us-irs-notices-irb-1996-49-pdf•Internal Revenue Bulletin 1996-49 (PDF rendition): IRS Notices
Internal Revenue Bulletin 1996-49 (PDF rendition): IRS Notices
us-irs-notices-irb-1996-49-pdfInternal Revenue Bulletin 1996-49 (PDF rendition): IRS NoticesGuidance
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.
INCOME TAX Rev. Rul. 96–55, page 4. 1996 base period T-bill rate.The “base period T-bill rate” for the period ending September 30, 1996, is published, as required by Code section 995(f)(4). IA–42–95, page 21. Proposed regulations under Code section 6662 relate to the accuracy-related penalty regulations. A public hearing will be held on February 25, 1997. ADMINISTRATIVE Rev. Proc. 96–53, page 9. This procedure informs taxpayers how to secure an advance pricing agreement covering transfer pricing methodologies for international transactions from the Office of Associate Chief Counsel (International). Rev. Proc. 91–22 superseded. Notice 96–58, page 7. Qualified State Tuition Programs.This notice provides guidance regarding certain reporting requirements and the transition rules applicable to “qualified State tuition programs” described in Code section 529 as added by the Small Business Job Protection Act of 1996 (P.L. 104–188). Notice 96–60, page 7. The Service intends to issue, before the end of 1996, detailed guidance under Code section 877, as amended by the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), Code section 6039F, as added by HIPAA, and Code sections 1494 and 6048, as amended by the Small Business Job Protection Act of 1996. Certain filings under Code sections 877, 6039F, and 6048 will not be required to be submitted, and no penalty will be imposed under Code section 1494(c), before a date that is at least 60 days after the issuance of the forthcoming guidance. Notice 96–61, page 8. Information reporting; discharge of indebtedness. Pending issuance of further guidance, no penalties will be imposed for failure to report under Code section 6050P a discharge of indebtedness of a foreign debtor held by foreign offices or branches of foreign financial institutions that are applicable entities under Code section 6050P(c)(2)(C). Notice 96–62, page 8. Information reporting; substitute Forms 1099; logos. Payors required to report certain payments on Form 1099 are informed that the Service intends to issue regulations permitting the use of certain logos and identifying slogans on substitute Forms 1099, and that the Service is requesting comment on this matter. Announcement 96–124, page 22. The Service announces the publication of Rev. Proc. 96–53, informing taxpayers how to secure an advance pricing agreement from the Office of Associate Chief Counsel (International). Finding Lists begin on page 26. Monthly Index for November begins on page 28. Bulletin No. 1996–49 December 2, 1996 HIGHLIGHTS OF THIS ISSUE These synopses are intended only as aids to the reader in identifying the subject matter covered. They may not be relied upon as authoritative interpretations. Mission of the Service The purpose of the Internal Revenue Service is to collect the proper amount of tax revenue at the least cost; serve the public by continually improving the quality of our products and services; and perform in a manner warranting the highest degree of public confidence in our integrity, efficiency and fairness. Statement of Principles of Internal Revenue Tax Administration The function of the Internal Revenue Service is to administer the Internal Revenue Code. Tax policy for raising revenue is determined by Congress. With this in mind, it is the duty of the Service to carry out that policy by correctly applying the laws enacted by Congress; to determine the reasonable meaning of various Code provisions in light of the Congressional purpose in enacting them; and to perform this work in a fair and impartial manner, with neither a government nor a taxpayer point of view. At the heart of administration is interpretation of the Code. It is the responsibility of each person in the Service, charged with the duty of interpreting the law, to try to find the true meaning of the statutory provision and not to adopt a strained construction in the belief that he or she is ‘‘protecting the revenue.’’ The revenue is properly protected only when we as- certain and apply the true meaning of the statute. The Service also has the responsibility of applying and administering the law in a reasonable, practical manner. Issues should only be raised by examining officers when they have merit, never arbitrarily or for trading purposes. At the same time, the examining officer should never hesitate to raise a meritorious issue. It is also important that care be exercised not to raise an issue or to ask a court to adopt a position inconsistent with an established Service position. Administration should be both reasonable and vigorous. It should be conducted with as little delay as possible and with great courtesy and considerateness. It should never try to overreach, and should be reasonable within the bounds of law and sound administration. It should, however, be vigorous in requiring compliance with law and it should be relentless in its attack on unreal tax devices and fraud. 2 Introduction The Internal Revenue Bulletin is the authoritative instru- ment of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Inter- nal Revenue Service and for publishing Treasury Deci- sions, Executive Orders, Tax Conventions, legislation, court decisions, and other items of general interest. It is published weekly and may be obtained from the Superin- tendent of Documents on a subscription basis. Bulletin contents of a permanent nature are consolidated semi- annually into Cumulative Bulletins, which are sold on a single-copy basis. It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application of the tax laws, including all rulings that supersede, revoke, modify, or amend any of those previously published in the Bulletin. All published rulings apply retroactively unless otherwise indicated. Proce- dures relating solely to matters of internal management are not published; however, statements of internal practices and procedures that affect the rights and duties of taxpayers are published. Revenue rulings represent the conclusions of the Ser- vice 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 unwar- ranted 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 proce- dures, the effect of subsequent legislation, regulations, court decisions, rulings, and procedures must be consid- ered, and Service personnel and others concerned are cautioned against reaching the same conclusions in other cases unless the facts and circumstances are substantially the same. The Bulletin is divided into four parts as follows: Part I.—1986 Code. This part includes rulings and decisions based on provisions of the Internal Revenue Code of 1986. Part II.—Treaties and Tax Legislation. This part is divided into two subparts as follows: Subpart A, Tax Conventions, and Subpart B, Legislation and Related Committee Reports. Part III.—Administrative, Procedural, and Miscellaneous. To the extent practicable, pertinent cross references to these subjects are contained in the other Parts and Subparts. Also included in this part are Bank Secrecy Act Administrative Rulings. Bank Secrecy Act Administra- tive Rulings are issued by the Department of the Treasury’s Office of the Assistant Secretary (Enforce- ment). Part IV.—Items of General Interest. With the exception of the Notice of Proposed Rulemak- ing and the disbarment and suspension list included in this part, none of these announcements are consoli- dated in the Cumulative Bulletins. The first Bulletin for each month includes an index for the matters published during the preceding month. These monthly indexes are cumulated on a quarterly and semiannual basis, and are published in the first Bulletin of the succeeding quarterly and semi-annual period, respectively. The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate. For sale by the Superintendent of Documents U.S. Government Printing Office, Washington, D.C. 20402. 3 Part I. Rulings and Decisions Under the Internal Revenue Code of 1986 Section 995.—Taxation of DISC Income to Shareholders 1996 base period T-bill rate.The ‘‘base period T-bill rate’’ for the period ending September 30, 1996, is pub- lished, as required by section 995(f)(4) of the Code. Rev. Rul. 96–55 Section 995(f)(l) of the Internal Rev- enue Code provides that a shareholder of a DISC shall pay interest each tax- able year in an amount equal to the product of the shareholder’s DISC- related deferred tax liability for the year and the ‘‘base period T-bill rate.’’ Under section 995(f)(4), the base period T-bill rate is the annual rate of interest deter- mined by the Secretary to be equivalent to the average investment yield of United States Treasury bills with maturi- ties of 52 weeks which were auctioned during the one-year period ending on September 30 of the calendar year end- ing with (or of the most recent calendar year ending before) the close of the taxable year of the shareholder. The base period T-bill rate for the period ending September 30, 1996, is 5.51 percent. Pursuant to section 6622 of the Code, interest must be compounded daily. The table below provides factors for com- pounding the base period T-bill rate daily for any number of days in the shareholder’s taxable year (including a 52–53 week accounting period) for the 1996 base period T-bill rate. To compute the amount of the interest charge for the shareholder’s taxable year, multiply the amount of the shareholder’s DISC- related deferred tax liability (as defined in section 995(f)(2)) for that year by the base period T-bill rate factor correspond- ing to the number of days in the shareholder’s taxable year for which the interest charge is being computed. Gen- erally, one would use the factor for 365 days. One would use a different factor only if the shareholder’s taxable year for which the interest charge being deter- mined is a short taxable year, if the shareholder uses the 52–53 week taxable year, or if the shareholder’s taxable year is a leap year. For the base period T-bill rates for the periods ending in prior years,see: Rev. Rul. 86–132, 1986–2 C.B. 137; Rev. Rul. 87–129, 1987–2 C.B. 196; Rev. Rul. 88–94, 1988–2 C.B. 301; Rev. Rul. 89–116, 1989–2 C.B. 197; Rev. Rul. 90–96, 1990–2 C.B. 188; Rev. Rul. 91–59, 1991–2 C.B. 347; Rev. Rul. 92–98, 1992–2 C.B. 201; Rev. Rul. 93–77, 1993–2 C.B. 253; Rev. Rul. 94–68, 1994–2 C.B. 177: and Rev. Rul. 95–77, 1995–2 C.B. 122. DRAFTING INFORMATION The principal author of this revenue ruling is David Bergkuist of the Office of the Associate Chief Counsel (Interna- tional). For further information about this revenue ruling, contact Mr. Bergkuist on (202) 622–3860 (not a toll-free call 1996 ANNUAL RATE, COMPOUNDED DAILY DAYS 5.51 PERCENT FACTOR 1.000150546 2.000301116 3.000451707 4.000602322 5.000752959 6.000903619 7.001054301 8.001205006 9.001355734 10.001506485 11.001657258 12.001808054 13.001958873 14.002109714 15.002260578 16.002411465 17.002562374 18.002713306 19.002864261 20.003015239 21.003166239 22.003317263 23.003468308 24.003619377 25.003770468 26.003921582 27.004072719 28.004223879 29.004375061 30.004526266 31.004677494 32.004828745 33.004980018 34.005131314 35.005282633 36.005433975 37.005585340 DAYS 5.51 PERCENT FACTOR 38.005736727 39.005888137 40.006039570 41 .006191025 42.006342504 43.006494005 44.006645529 45.006797076 46 .006948646 47.007100239 48.007251854 49.007403492 50.007555153 51 .007706837 52.007858544 53.008010273 54.008162026 55.008313801 56 .008465599 57.008617420 58.008769263 59.008921130 60.009073020 61 .009224932 62.009376867 63.009528825 64.009680806 65.009832810 66 .009984837 67.010136886 68.010288959 69.010441054 70.010593173 71 .010745314 72.010897478 73.011049665 74.011201875 75.011354108 76.011506364 77.011658642 78.011810944 79.011963268 80.012115616 81.012267986 82.012420380 83.012572796 84.012725235 85.012877697 86.013030183 87.013182691 88.013335222 89.013487776 90.013640353 4 DAYS 5.51 PERCENT FACTOR 91.013792953 92.013945576 93.014098222 94.014250890 95.014403582 96.014556297 97.014709035 98.014861796 99.015014580 100.015167387 101.015320216 102.015473069 103.015625945 104.015778844 105.015931766 106.016084711 107.016237679 108.016390670 109.016543684 110.016696721 111.016849781 112.017002864 113.017155970 114.017309099 115.017462252 116.017615427 117.017768625 118.017921847 119.018075091 120.018228359 121.018381650 122.018534963 123.018688300 124.018841660 125.018995043 126.019148449 127.019301878 128.019455331 129.019608806 130.019762304 131.019915826 132.020069371 133.020222939 134.020376529 135.020530144 136.020683781 137.020837441 138.020991124 139.021144831 140.021298561 141.021452314 142.021606090 143.021759889 144.021913711 145.022067557 DAYS 5.51 PERCENT FACTOR 146.022221425 147.022375317 148.022529232 149.022683170 150.022837132 151.022991116 152.023145124 153.023299155 154.023453209 155.023607286 156.023761386 157.023915510 158.024069657 159.024223827 160.024378020 161.024532237 162.024686476 163.024840739 164.024995025 165.025149335 166.025303667 167.025458023 168.025612402 169.025766804 170.025921230 171.026075679 172.026230151 173.026384646 174.026539165 175.026693707 176.026848272 177.027002860 178.027157472 179.027312107 180.027466765 181.027621446 182.027776151 183.027930879 184.028085630 185.028240405 186.028395203 187.028550024 188.028704869 189.028859737 190.029014628 191.029169542 192.029324480 193.029479441 194.029634426 195.029789433 196.029944465 197.030099519 198.030254597 199.030409698 200.030564823 DAYS 5.51 PERCENT FACTOR 201.030719970 202.030875142 203.031030336 204.031185554 205.031340796 206.031496060 207.031651348 208.031806660 209.031961995 210.032117353 211.032272734 212.032428139 213.032583568 214.032739020 215.032894495 216.033049993 217.033205515 218.033361061 219.033516630 220.033672222 221.033827838 222.033983477 223.034139139 224.034294825 225.034450535 226.034606268 227.034762024 228.034917804 229.035073607 230.035229433 231.035385284 232.035541157 233.035697054 234.035852975 235.036008919 236.036164886 237.036320877 238.036476891 239.036632929 240.036788991 241.036945076 242.037101184 243.037257316 244.037413471 245.037569650 246.037725853 247.037882079 248.038038328 249.038194601 250.038350898 251.038507218 252.038663561 253.038819928 254.038976319 255.039132733 5 DAYS 5.51 PERCENT FACTOR 256.039289171 257.039445632 258.039602117 259.039758625 260.039915157 261.040071713 262.040228292 263.040384895 264.040541521 265.040698171 266.040854844 267.041011541 268.041168262 269.041325006 270.041481774 271.041638565 272.041795380 273.041952219 274.042109081 275.042265967 276.042422876 277.042579809 278.042736766 279.042893746 280.043050750 281.043207778 282.043364829 283.043521904 284.043679002 285.043836125 286 .043993270 287.044150440 288.044307633 289.044464850 290.044622090 291 .044779354 292.044936642 293.045093954 294.045251289 295.045408648 296 .045566030 297.045723437 298.045880867 299.046038320 300.046195798 301 .046353299 302.046510823 303.046668372 DAYS 5.51 PERCENT FACTOR 304.046825944 305.046983540 306 .047141160 307.047298803 308.047456470 309.047614161 310.047771876 311 .047929614 312.048087376 313.048245162 314.048402971 315.048560805 316 .048718662 317.048876543 318.049034447 319.049192376 320.049350328 321 .049508304 322.049666304 323.049824327 324.049982375 325.050140446 326 .050298541 327.050456659 328.050614802 329.050772968 330.050931158 331 .051089372 332.051247610 333.051405872 334.051564157 335.051722466 336 .051880799 337.052039156 338.052197537 339.052355942 340.052514370 341 .052672822 342.052831299 343.052989799 344.053148322 345.053306870 346 .053465442 347.053624037 348.053782657 349.053941300 350.054099967 DAYS 5.51 PERCENT FACTOR 351.054258658 352.054417373 353.054576112 354.054734874 355.054893661 356.055052471 357.055211306 358.055370164 359.055529046 360.055687953 361.055846883 362.056005837 363.056164815 364.056323816 365.056482842 366.056641892 367.056800966 368.056960063 369.057119185 370.057278330 371.057437500 Section 6044.—Returns Regarding Payments of Patronage Dividends 26 CFR 1.6044–5: Statements to recipients of patronage dividends. Are payors, required to report payments on Form 1099, permitted to use certain logos and identifying slogans on substitute Forms 1099? See Notice 96–62, page 8. Section 6049.—Returns Regarding Payments of Interest 26 CFR 1.6049–6: Statements to recipients of interest payments and holders of obligations as to which there is attributed original issue. Are payors, required to report payments on Form 1099, permitted to use certain logos and identifying slogans on substitute Forms 1099? See Notice 96–62, page 8. Section 6050N.—Returns Regarding Payments of Royalties 26 CFR 1.6050N–1: Statements to recipients of royalties. Are payors, required to report payments on Form 1099, permitted to use certain logos and identifying slogans on substitute Forms 1099? See Notice 96–62, page 8. 6 Part III. Administrative, Procedural, and Miscellaneous Qualified State Tuition Programs Notice 96–58 This notice provides guidance regard- ing certain reporting requirements and the transition rules applicable to ‘‘quali- fied State tuition programs’’ described in § 529 of the Internal Revenue Code, recently enacted by section 1806 of the Small Business Job Protection Act, Pub. L. 104–188 (the ‘‘Act’’). The notice also solicits comments from the public on section 529. Section 529 provides tax-exempt sta- tus to ‘‘qualified State tuition pro- grams,’’ meaning programs established and maintained by a State (or agency or instrumentality thereof) under which persons may (1) purchase tuition credits or certificates on behalf of a designated beneficiary entitling the beneficiary to a waiver or payment of qualified higher education expenses of the beneficiary, or (2) contribute to an account established for the sole purpose of meeting qualified higher education expenses of the desig- nated beneficiary of the account. Under § 529, qualified State tuition programs also must meet requirements relating to contributions, refunds, and maintenance of separate accounts for each designated beneficiary of the pro- gram. In addition, the program must prohibit investment direction by con- tributors or beneficiaries, the pledge or assignment of any interest in the pro- gram as security for a loan, and excess contributions. In general, § 529 is effective for taxable years ending after August 20, 1996, the date of enactment. However, the Act includes a transition rule provid- ing that if (1) a State maintains (on the date of enactment) a program under which persons may purchase tuition credits on behalf of, or make contributions for educational expenses of, a desig- nated beneficiary, and (2) such pro- gram meets the requirements of a qualified State tuition program before the later of (a) one year after the date of enactment, or (b) the first day of the first calendar quarter after the close of the first regular session of the State legislature that begins after the date of enactment, then the provi- sions of the...[Act] will apply to con- tributions (and earnings allocable thereto) made before the date the program meets the requirements of a qualified State tuition program, with- out regard to whether the require- ments of a qualified State tuition program are satisfied with respect to such contributions and earnings. . . . H.R. Conf. Rep. No. 737, 104th Cong., 2d Sess. 282 (1996). (Conference Re- port). The Internal Revenue Service will not assert income tax liability against a State tuition program for any period before the program meets the require- ments of § 529 if the program qualifies for the transition rule. Section 529(c)(3)(A) and (B) provides that any distribution made by or benefit furnished in-kind under a qualified State tuition program shall be includible in the gross income of the distributee in the manner as provided under § 72, to the extent not excluded from gross in- come under any other provision. Section 529(d) authorizes the Internal Revenue Service to require qualified State tuition programs to file informa- tion reports for education furnished to beneficiaries or distributions made to individuals during any calendar year. Any reporting requirements promulgated under § 529(d) would apply in lieu of any other reporting requirement for a program that may apply with respect to information returns or payee statements on distributions. The Internal Revenue Service is cur- rently developing reporting requirements under § 529(d). However, because this legislation was enacted late in the year and because States are expected to need time to implement appropriate record- keeping, reporting will not be required for any distribution made by, or benefit furnished in-kind under, a qualified State tuition program prior to 1998. In addition, the Internal Revenue Service will not assess penalties against plan administrators who do not file informa- tion returns or provide payee statements on distributions made during 1997 and prior years. Comments on Future Guidance In- vited The Internal Revenue Service invites comments on § 529, including the re- quirements for reporting distributions made by qualified State tuition pro- grams, the requirements for qualification and operation of these programs, and the treatment for federal tax purposes of distributions made by these programs. These comments will be considered in drafting future guidance. Please send written comments by December 31, 1996, to: CC:DOM:CORP:R (Notice 96–58), Room 5226, Internal Revenue Service, POB 7604, Ben Franklin Sta- tion, Washington, DC 20044. Submis- sions may be hand-delivered between the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (Notice 96–58), Courier’s Desk, Internal Revenue Ser- vice, 1111 Constitution Avenue, NW, Washington, DC. Alternatively, taxpay- ers may submit comments electronically via the Internet directly to the IRS in- ternet site at http://www.irs.ustreas.gov/ prod/tax_regs/comments.html. For further information concerning this notice contact Monice Rosenbaum of the Office of Associate Chief Counsel (Employee Benefits and Exempt Organi- zations) at (202) 622–6070 (not a toll free call). Interim Guidance on Sections 877, 1494, 6039F, and 6048 Notice 96–60 This notice provides guidance for tax- payers affected by the penalty provision of section 1494 and the filing require- ments of section 6048(a) of the Internal Revenue Code (‘‘Code’’), as amended by the Small Business Job Protection Act of 1996 (‘‘SBJPA’’). This notice also provides guidance for taxpayers affected by the ruling request provision of section 877 of the Code, as amended by the Health Insurance Portability and Accountability Act of 1996 (‘‘HIPAA’’), and the information reporting require- ments of section 6039F of the Code, as added by HIPAA. 1 BACKGROUND Section 877, as amended by HIPAA, generally provides that a former U.S. citizen who renounces his citizenship after February 5, 1995, or a former long-term lawful permanent resident who ceases to be taxed as a lawful permanent resident after that date, who had as a principal purpose for such renunciation or cessation the avoidance of U.S. taxes, will be taxed on all of his U.S. source income for the succeeding 10-year period. An individual who meets a tax liability or net worth test is 1 There are currently two provisions of the Code designated as section 6039F. The Service intends to seek a technical correction to HIPAA to redes- ignate section 6039F of the Code, as added by HIPAA, as section 6039G. 7 considered to be tax motivated. A former citizen who satisfies certain cri- teria will not be subject to these tests if he submits a ruling request within one year of renunciation of U.S. citizenship for a determination by the Secretary as to whether such renunciation had as one of its principal purposes the avoidance of U.S. taxes. However, the statute pro- vides that in no event will this one-year period expire before November 19, 1996 (the date that is 90 days after the enactment of HIPAA). Section 6039F, as added by HIPAA, requires each individual who relin- quishes U.S. citizenship after February 5, 1995, to provide an information state- ment to the U.S. Department of State, a diplomatic or consular officer of the United States, or a federal court at the time of expatriation. Any individual who ceases to be taxed as a lawful perma- nent resident after February 5, 1995, must provide a similar information state- ment with his U.S. tax return for that year. However, the statute provides that in no event will this information state- ment be required to be filed before November 19, 1996. Section 1491 generally imposes an excise tax on the transfer of property by a U.S. person to a foreign corporation as paid-in surplus or as a contribution to capital, to a foreign estate or trust, or to a foreign partnership. Current regula- tions under section 1494 require a U.S. transferor to file a return on the date such a transfer is made. Section 1494(c), as added by SBJPA, imposes a penalty for the failure to file a required return with respect to any transfer described in section 1491 that occurs after August 20, 1996 (the date of enactment of SBJPA). Section 6048(a), as amended by SBJPA, generally requires any U.S. per- son who transfers property to a foreign trust after August 20, 1996, to file an information return. The statute provides that this return must be filed no later than 90 days after the transfer (or such later date as the Secretary may pre- scribe). INTERIM GUIDANCE The Service intends to issue detailed guidance in these areas before the end of 1996. The forthcoming guidance will not require the submission of a ruling request under section 877, an informa- tion statement under section 6039F, or an information return under section 6048(a) before a date that is at least 60 days after the issuance of that guidance. Any such ruling request, information statement, or information return submit- ted within the time period set forth in the forthcoming guidance will be con- sidered filed in a timely manner. In addition, no penalty will be imposed under section 1494(c) if a return re- quired with respect to a section 1491 transfer is filed no later than 60 days after the issuance of the forthcoming guidance (or such later date specified in that guidance). The principal author of this notice is Michael Kirsch of the Office of the Associate Chief Counsel (International). For further information regarding sec- tions 877 or 6039F, contact Michael Kirsch or Trina Dang, for information regarding section 1494 contact Wendy Stanley, and for information regarding section 6048 contact Leslie Cracraft. Each of these individuals may be reached at (202) 622–3860 (not a toll- free call). Information Reporting for Discharges of Indebtedness: Waiver of Penalties in Certain Circumstances for Foreign Financial Entities Notice 96–61 This notice extends the scope of the penalty relief granted in the preamble to the final Income Tax Regulations under § 6050P of the Internal Revenue Code relating to the reporting of discharges of indebtedness (61 F.R. 262, January 4, 1996). Section 6050P requires an information return to be filed by an applicable entity, including an applicable financial entity, which discharges the indebtedness of any person if the amount discharged is $600 or more. Section 6050P(c)(2) pro- vides that an applicable financial entity includes any financial institution de- scribed in § 581 or 591(a), any credit union, and any other corporation which is a direct or indirect subsidiary of such entity but only if, by virtue of being affiliated with the entity, the corporation is subject to supervision and examina- tion by a Federal or State agency which regulates such other entities. Section 1.6050P–1(d) of the regula- tions provides certain exceptions from the reporting requirements. Section 1.6050P–1(d)(4) reserves guidance as to the circumstances under which the re- porting requirements will not apply to the discharge of indebtedness of foreign debtors held by foreign branches of U.S. financial institutions. Section 1.6050P– 1(d)(4)(ii) identifies the criteria that must be met in order to treat indebted- ness held by a foreign branch of a U.S. financial institution as being within the scope of the reserved guidance. The preamble to the final regulations states, in part, that ‘‘the IRS and Trea- sury are continuing to study the issue of whether reporting is necessary in the case of foreign debtors whose debt is discharged by foreign branches of U.S. financial institutions. Accordingly, pend- ing the issuance of further guidance, no penalties will be imposed if an appli- cable financial entity fails to report a discharge of indebtedness of a foreign debtor by a foreign branch of the en- tity.’’ After issuance of the final regulations, commentators requested that the penalty relief described in the preamble to the final regulations also apply to indebted- ness held by foreign offices or branches of foreign financial institutions that are applicable financial entities under § 6050P(c)(2)(C). The Internal Revenue Service has determined that, pending the issuance of further guidance, the relief granted in the preamble should be extended, as suggested by commentators. To accom- plish this, the regulations will be amended to delete the word ‘‘U.S.’’ from the heading of § 1.6050P–1(d)(4) and the introductory text in § 1.6050P– 1(d)(4)(ii). Furthermore, no penalties will be imposed if a foreign office or branch of a foreign applicable financial entity fails to report a discharge of indebtedness of a foreign debtor de- scribed in § 1.6050P–1(d)(4)(ii) after giving effect to the preceding sentence. The principal author of this notice is Sharon Hall of the Office of Assistant Chief Counsel (Income Tax and Ac- counting). For further information re- garding this notice, contact Ms. Hall on (202)622–4930 (not a toll-free call). Logos and Identifying Slogans on Substitute Forms 1099 Notice 96–62 This notice informs payors who are required to report certain payments on Form 1099 that the Service intends to issue regulations permitting these payors to use certain logos and identifying slogans on substitute Forms 1099 re- quired to be furnished to payees after 8 December 31, 1995, and invites public comment on this matter. The Internal Revenue Code generally requires that payors of interest (§ 6049), dividends (§ 6042), patronage dividends (§ 6044), and royalties (§ 6050N), make an information return, in the form prescribed by the Secretary, setting forth the amount of such payments and the name and address of the payee. The payor must also furnish the payee with a copy of the information return (the payee statement) in person or in a statement mailing. Payors may furnish either the official Form 1099 or an acceptable substitute payee statement. The legislative history to the state- ment mailing requirement provides that only certain limited enclosures in the statement mailing can be made with the payee statement, specifically: (1) a check; (2) a letter explaining why no check is enclosed; and (3) a statement of the payee’s specific account with the payor. The legislative history further provides that a mailing is not a state- ment mailing if it encloses any other material such as advertising, promo- tional material, or a quarterly or annual report. The legislative history explains that this additional material is not per- mitted because these enclosures may make it less likely that payees will recognize the importance of the payee statement and may not utilize the payee statement in completing their tax re- turns.SeeS. Rep. No. 99–318, 99th Cong., 2d Sess. at 191; and H.R. Conf. Rep. No. 99–841, 99th Cong., 2d Sess. at II–791. The Service recently issued final regulations that apply to payee state- ments due after December 31, 1995. §§ 1.6042–4; 1.6044–5; 1.6049–6(e); and 1.6050N–1 of the Income Tax Regulations. These regulations provide that the mailing of payee statements must qualify as a statement mailing. To qualify, the mailing is permitted to con- tain only certain specified nontax enclo- sures, limited to: (1) a check; (2) a letter explaining why no check is enclosed; (3) a statement of the payee’s account; and (4) a letter explaining the tax conse- quences of the information in the payee statement.See,e.g., § 1.6042–4(d)(2)(i). The regulations prohibit other nontax enclosures and promotional or advertis- ing materials and provide that even ade minimisamount of such material vio- lates the statement mailing requirement. Although the regulations specifically permit logos on the envelope and on the permitted nontax enclosures identified above, they do not permit logos on the substitute Form 1099 itself.See,e.g., § 1.6042–4(d)(2)(i). The Service intends to amend the regulations to allow the use of certain logos and identifying slogans on substi- tute Forms 1099 required to be fur- nished to payees. The amended regula- tions generally will permit logos (including the name of the payor in any typeface, font, or stylized fashion and/or a symbolic icon) and identifying slo- gans, provided the logo or identifying slogan is used by the payor in the ordinary course of its trade or business. However, consistent with Congressional intent, the amended regulations will pro- vide that use of a logo or identifying slogan must not make it less likely that a reasonable payee will recognize the importance of the payee statement for tax reporting purposes. Pending issuance of the amended regulations, the Service will not impose penalties in connection with a payor’s use on a payee statement of a logo or an identifying slogan that satisfies these requirements. Public comment invited.The Service invites public comment on this matter. Written comments may be submitted by mail to: Internal Revenue Service P.O. Box 7604 Ben Franklin Station Attn: CC:CORP:T:R (IA–Branch 1), Room 5228 Washington, D.C. 20044; or, alternatively, via the internet at: http://www.irs.ustreas.gov/prod/tax_regs/ comments.html. DRAFTING INFORMATION The principal author of this notice is Donna Welch of the Office of Assistant Chief Counsel (Income Tax and Ac- counting). For further information re- garding this notice, contact Ms. Welch on (202) 622–4910 (not a toll-free call). Section 482 — Allocations Between Related Parties Rev. Proc. 96–53 SECTION 1. PURPOSE This revenue procedure updates and supersedes Revenue Procedure 91–22, 1991–1 C.B. 526, and informs taxpayers how to secure an advance pricing agree- ment (‘‘APA’’) from the Office of the Associate Chief Counsel (International) covering the prospective determination and application of transfer pricing meth- odologies (‘‘TPMs’’) for international transactions. An APA is an agreement between the Service and the taxpayer on the TPM to be applied to any apportion- ment or allocation of income, deduc- tions, credits, or allowances between or among two or more organizations, trades, or businesses owned or con- trolled, directly or indirectly, by the same interests. The TPM thus represents the application to the taxpayer‘‘s spe- cific facts and circumstances of the best method within the meaning of the in- come tax regulations under § 482 of the Internal Revenue Code (’’the regula- tions‘‘), as agreed pursuant to negotia- tions between the Service and the tax- payer. SEC. 2. OVERVIEW Under the APA request procedure, the taxpayer proposes a TPM and provides data intended to show that the TPM is the appropriate application of the best method within the meaning of the regu- lations for determining arm’s length re- sults between the taxpayer and specified affiliates with respect to specified inter- company transactions. The Service evaluates the APA request by analyzing the data submitted and any other rel- evant information. After discussion, if the taxpayer’s proposal is acceptable, the parties execute an APA covering the proposed TPM. APAs often involve agreements with foreign competent au- thorities under income tax conventions. SEC. 3. PRINCIPLES OF THE APA PROCESS .01 The APA process is designed to be a flexible problem- solving process, based on cooperative and principled ne- gotiations between taxpayers and the Service. . 02 APAs are intended to reflect agreement between the taxpayer and the Service on the best method, within the meaning of the regulations, for deter- mining arm’s length prices, and the proper application of the best method to the taxpayer’’s specific facts and cir- cumstances (that is, the TPM). In nego- tiations for APAs involving one or more foreign competent authorities (‘‘bilat- eral’’ and ‘‘multilateral’’ APAs), the ini- tial negotiating position of the U.S. competent authority will reflect the Ser- vice’s opinion, based on consultation with the taxpayer, of the best method within the meaning of the regulations and the appropriate TPM. 9 03 The taxpayer must, to the extent feasible, secure relevant pricing data from closely comparable uncontrolled transactions. If this information cannot be obtained, the taxpayer must identify any transactions it believes may be comparable, but for which reliable data is unavailable. Where such transactions cannot be identified, the taxpayer must, to the extent possible, secure relevant pricing data from uncontrolled transac- tions that are similar, even though not closely comparable, and propose adjust- ments to account for differences be- tween such uncontrolled transactions and its own operations. The APA pro- cess may apply notwithstanding that no comparable uncontrolled transactions can be identified. In such cases, a taxpayer must demonstrate that the pro- posed TPM otherwise satisfies the re- quirements of § 482 and this revenue procedure. .04 The APA Policy Board (the ‘‘Policy Board’’) consists of the Associ- ate Chief Counsel (International), the Assistant Commissioner (International), and the Assistant Commissioner (Exami- nation). The Policy Board establishes Service policy on matters of substantial general importance pertaining to the APA Program. .05 The APA Program is under the immediate supervision of a Director (the ‘‘APA Director’’) within the Office of the Associate Chief Counsel (Interna- tional). The APA Director shall, directly or by delegation, take any actions neces- sary for carrying out the provisions of this revenue procedure. .06 Application of the TPM to tax years prior to those covered by the APA (‘‘rollback’’ of the TPM) is an effective means of enhancing voluntary compli- ance and an effective use of resources in addressing unresolved transfer pricing issues. It is Service policy that, when- ever feasible (based, for example, on consistency of facts, law, and available records in the prior years), the TPM should be used for resolving such issues for prior taxable years. As provided in section 8 of this revenue procedure, the taxpayer may request that the Service consider a rollback in connection with a particular request. Taxpayers should rec- ognize that, even absent a request for a rollback, the Service may, under regu- larly applicable procedures, determine that the TPM agreed to in an APA should be applied to prior years. When applying the TPM to prior years, whether or not at the request of the taxpayer, adjustments may be made to reflect differences in facts, economic conditions, and applicable legal rules. .07 The filing of an APA request does not put into abeyance any examination or other enforcement proceeding. Ser- vice personnel responsible for APAs and for enforcement proceedings involving the taxpayer shall, to the extent feasible, coordinate their activities so as to avoid duplicative information requests to the taxpayer, to enhance the efficiency of Service operations and to reduce overall taxpayer compliance burdens. .08 Prompt and fair resolution of APA requests and renewals, in keeping with the demands of the multinational economic environment, are central goals of the APA process. .09 The Service intends that the APA process will retain the flexibility to address the needs of particular taxpay- ers. To this end, the Service and the taxpayer may, by agreement, adopt spe- cial procedures, including simplified procedures, that depart from those set forth in this revenue procedure. Such special procedures might be warranted, for example, in order to meet the needs of small business taxpayers, or in order to facilitate simultaneous negotiation of APAs by the taxpayer, the Service, and foreign competent authorities. SEC. 4. PREFILING CONFERENCES .01 Some cases are not suitable for APAs. Even in suitable cases, the extent of information needed and scope of the necessary written request will vary from case to case. Therefore, the taxpayer may request one or more prefiling con- ferences to explore informally the suit- ability of an APA and to clarify what data, documentation, and analyses are likely to be necessary in order for the Service to be able to consider a request; the need for an independent expert; potentially applicable TPMs; the possi- bility of an agreement among competent authorities; and the Service’s schedule and method for coordinating and evalu- ating the request. .02 To schedule a prefiling confer- ence, the taxpayer or its representative should contact the APA Office with three alternative dates for the prefiling conference. The taxpayer may request a prefiling conference either on the basis that its identity will be made known in connection with the conference, or that it will participate in the conference on an anonymous basis. If the taxpayer chooses to make its identity known in the conference, representatives of the District and of any Appeals or District Counsel Office with responsibility for the taxpayer’s returns normally will par- ticipate in the prefiling conference. If the taxpayer initially requests a prefiling conference on an anonymous basis, then chooses to identify itself, the conference may be rescheduled to permit necessary personnel to participate. When request- ing a prefiling conference on an identi- fied basis, the taxpayer must inform the APA Office whether transactions similar or related to those to be covered by the proposed APA are currently under con- sideration by Examination, Appeals or Counsel. Taxpayers should, at least one week prior to a prefiling conference, send a brief prefiling submission to the APA Office that confirms the date, time and place of the prefiling conference; lists the persons attending the prefiling conference for the taxpayer; and outlines the issues to be discussed at the prefil- ing conference. If the prefiling submis- sion is ten pages or less, it may be sent by facsimile; if the prefiling submission exceeds ten pages, seven copies and one original should be delivered pursuant to the instructions contained in section 5.13 of this revenue procedure. SEC. 5. CONTENT OF APA REQUESTS .01General. (1) All materials submitted with the request become part of the Service’s file and will not be returned. Therefore, original documents should not be sub- mitted. (2) The taxpayer must submit copies of any documents relating to the pro- posed TPM and must ensure that all submitted information is properly la- beled, indexed, and referenced in the request. Any previously-submitted docu- ments that the taxpayer wishes to asso- ciate with the request must be refer- enced in the request. If the records or documents to be submitted are too volu- minous for transmittal with the request, the taxpayer must describe the contents of such items in the request, certify that the items exist at the time the request is submitted, state where the items are located, state whom the Service can contact to secure the items, and confirm that the items will promptly be made available upon request. (3) All documents submitted in a for- eign language must be accompanied by an English translation. 10 (4) The user fee should be submitted with the request, unless previously sub- mitted. .02Explanation of the Proposed TPM. The taxpayer must provide a detailed explanation and analysis of each pro- posed TPM based on the principles discussed in sections 3.02 and 3.03 of this revenue procedure. The request should illustrate each proposed TPM by applying it, in a consistent format, to the prior three taxable years’ financial and tax data of the parties. When historical data cannot be used to illustrate a TPM (for example, when the TPM applies to a new product or business), the request should include an illustration based on projected or hypothetical data. If cover- age of three taxable years is inappropri- ate for any reason, the taxpayer should provide data for an appropriate date range and explain why this range was chosen. .03General Factual and Legal Items for All Proposed TPMs. Unless otherwise agreed in a prefiling conference, each request must include, in addition to any other items specified in this revenue procedure, the following items: (1) The organizations, trades, busi- nesses, and transactions that will be subject to the APA. (2) The names, addresses, telephone numbers, and taxpayer identification numbers of the controlled taxpayers that are parties to the requested APA (the parties). (3) A properly completed Form 2848 for any persons authorized to represent the parties in connection with the re- quest. If the taxpayer or the taxpayer’s authorized representative has retained any other person or persons (including, but not limited to, a law firm, account- ing firm, or economic consulting firm) to assist the taxpayer in pursuing the APA request, the taxpayer must also provide a separate written authorization for disclosures to such person or persons and their employees during the Service’s consideration of the request, pursuant to the instructions in § 301.6103(c)–1 of the Income Tax Regulations. (4) A brief description of the general history of business operations, world- wide organizational structure, owner- ship, capitalization, financial arrange- ments, principal businesses, and the place or places where such businesses are conducted, and major transaction flows of the parties. (5) Representative financial and tax data of the parties for the last three taxable years, together with other rel- evant data and documents in support of the proposed TPM. This item includes, but need not be limited to, data con- tained in Form 5471 (Information Re- port with Respect to a Foreign Corpora- tion); Form 5472 (Information Report of a Foreign Owned Corporation); income tax returns; financial statements; annual reports; other pertinent U.S. and foreign government filings (for example, cus- toms reports or SEC filings); existing pricing, distribution, or licensing agree- ments; marketing and financial studies; and company-wide accounting proce- dures, business segment reports, bud- gets, projections, business plans, and worldwide product line or business seg- ment profitability reports. (6) The functional currency of each party and the currency in which pay- ment between parties is made for the transactions that will be covered by the APA. (7) The taxable year of each party. (8) A description of significant finan- cial accounting methods employed by the parties that have a direct bearing on the proposed TPM. (9) An explanation of significant fi- nancial and tax accounting differences, if any, between the U.S. and the foreign countries involved that have a bearing on the proposed TPM. (10) A discussion of any relevant statutory provisions, tax treaties, court decisions, regulations, revenue rulings, or revenue procedures that relate to the proposed TPM. (11) A statement describing all previ- ous and current issues at the examina- tion, appeals, judicial, or competent au- thority levels that relate to the proposed TPM, including an explanation of the taxpayer’s and the government’s posi- tions and any resolution of any such issues. The same information may also be required for similar issues involving foreign tax authorities. .04Specific Factual Items for a Pro- posed TPM other than a Cost Sharing Arrangement. The following information may be appropriate to establish the arm’s length basis of the proposed TPM under § 482: (1) Pertinent measurements of profit- ability and return on investment (for example, gross profit margin or markup, gross income/total operating expenses, net operating profit margin, or return on assets). (2) A functional analysis of each party setting forth the economic activi- ties performed, the assets employed, the economic costs incurred, and the risks assumed. (3) An economic analysis or study of the general industry pricing practices and economic functions performed within the markets and geographical areas to be covered by the APA. (4) A list of the taxpayer’s competi- tors and a discussion of any uncon- trolled transactions, lines of business or types of businesses that may be compa- rable or similar to those addressed in the request. (5) A detailed presentation of the re- search efforts and criteria used to iden- tify and select possible independent comparables and of the application of the criteria to the potential comparables. This presentation should include a list of potential comparables and an explana- tion of why each was either accepted or rejected. (6) A detailed explanation of the se- lection and application of the factors used to adjust the activities of selected independent comparables for purposes of devising the proposed TPM. Ex- amples of possible adjustments include adjustments to accord with product line segregations; for functional differences relating to activities performed, assets employed, risks and costs incurred; for volume or scale differences; and for differing economic and market condi- tions. .05Specific Factual Items for a Cost Sharing Arrangement. The taxpayer must apply the cost sharing regulations under § 482 in de- veloping the cost sharing arrangement proposed in the request. The following illustrates information that may be ap- propriate to establish that the proposed arrangement is a qualified cost sharing arrangement: (1) The history of the business opera- tions, the geographic locations, and prin- cipal business activities (for example, manufacturing or marketing) of each of the participants. (2) Documentation of the arrange- ment and any changes made to it, along with an explanation and the dates thereof. (3) The participants, their dates of entry, each participant’s contribution to the arrangement, each participant’s inter- 11 est in any covered intangibles, and how each participant reasonably anticipates that it will derive benefits from the use of covered intangibles; a statement whether there has been or will be any transfer by any participant of covered intangibles to another taxpayer under common control and, if so, how benefits will be reflected under those circum- stances; and evidence of participants’ compliance with the reporting require- ments under the cost sharing regulations. (4) The method for calculating each participant’s share of intangible develop- ment costs and the reason why such method can reasonably be expected to reflect that participant’s share of antici- pated benefits; and a statement whether and how the participants’ shares of intangible development costs will be adjusted to account for changes in eco- nomic conditions, the business opera- tions and practices of the participants, and the ongoing development of intan- gibles under the arrangement. (5) The scope of the research and development to be undertaken, including the intangible or class of intangibles intended to be developed. (6) The duration of the arrangement; the conditions under which the arrange- ment may be modified or terminated; and the consequences of such modifica- tion or termination, such as the interest that each participant will receive in any covered intangibles. (7) The scope of intangible develop- ment costs, and which costs are included and which are excluded (for example, costs of technology acquired from third parties; non-product specific develop- ment costs; costs associated with aban- doned projects; costs associated with specific stages of product development; and relevant labor, material, and over- head costs); a description of any ser- vices performed for participants to be included in intangible development costs (for example, contract research) and how those services would be taken into account; and, for a representative period, a breakdown of total costs incurred, and the costs borne by each participant, pursuant to the arrangement. (8) The basis used for measuring benefits, the projections used to estimate benefits, and why such basis and projec- tions yield the most reliable estimate of reasonably anticipated benefits; a de- scription of any amounts to be received from nonparticipants for the use of covered intangibles (for example, as a royalty pursuant to a license agreement) and how such amounts would be taken into account; and, for a representative period, a comparison of projected and actual benefit shares. (9) The accounting method used to determine the cost and benefits of the intangible development (including the method used to translate foreign curren- cies), and to the extent that the account- ing method differs materially from U.S. generally accepted accounting principles, an explanation of any material differ- ences. (10) Prior research, if any, undertaken in the intangible development area; any tangible or intangible property made available for use in the arrangement and any compensation paid for that property (specifying the amount, payor and payee, and how such compensation is determined); and any other information used to establish the value of pre- existing and covered intangibles. (11) Whether and how participants may join or leave the arrangement (or otherwise change their interests in cov- ered intangibles); any adjustments that will be made to the participants’ inter- ests in covered intangibles in such cases; any payments that must be made in such cases, and how such payments will be calculated and made; and whether any changes in the participants’ interests in covered intangibles have already occurred, any compensation paid for those interests, and any information used to establish the value of such interests. (12) How cost sharing payments and buy-in or buy-out payments (i.e., pay- ments made when a participant contrib- utes intangibles, or acquires or relin- quishes an interest in covered intangibles) made or received have been treated for U.S. income tax purposes. (13) Representative internal manuals, directives, guidelines, and similar docu- ments prepared for purposes of imple- menting or operating the cost sharing arrangement (for example, research and development committee meeting min- utes, market studies, economic impact analyses, capital expenditure budgets, engineering studies, reports and studies of trends and profitability in the indus- try, and financial analyses for financing and cash flow purposes). (14) Each participant’s gross and net profitability (historical for five taxable years and projected for two taxable years) with regard to the product area covered by the arrangement. .06Discussion of Collateral Income Tax Issues. The taxpayer must discuss any rel- evant collateral income tax issues (for example, issues relating to foreign tax credits) raised by the proposed TPM under United States law. .07Critical Assumptions. The taxpayer must propose and de- scribe a set of critical assumptions. A critical assumption is any fact (whether or not within control of the taxpayer) related to the taxpayer, a third party, an industry, or business and economic con- ditions, the continued existence of which is material to the taxpayer’s proposed TPM. Critical assumptions might in- clude, for example, a particular mode of conducting business operations, a par- ticular corporate or business structure or a range of expected business volume. .08Contents of Annual Report. Section 11.01 of this revenue proce- dure provides that the taxpayer must file an annual report for each taxable year covered by the APA. The taxpayer should propose in the request a list of items to be included in each report. For example, the report should generally include the following items: (a) the application of the TPM to the actual operations for the year; (b) a description of any material lack of conformity with critical assumptions and the reasons therefor (or, if there has been no mate- rial lack of conformity with critical assumptions, a statement to that effect); and (c) an analysis of any compensating adjustments to be paid by one entity to the other, and the manner in which the payments are to be made. Other items may be appropriate to the taxpayer’s particular circumstances. .09Term. (1) The taxpayer must propose an initial term for the APA. For example, the APA could take effect at the begin- ning of the taxable year during which it was requested or signed, and last for three taxable years. The term should be appropriate to the industry, product, or transaction involved. (2) The APA request must be filed no later than the time prescribed by law (including extensions) for filing the tax- payer’s Federal income tax return for the first taxable year to be covered by the APA. For purposes of the preceding sentence, an APA request will be consid- ered filed on the date payment of the required user fee is made (within the meaning of § 7502(a)), provided that a 12 substantially complete APA request is filed with the Service within 120 days thereafter, subject to extension by the Service based on a showing of substan- tial unforeseen circumstances. .10Request for Competent Authority Consideration. The taxpayer must state whether any of the parties to a request are residents of or conduct activities in a foreign country that has a tax treaty with the United States or in a possession of the United States, and whether the taxpayer proposes an agreement among compe- tent authorities or an agreement de- scribed in Rev. Proc. 89–8, 1989–1 C.B. 778 (see section 7 of this revenue procedure for guidelines). For purposes of this revenue procedure, ‘‘competent authority’’ includes the U.S. and foreign competent authorities under income tax treaties to which the U.S. is a party, and also includes the Assistant Commis- sioner (International) acting with respect to a possession tax agency described in Rev. Proc. 89–8, as well as a designated possession tax official within the mean- ing of that revenue procedure. If the taxpayer proposes an agreement among competent authorities for the initial term of the APA, the taxpayer’s request must include the information described in sections 4.05(a) and (b) and, in a sepa- rate document, section 4.05(m), of Rev. Proc. 96–13, 1996–3 I.R.B. 31, or simi- lar information pursuant to a request for relief under Rev. Proc. 89–8. .11Perjury Statement. The taxpayer must include in any request for an APA, and any supplemen- tal submission, a declaration in the fol- lowing form: Under penalties of perjury, I de- clare that I have examined this request, including accompanying documents, and, to the best of my knowledge and belief, the request contains all the relevant facts relat- ing to the request, and such facts are true, correct, and complete. The declaration must be signed by the person or persons on whose behalf the request is being made and not by the taxpayer’s representative. The person signing for a corporate taxpayer must be an authorized officer of the taxpayer who has personal knowledge of the facts and whose duties are not limited to obtaining letter rulings or determination letters from the Service, or negotiating APAs. The person signing for a trust or a partnership must be a trustee or a partner who has personal knowledge of the facts. .12Signatures. The taxpayer or the taxpayer’s autho- rized representative must sign the re- quest. If an authorized representative is to sign, the taxpayer and representative must conform to the rules of Rev. Proc. 96–1, 1996–1 I.R.B. 8 (or its successor). .13Copies and Mailing. (1) Requests or other documents con- taining user fees must be mailed or delivered to Internal Revenue Service Attn: CC:DOM:CORP:T P.O. Box 7604 Ben Franklin Station Washington, DC 20044, or may also be hand delivered to the drop box at the 12th Street entrance of 1111 Constitution Avenue, N.W., Wash- ington, DC. (2) All other communications may either be mailed to Advance Pricing Agreement Program Internal Revenue Service Attn: CC:INTL Room 3501, 1111 Constitution Ave., N.W. Washington, DC 20224 or may be delivered to Advance Pricing Agreement Program Internal Revenue Service Attn: CC:INTL 5th Floor, 950 L’Enfant Plaza, S.W. Washington, DC 20024 The taxpayer should provide the original and seven copies of its APA request and of all supplemental materials submitted while the request is pending. .14User Fees. (1) The user fee for each separate request for an advance pricing agree- ment is $25,000 except as provided below in this section 5.14 of this rev- enue procedure. (2) The user fee for each sepa- rate request for an advance pricing agreement from a taxpayer with gross income (as determined in section 5.14(7) of this revenue procedure) of at least $100,000,000 and less than $1,000,000,000 is $15,000. (3) The user fee for each separate request for an advance pricing agree- ment or renewal from a taxpayer with gross income (as determined in section 5.14(7) of this revenue procedure) of less than $100,000,000 is $5,000. (4) Notwithstanding sections 5.14(1) and (2) of this revenue procedure, if it is apparent on the face of the APA request that the transaction or transactions sub- ject to the request involve tangible prop- erty and/or services the total annual value of which is not in excess of $50,000,000, or payments for intangible property (such as royalties) not in ex- cess of $10,000,000 annually, the user fee for each separate request shall not be more than $7,500. (5) As explained in section 5.14(8) of this revenue procedure, an APA request that involves pricing issues in more than one foreign jurisdiction will normally be considered to constitute multiple bilat- eral requests. The user fee for the first such request shall be determined under sections 5.14(1), (2), (3), (4), or (6) of this revenue procedure as applicable. The user fee for each subsequent bilat- eral request, however, shall be not more than $7,500, if such subsequent bilateral request (a) involves the same product line, goods, services, or intangibles, and the same issues, as involved in the first request; (b) covers the same taxable years as covered by the first request; and (c) proposes the same TPM as the first request. (6) Notwithstanding sections 5.14(1) and (2) of this revenue procedure, the user fee for a request for renewal of an APA, when the material facts, critical assumptions and proposed TPM have not substantially changed, shall not be more than $7,500. (7) For purposes of sections 5.14(2) and 5.14(3) of this revenue procedure, gross income of a U.S. person (or non-U.S. person filing a federal income tax return with respect to all such person’s income) is equal to ‘‘total in- come’’ as reported on the last federal income tax return for such person (as amended) filed for a full (12 month) taxable year ending before the date the request was filed, plus ‘‘cost of goods sold’’ as reported on that federal income tax return, plus any income not subject to tax under section 103 for that period; and gross income of all other persons shall be computed on an equivalent basis (that is, gross receipts or economic income plus cost of goods sold) for such person’s most recently completed 12- month year. For purposes of sections 5.14(2) and (3) of this revenue proce- dure, gross income of a taxpayer shall include the gross income (determined pursuant to the preceding sentence) of all organizations, trades or businesses (whether or not incorporated, whether or not resident or organized in the U.S., and whether or not affiliated for tax 13 purposes) owned or controlled directly or indirectly by the same interests con- trolling the taxpayer. (8) For purposes of this section 5.14 of this revenue procedure, a separate request constitutes a request for agree- ment on a transfer pricing methodology or methodologies comprising a closely related set of facts, such that review of the single set of facts will suffice to determine the suitability of all the meth- odologies involved in the separate re- quest. For example, an APA submission involving the pricing of tangible prod- ucts and the manufacturing services pro- vided by a parent to a subsidiary with respect to those products usually would constitute one separate request. Simi- larly, a submission involving separate product lines manufactured in the same location by substantially similar pro- cesses usually would constitute one separate request. However, a submission involving product lines manufactured at different locations, or by manufacturing processes that are not substantially simi- lar, usually would constitute more than one request. The fact that an APA submission involves pricing issues re- lated to more than one foreign jurisdic- tion, and thus requires analyses of sepa- rate factual or economic issues, as well as negotiations between the U.S. and more than one foreign competent au- thority, will normally result in treatment of the submission as more than one request. However, such separate requests may be eligible for reduced user fees under paragraph (5) of this section 5.14 of this revenue procedure. (9) If an APA request is submitted or processed under paragraphs (2), (3), (4), (5), or (6) of this section 5.14 of this revenue procedure, and it later becomes apparent that the request does not meet the criteria for application of such para- graphs, the Service will request an addi- tional user fee to conform the request to the proper amount under this revenue procedure, as appropriate. The taxpayer may either pay such additional fee and continue the APA process or may with- draw the request. If the taxpayer with- draws the request, the Service may return the user fee to the taxpayer if the Service determines that such action would be appropriate under the circumstances. Ex- cept to the extent inconsistent with this revenue procedure, the principles of Rev. Proc. 96–1 (or its successor), including but not limited to section 14 thereof, shall apply to all questions related to user fees in connection with APAs. The APA Team Leader described in section 6.04 of this revenue procedure, prior to the initial meeting with the taxpayer on a filed APA, will make a determination regarding the correctness of the taxpay- er’s initial payment of user fees and request any necessary corrections. (10) The chart below summarizes the foregoing user fee provisions: Taxpayer Gross IncomeOriginal Request Each Additional Multilateral Request 1 Routine Renewal 2 Small Transactions 3 $1 billion or more$25,000$7,500$7,500$7,500 Less than $1 billion and greater than or equal to $100 million $15,000$7,500$7,500$7,500 Less than $100 million$5,000$5,000$5,000$5,000 1 Only if such additional request involves the same issues, covers the same years, and proposes the same TPM as the first request; see section 5.14(5). 2 Only if the material facts, critical assumptions, and proposed TPM have not substantially changed; see section 5.14(6). 3 Regardless of taxpayer size, applies to transactions that involve (i) tangible property or services valued at no more than $50 million annually, or (ii) payments for intangible property not in excess of $10 million annually; see section 5.14(4). SEC. 6. PROCESSING OF APA REQUESTS .01Initial Contact. After receiving a request for an APA, a representative of the APA Program will contact the taxpayer to discuss any questions that the Service may have, or to ask for any additional information or documents believed necessary in order to initiate processing of the request. Additional information and documents must be supplied by the date specified by the Service, as extended for good cause. .02Coordination with Other IRS Of- fices. Upon receipt of a request, the APA Director will coordinate the evaluation of the request with other Service offi- cials, such as the District Director, Re- gional Director of Appeals and District Counsel. In appropriate cases, such as where a request proposes an agreement between competent authorities, the APA Director will coordinate with the U.S. competent authority. .03Evaluation Process. The Office of Associate Chief Coun- sel (International), in coordination with the appropriate District Director and other appropriate Service officials, will evaluate the taxpayer’s APA request by discussing it with the taxpayer, verifying the data supplied, and requesting addi- tional supporting data if necessary. The evaluation of the request will not consti- tute an examination or inspection of the taxpayer’s books and records under § 7605(b) or any other provision of the Code. .04Formation of the APA Team and Designation of Team Leader. Within 45 days of receiving the tax- payer’s APA request and any required user fees, the APA Director will appoint an APA Team to review the request. The APA Team normally will consist of at least one representative of the Office of Associate Chief Counsel (International), as well as representatives of the appro- priate District and District Counsel and, when appropriate, Appeals and the U.S. competent authority. The APA Director will appoint a Team Leader to oversee the APA Team’s activities. Whenever reasonably feasible, if a prefiling confer- ence has been held with the taxpayer, the Team Leader will be appointed from among the IRS representatives at the prefiling conference. .05Negotiation and Drafting. (1) The APA Team shall arrange with the taxpayer for an initial meeting to take place within 60 days of receiving the taxpayer’s APA request and required user fee. In connection with the initial meeting, the APA Team and the taxpayer shall agree on a Case Plan and Sched- ule, to which everyone involved in the APA–both government and taxpayer personnel–will be expected to adhere. The Case Plan and Schedule should list each question raised by the initial Ser- 14 vice review of the APA request and should include a schedule for seeking to resolve each. The Case Plan and Sched- ule generally should reflect agreement between the APA Team and the taxpayer on the scope and nature of any addi- tional information that will be required to resolve these questions in order to negotiate an APA. Firm dates should be agreed upon for case milestones, includ- ing: (a) submission of any necessary additional information by the taxpayer; (b) evaluation of the information by the government; (c) negotiation of a recom- mended agreement or competent author- ity negotiating position; and (d) presen- tation of the recommended agreement or competent authority negotiating position in writing to the Associate Chief Coun- sel (International). (2) The time scheduled for comple- tion of the case milestones will depend to some extent on the scope and com- plexity of the particular case. In the case of bilateral or multilateral requests, the Service will seek to work with the competent authority of the treaty partner or U.S. possession involved to minimize the time needed for competent authority resolution. (3) To minimize delays caused by the need to coordinate different parties’ schedules on short notice, the time and place of meetings required for any steps in the case should be determined in the Case Plan and Schedule. (4) Failures by either the taxpayer or the APA Team to meet case milestones will be addressed promptly, normally in a meeting or telephone conference in- volving the APA Director, members of the Service APA Team, and the taxpayer. If a taxpayer has failed to meet one of the case milestones, the APA Director will assist the taxpayer in remedying any difficulties and will propose a course of action to ensure that mile- stones can be met. Substantial and con- sistent failure by the taxpayer to comply with the Case Plan and Schedule will be treated by the Service as a withdrawal of the APA request. In this event, if the taxpayer wishes to continue to pursue the APA, the taxpayer will be required to refile the request and pay a new user fee. If the Service fails to meet a case milestone, the APA Director, the Service APA Team, and supervisors in the Dis- trict and Region, as appropriate, shall work together promptly to remedy the situation. (5) In some circumstances, develop- ment of the case after agreement on the Case Plan and Schedule will suggest, to both the APA Team and the taxpayer, that some milestone dates should be adjusted. To preserve flexibility, the APA Team and the taxpayer may amend the Case Plan and Schedule by mutual agreement, consistent with the need to maintain progress toward completion of the case as expeditiously as feasible. (6) The function of the APA Team is to negotiate and recommend an agree- ment, and if applicable to recommend in consultation with the taxpayer a compe- tent authority negotiating position, to the Associate Chief Counsel (International). Negotiations between taxpayers and the APA Team should be documented by means agreed between the parties. The District Director with responsibility for the taxpayer’s returns shall be provided an opportunity to review and comment on the draft APA in the case of a unilateral APA, and the proposed initial US competent authority negotiating po- sition in the case of a bilateral or multilateral APA. Signature of an APA by the Associate Chief Counsel (Interna- tional) and the taxpayer will constitute agreement to the APA. .06Withdrawing the Request. The taxpayer may withdraw the re- quest at any time before the execution of the APA. Pursuant to the principles of Rev. Proc. 96–1 (or its successors), including but not limited to section 14.09 thereof, the user fee generally will not be refunded if the taxpayer with- draws its request for an APA. .07Rejecting the Request. The Service may decline either to accept any APA request or to execute any APA, as requested, after a request has been accepted. If the Service de- clines to execute an APA after the request has been initiated, the Service normally will retain the user fee, al- though the fee may be returned if the Service determines that such action would be appropriate under the circum- stances. If the Service proposes to reject an APA request, the taxpayer will be granted one conference of right. Other conferences may be granted at the Ser- vice’s discretion. SEC. 7. COMPETENT AUTHORITY CONSIDERATION .01 When any of the parties to a request are entitled to seek relief under the mutual agreement provision of a tax treaty between a foreign country and the United States, or under Rev. Proc. 89–8, the competent authorities may enter into agreements concerning the APA. Re- quests similar to APA requests that are initiated through treaty partners or pos- session tax agencies and submitted to the U.S. competent authority will be processed under this revenue procedure and Rev. Proc. 96–13, as appropriate. In order to provide timely clarification of factual issues, minimize the potential for miscommunication, and assist in devel- opment of a multiple party agreement on a timely basis, the Service will generally initiate coordination among the taxpayer, the Service, and the com- petent authorities of treaty partners at the earliest possible stage of consider- ation of an APA request including, where possible, the prefiling stage. In this manner, the U.S. and foreign com- petent authorities can develop a joint understanding of the case which should facilitate negotiation and resolution of competent authority issues. The taxpayer should remain available throughout con- sideration of the request to assist the Service in reaching agreement with the foreign competent authority. Final agree- ment to the negotiated APA will be sought among the taxpayer, the Service, and the foreign competent authority. As a general matter, the taxpayer is encour- aged to submit APA requests and related correspondence simultaneously to the Service and to foreign competent au- thorities involved in the requests. .02 The purpose of the competent authority agreement is to avoid double taxation. If such an agreement is not acceptable to the taxpayer, the taxpayer may withdraw the APA request (see section 6.06 of this revenue procedure). If the competent authorities are unable to reach an agreement or the taxpayer does not accept the competent authority agreement, the Service will attempt to negotiate a unilateral APA with the taxpayer (see section 7.07 of this rev- enue procedure). .03 The taxpayer must cooperate with the Service and the U.S. competent authority, pursuant to the standards set forth in Rev. Proc. 96–13 and any other applicable revenue procedures. Any in- formation received or prepared by the Service, including information furnished by the taxpayer or the related foreign entity, will be subject to the restrictions on disclosure of tax related information provided by U.S. law and the applicable income tax convention. .04 It may be necessary to request sensitive confidential data (such as trade secrets) which, if disclosed, could harm the taxpayer’s competitive position. In 15 such cases, the parties will attempt to negotiate a mechanism to permit verifi- cation by a foreign competent authority without disclosing such information. .05 When the competent authorities enter into an agreement covering an APA, the Service will, to the extent practicable, agree to a mutual exchange of information with the foreign compe- tent authority concerning any subsequent modifications, cancellation, revocation, requests to renew, evaluation of annual reports, or examination of the taxpayer’s compliance with the terms and condi- tions of the APA. Bilateral APAs may provide for simultaneous filing of the annual report with the Service and with the foreign tax administration. .06 The U.S. competent authority will seek to persuade the foreign competent authority to use APA data only on terms similar to those described in sections 10.04 and 10.05 of this revenue proce- dure. .07 To minimize taxpayer and gov- ernmental uncertainty and administrative cost, bilateral or multilateral APAs gen- erally are preferable to unilateral APAs when competent authority procedures are available with respect to the foreign country or countries involved. In appro- priate circumstances, however, the Ser- vice may execute an APA with a tax- payer without reaching a competent authority agreement. The taxpayer must show sufficient justification for a unilat- eral APA. When a unilateral APA re- quest involves taxpayers operating in a country that is a treaty partner, the Service may notify the treaty partner of the filing of the request and provide the treaty partner with other information related to the request, under normal rules governing the exchange of infor- mation under income tax treaties. In some circumstances, procedures agreed upon with particular foreign competent authorities, or the requirements of proper relations with treaty partners, may preclude unilateral APAs. .08 Section 7.05 of Rev. Proc. 96–13 provides in part that, if a taxpayer reaches a settlement on an issue with Counsel pursuant to a written agree- ment, the U.S. competent authority will endeavor only to obtain a correlative adjustment from a treaty country and will not undertake any actions that would otherwise change such agreement. The restrictions imposed under section 7.05 of Rev. Proc. 96–13 with respect to the discretion of the U.S. competent authority to negotiate correlative relief will not apply to a unilateral APA. However, a unilateral APA may hinder the ability of the U.S. competent author- ity to reach a mutual agreement which will provide relief from double taxation, particularly when a contemporaneous bi- lateral or multilateral APA request would have been both effective and practical (within the meaning of § 1.901– 2(e)(5)(i)) to obtain consistent treatment of the APA matters in a treaty country. (If there is a settlement with respect to taxable years prior to the first year subject to a unilateral APA based on rollback of such APA‘‘s TPM (as dis- cussed in sections 3.06 and 8 of this revenue procedure), section 7.05 of Rev. Proc. 96–13 will apply to such rollback years in the regular manner.) SEC. 8. ROLLBACKS .01 The taxpayer may indicate in its APA request, or at any time prior to the completion of APA negotiations, that it desires for the Service to consider using the TPM of the APA to resolve transfer pricing issues for years prior to the earliest year covered by the APA. In general, the principles set forth in sec- tion 3.06 of this revenue procedure will govern the Service’s consideration of this request (the ‘‘rollback request’’). When a rollback request is made after submission of the APA request, the taxpayer must provide the request to the APA Director at the address indicated in section 5.13(2) of this revenue proce- dure. .02 If 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 accelerated competent authority consid- eration as described in section 7.06 of Rev. Proc. 96–13. The Office of Associ- ate Chief Counsel (International), the District Director, and the U.S. compe- tent authority will coordinate consider- ation of the request. The taxpayer’s request must include all information required for accelerated competent au- thority consideration under Rev. Proc. 96–13, subject to the rules set forth therein. The taxpayer’s request can per- tain to any years prior to the first year to be covered under the requested APA, except that, in order to facilitate effec- tive competent authority negotiations, the Service may require that, if acceler- ated competent authority consideration is to be granted, it will apply to one or more specified years. In exercising their regular discretion over the conduct of accelerated competent authority consid- eration, Service officials shall seek to implement the policy concerning APA rollbacks stated in section 3.06 of this revenue procedure. .03 If a rollback request is submitted in connection with a bilateral or multi- lateral APA and involves a taxable year that is under the jurisdiction of Appeals, the rollback request will be deemed to constitute an application for simulta- neous Appeals and competent authority consideration as described in section 8 of Rev. Proc. 96–13 and will be subject to the rules set forth therein. The Office of Associate Chief Counsel (Interna- tional), the Regional Director of Ap- peals, and the U.S. competent authority will coordinate consideration of the re- quest. In exercising their regular discre- tion over the conduct of simultaneous Appeals and competent authority consid- eration, Service officials shall seek to implement the policy concerning APA rollbacks stated in section 3.06 of this revenue procedure. .04 Subject to the policy set forth in section 3.06 of this revenue procedure, the determination whether a rollback shall be granted with respect to a tax- able year is within the discretion of the Service official with jurisdiction over the taxable year subject to the rollback — typically, either the District Director, the Regional Director of Appeals, the Assistant Commissioner (International) (for matters subject to competent author- ity negotiations), or the District Counsel (for matters under litigation). Except to the extent inconsistent with this revenue procedure, normal procedures for resolv- ing tax issues, including but not limited to closing agreements and other settle- ment documents and Forms 870 and 870AD, shall be used to implement APA rollbacks. SEC. 9. INDEPENDENT EXPERT OPINION .01 The taxpayer may be required to provide at its own expense an indepen- dent expert, acceptable to both the tax- payer and the Service (and, in a bilateral or multilateral proceeding, the foreign competent authority or authorities) to review and opine on the proposed TPM. The taxpayer may suggest in its APA request whether an independent expert is needed, or the Service (or, if applicable, the foreign competent authority) may determine that an independent expert is needed for the evaluation of the taxpay- er’s request. 16 .02 For purposes of this revenue pro- cedure, an expert is any person who, by agreement between the taxpayer and the Service (and, if involved, the foreign competent authority), possesses expert education or experience in a field of study, industry or geographic area that is relevant to the subject matter of the taxpayer’s APA request. .03 For purposes of this revenue pro- cedure, an expert is independent if the expert has not participated to any mate- rial extent in the development of the request and has not in the past assisted either the Service or the taxpayer in matters substantially related to the re- quest. .04 If an expert is necessary, the expert will critically analyze the taxpay- er’s proposed TPM and render a written opinion. The opinion will address any questions and concerns raised by the Service or the taxpayer (and, if in- volved, the foreign competent authority); conclude whether the proposed TPM or a revised version fairly supports and produces an arm’s length approach; and provide the basis for this opinion. How- ever, the expert’s opinion will not be binding on any of the parties. The taxpayer and the Service (and, if in- volved, the foreign competent authority) will have access to the expert’s report and supporting documentation. The Ser- vice and the taxpayer shall both be kept fully informed of any communications between the other party and the inde- pendent expert, and receive copies of all information provided by such other party to the expert. .05 If an independent expert is neces- sary, the taxpayer must provide a waiver under § 6103(c) to the Service for pur- poses of discussing returns or return information with the expert. The tax- payer must also ensure that the expert is familiar with the provisions of this rev- enue procedure and that any opinion rendered by the expert complies with those provisions. SEC. 10. LEGAL EFFECT .01 An APA is a binding agreement between the taxpayer and the Service. .02 If the taxpayer complies with the terms and conditions of the APA, the Service will regard the results of apply- ing the TPM as satisfying the arm’s length standard, and, except as provided in this revenue procedure, will not con- test the application of the TPM to the subject matter of the APA. The taxpayer remains otherwise subject to U.S. in- come tax laws and is entitled to any benefits otherwise available under U.S. income tax laws. .03 Except to the extent provided by regulations, an APA shall have no legal effect except with respect to the tax- payer, taxable years and transactions to which the APA specifically relates. .04 Except as otherwise provided by written agreement, regulations, or this revenue procedure, neither the APA nor any non-factual oral or written represen- tations or submissions made in conjunc- tion therewith may be introduced by the taxpayer or the Service as evidence in any judicial or administrative proceeding in relation to any tax year, transaction, or person not covered by the APA. However, taxpayers should recognize that the preceding sentence does not preclude rollback of the APA TPM, nor the discovery, use, or admissibility of non-factual material otherwise discover- able or obtained other than in the APA process merely because the same or similar material was also included in the APA or representations or submissions made in connection with the APA or presented during the APA process. .05 Except as otherwise provided by written agreement or regulations, if an APA is not executed or if an executed APA is later revoked or canceled, nei- ther the APA or the proposal to use a particular TPM, nor any non-factual oral or written representations or submissions made during the APA process, may be introduced by the taxpayer or the Ser- vice as an admission by the other party in any administrative or judicial pro- ceeding for the taxable years for which the APA was requested or executed. However, taxpayers should recognize that the preceding sentence does not preclude the discovery, use, or admissi- bility of non- factual material otherwise discoverable or obtained other than in the APA process merely because the same or similar material was also in- cluded in the APA or representations or submissions made in connection with the APA or presented during the APA process. SEC. 11. ADMINISTERING THE APA .01 Annual Reports. (1) For each taxable year covered by the APA, the taxpayer must file a timely and complete annual report describing the taxpayer’s actual operations for the year and demonstrating good faith com- pliance with the terms and conditions of the APA. The report must include all items called for by the APA, must describe any pending or contemplated requests to renew, modify or cancel the APA, and must describe any compensat- ing adjustments made pursuant to sec- tion 11.02 of this revenue procedure. (2) The taxpayer shall file an original and four copies of each report, no later than 90 days after the time prescribed by law (including extensions) for filing the taxpayer’s Federal income tax return for the year covered by the report, or by such other date as is specified in the APA, with the APA Director at the address indicated in section 5.13(2) of this revenue procedure. The taxpayer may also be required to file a copy of the annual report with the treaty partner or partners with respect to a bilateral or multilateral APA. The report must com- ply with sections 5.11 and 5.12 of this revenue procedure. (3) The Service will contact the tax- payer regarding an annual report only if it is necessary to clarify or complete the information contained in the annual re- port. Additional information must be supplied by the date specified by the Service, as extended for good cause. Any contact between the taxpayer and the Service for the purpose of clarifying the information contained in the annual report will not constitute an examina- tion, or the commencement of any ex- amination, of the taxpayer for purposes of § 7605(b) or any other provision of the Code. .02Compensating Adjustments. (1) If the results of applying the TPM differ from those contemplated by the APA, the APA may permit the taxpayer and its related foreign entity to make a compensating adjustment. For example, if the APA provides for a range of expected operating results, and the ac- tual operating results are outside that range (but within any limits specified in the APA), the APA may permit the parties to make a compensating adjust- ment to bring the results to an agreed upon point within the described range. Such compensating adjustment should be reflected on the taxpayer’s timely filed (with extensions) federal income tax return; if the taxpayer is not able to make such adjustments in its original return, the required compensating adjust- ment must in any event be made and paid within 90 days of the date pre- scribed for filing such return (with ex- tensions), and reflected on an amended return filed within such period and the timely filed annual report required by 17 section 11.01 of this revenue procedure. To the extent the APA covers years for which federal income tax returns were filed before the APA was executed, the taxpayer must make any required com- pensating adjustments in an amended return or returns filed within, and pay such compensating adjustments within, 90 days of entering into such APA. (2) The taxable income and earnings and profits of both the taxpayer and its related foreign entity for a taxable year covered by an APA will include all income generated as a result of the TPM as increased or decreased by any com- pensating adjustment for that year. A compensating adjustment will be deemed to have been made as of the last day of the taxable year to which it applies. For all U.S. income tax pur- poses, after taking into consideration any compensating adjustment, the ad- justed figures will be used. Provided that the taxpayer has made a good faith effort to comply with the TPM in such manner as to avoid the need for com- pensating adjustments, and payments of compensating adjustments are made within the time specified in section 11.02(1) of this revenue procedure, (i) the compensating adjustment will not be taken into account in the computation of any required estimated tax installments for such year, (ii) the taxpayer will not be subject to the failure to pay penalties under § § 6651 and 6655 by reason of the compensating adjustment, and (iii) no interest will accrue on any receivable or payable established to settle such compensating adjustment. A compensat- ing adjustment may, however, be taken into account for purposes of redetermin- ing any foreign tax credits in accordance with § 901. Subject, where applicable, to agreement between competent au- thorities, the taxpayer or the related foreign entity may employ any method that accords with section 4 of Rev. Proc. 65–17, 1965–1 C.B. 833 (as modified), or any successor, for paying compensat- ing adjustments, including checks, wire transfers, offsets through intercompany accounts, or recharacterized dividends. All actions taken with respect to such compensating adjustments must be documented and disclosed in the annual report. (3) A ‘‘subsequent compensating ad- justment’’ arises when the taxpayer or the Service makes normal and routine adjustments (for example, correction of computational errors) to the determina- tion and computation of the taxpayer’s TPM during the taxable year or years under the APA, as determined in accor- dance with the TPM. The generally applicable Code rules relating to assess- ment, collection and refund of tax and the principles of Rev. Proc. 65–17 (as modified), or any successor, apply to any resulting change in Federal income tax liability because of a subsequent compensating adjustment. (4) When an agreement between competent authorities is sought as part of the APA request, the principles stated in this section will be discussed with the appropriate foreign competent authority to seek to ensure substantially identical treatment of the taxpayer’s related for- eign entity. (5) The Service and the taxpayer may agree in an APA to modify the foregoing provisions relating to compensating ad- justments. .03Examination. (1) If the District Director examines a tax year covered by an APA, the exami- nation of matters covered by the APA will be limited to the factors in section 11.03(2) of this revenue procedure. The District Director will not re-evaluate the TPM itself. (2) The District Director may require the taxpayer to establish that (a) the taxpayer has complied in good faith with the terms and conditions of the APA; (b) the material representations in the APA and the annual reports remain valid and accurately describe the taxpay- er’s operations; (c) the supporting data and computations used in applying the TPM were correct in all material re- spects; (d) the critical assumptions un- derlying the APA remain valid; and (e) the taxpayer has consistently applied the TPM and met the critical assumptions. (3) If the District Director determines that any requirement in section 11.03(2) of this revenue procedure has not been satisfied, the issue will be submitted to the Associate Chief Counsel (Interna- tional) for resolution. The Associate Chief Counsel (International) will decide either to continue to apply the APA; revoke the APA (see section 11.05 of this revenue procedure); cancel the APA (see section 11.06); or revise the APA (see section 11.07). (4) The District Director may, with- out securing the consent of the Associ- ate Chief Counsel (International), pro- pose normal and routine audit adjustments, which are not related to interpretation of the TPM, to the deter- mination and computation of the operat- ing results of the taxpayer’s TPM during the taxable year or years under examina- tion (as determined in accordance with the TPM) without affecting the contin- ued validity or applicability of the APA. If the taxpayer agrees with the proposed adjustments, they will be given effect through payment of additional compen- sating adjustments. If the taxpayer does not agree, the taxpayer may contest the proposed adjustments through normal administrative and judicial proceedings. Any changes to compensating adjust- ments previously made by the taxpayer, in respect of the taxable year or years under examination, that arise as a result of the audit adjustments made by the District Director will be made within ninety days of a final determination of the audit adjustments. Any compensat- ing adjustments and changes to compen- sating adjustments described in this sec- tion 11.03(4) will be treated as subsequent compensating adjustments for purposes of section 11.02 of this revenue procedure. .04Record Retention. (1) The taxpayer must maintain books and records sufficient to enable the Service to examine the taxpayer’s compliance with the APA. The APA may specify the books and records that are necessary to fulfill this objective and may specify that compliance with the applicable provisions of the APA will constitute compliance with the provi- sions of § § 6038A and 6038C with respect to transactions covered by the APA. (2) Upon examination, information requested by the Service must be made available to the Service upon written request within 30 days, and translations must be provided within 30 days of a request for translation of specific docu- ments, both as extended for good cause. The fact that a foreign jurisdiction may impose a penalty upon the taxpayer or other person for disclosing the material will not constitute reasonable cause for noncompliance with the Service’s re- quest. .05Revoking the APA. (1) The Associate Chief Counsel (In- ternational) may revoke the APA if there has been fraud or malfeasance (as de- fined in § 7121) or disregard (as de- fined in § 6662(b)(1) and (c)) by the taxpayer in connection with the APA, including but not limited to fraud, mal- feasance or disregard involving any of the following: the material facts set forth in the request or subsequent sub- missions (including the annual report), 18 or lack of good faith compliance with the terms and conditions of the APA. Material facts are those that, if known by the Service, could reasonably have resulted in a significantly different APA (or no APA at all). The Associate Chief Counsel (International) is not required to revoke the APA and may require the taxpayer to continue to abide by it. (2) If the APA is revoked for any reason, the revocation may be retroac- tive to the first day of the first taxable year for which the APA was effective. (3) If the APA is revoked for any reason, the Service may determine defi- ciencies in income taxes and additions thereto in accordance with applicable provisions of the Code. In addition, (a) relief under Rev. Proc. 65–17 may be denied; (b) if the Service determines that the taxpayer may avail itself of the relief under Rev. Proc. 65–17, interest on any account receivable established under section 4.03 of that revenue pro- cedure may be determined not to be subject to mutual agreement or correla- tive relief; (c) the revocation of the APA may be treated as an ‘‘egregious case’’ under Rev. Rul. 80–231, 1980–2 C.B. 219, with the result that the taxpayer may be denied a foreign tax credit in accordance with that ruling; and (d) the unilateral relief provisions of Rev. Proc. 96–14, 1996–3 I.R.B. 41, may not be available. When an APA has been the subject of negotiation with a foreign competent authority, the Service will seek to coordinate any action concerning revocation of the APA with the foreign competent authority. .06Cancelling the APA. (1) The Associate Chief Counsel (In- ternational) may cancel the APA if the District Director, with the concurrence of the Associate Chief Counsel (Interna- tional), determines that there was a misrepresentation, mistake as to a mate- rial fact, failure to state a material fact, or lack of good faith compliance with the terms and conditions of the APA (but not fraud, malfeasance or disregard) in connection with the request for the APA, or in any subsequent submissions (including the annual report). Material facts are those that, if known by the Service, would have resulted in a sig- nificantly different APA (or no APA at all). (2) The Associate Chief Counsel (In- ternational) may waive cancellation if the taxpayer can show good faith and reasonable cause to the satisfaction of the Associate Chief Counsel (Interna- tional), and if the taxpayer agrees to make any adjustment proposed by the Associate Chief Counsel (International) to correct for the misrepresentation, mis- take as to a material fact, failure to state a material fact, or noncompliance. The Associate Chief Counsel (International) is not required to cancel the APA and may require the taxpayer to continue to abide by it. (3) If the APA is cancelled under section 11.06(1) of this revenue proce- dure, the cancellation will be effective as of the beginning of the year in respect of which the misrepresentation, mistake as to a material fact, failure to state a material fact, or noncompliance occurs. If, however, the cancellation results from a change in law or treaty, as provided in section 11.07(1) of this revenue procedure, the cancellation nor- mally will be effective as of the effec- tive date of the change in law or treaty. (4) If the APA is cancelled for any reason, then as of the effective date of the cancellation the APA will cease to be of any further force and effect with respect to the taxpayer and the Service for U.S. income tax purposes. After the effective date of the cancellation, the tax treatment of the transactions covered by the APA will be subject to all U.S. tax rules (including treaty rules) that other- wise apply. When an APA has been the subject of negotiation with a foreign competent authority, the Service will seek to coordinate any action concerning cancellation of the APA with the foreign competent authority. .07Revising the APA. (1) If a critical assumption has not been met, or there has been a change in law or treaty as described in section 11.09 of this revenue procedure, the APA may be revised by agreement of the parties. If such agreement cannot be achieved, the APA will be cancelled. (2) If a critical assumption has not been met, the taxpayer must notify the APA Director, including with the notifi- cation supporting documentation and a statement whether a revision appears appropriate. The taxpayer shall file the notification at any time prior to the last date permitted for filing the annual report for the year in which the failure to meet a critical assumption occurred. In providing the notification, the tax- payer must follow the procedures con- tained in sections 5.11 through 5.13 of this revenue procedure. (3) If a critical assumption has not been met, the taxpayer and the Service will discuss how to revise the APA. If the taxpayer and the Service cannot execute a revised agreement, the APA will be cancelled as of the beginning of the taxable year in which the failure to meet a critical assumption occurred. If the Service and the taxpayer can agree on a revised APA, the effective date of the revised APA will be stated in the new APA. (4) If the Service and the taxpayer agree to revise an APA that has been subject to competent authority agree- ment, the revised APA will be submitted to the U.S. competent authority in order to seek the consent of the foreign com- petent authority to the revised APA. If the foreign competent authority refuses to accept the revised APA, or if the competent authorities cannot agree on a revised APA agreeable to all parties, the taxpayer and the Service may: (a) agree to continue to apply the existing APA, (b) agree to apply the revised APA or agree to further revision thereof, or (c) agree to cancel the APA as of an agreed date. If such agreement cannot be achieved, the APA will be cancelled pursuant to section 11.07(1) of this revenue procedure. .08Renewing the APA. A taxpayer may request renewal by following the form and procedures that apply to initial APA requests. The tax- payer must submit the user fee as required under section 5.14 of this rev- enue procedure, and must provide ap- propriate supporting documentation with the request. Unless otherwise agreed by the Service, the taxpayer should file the request to renew no later than nine months before the expiration of the initial term or any renewal term. .09Change in Law or Treaty. If there is a change in any applicable U.S. law or treaty that changes the Federal income tax treatment of any matter covered by the APA, the new law or treaty provision supersedes the APA to the extent the APA is inconsistent therewith. The parties may revise the APA under section 11.07 of this revenue procedure to reconcile it with the new law or treaty provision. SEC. 12. DISCLOSURE The information received or generated by the Service during the APA process relates directly to the existence and amount of tax liability of the taxpayer under the Internal Revenue Code. There- fore, the APA and such information are 19 subject to the confidentiality require- ments of § 6103. In addition, the APA and such information may be confiden- tial pursuant to the provisions of income tax conventions, or other rules appli- cable to communications with foreign governments. SEC. 13. EFFECT ON OTHER DOCUMENTS Rev. Proc. 91–22, 1991–1 C.B. 526, is superseded. Rev. Proc. 96–13 is modi- fied. Rev. Proc. 96–1 is modified. SEC. 14. EFFECTIVE DATE This revenue procedure will apply to all APA requests, including requests for renewal, received on or after December 31, 1996, except that (i) section 7.08 shall apply to all such APA requests and APA requests that have been filed on or after the effective date of Rev. Proc. 96–13, (ii) section 8.02 and/or section 8.03 may at the taxpayer’s request apply to an APA request filed prior to such date and with respect to which an APA has not been concluded, and (iii) any provision of section 5.14 may apply to a request filed prior to such date and with respect to which an APA has not been concluded, if the taxpayer demonstrates that such application is necessary to avoid unfairness to the taxpayer. SEC. 15. PAPERWORK REDUCTION ACT The collections of information con- tained in this revenue procedure have been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduc- tion Act (44 U.S.C. 3507) under control number 1545–1503. An agency may not conduct or spon- sor, and a person is not required to respond to, a collection of information unless the collection of information dis- plays a valid control number. The collections of information in this revenue procedure are in sections 4.02, 5, 8.02, 9, 11.01, 11.02(1), 11.04, 11.07, and 11.08. This information is required to provide the Service sufficient infor- mation to evaluate and process the APA request or request for renewal of an existing APA, or to determine whether the taxpayer is in compliance with the terms and conditions of an APA. This information will be used to evaluate the proposed TPM, and the taxpayer’’s com- pliance with the terms and conditions of any APA to which it is a party. The collections of information are required to obtain an APA. The likely respon- dents are business or other for-profit institutions. The estimated total annual reporting and/or recordkeeping burden is 5,250 hours. The estimated average burden for an APA prefiling conference is 10 hours; the estimated average burden for an APA request is 50 hours; and the esti- mated average burden for preparation of an annual report by a party to an APA is 15 hours. The estimated number of respondents and/or recordkeepers is 160. The estimated annual frequency of responses is one request or report per year per applicant or party to an APA, except that a taxpayer requesting an APA may also request a prefiling con- ference. Books or records relating to a collec- tion of information must be retained as long as their contents may become ma- terial in the administration of any inter- nal revenue law. Generally tax returns and tax return information are confiden- tial, as required by § 6103. DRAFTING INFORMATION The principal authors of this docu- ment are various members of the Ad- vance Pricing Agreement Program Of- fice of the Office of the Associate Chief Counsel (International). For further in- formation regarding this revenue proce- dure contact Ms. Carolyn Fanaroff or Ms. Sherri New at (202) 874–4360 (not a toll-free number). 20 Part IV. Items of General Interest Notice of Proposed Rulemaking and Notice of Public Hearing Definition of Reasonable Basis IA–42–95 AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Notice of proposed rulemak- ing and notice of public hearing. SUMMARY: This document contains proposed regulations relating to the accuracy-related penalty regulations un- der chapter 1 of the Internal Revenue Code. These amendments are necessary to define reasonable basis and provide corrections to final regulations relating to the accuracy-related penalty under chap- ter 1 of the Internal Revenue Code. The proposed regulations would affect all taxpayers who file tax returns. This document also provides notice of a pub- lic hearing on these proposed regulations. DATES: Written or electronically gener- ated comments must be received by February 10, 1997. Outlines of topics to be discussed at the public hearing scheduled for February 25, 1997, must be received by February 4, 1997. ADDRESSES: Send submissions to: CC:DOM:CORP:R (IA–42–95), room 5226, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. In the alternative, submis- sions may be hand delivered between the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (IA–42–95), Couri- er’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW., Wash- ington, DC., or electronically, via the IRS Internet site at: http://www.irs. ustreas.gov/prod/tax_regs/comments. html. The public hearing will be held in room 3313, Internal Revenue Building, 1111 Constitution Avenue NW., Wash- ington, DC. FOR FURTHER INFORMATION CON- TACT: Concerning the regulations, Nancy Romano, 202–622–6232 (not a toll-free number). Concerning submis- sions and the public hearing, Michael L. Slaughter, 202–622–7190 (not a toll-free number). SUPPLEMENTARY INFORMATION: Background On September 1, 1995, the IRS issued Treasury Decision 8617 (60 FR 45663), setting forth final regulations relating to the accuracy-related penalty under chap- ter 1 of the Internal Revenue Code. These regulations provided guidance concerning the reasonable basis standard for purposes of the negligence penalty (section 6662(b)(1)) and for purposes of the disclosure exception to the penalties for disregarding rules or regulations (section 6662(b)(1)) and substantial un- derstatement of income tax (section 6662(b)(2)). In the preamble to the final regulations, Treasury requested com- ments and suggestions on providing fur- ther guidance on the reasonable basis standard. Treasury has not received any additional comment letters in response to this request for comments. Previous comments that were addressed in the preamble to the final regulations pub- lished on September 1, 1995 have been considered in drafting these proposed regulations. Explanation of Provision Under the final regulations currently in place, the reasonable basis standard is ‘‘significantly higher than the not frivo- lous standard applicable to preparers under 6694.’’ These proposed regula- tions provide that the reasonable basis standard is not satisfied by a return position that is merely arguable or that is merely a colorable claim. A return position will generally satisfy the rea- sonable basis standard if it is reasonably based on one or more of the authorities set forth in § 1.6662–4(d)(3)(iii) (taking into account the relevance and persua- siveness of the authorities, and subse- quent developments). Additionally, the proposed regulations clarify that if a return position does not satisfy the rea- sonable basis standard, the reasonable cause and good faith exception as set forth in § 1.6664–4 may still provide relief from the penalty. Special Analyses It has been determined that this notice of proposed rulemaking is not a signifi- cant regulatory action as defined in EO 12866. Therefore, a regulatory assess- ment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to these regulations, and, therefore, a Regulatory Flexibility Analysis is not required. Pursuant to section 7805(f) of the Internal Revenue Code, this notice of proposed rulemaking will be submit- ted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small busi- ness. Comments and Public Hearing Before these proposed regulations are adopted as final regulations, consider- ation will be given to any comments that are submitted timely (in the manner described under the ADDRESSES cap- tion) to the IRS. All comments will be available for public inspection and copy- ing. A public hearing has been scheduled for February 25, 1997, at 10 a.m., in room 3313, Internal Revenue Building, 1111 Constitution Avenue NW., Wash- ington, DC. Because of access restric- tions, visitors will not be admitted be- yond the building lobby more than 15 minutes before the hearing starts. The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons that wish to present oral comments at the hearing must submit written or electronically generated com- ments (in the manner described under the ADDRESSES caption) by February 10, 1997, and submit an outline of the topics to be discussed and the time devoted to each topic by February 4, 1997. A period of 10 minutes will be allot- ted to each person for making com- ments. An agenda showing the scheduling of speakers will be prepared after the dead- line for receiving outlines has passed. Copies of the agenda will be available free of charge at the hearing. Drafting Information The principal author of these regula- tions is Robert J. Fitzpatrick, formerly of the Office of the Assistant Chief Counsel (Income Tax & Accounting), IRS. However, other personnel from the IRS and Treasury Department partici- pated in their development. * * * * * Proposed Amendments to the Regula- tions Accordingly, 26 CFR part 1 is pro- posed to be amended as follows: 211996–49 I.R.B. PART 1—INCOME TAXES Paragraph 1. The authority citation for part 1 continues to read in part as follows: Authority: 26 U.S.C. 7805 * * * Par. 2. Section 1.6662–0 is amended by: 1. Revising the entry for § 1.6662–2. 2. Removing the entries for §§ 1.6662–3(b)(3)(i) and (ii). 3. Revising the entry for § 1.6662– 7(d). 4 . Removing the entries for §§ 1.6662–7(d)(1) and (2). The amendments and revisions read as follows: § 1.6662–0 Table of contents. * * * * * § 1.6662–2 Accuracy-related penalty. * * * * * § 1.6662–7 Omnibus Budget Reconcili- ation Act of 1993 changes to the accuracy-related penalty. * * * * * (d) Reasonable basis. * * * * * Par. 3. Section § 1.6662–3 is amended by: 1. Revising the third sentence in paragraph (b)(1) introductory text. 2. Revising paragraph (b)(3). The revisions read as follows: § 1.6662–3 Negligence or disregard of rules or regulations. * * * * * (b)* * *(1) * * * A return position that has a reasonable basis as defined in paragraph (b)(3) of this section is not attributable to negligence. * * * * * * * * (3)Reasonable basis.Reasonable ba- sis is a relatively high standard of tax reporting, that is, significantly higher than not frivolous or not patently im- proper. The reasonable basis standard is not satisfied by a return position that is merely arguable or that is merely a colorable claim. If a return position is reasonably based on one or more of the authorities set forth in § 1.6662– 4(d)(3)(iii) (taking into account the rel- evance and persuasiveness of the au- thorities, and subsequent developments), the return position will generally satisfy the reasonable basis standard even though it may not satisfy the substantial authority standard as defined in § 1.6662–4(d)(2). In addition, the rea- sonable cause and good faith exception, as set forth in § 1.6664–4, may provide relief from the penalty, even if a return position does not satisfy the reasonable basis standard. * * * * * Par. 4. In § 1.6662–4, the second sentence in paragraph (d)(2) is revised to read as follows: § 1.6662–4 Substantial understatement of income tax. * * * * * (d) * * * (2) * * * The substantial authority standard is less stringent than the more likely than not standard (the standard that is met when there is a greater than 50-percent likelihood of the position being upheld), but more stringent than the reasonable basis standard as defined in § 1.6662–3(b)(3). * * * * * * * * Par. 5. In 1.6662–7, paragraph (d) is revised to read as follows: § 1.6662–7 Omnibus Budget Reconcili- ation Act of 1993 changes to the accuracy-related penalty. * * * * * (d)Reasonable basis.For purposes of §§ 1.6662–3(c) and 1.6662–4(e) and (f) (relating to methods of making adequate disclosure), the provisions of § 1.6662– 3(b)(3) apply in determining whether a return position has a reasonable basis. Par. 6. Section 1.6664–0 is amended by: 1. Revising the entry for paragraph (c)(2) of § 1.6664–4. 2. Removing the entries for para- graphs (c)(1)(iii), (c)(2)(i), and (c)(2)(ii) of § 1.6664–4. The revision reads as follows: § 1.6664–0 Table of contents. * * * * * § 1.6664–4 Reasonable cause and good faith exception to section 6662 penalties. * * * * * (c) * * * (2) Advice defined. * * * * * Margaret Milner Richardson, Commissioner of Internal Revenue. (Filed by the Office of the Federal Register on November 8, 1996, 8:45 a.m., and published in the issue of the Federal Register for November 12, 1996, 61 F.R. 58020) Section 482 — Allocations Between Related Parties Announcement 96–124 In Announcement 95–49, 1995–24 I.R.B. 13, the Service provided, for public comment, a draft revision of Rev. Proc. 91–22, 1991–1 C.B. 526, which sets forth procedural rules for the Ad- vance Pricing Agreement (‘‘APA’’) Pro- gram. The Service received several com- ments on Announcement 95–49 and is issuing revised procedural rules in Rev. Proc. 96–53 at page 9, this Bulletin. The most significant changes to the draft revenue procedure in Announce- ment 95–49 are as follows (with section references to Rev. Proc. 96–53): Sec. 3.06 Often, APA negotiations are used to find a basis for resolving transfer pric- ing issues in years prior to the initial year of the APA’s term (‘‘rollback’’ of the APA). In response to comments, the new revenue procedure indicates that the taxpayer has the option whether or not to request a rollback of the APA meth- odology. Taxpayers should, of course, recognize that, even absent formal nego- tiations for a rollback, the Service may determine under regularly applicable procedures that the methodology used to resolve an APA request also is appropri- ate for prior taxable years. Sec. 3.07 In response to questions that some- times arise in APA negotiations, section 3.07 clarifies that the initiation of an APA request does not put into abeyance pending examinations or other proceed- ings. Section 3.07 also instructs Service personnel, wherever feasible, to coordi- nate the consideration of APA requests with pending related proceedings, so as to enhance the efficiency of Service operations and reduce overall taxpayer compliance burdens. 221996–49 I.R.B. Sec. 3.09 Section 3.09 emphasizes the Service’s willingness to adapt APA procedures to the needs of particular taxpayers and situations, and especially to the special needs of small business taxpayers. Sec. 5.09 The draft revenue procedure in An- nouncement 95–49 provided that an APA request would be considered filed on the date the user fee was paid, provided that a substantially complete request is filed within 120 days thereaf- ter. In response to comments, section 5.09 provides that the Service may ex- tend the 120-day period based on a showing of substantial unforeseen cir- cumstances. Sec. 5.13 New mailing and delivery instructions are provided to reflect current addresses and Service procedures for handling user fees. Sec. 5.14 Section 5.14 makes technical correc- tions to the user fee rules for APAs contained in Rev. Proc. 96–1, 1996–1 I.R.B. 8. In addition, section 5.14 pro- vides guidelines for determining whether an APA submission consists of a single or multiple requests for purposes of the user fee rules. The revenue procedure also provides special lower fees for certain specified categories of requests, including certain smaller transactions, routine renewals where material facts and issues have not changed, and multi- lateral requests where the facts and issues are essentially similar with re- spect to each foreign jurisdiction. As a matter of clarification, the provision of the reduced fee for certain multilateral APA requests should not be read to imply that user fees are charged with respect to a taxpayer’s request for com- petent authority relief; rather, the fees are charged with respect to the Service’s analysis and consideration of the APA requests. Sec. 6.04 In response to comments, section 6.04 provides that, wherever reasonably fea- sible, if a prefiling conference has been held with the taxpayer, the Service’s Team Leader for considering the request will be appointed from among the IRS representatives at the prefiling confer- ence. Sec. 6.05(4) In response to comments, the revenue procedure modifies and clarifies proce- dures to be followed when the Service or taxpayer fail to conform to a Case Plan and Schedule. Sec. 6.05(5) In response to comments, section 6.05(5) enables the Service and taxpayer APA Teams to modify the Case Plan and Schedule by mutual agreement, without prior approval of the APA Di- rector, provided that progress is main- tained toward completion of the case as expeditiously as is feasible. Sec. 6.05(6) In response to comments, section 6.05(6) gives the Service and taxpayer APA Teams additional flexibility con- cerning how to document the progress of pending negotiations. Secs. 6.06 & 6.07 These portions of the revenue proce- dure discuss the circumstances under which user fees will be returned if the taxpayer withdraws, or the Service re- jects, an APA request. In general, user fees will not be returned if a request is withdrawn or rejected; however, the user fee may be returned in the case of a rejection if the Service determines return of the fee to be appropriate. Sec. 7.01 Section 7.01 contains changes de- signed to reflect the increasing coordina- tion between treaty partners in the evaluation of bilateral and multilateral APA requests, including consultation at the earliest stages of APA proceedings. Sec. 7.08 Section 7.05 of Rev. Proc. 96–13, 1996–3 I.R.B. 31, provides in part that, if a taxpayer reaches a settlement on an issue with Counsel pursuant to a written agreement, the U.S. competent authority will endeavor only to obtain a correla- tive adjustment from a treaty country and will not undertake any actions that would otherwise change such agree- ments. This provision has caused tax- payers to ask whether the position of Rev. Proc. 91–22, to the effect that by obtaining a unilateral APA a taxpayer does not limit its access to treaty relief, remains in effect. Section 7.08 of the new revenue procedure clarifies the in- teraction between a unilateral APA and the taxpayer’s attempts to obtain treaty relief through the competent authority process. In general, the U.S. competent authority will endeavor to reach agree- ment with a treaty partner to provide relief from double taxation. However, a unilateral APA may hinder the ability of the U.S. competent authority to reach a mutual agreement which will provide relief from double taxation, particularly when a contemporaneous bilateral or multilateral APA request would have been both effective and practical (within the meaning of § 1.901–2(e)(5)(i)) to obtain consistent treatment of the APA matters in a treaty country. Sec. 8 Section 8 of Rev. Proc. 96–53 pro- vides new rules clarifying the treatment of APA rollback requests, and coordinat- ing APA rollback procedures with proce- dures for accelerated competent author- ity resolution and simultaneous Appeals and competent authority consideration. Such coordination would be necessary in the case of ‘‘gap years,’’ i.e., tax years for which returns have been filed that are not covered by the APA request but that are not yet under audit. Sec. 11.02 Rev. Proc. 96–53, like Rev. Proc. 91–22, provides that in certain circum- stances taxpayers may make compensat- ing adjustments, after the end of a taxable year, in order to achieve compli- ance with an APA. In general, the obligation to make such compensating adjustments does not affect the taxpay- er’s estimated tax liability, and does not result in other specified consequences, for the taxable year. Section 11.02 of the revenue procedure clarifies that this fa- vorable treatment is available only when the taxpayer has made a good-faith effort to comply with the terms of the APA. In addition, the revenue procedure provides that the special treatment of compensating adjustments applies to compensating adjustments directly re- lated to the taxpayer’s application of the TPM, but not to ‘‘subsequent compen- sating adjustments,’’ which are subject to normal procedures for assessment, collection and refund. 231996–49 I.R.B. Sec. 11.08 Commentators have asked for clarifi- cation concerning the type of review the Service will apply to requests for re- newal of APAs. In general, the Service will seek to minimize the amount of new information and analysis that tax- payers need to supply in connection with renewal requests, and to the extent consistent with applicable law and poli- cies, will seek to maintain continuity between original APAs and renewals. The Service desires to receive com- ments at any time concerning how APA procedures might be revised in the fu- ture to enhance the value of the APA Program to taxpayers and to the Service. Such comments should be sent to: Advance Pricing Agreement Program Internal Revenue Service Attn: CC:INTL Room 3501, 1111 Constitution Ave., N.W. Washington, DC 20024 241996–49 I.R.B. 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 de- scribe the effect: Amplifieddescribes a situation where no change is being made in a prior published position, but the prior position is being extended to apply to a variation of the fact situation set forth therein. Thus, if an earlier ruling held that a principle applied to A, and the new ruling holds that the same principle also applies to B, the earlier ruling is ampli- fied. (Compare withmodified, below). Clarifiedis used in those instances where the language in a prior ruling is being made clear because the language has caused, or may cause, some confu- sion. It is not used where a position in a prior ruling is being changed. Distinguisheddescribes a situation where a ruling mentions a previously published ruling and points out an es- sential 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 pub- lished position. (Compare withamplified andclarified, above). Obsoleteddescribes a previously pub- lished ruling that is not considered de- terminative with respect to future trans- actions. This term is most commonly used in a ruling that lists previously published rulings that are obsoleted be- cause of changes in law or regulations. A ruling may also be obsoleted because the substance has been included in regu- lations subsequently adopted. Revokeddescribes situations where the position in the previously published ruling is not correct and the correct position is being stated in the new ruling. Supersededdescribes a situation where the new ruling does nothing more than restate the substance and situation of a previously published ruling (or rulings). Thus, the term is used to republish under the 1986 Code and regulations the same position published under the 1939 Code and regulations. The term is also used when it is desired to republish in a single ruling a series of situations, names, etc., that were previ- ously published over a period of time in separate rulings. If the new ruling does more than restate the substance of a prior ruling, a combination of terms is used. For example,modifiedandsuper- sededdescribes a situation where the substance of a previously published rul- ing is being changed in part and is continued without change in part and it is desired to restate the valid portion of the previously published ruling in a new ruling that is self contained. In this case the previously published ruling is first modified and then, as modified, is su- perseded. 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 ruling has been supplemented several times, a new ruling may be published that includes the list in the original ruling and the additions, and supersedes all prior rulings in the series. Suspendedis used in rare situations to show that the previous published rulings will not be applied pending some future action such as the issuance of new or amended regulations, the outcome of cases in litigation, or the outcome of a Service study. Abbreviations The following abbreviations in current use and formerly used will appear in material published in the Bulletin. A—Individual. Acq.—Acquiescence. B—Individual. BE—Beneficiary. BK—Bank. B.T.A.—Board of Tax Appeals. C.—Individual. C.B.—Cumulative Bulletin. CFR—Code of Federal Regulations. CI—City. COOP—Cooperative. Ct.D.—Court Decision. CY—County. D—Decedent. DC—Dummy Corporation. DE—Donee. Del. Order—Delegation Order. DISC—Domestic International Sales Corporation. DR—Donor. E—Estate. EE—Employee. E.O.—Executive Order. ER—Employer. ERISA—Employee Retirement Income Security Act. EX—Executor. F—Fiduciary. FC—Foreign Country. FICA—Federal Insurance Contribution Act. FISC—Foreign International Sales Company. FPH—Foreign Personal Holding Company. F.R.—Federal Register. FUTA—Federal Unemployment Tax Act. FX—Foreign Corporation. G.C.M.—Chief Counsel’s Memorandum. GE—Grantee. GP—General Partner. GR—Grantor. IC—Insurance Company. I.R.B.—Internal Revenue Bulletin. LE—Lessee. LP—Limited Partner. LR—Lessor. M—Minor. Nonacq.—Nonacquiescence. O—Organization. P—Parent Corporation. PHC—Personal Holding Company. PO—Possession of the U.S. PR—Partner. PRS—Partnership. PTE—Prohibited Transaction Exemption. Pub. L.—Public Law. REIT—Real Estate Investment Trust. Rev. Proc.—Revenue Procedure. Rev. Rul.—Revenue Ruling. S—Subsidiary. S.P.R.—Statements of Procedural Rules. Stat.—Statutes at Large. T—Target Corporation. T.C.—Tax Court. T.D.—Treasury Decision. TFE—Transferee. TFR—Transferor. T.I.R.—Technical Information Release. TP—Taxpayer. TR—Trust. TT—Trustee. U.S.C.—United States Code. X—Corporation. Y—Corporation. Z—Corporation. 25 Numerical Finding List 1 Bulletins 1996–27 through 1996–48 Announcements: 96–61, 1996–27 I.R.B.72 96–62, 1996–28 I.R.B.55 96–63, 1996–29 I.R.B.18 96–64, 1996–29 I.R.B.18 96–65, 1996–29 I.R.B.18 96–66, 1996–29 I.R.B.19 96–67, 1996–30 I.R.B.27 96–68, 1996–31 I.R.B.45 96–69, 1996–32 I.R.B.38 96–70, 1996–32 I.R.B.40 96–71, 1996–33 I.R.B.16 96–72, 1996–33 I.R.B.16 96–73, 1996–33 I.R.B.18 96–74, 1996–33 I.R.B.19 96–75, 1996–34 I.R.B.29 96–76, 1996–34 I.R.B.29 96–77, 1996–35 I.R.B.15 96–78, 1996–35 I.R.B.15 96–79, 1996–35 I.R.B.15 96–80, 1996–35 I.R.B.16 96–81, 1996–36 I.R.B.13 96–82, 1996–36 I.R.B.14 96–83, 1996–36 I.R.B.14 96–84, 1996–36 I.R.B.14 96–85, 1996–37 I.R.B.20 96–86, 1996–37 I.R.B.21 96–87, 1996–37 I.R.B.21 96–88, 1996–38 I.R.B.150 96–89, 1996–37 I.R.B.22 96–90, 1996–37 I.R.B.22 96–91, 1996–37 I.R.B.23 96–92, 1996–38 I.R.B.151 96–93, 1996–38 I.R.B.151 96–94, 1996–38 I.R.B.153 96–96, 1996–39 I.R.B.41 96–97, 1996–39 I.R.B.41 96–98, 1996–39 I.R.B.42 96–99, 1996–39 I.R.B.42 96–100, 1996–40 I.R.B.10 96–101, 1996–40 I.R.B.10 96–102, 1996–40 I.R.B.11 96–103, 1996–40 I.R.B.12 96–104, 1996–41 I.R.B.10 96–105, 1996–42 I.R.B.19 96–106, 1996–42 I.R.B.23 96–107, 1996–42 I.R.B.27 96–108, 1996–44 I.R.B.15 96–109, 1996–43 I.R.B.76 96–110, 1996–43 I.R.B.77 96–111, 1996–44 I.R.B.16 96–112, 1996–45 I.R.B.7 96–113, 1996–44 I.R.B.18 96–114, 1996–45 I.R.B.7 96–115, 1996–45 I.R.B.9 96–116, 1996–46 I.R.B.12 96–117, 1996–46 I.R.B.12 96–118, 1996–46 I.R.B.12 96–119, 1996–46 I.R.B.13 96–120, 1996–47 I.R.B.12 96–121, 1996–47 I.R.B.12 96–122, 1996–47 I.R.B.13 96–125, 1996–48 I.R.B.21 Court Decisions: 2058, 1996–34 I.R.B.13 2059, 1996–34 I.R.B.10 2060, 1996–34 I.R.B.5 Delegation Orders: 155 (Rev. 4), 1996–40 I.R.B.9 Notices: 96–36, 1996–27 I.R.B.11 96–37, 1996–31 I.R.B.29 96–38, 1996–31 I.R.B.29 96–39, 1996–32 I.R.B.8 96–40, 1996–33 I.R.B.11 96–41, 1996–35 I.R.B.6 96–42, 1996–35 I.R.B.6 96–43, 1996–36 I.R.B.7 96–44, 1996–36 I.R.B.7 96–45, 1996–39 I.R.B.7 96–46, 1996–39 I.R.B.7 96–47, 1996–39 I.R.B.8 96–48, 1996–39 I.R.B.8 96–49, 1996–41 I.R.B.6 96–50, 1996–41 I.R.B.6 96–51, 1996–42 I.R.B.6 96–52, 1996–42 I.R.B. 8 96–54, 1996–44 I.R.B.13 96–55, 1996–47 I.R.B.7 96–56, 1996–47 I.R.B.7 96–57, 1996–47 I.R.B.9 96–59, 1996–48 I.R.B.10 Proposed Regulations: CO–9–96, 1996–34 I.R.B.20 CO–24–96, 1996–30 I.R.B.22 CO–25–96, 1996–31 I.R.B.30 CO–26–96, 1996–31 I.R.B.31 FI–59–94, 1996–30 I.R.B.23 FI–32–95, 1996–34 I.R.B.21 FI–48–95, 1996–31 I.R.B.36 FI–28–96, 1996–31, I.R.B.33 GL–7–96, 1996–33 I.R.B.13 IA–292–84, 1996–28 I.R.B.38 IA–26–94, 1996–30 I.R.B.24 IA–29–96, 1996–33 I.R.B.14 INTL–4–95, 1996–36 I.R.B.8 PS–39–93, 1996–34 I.R.B.27 PS–22–96, 1996–33 I.R.B.15 REG–208215–91, 1996–38 I.R.B.145 REG–209803–95, 1996–44 I.R.B.14 REG–209826–96, 1996–42 I.R.B.10 REG–209827–96, 1996–37 I.R.B.19 REG–245562–96, 1996–41 I.R.B.8 REG–251520–96, 1996–48 I.R.B.15 Public Laws: 104–117, 1996–34 I.R.B.19 104–134, 1996–38 I.R.B.7 104–168, 1996–38 I.R.B.8 104–191, 1996–43 I.R.B.7 104–193, 1996–46 I.R.B.4 Railroad Retirement Quarterly Rate 1996–29 I.R.B.14 Revenue Procedures: 96–36, 1996–27 I.R.B.11 96–37, 1996–29 I.R.B.16 96–39, 1996–33 I.R.B.11 96–40, 1996–32 I.R.B.8 96–41, 1996–32 I.R.B.9 96–42, 1996–32 I.R.B.14 96–43, 1996–35 I.R.B.6 96–44, 1996–35 I.R.B.7 96–45, 1996–35 I.R.B.12 96–46, 1996–38 I.R.B.144 96–47, 1996–39 I.R.B.10 96–48, 1996–39 I.R.B.10 96–49, 1996–43 I.R.B.74 96–50, 1996–47 I.R.B.10 96–51, 1996–47 I.R.B.10 96–52, 1996–48 I.R.B.10 Revenue Rulings: 96–33, 1996–27 I.R.B.4 96–34, 1996–28 I.R.B.4 96–35, 1996–31 I.R.B.4 96–36, 1996–30 I.R.B.6 96–37, 1996–32 I.R.B.4 96–38, 1996–33 I.R.B.4 96–39, 1996–34 I.R.B.4 96–41, 1996–45 I.R.B.4 96–42, 1996–35 I.R.B.4 96–43, 1996–36 I.R.B.4 96–44, 1996–38 I.R.B.4 96–45, 1996–39 I.R.B.5 96–46, 1996–39 I.R.B.5 96–47, 1996–40 I.R.B.7 96–48, 1996–40 I.R.B.4 96–49, 1996–41 I.R.B.4 96–50, 1996–42 I.R.B.4 96–51, 1996–43 I.R.B.5 96–52, 1996–45 I.R.B.5 96–53, 1996–47 I.R.B.4 96–54, 1996–47 I.R.B.5 Tax Conventions: 1996–28 I.R.B. 36 1996–36 I.R.B.6 1996–40 I.R.B.8 Treasury Decisions: 8673, 1996–27 I.R.B.4 8674, 1996–28 I.R.B.7 8675, 1996–29 I.R.B.5 8676, 1996–30 I.R.B.4 8677, 1996–30 I.R.B.7 8678, 1996–31 I.R.B.11 8679, 1996–31 I.R.B.4 8680, 1996–33 I.R.B.5 8681, 1996–37 I.R.B.17 8682, 1996–37 I.R.B.4 8683, 1996–44 I.R.B.9 8684, 1996–44 I.R.B.4 8685, 1996–48 I.R.B. 4 1 A cumulative list of all Revenue Rulings, Rev- enue Procedures, Treasury Decisions, etc., pub- lished in Internal Revenue Bulletins 1996–1 through 1996–26 will be found in Internal Rev- enue Bulletin 1996–27, dated July 1, 1996. 26 Finding List of Current Action on Previously Published Items 1 Bulletins 1996–27 through 1996–48 *Denotes entry since last publication Revenue Procedures: 80–27 Modified by 96–40, 1996–32 I.R.B.8 87–32 Modified by TD 8680, 1996–33 I.R.B.5 92–20 Modified by TD 8680, 1996–33 I.R.B.5 95–16 Superseded by 96–48, 1996–39 I.R.B.10 95–29 Superseded by 96–36, 1996–27 I.R.B.11 95–29A Superseded by 96–36, 1996–27 I.R.B.11 95–30 Superseded by 96–42, 1996–32 I.R.B.14 95–46 Superseded by 96–48, 1996–39 I.R.B.10 96–41 Modified by Notice 96–49, 1996–41 I.R.B.6 96–46 Supplemented by 96–51, 1996–47 I.R.B.10 1 A cumulative finding list for previously published items mentioned in Internal Revenue Bulletins 1996–1 through 1996–26 will be found in Internal Revenue Bulletin 1996–27, dated July 1, 1996. 27 Index Internal Revenue Bulletins 1996–27 Through 1996–48 For index of items published during the first six months of 1996, see I.R.B. 1996–27, dated July 1, 1996. The abbreviation and number in pa- renthesis following the index entry refer to the specific item; numbers in roman and italic type following the parenthesis refer to the Internal Rev- enue Bulletin in which the item may be found and the page number on which it appears. Key to Abbreviations: RRRevenue Ruling RPRevenue Procedure TDTreasury Decision CDCourt Decision PLPublic Law EOExecutive Order DODelegation Order TDO Treasury Department Order TCTax Convention SPR Statement of Procedural Rules PTEProhibited Transaction Exemption EMPLOYMENT TAXES Levy: Table, exempt from levy on wages, salary, and other income (Notice 56) 47,7 Proposed regulations: 26 CFR 301.9100–1T—301.9100–3T and intermediary sections, added; extensions of time to make elec- tions (IA–29–96) 33,14 Railroad retirement: Rate determination, quarterly (July 1, 1996) 29,14 Regulations: 26 CFR 301.9100–1T—301.9100–3T and intermediary sections, added; extensions of time to make elec- tions (TD 8680) 33,5 ESTATE AND GIFT TAX ADMINISTRATIVE Proposed regulations: 26 CFR 20.2041–3, 20.2056(d)–2, 25.2511–1, 25.2514–3, 25.2518–1, –2, amended; 20.2041–3, added; disclaimer of interests and powers (REG–208215–91) 38,145 ESTATE AND GIFT TAXES ADMINISTRATIVE— Continued Proposed regulations—Continued 26 CFR 301.9100–1T—301.9100–3T and intermediary sections, added; extensions of time to make elec- tions (IA–29–96) 33,14 ESTATE TAX Proposed regulations: 26 CFR 20.2041–3(d)(6)(i), amend- ed; 20.2041–3(d)(6)(iii), added; 20.2056(d)–2, amended; disclaimer of interests and powers (REG– 208215–91) 38,145 Regulations: 26 CFR 301.9100–1T—301.9100–3T and intermediary sections, added; extensions of time to make elec- tions (TD 8680) 33,5 EXCISE TAXES Exempt organizations: Excess benefit transactions engaged in (Notice 46) 39,7 Foreign insurance taxes (Ct.D 2060) 34,5 Proposed regulations: 26 CFR 2652–1, amended; genera- tion-skipping transfer tax (PS–22– 96) 33,15 Regulations: 26 CFR 40.6011(a)–1, –2(b)(2), 40.6302(c)–1, –2, –3, –4, 40.9999– 1, 48.4082–2(a), 48.4083–1, 48.6715(a); amended; Subpart F of 49.4291–1, added; 40.6302(c)–5T, 48.6427–7, 301.6156–1, 301.6206–1, 301.6415–1—6421–1 and intermed- iary sections, 301.6423–1, 301.6675– 1, removed; 48.6714–1, redesig- nated, excise tax deposits (TD 8685) 48,4 GIFT TAX Proposed regulations: 26 CFR 25.2511–1, 25.2514–3, 25.2518–1, –2, amended; disclaim- er of interests and powers (REG– 208215–91) 38,145 INCOME TAX Accounting methods (Notice 40) 33,11 Bankruptcy; validity of liens (Ct.D 2059) 34,10 Bonds: Qualified mortgage bonds: Mortgage credit certificates: National median gross income (RP 37) 29,16 INCOME TAX—Continued Claiming a refund, U.S. v. IBM (Notice 37) 31,29 Covered compensation tables; 1997 (RR 53) 47,4 Credits against tax: Low-income housing (RP 46) 38, 144; (RP 51) 47,10 Satisfactory bond, ‘‘bond factor’’ amounts for the period July through September 1996 (RR 45) 39,5 Educational assistance after termination of employment (RR 41) 45,4 Employee plans: Funding: Full funding limitations, weighted average interest rate, June 1996 (Notice 36) 27,11; July 1996 (Notice 38) 31,29 Full funding limitation: Weighted average interest rate for August 1996, (Notice 43) 36,7; September 1996 (Notice 45) 39, 7; October 1996 (Notice 54) 44, 13; November 1996 (Notice 59) 48,10 Limit on contributions and benefits; cost-of-living adjustments (Notice 55) 47,7 Nondiscrimination and coverage, rollover (RR 48) 40,4 Participant consent, significant detri- ment (RR 47) 40,7 Section 414(u); retirement plans; model amendments (RP 49) 43,74 Tax-sheltered annuities; correction program; extension (RP 50) 47,10 Exempt organizations: Group letter exemption (RP 40) 32,8 Private inurement expressly prohibited (Notice 47) 39,8 Information returns, copies to the public and increases to certain pen- alties (Notice 48) 39,8 Forms: Paper substitutes, Forms 1096, 1098, 1099 series, 5498, and W–2G (RP 42) 32,14 Substitute printed, computer-prepared, and computer-generated tax forms and schedules (RP 48) 39,8 Guidance for acceptance agent program (RP 52) 48,10 Health Insurance Portability and Ac- countability Act of 1996 (P.L. 104– 191) 43,7 Income: Controlled foreign corporation, part- nership, subpart F income (Notice 39) 32,8 28 INCOME TAX—Continued Indian tribal casinos, information report- ing (Notice 57) 47,9 Inflation adjustment factor for 1996 (Notice 41) 35,6 Inflation-indexed debt instruments (No- tice 51) 42,6 Insurance companies: Differential earnings rate (RR 42) 35, 4 Loss reserves, discounting unpaid losses (RP 44) 35,7 Discounting estimated salvage recov- erable (RP 45) 35,12 Interest: Investment: Federal short-term, mid-term, and long-term rates, July 1996 (RR 34) 28,4; August 1996 (RR 37) 32,4; September 1996 (RR 43) 36,4; October 1996 (RR 49) 41, 4; November 1996 (RR 52) 45,5 Rates, underpayments and overpay- ments beginning October 1, 1996 (RR 44) 38,4 Inventories: LIFO: Price indexes, department stores, May 1996 (RR 36) 30,6; June 1996 (RR 39) 34,4; July 1996 (RR 46) 39,5; August 1996 (RR 50) 42,4; September 1996 (RR 54) 47,5 Low income housing credit: Bond factor amounts, April–June 1996 (RR 33) 27,4 FEMA (RR 35) 31,4 Marginal production rates for 1996 (No- tice 42) 35,6 Omnibus Consolidated Recissions and Appropriations Act of 1996 (PL 104– 134) 38,7 Personal Responsibility and Work Op- portunity Reconciliation Act of 1996 (PL 104–193) 46,4 Pooled income fund; community trust; maintenance requirement (RR 38) 33, 4 Proposed regulations: 26 CFR 1.61–8(b), revised; 1.451– 1(g), added; 1.467–1, amended; 1.467–4, amended; 1.467–0 through –8, added; rental agreements (IA– 292–84) 28,38 26 CFR 1.61–12(c), 1.163–7(c), 1.171–1—1.171–4, 1.1016–5(b), re- vised; 1.163–13, 1.171–5, added; 1.1016–9, removed; amortizable bond premium (FI–48–95) 31,36 INCOME TAX—Continued Proposed regulations—Continued 26 CFR 1.148–5(d)(6)(iv)—(viii) and intermediary sections; 1.148– 5(e)(2)(iv), added; arbitrage restric- tions on tax-exempt bonds (FI–28– 96) 31,33 26 CFR 1.166–3(a)(3), added; bad debts modifications and dealer as- signments of notional principal contracts (FI–59–94) 30,23 26 CFR 1.280B–1, added; structure, definition (PS–39–93) 34,27 26 CFR 1.367(e)–1, 1.6038B– 1(b)(2)(i); section 355 distributions of stock and securities by domestic corporations to foreign persons (REG–209827–96) 37,19 26 CFR 1.382–5, –8, added; 1.382– 2(a)(1)(iv), revised; consolidated re- turns, short taxable years for con- trolled groups (CO–26–96) 31,31 26 CFR 1.401(a)(31)–1; 1.402(c)–2, amended; relief from disqualifica- tion of plans accepting rollovers (REG–245562–96) 41,8 26 CFR 1.475(b)–1, –2, –4, 1.475- (c)–1, –2, 1.475(e)–1, revised; mark-to-market equity interests in related parties and dealer-customer relationship (FI–32–95) 34,21 26 CFR 1.671–1(g), (h), 1.671–2(f), 1.1297–4, added; application of the grantor trust rules to nonexempt employees’ trusts (REG–209826– 96) 42,10 26 CFR 1.861–8(e)(7)(iii), 1.865–1, –2, 1.904–4(c)(2)(ii)(A) and (B), added; 1.904–0, amended; stock disposition loss allocation (INTL– 4–95) 36,8 26 CFR 1.861–18, added; classifica- tion of certain transactions involv- ing computer programs (REG 251520–96) 48,15 26 CFR 1.1059(e)–1, added; extraor- dinary dividends; distributions to corporate shareholders (CO–9–96) 34,20 26 CFR 1.1202–0, –2, added; quali- fied small business stock (IA–26– 94) 30,24 26 CFR 1.1502–15, –21, –22, –23, added; consolidated returns, limita- tions on the use of certain losses and deductions (CO–24–96) 30,22 26 CFR 1.1502–90T—1.1502–99T and intermediary sections, added; consolidated group, net operating loss carryforwards and built-in losses and credits following owner- ship change, limitation (CO–25–96) 31,30 INCOME TAX—Continued Proposed regulations—Continued 26 CFR 1.6045–1, –2, 301.6011–2, revised; magnetic media filing re- quirements for information returns (REG–209803–95) 44,14 26 CFR 301.9100–1T—301.9100–3T and intermediary sections, added; extensions of time to make elec- tions (IA–29–96) 33,14 Recommendation letters for nonsuit settlements (Del. Order 155, Rev. 4) 40,9 Refund claims; Tax Court; return not filed (Ct.D. 2058) 34,13 Regulated investment companies, prefer- ential dividends (RP 47) 39,10 Regulations: 26 CFR 1.110–3, added; debt instru- ments modifications (TD 8675) 29, 5 26 CFR 1.163–7(a), added; 1.446–4, amended; 1.483–2T, removed; 1.483–4, added; 1.1001–1, revised; 1.1012–1(g), revised; 1.1271–0(b), amended; 1.1272–1(c)(7), added; 1.1274–2(g), revised; 1.1274–2(i) and (j), added; 1.1275–2(g), (h), (i), (j), added; 1.1275–2T, removed; 1.1275–4, added; 1.1275–5(a)(5), (6), added; 1.1275–5(c)(1), (5), re- vised; 1.1275–6, added; debt instru- ments with original issue discount, contingent payments, anti-abuse rule (TD 8674) 28,7 26 CFR 1.166–3T, 1.1001–4T, added; bad debts modifications and dealer assignments of notional principal contracts (TD 8676) 30,4 26 CFR 1.367(e)–0; 1.367(e)–1, re- moved; 1.367(e)–0T, –1T, added; section 355 distributions of stock and securities by domestic corpora- tions to foreign persons (TD 8682) 37,4 26 CFR 1.382–5T, –8T, –2T(f)(1)(i)— (iii) and intermediary sections, added; 1.382–2, –2T, removed; consolidated groups, short taxable years for controlled groups (TD 8679) 31,4 26 CFR 1.1254–2(d)(1)(ii), –3(b)(1)(i) and (ii), –3(d)(1)(i) and (ii), re- vised; 1.1254–4, –6, amended; treatment of gain from disposition of interest in certain natural re- source recapture property by S corps and their shareholders (TD 8684) 44,4 26 CFR 1.1394–0, –1, added; enterprize zone facility bonds (TD 8673) 27,4 29 INCOME TAX—Continued Regulations—Continued 26 CFR 1.1502–0, –1, –2, –11, –21A, –22A, –23A, –41A, revised; 1.1502– 15, –21, redesignated, 1.1502–21T, –23T, –79A, added; 1.1502–79, amended; consolidated returns, limi- tations on the use of certain losses and deductions (TD 8677) 30,7 26 CFR 1.1502–90T through –99T and intermediary sections, added; con- solidated groups, net operating loss carryforwards and built-in losses and credits following ownership change, limitations (TD 8678) 31,11 26 CFR 1.6045–1(q), –2, amended; 1.6045–1T, –2T, 301.6011–2T, added; magnetic media filing re- quirements for information returns (TD 8683) 44,9 INCOME TAX—Continued Regulations—Continued 26 CFR 301.6355–1, amended; sale of seized property (GL–7–96) 33, 13 26 CFR 301.7503–1, amended; time for performance of acts where last day falls on Saturday, Sunday, or legal holiday (TD 8681) 37,17 26 CFR 301.9100–1T—301.9100–3T and intermediary sections, added; extensions of time to make elec- tions (TD 8680) 33,5 Returns: Magnetic media reporting, Forms 1098, 1099, 5498, and W–2G (RP 36) 27,11 Section 355 de minimis limitation (RP 43) 35,6 Section 355 No Rule (RP 39) 33,11 INCOME TAX—Continued Statements required by brokers; correc- tion (Notice 50) 41,6 Tax benefits for individuals performing services in certain hazardous duty areas (PL 104–117) 34,19 Tax conventions: Fiji 40,8 Russia 36,6 Taxes, accrual of deduction (RR 51) 43,5 Tax-exempt bonds; arbitrage (RR 41) 32,9; (Notice 49) 41,6 Tax treatment of partnership items cor- rection (Notice 44) 36,7 Taxpayer Bill of Rights 2 (PL 104–168) 38,8 Work opportunity tax credit (Notice 52) 42,8 30
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