SEC. 3. GENERAL CONDITIONS

UNDER WHICH THIS PROCEDURE APPLIES

.01 General . The exclusions, exemptions, deductions, credits, reductions in

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rate, and other benefits and safeguards provided by treaties are subject to conditions and restrictions that may vary in different treaties. Taxpayers should examine carefully the specific treaty provisions applicable in their cases to determine the nature and extent of treaty benefits or safeguards they are entitled to and the conditions under which such benefits or safeguards are available. In particular, taxpayers should be aware of statutes of limitations and other procedural barriers under U.S. or foreign law that may preclude or limit the extent of the assistance under this revenue procedure. See section 9 of this revenue procedure which prescribes protective measures to be taken by the taxpayer and any concerned related person with respect to U.S. and foreign tax authorities. See also section 12.02 of this revenue procedure for circumstances in which competent authority assistance may be denied.

.02 Requirements of a Treaty . There is no authority for the U.S. competent authority to provide relief from U.S. tax or to provide other assistance due to taxation arising under the tax laws of the foreign country or the United States, unless such authority is granted by a treaty. See Rev. Proc. 89–8, 1989– 1 C.B. 778, for procedures for requesting the assistance of the Internal Revenue Service (‘‘the Service’’) when a taxpayer is or may be subject to inconsistent tax treatment by the Service and a U.S. possession tax agency.

.03 Applicable Standards in Alloca- tion Cases . With respect to requests for competent authority assistance involving the allocation of income and deductions between a U.S. taxpayer and a related person, the U.S. competent authority, in seeking to arrive at an agreement with a treaty country, will be guided by the arm’s length standard, as reflected in the regulations under § 482 of the Code. When negotiating mutual agreements on the allocation of income and deductions, the U.S. competent authority will take into account all of the facts and circumstances of the particular case and the purpose of the treaty to avoid double taxation.

.04 Who Can File Requests for Assistance . Unless otherwise permitted under an applicable tax treaty, the U.S. competent authority will only consider requests for assistance from U.S. persons, as defined in § 7701(a)(30) of the Code. For purposes of this revenue procedure, a U.S. person is referred to

as ‘‘the taxpayer.’’ Thus, non-U.S. persons generally must present their initial request for assistance to the relevant foreign competent authority.

.05 Closed Cases . A case previously closed after examination shall not be reopened in order to make an adjustment unfavorable to the taxpayer unless the exceptional circumstances described in Rev. Proc. 94–68, 1994–2 C.B. 803, are present. The U.S. competent authority may, but is not required to, accept a taxpayer’s request for competent authority consideration that will require the reopening of a case closed after examination.

.06 Foreign Initiated Competent Au- thority Request . When a foreign competent authority refers a request from a foreign taxpayer to the U.S. competent authority for consultation under the mutual agreement procedure, the U.S. competent authority generally will require the U.S. related taxpayer (in the case of an allocation of income or deductions between related persons) or may require the foreign taxpayer (in other cases) to file a request for competent authority assistance under this revenue procedure.

.07 Requests Relating to Residence Issues . U.S. competent authority assistance may be available to taxpayers seeking to establish their residency status in the United States. Examples include cases in which taxpayers believe that they are erroneously treated as non-U.S. residents by treaty countries or cases where taxpayers are treated as dual residents despite the objective tie-breaker provisions contained in the applicable treaties. Generally, competent authority assistance is limited to situations where resolution of a residency issue is necessary in order to avoid double taxation or to determine the applicability of a benefit under the treaty. Further, a request for assistance regarding a residency issue will be accepted only if it is established that the issue requires consultation with the foreign competent authority in order to ensure consistent treatment by the United States and the applicable treaty country. The U.S. competent authority does not issue unilateral determinations with respect to whether an individual is a resident of the United States or of a treaty country.

.08 Determinations Regarding Lim- itation on Benefits . Many treaties contain a limitation on benefits article that enumerates prescribed requirements

that must be met to qualify as a resident eligible for benefits under the treaty. The U.S. competent authority will not issue determinations regarding a taxpayer’s status under one of the prescribed requirements in a limitation on benefits provision. However, certain treaties provide that the competent authority may, as a matter of discretion, determine the availability of treaty benefits where the prescribed requirements are not met. See, e.g., Article 26(7) of the U.S.-Netherlands income tax treaty. Requests for assistance in such cases should comply with this revenue procedure and any other specific procedures that may be issued from time to time.