SEC. 5. PROCESSING OF VCAP

REQUESTS

.01 Inadequate or incomplete submis- sion or request for additional information . If the submission fails to comply with the provisions of this revenue procedure or the Service requires additional information, the Service representative assigned to the case will contact the eligible organization or its representative and explain what is needed to complete the submission. The organization will have 90 business days from the date of this contact to provide the requested information. Any request for an extension of the 90-day time period must be made prior to expiration of the period, and must be approved by the TE/GE Area Manager of the appropriate TE/GE Area Office, or his or her designated representative. If the requested information is not received within 90 business days, or an agreement cannot be reached on correction or administrative procedures, the matter will be closed, and the Service may consider the case for examination.

.02 Determining tax liability . Once the Service accepts the submission under VCAP, the Service will analyze the eligible organization’s calculation of its tax liability regarding payments to alien individuals, and will analyze the accompanying workpapers, schedules, and returns which support such calculation. The Service will generally apply the following approach to determine the tax liability of an eligible organization:

(1) The Service will normally allow tax treaty benefits in the computation of any adjustments to taxes and withholding of taxes on payments to nonresident alien individuals, even in the absence of Forms 8233, 1001, W-9, or W-8BEN if the eligible organization has acted in good faith and provides sufficient information to support the treaty claims.

(2) Interest on the eligible organization’s underpayments will be due from the

last date prescribed for payment of the taxes (determined without regard to VCAP or any extension of time for payment) to the date on which payment is received; provided, however, that interestfree adjustments of underpayments of certain employment taxes may be made in accordance with § 6205(a)(1) of the Code, Proposed Treas. Reg. § 31.6205–1(b) and (c), and Rev. Rul. 75–464, 1975–2 C.B. 474. (3) The Service will not assert any penalties on the eligible organization’s liability, if the organization’s failure to withhold, pay, and report taxes as described in section 1 of this revenue procedure, is due to reasonable cause.

(4) In certain cases involving large liabilities, the Service will consider the eligible organization’s proposal for payment of the liability in more than one installment. See Internal Revenue Manual (IRM) Handbook 4.3.2, Examination Collectibility Handbook, Chapter 4, Installment Agreements (05–25–2000). Applicants may also wish to avail themselves of the procedures for making a deposit in the nature of a cash bond as contained in Rev. Proc. 84–58, 1984–2 C.B. 501.

.03 Review of Eligible Organization’s compliance procedures . The eligible organization must demonstrate to the satisfaction of the Service that it has implemented (or it has plans for implementing) policies and procedures that ensure that the correct amount of taxes and withholding of taxes on payments to alien individuals are reported and paid over to the Service on the proper forms and in a timely manner. The Service will review the eligible organization’s policies and procedures to assure itself that the policies and procedures are reasonably likely to bring the organization into compliance on a prospective basis. The Service reserves the right to prescribe appropriate administrative procedures, but will first discuss the appropriateness of existing procedures with the organization. Where the current procedures, or proposed future procedures, are inadequate for complying with the relevant tax, withholding, and reporting requirements, the Service also reserves the right to deny relief under VCAP.

.04 Other tax liabilities or issues . If the Service discovers an unrelated tax lia

2001–9 I.R.B. 741 February 26, 2001

bility or exemption issue while considering the request, that issue will remain outside the scope of the VCAP submission because it was not voluntarily brought forward by the organization.

.05 Verification . As part of the processing of the VCAP submission, the Service reserves the right to verify that corrections have been made to the eligible organization’s tax, withholding, and reporting procedures on payments to alien individuals. Verification of such corrections does not constitute an examination of the books and records of the organization. If the Service determines that the eligible organization has not implemented or does not plan to implement the proper corrections and procedures, the case may be considered for examination. The Service does not contemplate opening examinations on VCAP submissions but reserves the right to do so. If the Service decides to examine the eligible organization, the examination will be commenced and completed as soon as possible, with the intention in most cases that the scope of the examination will be limited to tax and withholding obligations on payments to alien individuals and related issues.

.06 Acknowledgment letter . If the Service is satisfied at the conclusion of its review that the organization has instituted policies and procedures which ensure that the correct amounts of taxes on payments to alien individuals are withheld, paid, and reported to the Service on the proper forms and in a timely manner, then the Service will issue to the eligible organization an acknowledgment letter indicating that based upon its review, the eligible organization is at that time in substantial compliance with the tax, withholding, and reporting obligations governing payments to alien individuals. Once the organization has received an acknowledgment letter at the completion of the VCAP process, and provided that the organization in fact complies with the agreed upon withholding, payment and reporting procedures, the information submitted by the organization to the Service under VCAP will not be used as the basis to initiate an examination of the organization.

.07 Failure to reach resolution . If resolution cannot be reached because sufficient information is not timely provided to the Service or because agreement cannot be reached on correction or administrative

procedures, the Service may consider the case for examination.

.08 Applicability of §§ 6103 and 6110 . The information received or generated by the Service under VCAP is subject to the confidentiality requirements of § 6103 of the Code. The acknowledgment letter is not a written determination letter within the meaning of § 6110 of the Code.

.09 Conferences . If the Service initially determines that it cannot issue an acknowledgment letter because the parties cannot agree upon some correction or administrative issue, the organization or the organization’s representative may be granted a conference with the Service, at the Service’s discretion and upon request by the organization or the organization’s representative. The conference can be held either in person or by telephone. If a conference is offered, the organization or its representative will be contacted by the Service representative.