SECTION 7. DRAFTING

INFORMATION

The principal author of this revenue procedure is Camille B. Evans of the Office of the Associate Chief Counsel (International). For further information regarding this revenue procedure contact Camille B. Evans or Kenneth D. Allison of the Office of the Associate Chief Counsel (International) at (202) 622-3860 (not a toll free call).

Appendix A

DEPARTMENT OF THE TREASURY

INTERNAL REVNUE SERVICE

MODEL CLOSING AGREEMENT ON

FINAL DETERMINATION COVERING SPECIFIC MATTERS

Under section 7121 of the Internal Revenue Code of 1986, as amended (the Code), Corporation A, 123 Main Street, Wilmington, DE 20000, EIN 11-1234567, a domestic corporation, as common parent on behalf of all the members of a consolidated group (the Corporation A Group); Corporation B, 124 Main Street, Wilmington, DE 20000, EIN 22-1234567, a domestic corporation, as common parent on behalf of all the members of a consolidated group as of January 1, Year 3 (the Corporation B Group); and the Commissioner of Internal Revenue hereby make the following closing agreement (Closing Agreement) based on the representations made by Corporation A and Corporation B, in

paragraphs one (1) through fourteen (14) below:

WHEREAS:

(1) Corporation A, a Delaware corporation and party to this Closing Agreement, owned through December 31, Year 2, all of the stock of Corporation B, a Delaware corporation and party to this Closing Agreement. Until December 31, Year 2, Corporation A had outstanding Class X common stock and Class Y common stock. Corporation A is the common parent of an affiliated group of corporations that files a consolidated federal income tax return on a calendar year basis (the Corporation A Group). Corporation B was a member of the Corporation A Group through December 31, Year 2. On January 1, Year 3, Corporation B became the common parent of an affiliated group of corporations that files a consolidated federal income tax return on a calendar year basis (the Corporation B Group).

(2) Corporation B owns all of the stock of Corporation D, a Delaware corporation (EIN 33-1234567) and a member of the Corporation A Group through December 31, Year 2, and of Corporation E, a Delaware corporation (EIN 44-1234567) and a member of the Corporation A Group through December 31, Year 2. Corporation D and Corporation E became members of the Corporation B Group on January 1, Year 3.

(3) Since 1970, Corporation D has maintained assets and operated a widgets business in Country 1 through a branch in Country 1 (Branch 1). Branch 1 is a separate unit as described in Treas. Reg. §1.1503–2(c)(3)(i)(A) and a dual resident corporation (DRC) as defined in Treas. Reg. §1.1503–2(c)(2).

(4) Since 1970, Corporation E has maintained assets and operated a widgets business in Country 2 through a branch in Country 2 (Branch 2). Branch 2 is a separate unit as described in Treas. Reg. §1.1503–2(c)(3)(i)(A) and a DRC as defined in Treas. Reg. §1.1503–2(c)(2).

(5) Since 1975, Corporation E has maintained assets and operated a widgets business in Country 3 through a branch in

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Country 3 (Branch 3). Branch 3 is a separate unit as described in Treas. Reg. §1.1503–2(c)(3)(i)(A) and a DRC as defined in Treas. Reg. §1.1503–2(c)(2).

(6) Since 1972, Corporation E has maintained assets and operated a widgets business in Country 4 through a branch in Country 4 (Branch 4). Branch 4 is a separate unit as described in Treas. Reg. §1.1503–2(c)(3)(i)(A) and a DRC as defined in Treas. Reg. §1.1503–2(c)(2).

Branch 1, Branch 2, Branch 3, and Branch 4 will hereinafter collectively be referred to as the “Corporation B Branches.”

(7) The income and losses of Branch 4 were included in the Corporation A Group through Date A, Year 2. The income and losses of Branch 1, Branch 2, and Branch 3 were included in the Corporation A Group through December 31, Year 2.

(8) On Date A, Year 2, Corporation E, sold all of the assets of Branch 4 to an unrelated Country 4 company, Corporation 4. Corporation E’s sale of Branch 4’s assets is not a triggering event under Treas. Reg. §1.1503–2(g)(2)(iii)(A)(5) because the sale did not result in a carryover under

Country 4 law of Branch 4’s losses, expenses, or deductions to Corporation 4. As a result of this Date A, Year 2 sale, Branch 4 ceased to be a separate unit as described in Treas. Reg. §1.1503–2(c)(3)(i)(A) and a DRC as defined in Treas. Reg. §1.1503–2(c)(2). See Appendix B, Note 1.

(9) On December 31, Year 2, Corporation A distributed all of the stock of Corporation B to its Corporation A Class X common stockholders in exchange for all of the Corporation A Class X common stock in a split-off transaction described in Code §355. As a result of this split-off transaction: (a) Corporation B, Corporation D, and Corporation E, and the income and losses of Branch 1, Branch 2, and Branch 3 ceased to be included in the Corporation A Group; (b) Corporation B became the common parent of the Corporation B Group; and (c) the income and losses of Branch 1, Branch 2, and Branch 3 became included with the Corporation B Group. See Appendix B, Note 2.

(10) On Date C, Year 3, Corporation E sold the Branch 3 assets to an unrelated Country 3 company, Corporation 3. Corporation E’s sale of Branch 3’s assets is not a triggering event under Treas. Reg.

§1.1503–2(g)(2)(iii)(A)(5) because the sale did not result in a carryover under the laws of Country 3 of Branch 3’s losses, expenses, or deductions to Corporation 3. As a result of this Date C, Year 3 sale, Branch 3 ceased to be a separate unit as described in Treas. Reg. §1.1503–2(c)(3)(i)(A) and a DRC as defined in Treas. Reg. §1.1503–2(c)(2). See Appendix B, Note 3.

(11) The Corporation B Branches incurred net operating losses (NOLs) for the Year 1 taxable year and the Year 2 taxable year. Such losses were computed in accordance with Treas. Reg. §1.1503–2 (d)(1) and are as follows:

BRANCH Year 1 Tax Year Year 2 Tax Year Branch 1 $ $ Branch 2 $ $ Branch 3 $ $ Branch 4 $ $ N.A. * TOTAL $ $

*See Appendix B, Note 4.

The Corporation B Branches’ NOLs for the Year 1 taxable year and the Year 2 taxable year will hereinafter collectively be referred to as the Corporation B Branches NOLs.

(12) The Corporation A Group used all of the Corporation B Branches NOLs within the meaning of Treas. Reg. §1.1503–2(c)(15).

(13) Corporation A, as common parent of the Corporation A Group, filed the elections and agreements described in Treas. Reg. §1.1503–2(g)(2)(i) for the Corporation B Branches NOLs incurred

for the Year 1 taxable year and the Year 2 taxable year.

(14) Excluding the distribution of Corporation B stock to the Corporation A Class X common stockholders in a Code §355 split-off transaction, on December 31, Year 2, (as described in paragraph 9 above), causing Corporation B and its affiliates to cease being members of the Corporation A Group, no triggering event described in Treas. Reg. §1.1503–2 (g)(2)(iii) has occurred that is applicable to the Corporation B Branches NOLs.

THEREFORE, based on the above information and material submitted by Corporation A and Corporation B in connection with this Closing Agreement, and in the absence of other material factual or legal circumstances concerning the events described above, it is determined for federal income tax purposes that with respect to the Corporation B Branches NOLs:

(1) This Closing Agreement is a closing agreement described in Treas. Reg. §1.1503–2(g)(2)(iv)(B)(2)(i).

(2) The Corporation B Branches are separate units as described in Treas. Reg.

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§1.1503–2(c)(3)(i)(A) and are dual resident corporations as defined in Treas. Reg. §1.1503–2(c)(2).

(3) The Corporation B Branch NOLs are dual consolidated losses under Treas. Reg. §1.1503–2(c)(5).

(4) But for Treas. Reg. §1.1503–2 (g)(2)(iv)(B)(2), the distribution of Corporation B stock to the Corporation A Class X common stockholders in a Code §355 splitoff transaction, causing Corporation B, Corporation D, and Corporation E to cease being members of the Corporation A Group and the income and losses of the Corporation B Branches to cease being included in the Corporation A Group, was a triggering event under Treas. Reg. §1.1503–2(g)(2)(iii)(A)(2) requiring the recapture of Corporation B Branch NOLs as required by Treas. Reg. §1.1503–2(g)(2)(vii).

(5) Under Treas. Reg. §1.1503–2 (g)(2)(iv)(B)(2), the distribution of Corporation B stock to Corporation A Class X common stockholders in a Code §355 splitoff transaction, whereby Corporation B, Corporation D, and Corporation E ceased to be members of the Corporation A Group and the income and losses of the Corporation B Branches ceased to be included in the Corporation A Group, is not considered to be a triggering event requiring the recap

ture of the Corporation B Branch NOLs and an interest charge.

(6) Upon any subsequent triggering event described in Treas. Reg. §1.1503–2(g)(2)(iii), the Corporation A Group and the Corporation B Group will be jointly and severally liable for the total amount of recapture of the dual consolidated losses of the Corporation B Branches and the related interest charge under Treas. Reg. §1.1503–2(g)(2)(vii), to the extent the triggering event does not fall under one of the exceptions provided in Treas. Reg. §1.1503–2(g)(2)(iv)(A) or (B). The character and source of the recapture amount shall be determined pursuant to Treas. Reg. §1.1503-2(g)(2)(vii)(D). An event otherwise constituting a triggering event applicable to the Corporation B Branch NOLs under Treas. Reg. §1.1503–2(g)(2)(iii)(A) shall not constitute a triggering event if it occurs in any taxable year after the fifteenth (15 ^th ) taxable year following the year in which the Corporation B Branch NOLs were incurred.

(7) The Corporation B Group will treat any potential recapture amount under Treas. Reg. §1.1503–2(g)(2)(vii) as unrealized built-in gain for purposes of Code §384(a), subject to any applicable exceptions thereunder, and such total recapture amount shall constitute recognized built-in gain of the Corporation B Group for pur

poses of Code §384(a), subject to any applicable exceptions thereunder.

(8) The Corporation B Group will comply with the reporting requirements described in Treas. Reg. §1.1503–2 (g)(2)(vi) with respect to each Corporation B Branch NOL for the Year 1 taxable year and the Year 2 taxable year.

(9) If the amount of the Corporation B Branch NOLs is adjusted by the Internal Revenue Service, judicial authority, or otherwise in a final determination of taxes for taxable years ending December 31, Year 1, and December 31, Year 2, the provisions of this Closing Agreement will apply mutatis mutandis to such final adjusted loss amounts.

NOW THIS CLOSING AGREEMENT WITNESSETH, that Corporation A, Corporation B, and the Commissioner of Internal Revenue hereby mutually agree to the determinations set forth above and further mutually agree that those determinations shall be final and conclusive, subject, however, to reopening in the event of fraud, malfeasance, or misrepresentation of material fact, and provided that any change or modification of applicable statutes or tax conventions shall render this Closing Agreement ineffective to the extent that it is dependent upon such statutes or tax conventions.

IN WITNESS WHEREOF, by signing the foregoing, the above parties signify that they have read and agreed to the terms of this document.

CORPORATION A

By: Date:

Title:

CORPORATION B

By: Date:

Title:

COMMISSIONER OF INTERNAL REVENUE

By: Date:

Title: Associate Chief Counsel (International)

By: Date:

Title: Director, International

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resolve their case with Appeals before the case proceeds further in the litigation process. See generally Rev. Proc. 87–24, 1987–1 C.B. 720. In both types of disputes, Appeals has broad authority to negotiate settlements by applying a “hazards of litigation” standard.

Proceedings before Appeals have traditionally followed a much less formal course than court proceedings. While proceedings before Appeals are designed to be fair and impartial, they are not subject to judicial rules of evidence or procedure. Some early legislative proposals during 1998 would have required Appeals to adopt more formal and less flexible processes. S. Rep. No. 1669, 105 ^th Cong., 2 ^nd Sess., § 304(a) (Feb. 24, 1998), would have established an independent Office of Appeals in the Internal Revenue Service, the head of which was to be appointed by and report directly to the Oversight Board. Further, this proposal would have barred Appeals from considering issues not “raised” by the originating function and prohibited “any communication” with the originating function unless the taxpayer or taxpayer’s representative had an opportunity to be present.

As ultimately enacted, § 1001(a)(4) of RRA 98 did not impose a comprehensive overhaul of Appeals’ processes. Instead, that section requires the IRS, as part of its reorganization plan, to establish an independent Office of Appeals “within the Internal Revenue Service.” The plan must prohibit ex parte communications “to the extent such communications appear to compromise the independence” of Appeals. When the evolution of § 1001(a)(4) of RRA 98 during the1998 legislative process is considered in light of Appeals longstanding methods of operation, it can be fairly concluded that Appeals must be accorded a significant degree of independence from other IRS components, and should be mindful to avoid ex parte communications with other IRS functions that might appear to compromise that independence. The statutory provision cannot, however, be interpreted as mandating a major redesign of the fundamental processes Appeals has traditionally followed to carry out its dispute resolution mission.

The procedures set forth in this Revenue Procedure are designed to accommodate the overall interests of tax admin

Prohibition of Ex Parte Communications Between Appeals Officers And Other Internal Revenue Service Employees

Rev. Proc. 2000–43

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