxpayer must file a timely
and complete annual report describing its
actual operations for the year and demon-
strating compliance with the APA’s terms
and conditions. The report must include
all items required by the APA, describe
any pending or contemplated requests to
renew, modify or cancel the APA, and re-
port any adjustments made pursuant to sec-
tion 10.02. Failure to timely file the annual
report is grounds for canceling the APA. In
appropriate circumstances, the APA Direc-
tor may extend the time to file the annual
report.
(2) The taxpayer must file an original
and four copies of the annual report by
the later of (a) 90 days after the time pre-
scribed by statute (including extensions)
for filing its federal income tax return for
the year covered by the report, or (b) 90
days after the effective date of the APA.
The Service and the taxpayer may agree
to alternative filing dates. The taxpayer
should file the original annual report and
copies with the APA Director in Washing-
ton, D.C., as indicated in section 4.11. For
bilateral or multilateral APAs, the Service
may require the taxpayer to file simultane-
ously a copy of the annual report with the
treaty partner or partners.
(3) The Service Operating Division or
the APA Program Office will contact the
taxpayer regarding an annual report if it is
necessary to clarify or complete the infor-
mation submitted in the annual report. The
taxpayer must supply the additional infor-
mation by the date specified.
(4) Any contact between the Service
Operating Division, or the APA Program
Office, and the taxpayer to clarify the in-
formation in an annual report is not an ex-
amination or the commencement of an ex-
amination of the taxpayer for purposes of
§ 7605(b) or any other Code provision.
(5) If a filed annual report contains in-
complete or incorrect information, or re-
ports an incorrect application of the TPM,
the taxpayer must amend it within 45 days
after becoming aware of the need to amend
the report. The time may be extended for
good cause.
(6) An annual report must contain the
following declaration:
Under penalties of perjury, I declare
that I have examined this annual report
including accompanying documents,
and, to the best of my knowledge and
belief, this annual report contains all
the relevant facts relating to the annual
reporting requirements pursuant to the
APA, and such facts are true, correct,
and complete.
[If applicable: An adjustment to
conform taxable income and other rele-
vant items to reflect the results reported
herein has been reported to the appro-
priate responsible Service Operating
Division personnel.]
[If applicable: An amended income
tax return to conform taxable income
and other relevant items to reflect the
results reported herein [has been] [will
be] filed with the appropriate Internal
Revenue Service Center.]
(7) The taxpayer must sign the dec-
laration in compliance with sections 4.09
(Perjury Statement) and 4.10 (Signatures).
.02 APA Primary Adjustments, Sec-
ondary Adjustments, and Revenue Proce-
dure Treatment
(1) APA Primary Adjustments. The
APA provides the TPM for determin-
ing the proper amount of the taxpayer’s
gross or net income, deductions, credits,
or allowances with respect to the APA’s
covered transactions. Under some TPMs,
the taxpayer may have to wait until the
close of the taxable year to determine
whether the intercompany prices it actu-
ally paid or received complied with the
TPM (for example, a comparable profits
method providing for a particular operat-
ing margin range). If the taxpayer’s actual
transactions do not comply with the TPM,
the taxpayer must nonetheless report its
taxable income in an amount consistent
with the TPM (an “APA primary adjust-
ment”), either on a timely filed original
return or on an amended return. The gen-
erally applicable Code rules, including
July 19, 2004612004–29 I.R.B.

additions to tax, penalties and interest,
apply with respect to an APA primary
adjustment. When the taxpayer makes an
APA primary adjustment, an appropriate
correlative adjustment will also be made
with respect to the related foreign entity
affected by the APA primary adjustment.
See § 1.482–1(g)(2). To the extent the
APA covers years for which federal in-
come tax returns were filed before the
APA was executed, the taxpayer must
make any required primary adjustments in
an amended return or returns filed within,
and pay such primary adjustments within,
90 days of entering into the APA. The
generally applicable Code rules will apply
with respect to the primary adjustment
with respect to the APA years for which
federal income tax returns were filed be-
fore the APA was executed, except: (a) the
computation of any required estimated tax
installments for the taxable year will not
take into account the primary adjustment
and related secondary adjustments (see
section 10.02(2)); and (b) the taxpayer
will not be subject to the failure to pay
penalties under §§ 6651 and 6655, or the
failure to make timely deposit of taxes
penalty under § 6656, by reason of the
primary adjustment and related secondary
adjustments.
(2) Secondary Adjustments. Absent
an election of the APA revenue procedure
treatment described in section 10.02(3),
an APA primary adjustment requires a
secondary adjustment to conform the
taxpayer’s accounts. The secondary ad-
justment may result in tax consequences.
See § 1.482–1(g)(3).
(3) APA Revenue Procedure Treat-
ment. If a taxpayer makes an APA primary
adjustment, the taxpayer and its related
foreign entity may elect APA revenue pro-
cedure treatment and avoid the possible
adverse tax consequences of a secondary
adjustment that would otherwise follow
the APA primary adjustment. Under APA
revenue procedure treatment, consistent
with the principles of Rev. Proc. 99–32,
1999–2 C.B. 296, the taxpayer will be per-
mitted to establish an account receivable
from, or payable to, its related foreign
entity in the amount of the APA primary
adjustment as of the last day of the taxable
year to which the APA primary adjustment
applies. The account will not bear interest
andmustbepaidwithin90daysofthe
later of (a) the date for timely filing (with
extensions) of the federal income tax re-
turn for the taxable year to which the APA
primary adjustment applies, or (b) the
APA’s effective date. The account must
be paid within the 90 day period to receive
revenue procedure treatment. Payment
must be in the form of money, a written
debt obligation payable at a fixed date and
bearing interest at an arm’s length rate as
provided in § 1.482–2(a)(2), or through an
accounting entry offsetting such account
against an existingbona fidedebt between
the U.S. taxpayer and the related foreign
entity. The taxpayer must document the
payment or offset of the account, and dis-
close it in the APA annual report for the
year of the payment.
(4) The Service will give effect to an
APA primary adjustment, secondary ad-
justment, and payment under APA revenue
procedure treatment, if applicable, for all
U.S. income tax purposes. The tax treat-
ment of any such adjustment or payment
depends on the facts and circumstances of
the adjustment or payment. For example,
if a taxpayer’s APA primary adjustment in-
volves the reporting of an additional roy-
alty expense for a transaction with a re-
lated foreign entity, the Service will deem
a payment in the nature of a royalty in the
amount of the APA primary adjustment to
have been made by the taxpayer to the re-
lated foreign entity. This deemed payment
may be subject to U.S. withholding tax,
and interest would accrue on the tax re-
quired to be withheld from the due date
of the taxpayer’s federal income tax return
without regard to extensions. Similarly, a
taxpayer’s APA revenue procedure treat-
ment may involve the recharacterization of
a dividend paid by its foreign subsidiary
as a payment of an account receivable es-
tablishedinconnectionwithanAPApri-
mary adjustment. Any foreign tax with-
held from the payment may be treated as a
noncompulsory payment ineligible for the
foreign tax credit, unless the taxpayer ex-
hausts all effective and practical remedies,
including invocation of competent author-
ity procedures, to obtain consistent treat-
ment that would eliminate the foreign tax
liability. See § 1.901–2(e)(5).
(5) If the Service proposes a tax ad-
justment or the taxpayer files an amended
return that does not require an APA pri-
mary adjustment, generally applicable
Code rules will apply.
(6) If the taxpayer requests a bilateral
or multilateral APA, the U.S. Competent
Authority will discuss the principles of this
section with the appropriate foreign com-
petent authority to seek substantially iden-
tical treatment of the taxpayer’s related
foreign entity.
.03 Examination
(1) With respect to the application of
§ 482 to the covered transactions, the Ser-
vice will limit the examination of a tax-
payer’s income tax return for a tax year
coveredbyanAPAtotherequirementsde-
scribed in the next paragraph and will not
reconsider the TPM.
(2) For the year under examination, the
Service may require the taxpayer to estab-
lish: (a) compliance with the APA’s terms
and conditions; (b) validity and accuracy
of the annual report’s material representa-
tions; (c) correctness of the supporting data
and computations used to apply the TPM;
(d) satisfaction of thecritical assumptions;
and (e) consistent application of the TPM.
(3) The Service Operating Division
must inform the APA Director if the tax-
payer has not satisfied any requirement
in the prior paragraph. After consulting
with the appropriate Service Operating
Division personnel, the Associate Chief
Counsel (International) may decide to en-
force, revise (see section 10.05), cancel
(see section 10.06) or revoke (see section
10.07) the APA.
(4) The Service Operating Division
may audit and propose adjustments to
the taxpayer’s operating results as deter-
mined under the TPM without affecting
the APA’s validity or applicability. The
taxpayer may agree with the proposed
adjustments in the same manner as any
other adjustment, and the Service Oper-
ating Division will assess any resulting
additional tax or refund any resulting
overpayment of tax. If the taxpayer does
not agree with the proposed adjustment,
the taxpayer may contest it through the
normal administrative and judicial pro-
cedures. The taxpayer must include the
audit adjustments asfinally determined
for the purpose of applying the TPM and,
as necessary, make any APA primary, sec-
ondary and correlative adjustments under
section 10.02. Revenue procedure treat-
ment under section 10.02(3) is unavailable
for audit adjustments.
2004–29 I.R.B.62July 19, 2004

.04 Record Retention
(1) The taxpayer must maintain books
and records sufficient to enable the Service
Operating Division to examine whether
the taxpayer has complied with the APA.
The taxpayer’s compliance with this para-
graph fulfills the record-keeping require-
ments of §§ 6038A and 6038C as applied
to the covered transactions.
(2) Upon examination, the Service Op-
erating Division may submit a written re-
quest to the taxpayer requiring the sub-
mission of requested information or the
translation of specific documents within
30 days, as extended for good cause. The
fact that a foreign jurisdiction may impose
a penalty upon the taxpayer or other person
for disclosing the material will not consti-
tute reasonable cause for noncompliance
with the Service Operating Division’s re-
quest.
.05RevisingtheAPA
(1) In the event of failure of a critical
assumption, or a material change in gov-
erning case law, statute, regulation, or a
treaty, as described in section 10.08, the
APA Director and the taxpayer will dis-
cuss revising the APA. If the APA Director
and the taxpayer cannot agree to revise the
APA, the Associate Chief Counsel (Inter-
national) will cancel it as of the beginning
of the taxable year in which the failure or
change occurred. If the APA Director and
the taxpayer agree to revise the APA, the
revised APA will indicate its effective date.
(2) In the event of failure of a criti-
cal assumption, the taxpayer must notify
the APA Director and provide support-
ing documentation and a statement as to
whether revision appears appropriate. The
taxpayer must file the notification before
the last date permitted for filing the annual
report for the year in which the failure
occurred. In providing the notification,
the taxpayer must follow the procedures
contained in sections 4.09 through 4.11.
(3) If the APA Director and the tax-
payer agree to revise a bilateral or mul-
tilateral APA, the Team Leader will sub-
mit the revised APA to the U.S. Compe-
tent Authority to obtain the consent of the
foreign competent authority. If the foreign
competent authority refuses to accept the
revised APA, or if the competent authori-
ties cannot agree on a revised APA accept-
able to all parties, the APA Director and
the taxpayer may agree to: (a) apply the
existing APA, if appropriate; (b) apply the
revised APA or agree to further revisions;
or (c) request the Associate Chief Coun-
sel (International) to cancel the APA as of
an agreed date. If the APA Director and
the taxpayer cannot agree on how to pro-
ceed, the Associate Chief Counsel (Inter-
national) will cancel the APA pursuant to
section 10.06(1).
.06 Canceling the APA
(1) The Associate Chief Counsel (In-
ternational) or designee may cancel an
APA due to the failure of a critical as-
sumption, or due to the taxpayer’s misrep-
resentation, mistake as 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 terms and con-
ditions of the APA. The Associate Chief
Counsel (International) will consider facts
as material if, for example, knowledge of
the facts could reasonably have resulted
in an APA with significantly different
terms and conditions. In regard to annual
reports, the Associate Chief Counsel (In-
ternational) will consider facts as material
if, for example, knowledge of the facts
would have resulted in (a) a materially
different allocation of income, deductions,
or credits than reported in the annual re-
port or (b) the failure to meet a critical
assumption.
(2) The Associate Chief Counsel (In-
ternational) may waive cancellation if the
taxpayer can satisfactorily show good faith
and reasonable cause and agrees to make
any adjustment proposed to correct for the
misrepresentation, mistake as to a material
fact, failure to state a material fact, or non-
compliance. The Associate Chief Counsel
(International) is not required to cancel the
APA and may require the taxpayer to con-
tinue abiding by it.
(3) If the Associate Chief Counsel (In-
ternational) cancels an APA, the cancella-
tion relates back to the beginning of the
year in which the critical assumption failed
or the beginning of the year to which the
misrepresentation, mistake as to a material
fact, failure to state a material fact, or non-
compliance relates. If, however, the can-
cellation results from a change in case law,
statute, regulation, or treaty, the cancella-
tion normally relates back to the effective
date of the change in case law, statute, reg-
ulation, or treaty.
(4) As of the effective date of the can-
cellation, the APA has no further force
and effect with respect to the Service and
the taxpayer for U.S. income tax purposes.
The Service will seek to coordinate any ac-
tion concerning the cancellation of a bilat-
eral or multilateral APA with the foreign
competent authority.
.07RevokingtheAPA
(1) The Associate Chief Counsel (In-
ternational) may revoke an APA due
to fraud or malfeasance (as defined in
§ 7121), or disregard (as defined in
§ 6662(b)(1) and (c)) by the taxpayer
in connection with the APA, including,
but not limited to, fraud, malfeasance,
or disregard involving (a) material facts
in the request or subsequent submissions
(including an annual report) or (b) lack
of good faith compliance with the APA’s
terms and conditions. The Associate Chief
Counsel (International) will consider facts
as material if, for example, knowledge of
the facts could reasonably have resulted
in an APA with significantly different
terms and conditions. In regard to annual
reports, the Associate Chief Counsel (In-
ternational) will consider facts as material
if, for example, knowledge of the facts
would have resulted in (a) a materially
different allocation of income, deductions,
or credits than reported in the annual re-
port or (b) the failure to meet a critical
assumption.
(2) If the Associate Chief Counsel (In-
ternational) revokes an APA, the revoca-
tion relates back to the first day of the
APA’s first taxable year.
(3) If the Associate Chief Counsel (In-
ternational) revokes an APA, the Service
may: (a) determine deficiencies in income
taxes and additions thereto; (b) deny relief
under Rev. Proc. 99–32, 1999–2 C.B. 296;
(c) allow the taxpayer relief under Rev.
Proc. 99–32, but determine the interest
on any account receivable established un-
der Rev. Proc. 99–32, section 4.01, with-
out mutual agreement or correlative relief;
(d) revoke the APA as an “egregious case”
under Rev. Rul. 80–231, 1980–2 C.B.
219, so as to deny the taxpayer a foreign
tax credit; and (e) not make available the
unilateral relief provisions of Rev. Proc.
2002–52 (see section 12.07). The Service
will seek to coordinate any action concern-
ing revocation of a bilateral or multilateral
APA with the foreign competent authority.
July 19, 2004632004–29 I.R.B.

.08 Change in Case Law, Statute, Reg-
ulation, or Treaty
If applicable U.S. case law, statutes,
regulations, or treaties change the federal
income tax treatment of any matter cov-
ered by the APA, the new case law, statute,
regulation, or treaty provision supersedes
inconsistent terms and conditions of the
APA. The APA Director and the taxpayer
may revise the APA under section 10.05 to
reconcile it with the new law or treaty pro-
vision, or agree to cancel the APA.
SECTION 11: RENEWING THE APA
.01A taxpayer may request renewal of
an APA using the procedures for initial
APA requests. The taxpayer must sub-
mit the user fee required under section
4.12 and appropriate supporting documen-
tation. In general, the principles in section
11.02 govern the APA Program’s consider-
ation of the renewal request. The renewal
request must address changed or antici-
pated changes in facts and circumstances
the APA Team should consider. Taxpay-
ers are encouraged to file the renewal re-
quest nine months before the expiration of
the APA term.
.02The APA Program will expedite the
processing of a renewal APA if the follow-
ing conditions exist: (a) substantially the
same law and policy applied to the exist-
ing APA; (b) no substantial differences ex-
ist between the taxpayer’s proposed TPM
and the TPM under the existing APA; (c)
no material changes occurred in the tax-
payer’s facts or circumstances since the
parties entered into the existing APA; and
(d) for a bilateral APA, a rollback or closed
year considerations did not influence the
TPM in the existing APA.
.03If the conditions in the prior para-
graph exist, the APA Team begins its eval-
uation of the renewal APA by considering
the continuing applicability of the existing
APA, using updated comparables as appro-
priate. The APA Team will focus on any
changed facts and circumstances. While
the APA Team will endeavor to streamline
the renewal process, certain cases may re-
quire additional analysis. That is, experi-
ence and insight gained from applying the
TPM to actual data (for example, APA an-
nual reports) may provide insight that in-
dicates the need to modify the TPM.
SECTION 12: DISCLOSURE
.01An APA, any background informa-
tion related to the APA, and the taxpayer’s
APA request for that APA, are return infor-
mation and are confidential. See §§ 6103,
6105, 894, and 7852(d).
.02An APA, any background informa-
tion related to the APA, and the taxpayer’s
APA request, are not “written determina-
tions,” and they are not open to public in-
spection. See § 6110.
.03The Secretary must prepare an
annual report for public disclosure. See
§ 521(b) of the Ticket to Work and Work
Incentives Improvement Act of 1999,
Pub. L. 106–170, 113 Stat. 1860, 1925.
That report includes specifically desig-
nated information concerning all APAs,
but in a form that does not identify tax-
payers or their trade secrets or proprietary
or confidential business or financial infor-
mation.
.04An APA, any annual reports, and
any factual information contained in the
background files is subject to exchange of
information under income tax treaties or
tax information exchange agreements in
accordance with the terms of such treaties
and agreements (including terms regarding
relevancy, confidentiality and the protec-
tion of trade secrets). In cases where the
exchange of information would be discre-
tionary, information may be exchanged to
the extent consistent with sound tax ad-
ministration and the practices of the rele-
vant foreign competent authority, includ-
ing where relevant the existence and appli-
cation by the foreign competent authority
of rules similar to those described in sec-
tions 9.04 and 9.05.
SECTION 13: EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 96–53, 1996–2 C.B. 375,
and Notice 98–65, 1998–2 C.B. 803, are
superseded.
SECTION 14: EFFECTIVE DATE
This revenue procedure will apply to
all APA requests, including requests for
renewal, received on or after 30 days after
publication. By agreement, this revenue
procedure may apply to any APA resulting
from an APA request pending on such date.
SECTION 15: PAPERWORK
REDUCTION ACT
The collections of information con-
tained in this revenue procedure have
been reviewed and approved by the Office
of Management and Budget in accor-
dance with the Paperwork Reduction Act
(44 U.S.C. 3507) under control number
1545–1503.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
control number.
The collections of information are in
sections 3.06, 4, 7.03, 10.01, 10.02(1),
10.04, 10.05 and 11.01. This information
is required to provide the Service sufficient
information to evaluate and process the
APA request or request for renewal of an
existing APA, or to determine whether the
taxpayer is in compliance with the terms
and conditions of an APA. This informa-
tion will be used to evaluate the proposed
TPM, and the taxpayer’s compliance with
the terms and conditions of any APA to
which it is a party. The collections of infor-
mationarerequiredtoobtainanAPA.The
likely respondents are business or other
for-profit institutions.
The estimated total annual reporting
and/or recordkeeping burden is 8200
hours.
The estimated average burden for an
APA prefiling conference is 10 hours; the
estimated average burden for an APA re-
quest is 50 hours; and the estimated aver-
age burden for preparation of an annual re-
port by a party to an APA is 15 hours. The
estimated number of respondents and/or
recordkeepers is 230.
The estimated annual frequency of re-
sponses is one request or report per year
per applicant or party to an APA, except
that a taxpayer requesting an APA may
also request a prefiling conference.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally tax returns and tax return
information are confidential, as required
by § 6103.
2004–29 I.R.B.64July 19, 2004

DRAFTING INFORMATION
The principal authors of this docu-
ment are various members of the Ad-
vance Pricing Agreement Program of
the Office of Associate Chief Counsel
(International). For further information
regarding this revenue procedure, please
contact Mr. Peyton Robinson at (202)
435–5220, or Mr. Matthew Kramer at
(415) 848–4846 (not toll-free numbers).
July 19, 2004652004–29 I.R.B.

Part IV. Items of General Interest
Extension of Effective Date of
Relative Value Regulations
Announcement 2004–58
The Department of the Treasury and the
Internal Revenue Service announce a de-
lay in the effective date of § 1.417(a)(3)–1
of the Income Tax Regulations with
respect to qualified joint and survivor
(QJSA) explanations relating to certain
optional forms of benefit. However,
the current effective date of the regula-
tions is retained with respect to QJSA
explanations relating to single sum or
other optional forms of benefit subject to
§ 417(e)(3) of the Internal Revenue Code
that are less valuable than the QJSA.
Section 1.417(a)(3)–1 requires the dis-
closure, as part of a QJSA explanation, of
the relative value and financial effect of
optional forms of benefit available to par-
ticipants in retirement plans qualified un-
der § 401(a) of the Internal Revenue Code.
This announcement also addresses certain
questions that have arisen under these reg-
ulations.
Extension of Effective Date
Final regulations (T.D. 9099, 2004–2
I.R.B. 255) under § 417(a)(3) of the Code
regarding disclosure of the relative value
and financial effect of optional forms
of benefit as part of QJSA explanations
provided to participants receiving qual-
ified retirement plan distributions were
published in the Federal Register on De-
cember 17, 2003. See § 1.417(a)(3)–1
of the regulations, 68 FR 70141. The fi-
nal regulations are generally effective for
QJSA explanations provided with respect
to annuity starting dates beginning on or
after October 1, 2004.
The regulations were issued in response
to concerns that, in certain cases, the in-
formation provided to participants under
§ 417(a)(3) regarding available distribu-
tion forms does not adequately enable
them to compare those distribution forms
without professional advice. In particu-
lar, participants who are eligible for both
subsidized annuity distributions and un-
subsidized single-sum distributions may
be receiving explanations that do not ad-
equately explain the value of the subsidy
that is foregone if the single-sum distri-
bution is elected. In such a case, merely
disclosing the amount of the single-sum
distribution and the amount of the annuity
payments would not adequately enable
a participant to make an informed com-
parison of the relative values of those
distribution forms. The regulations ad-
dressthisproblem,aswellastheproblem
of disclosure in other cases where there
are significant differences in value among
optional forms, and also clarify the rules
regarding the disclosure of the financial
effect of benefit payments.
A number of commentators have re-
quested that the effective date of the regu-
lations be postponed. Among the reasons
cited is the need in some plans for spon-
sors to complete an extensive review and
analysis of optional forms of benefit in
order to prepare proper comparisons of the
relative values of those optional forms to
the QJSA. They have noted that recently
proposed regulations (REG–128309–03,
2004–16 I.R.B. 800) under § 411(d)(6)
would permit elimination of certain op-
tional forms of benefit and that many plan
sponsors can be expected to engage in
a thorough review of all of the optional
forms of benefit under their plans follow-
ing publication of those regulations in final
form. See § 1.411(d)–3 of the regulations,
69 FR 13769 (March 24, 2004). These
commentators have argued that it would
be inefficient for plans to be required
to incur the costs of two such extensive
analyses in succession, rather than a single
analysis of optional forms that might serve
to some extent for purposes of both the rel-
ative value regulations and the § 411(d)(6)
regulations.
After careful consideration of these
comments, Treasury and the IRS are post-
poning the effective date of the final reg-
ulations under § 1.417(a)(3)–1 for certain
QJSA explanations. The regulations will
generally be effective for QJSA expla-
nations provided with respect to annuity
starting dates beginning on or after Feb-
ruary 1, 2006. In the interim, plans that
do not comply with § 1.417(a)(3)–1 will
be required to comply with prior guidance
regarding disclosure of relative value and
financial effect. See §§ 1.401(a)–11(c)(3)
and 1.401(a)–20, Q&A–36 as they ap-
peared in the April 1, 2003, edition of the
Code of Federal Regulations.
Notwithstanding this extension, the ex-
isting effective date under § 1.417(a)(3)–1
of the regulations is retained for explana-
tions with respect to any optional form of
benefit that is subject to the requirements
of § 417(e)(3) of the Code (e.g.,single
sums, distributions in the form of partial
single sums in combination with annuities,
or installment payment options) if the actu-
arial present value of that optional form is
less than the actuarial present value (as de-
termined under § 417(e)(3)) of the QJSA.
Thus, for example, a QJSA explanation
provided with respect to an annuity start-
ing date beginning on or after October 1,
2004, must comply with § 1.417(a)(3)–1
to the extent that the plan provides for pay-
ment to that participant in the form of a sin-
gle sum that is less valuable than the QJSA.
Reasonable Estimates for Generalized
Notice
The final regulations provide two meth-
ods for disclosing the relative value and
financial effect of the optional forms of
benefit presently available to a partici-
pant: the “participant-specific” method of
§ 1.417(a)(3)–1(c) and the “generalized
notice” method of § 1.417(a)(3)–1(d).
Under the participant-specific method,
a plan must provide information on the
relative value and financial effect of each
optional form of benefit and is permitted
to use reasonable estimates for this pur-
pose (e.g., estimates based on data as of
an earlier date, a reasonable assumption
of the spouse’s age, or reasonable esti-
mates of the applicable interest rate under
§ 417(e)(3)).
Under the generalized notice method,
a plan discloses the amount of the par-
ticipant’s benefit payable in the normal
form of benefit and provides additional in-
formation that is not participant-specific
(although participant-specific information
must be provided upon request). The ad-
ditional information may be disclosed in
the form of a chart based on computations
for hypothetical participants that shows the
financial effect of generally available op-
tional forms of benefit in units such as dol-
lars per thousand, and the relative value
of those optional forms. The disclosure of
2004–29 I.R.B.66July 19, 2004

the amount of the individual participant’s
benefit in combination with the chart al-
lows the individual to estimate the finan-
cial effect and relative value of the optional
forms of benefit available to that individ-
ual.
In response to questions raised, this
announcement clarifies that reasonable
estimates may be used in determining
the amount of the normal form of benefit
available to a participant under the gen-
eralized notice method of disclosure. In
addition, a plan may choose to base the
chart or additional information described
above in part on participant-specific data
so long as the requirements of the general-
ized notice method are otherwise satisfied.
QJSA as Most Valuable Optional Form of
Benefit
Section 1.401(a)–20, Q&A–16, pro-
vides that, in the case of a married partic-
ipant, the QJSA must be at least as valu-
able as any other optional form of benefit
payable under the plan at the same time.
Section 417(e)(3) provides that specified
mortality and interest rate assumptions
apply in determining the minimum present
value of certain optional forms of benefit,
such as a single sum. Some commentators
have expressed concern that, solely as a
result of the use of the actuarial assump-
tions specified in § 417(e)(3), the value of
a single-sum distribution may exceed the
actuarial present value of a QJSA, espe-
cially at younger ages.
The Treasury and the Service intend to
issue regulations, effective retroactively,
clarifying the interaction between the
QJSA requirements and the requirements
of § 417(e)(3) to use specified actuarial
assumptions. The regulations are expected
to provide that a plan will not fail to sat-
isfy the requirements of § 417 merely
because the application of § 417(e)(3)
causes an optional form of benefit to be
more valuable than the QJSA.
Contact Information
For further information regard-
ing this announcement, please contact
Diane Bloom at (202) 283–9888, or
Linda Marshall at (202) 622–6090. These
numbers are not toll-free.
Excise Taxes;
Communications Services
Announcement 2004–61
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Advance notice of proposed
rulemaking.
SUMMARY: This document requests in-
formation from the public on issues that
theIRSmayaddressinproposedregu-
lations (REG–137076–02) relating to the
tax on amounts paid for communications
services. All materials submitted will be
available for public inspection and copy-
ing.
DATES: Written and electronic comments
must be received by September 29, 2004.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR(REG–137076–02),
room 5203, Internal Revenue Service,
POB 7604, Ben Franklin Station, Wash-
ington, DC 20044. Submissions may
be hand-delivered between the hours of
8a.m. and4p.m. toCC:PA:LPD:PR
(REG–137076–02), Courier’s Desk, In-
ternal Revenue Service, 1111 Constitution
Avenue, N.W., Washington, DC, or sent
electronically, via the IRS Internet site at
www.irs.gov/regsor via the Federal eRule-
making Portal atwww.regulations.gov
(indicate IRS and REG–137076–02).
FOR FURTHER INFORMATION
CONTACT: Concerning submissions
generally, the Regulations Unit, (202)
622–3628; concerning the proposals,
Cynthia McGreevy (202) 622–3130 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
Section4251imposestaxonamounts
paid for certain communications services,
including local and toll telephone service.
Section 4252(a) provides that local tele-
phone service means the access to a local
telephone system, and the privilege of tele-
phonic quality communication with sub-
stantially all persons having telephone or
radio telephone stations constituting a part
of such local telephone system. Section
4252(b)(1) provides that toll telephone ser-
vice includes a telephonic quality commu-
nication for which there is a toll charge
that varies in amount with the distance and
elapsed transmissiontime of each individ-
ual communication. Section 4252(b)(2)
provides that toll telephone service also in-
cludes a service that entitles the subscriber,
upon payment of a periodic charge (deter-
mined as a flat amount or upon the basis
of total elapsed transmission time), to the
privilege of an unlimited number of tele-
phonic communications to or from all or
a substantial portion of the persons hav-
ing telephone or radio telephone stations in
a specified area which is outside the local
telephone system area in which the station
provided with this service is located.
A tax on communications services has
existed for over 100 years. The commu-
nications services that currently are sub-
ject to the tax are defined in section 4252,
which was enacted in its current form in
1965. That section describes the local
and long distance telephone service sold
under the 1965 Federal Communications
Commission rules. Existing Treasury reg-
ulations do not reflect the 1965 statutory
change.
Sections 4252(a) and (b) define lo-
cal and toll telephone service in terms
of telephonic or telephonic quality com-
munication, which means voice quality
communication. Since 1965, numerous
communications services have been de-
veloped and marketed, the methods of
transmission have expanded, and the in-
dustry has been deregulated.
As a result of these changes, questions
have arisen concerning the application of
section 4251 to certain communications
services that were not available in 1965. In
response to these questions, Treasury and
the IRS are considering proposing regula-
tions that would revise the existing regula-
tions to reflect changes in technology.
The test for taxability under section
4251 is whether a service for which
an amount is paid is a communications
service described in section 4252. The
purpose of this ANPRM is to solicit in-
formation from the public on how present
technology should be treated within the
description of telephonic or telephonic
quality communication in the definitions
July 19, 2004672004–29 I.R.B.

of local and toll telephone service under
section 4252.
To ensure that any new regulations
accurately reflect the state of today’s com-
munications servicesindustry, Treasury
and the IRS request that communications
services providers and other interested
parties submit comments and sugges-
tions describing the various technologies,
services, and methods of transmission
currently available for transmitting data
and voice communications and how they
should be treated under section 4251.
Special Analysis
This advance notice of proposed rule-
making is not a significant regulatory
action for purposes of Executive Order
12866, “Regulatory Planning and Re-
view.”
Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on July 1, 2004,
8:45 a.m., and published in the issue of the Federal Register
for July 2, 2004, 69 F.R. 40345)
2004–29 I.R.B.68July 19, 2004

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the ef-
fect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is be-
ingextendedtoapplytoavariationofthe
fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare withmodi-
fied,below).
Clarifiedis used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
withamplifiedandclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
beingstatedinanewruling.
Supersededdescribes a situation where
the new ruling does nothing more than re-
state the substance and situation of a previ-
ously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same po-
sition published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single rul-
ing a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new rul-
ing does more than restate the substance
of a prior ruling, a combination of terms
is used. For example,modifiedandsu-
persededdescribes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously pub-
lished ruling is first modified and then, as
modified, is superseded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original rul-
ing has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the ad-
ditions, and supersedes all prior rulings in
the series.
Suspendedis used in rare situations
to show that the previous published rul-
ings will not be applied pending some
future action such as the issuance of new
or amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The fol
lowing abbreviations in current use
and for
merly used will appear in material
publis
hedintheBulletin.
A—Individual.
Acq.—A
cquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank
.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cu
mulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Coo
perative.
Ct.D.—Court Decision.
CY—County.
D—Decede
nt.
DC—Dummy Corporation.
DE—Donee.
Del. Order
—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Emp
loyer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduc
iary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Fo
reign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Fed
eral Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grante
e.
GP—General Partner.
GR—Grantor.
IC—Insura
nce Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited
Partner.
LR—Lessor.
M—Minor.
Nonacq.—No
nacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Persona
l Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Pa
rtnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Re
al Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsi
diary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target
Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Trans
feree.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpay
er.
TR—Trust.
TT—Trustee.
U.S.C.—Uni
ted States Code.
X—Corporation.
Y—Corporation.
Z—Corporat
ion.
July 19, 2004i2004–29 I.R.B.

Numerical Finding List
1
Bulletins 2004–27 through 2004–29
Announcements:
2004-55, 2004-27 I.R.B.15
2004-56, 2004-28 I.R.B.41
2004-57, 2004-27 I.R.B.15
2004-58, 2004-29 I.R.B.66
2004-60, 2004-29 I.R.B.43
2004-61, 2004-29 I.R.B.67
Notices:
2004-41, 2004-28 I.R.B.31
2004-43, 2004-27 I.R.B.10
2004-44, 2004-28 I.R.B.32
2004-45, 2004-28 I.R.B.33
2004-46, 2004-29 I.R.B.46
2004-47, 2004-29 I.R.B.48
Proposed Regulations:
REG-131486-03, 2004-28 I.R.B.36
REG-117307-04, 2004-28 I.R.B.39
Revenue Procedures:
2004-38, 2004-27 I.R.B.10
2004-39, 2004-29 I.R.B.49
2004-40, 2004-29 I.R.B.50
Revenue Rulings:
2004-63, 2004-27 I.R.B.6
2004-64, 2004-27 I.R.B.7
2004-65, 2004-27 I.R.B.1
2004-66, 2004-27 I.R.B.4
2004-67, 2004-28 I.R.B.28
Tax Conventions:
2004-60, 2004-29 I.R.B.43
Treasury Decisions:
9131, 2004-27 I.R.B.2
9132, 2004-28 I.R.B.16
9133, 2004-28 I.R.B.25
1
A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., publishedin Internal Revenue Bulletins 2004–1 through 2004–26 is in Internal Revenue Bulletin
2004–26, dated June 28, 2004.
2004–29 I.R.B.iiJuly 19, 2004

Findings List of Current Actions on
Previously Published Items
1
Bulletins 2004–27 through 2004–29
Notices:
98-65
Superseded by
Rev. Proc. 2004-40, 2004-29 I.R.B.50
Revenue Procedures:
94-64
Superseded by
Rev. Proc. 2004-38, 2004-27 I.R.B.10
96-53
Superseded by
Rev. Proc. 2004-40, 2004-29 I.R.B.50
Revenue Rulings:
81-100
Clarified and modified by
Rev. Rul. 2004-67, 2004-28 I.R.B.28
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2004–1 through 2004–26 is in Internal Revenue Bulletin 2004–26, dated June 28, 2004.
July 19, 2004iii2004–29 I.R.B.
*U.S. Government Printing Office: 2004—304–778/60144

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