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Department of Treasury – Transfer Pricing Examination Process And Updates – Resolution Phase (Part VII)



Transfer Pricing Examination Process Part VII

(The Transfer Pricing Examination Process was recently updated by the Department of Treasury – June 2018. TaxConnections posts this valuable eight part a series to keep you informed of these changes.)

III. Resolution Phase
The goal of the resolution phase is to reach agreement, if possible, on the tax treatment of each issue examined and, if necessary, issue a Revenue Agent Report (RAR) to the taxpayer. Starting with the development of the issue and continuing through resolution,
early and frequent discussions with the taxpayer are crucial for a complete understanding of the respective merits of an issue.

A. Issue Presentation and Resolution
The issue team should meet with the taxpayer to discuss results of all issues prior to finalizing the NOPA and the Economist Report.

Focus taxpayer discussions on the following:
• Determine whether the taxpayer agrees with the facts as presented in the AOF IDR
• Evaluate the taxpayer’s position
• Compute any offsetting/correlative adjustments, changes to foreign tax credit, net operating losses, etc.
• Engage in an open dialogue with the taxpayer to determine whether a principled resolution can be reached
• Understand the nature of disagreements (facts or interpretations of law, etc.)
• Issue additional IDRs to clarify any new information that may arise
• Utilize early resolution tools:
– Early Referral to Appeals: For example, Fast Track is a mediated effort where the taxpayer, the issue team, and Appeals must agree to participate and agree to a mutual resolution
– Accelerated Issue Resolution
• Include LB&I Division Counsel in drafting any closing agreement
Best Practice: The first point of contact for the taxpayer should be the issue teams and
their respective managers when resolving issues.

Helpful Reference:
IRM 4.46.5.4 – Issue Resolution Tools

B. Case Closing/RAR
The issue team should follow case closing procedures appropriate to the situation. If the issue is agreed:
• Update IMS to include the input of an “Actual Completion Date” for all closed issues
• Consider Rev. Proc. 99-32 ramifications and elections
– If penalties are proposed, the taxpayer is not entitled to Rev. Proc. 99-32 relief
– Discuss the Rev. Proc. 99-32 options with the taxpayer
– If Rev. Proc. 99-32 relief is requested and granted, secure a closing agreement with the assistance of LB&I Division Counsel. See also IRM 4.60.3 for Tax Treaty Related Matters
• Issue final Pattern Letter 1853(P) with the final amounts and countries of origin.
This is notification to the taxpayer of potential double taxation
• Prepare the Mutual Agreement Procedure (MAP) report, if applicable. Coordinate and discuss with APMA
• Make certain any agreement reached is clear as to the transactions and years to which the agreement applies
• Clarify with the taxpayer any implication of the resolution on subsequent years.This will avoid inappropriate reliance on current year outcomes in future examinations and positions. Consult LB&I Division Counsel in drafting any closing agreement.

If field resolution is not reached, then the issue team will finalize the NOPA, Economist Report, and secure final approvals.
• Confirm whether 365 days remain on the statute for the taxpayer to request Appeals consideration
• A statement indicating the taxpayer’s response to the AOF IDR must be included in the opening of the Facts section of the NOPA
• Prepare the RAR/30-Day Package and case closing workpapers
• Issue the RAR/30-Day Letter
• Prepare the MAP report, if applicable. Coordinate and discuss with APMA
• Taxpayer Protest/IRS Rebuttal
– Review and discuss the taxpayer Protest among the issue team members
– Determine the issue team members’ roles and responsibilities in the preparation of the Rebuttal and address every point raised in the taxpayer’s Protest
– Determine whether new facts have been raised and, if so, are additional IDRs warranted
– Collaborate to finalize the Rebuttal to the taxpayer’s Protest
Best Practice: If the Protest contains new factual information, raises new factual disputes, or presents new economic or legal theories, then consider re-engaging the examination process. The issue team should re-evaluate the timeline and reset the milestone dates, as appropriate.

Helpful References:
IRM 4.60.3.1.19 – Simultaneous Appeals Competent Authority Procedure (SACAP)/Overview
Rev. Proc. 2015-40 – procedures for requesting CA assistance
IRM Exhibit 4.60.2-1 – Right to Request Competent Authority Consideration Letter 1853(P)
IRM Exhibit 4.60.2-3 – Double Taxation Issue Schedules 1853(P)/1915(P)

(This Is Part VII of VIII On Department of Treasury- Transfer Pricing Examination Process And Updates.)

 

 

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