SECTION 3. SCOPE

.01 Eligible taxpayers . This revenue procedure applies to all taxpayers under the jurisdiction of the LMSB that desire to advance through an LMSB PFA the prefiling resolution of issues that may otherwise be the subject of a post-filing examination.

.02 Eligible taxable years . An eligible taxpayer may request an LMSB PFA with respect to the current taxable year or any prior taxable year for which the return is not yet due (including extensions) and is not yet filed. However, taxpayers are reminded that the selection criteria for the LMSB PFA program include both the amount of time remaining until the date for filing the return to which the desired LMSB PFA would relate and the overall likelihood that the LMSB PFA process can be completed prior to such date. See section 5.02 of this revenue procedure. Taxpayers are therefore urged to submit their LMSB PFA requests at the earliest possible time in order to maximize the likelihood that they will be selected for the LMSB PFA program and that an LMSB PFA agreement can be finalized prior to the filing of the return(s).

.03 Eligible issues generally.

(1) Factual issues and well estab- lished law . The Service generally will consider entering into an LMSB PFA on any issue that represents either (i) a factual determination or (ii) an application of legal principles to agreed upon facts in which the legal principles are well established in their application to such facts. However, the Service will not consider entering into an LMSB PFA with respect to (i) any international issue that is not listed in section 3.05 of this revenue procedure, or (ii) any excluded issue listed in section 3.06 of this revenue procedure.

(2) Eligible taxable year(s) . An eligible issue must relate to an eligible year for which the LMSB PFA is sought; an issue is not an eligible issue if it relates to any prior or subsequent taxable year. Thus, the valuation of a specific asset during an eligible year is generally an eligible issue for the LMSB PFA program, whereas the valuation of an asset during a prior or subsequent taxable year is not.

or subsequent taxable year is not. issues . The following is a list of interna- (7) Issues for which the taxpayer

.04 Nonexclusive list of eligible domes- tional issues that are likely to be suitable proposes a resolution that is contrary to a tic issues . The following is a list of for resolution through the LMSB PFA private letter ruling, accounting method domestic issues that are likely to be suit- program. This list is exclusive ; the change request, determination letter, techable for resolution through the LMSB Service will not consider entering into an nical advice memorandum, or closing

2001–9 I.R.B. 747 February 26, 2001

.04 Nonexclusive list of eligible domes- tic issues . The following is a list of domestic issues that are likely to be suitable for resolution through the LMSB

PFA program. This list is nonexclusive and is not intended to prevent submission of other domestic issues that fall within the scope of the LMSB PFA program.

(1) the current valuation of specific assets (except in the context of transfer pricing), but not the appropriateness of a valuation methodology;

(2) the allocation of the purchase or sale price of a business among the assets acquired or sold;

(3) the identification and documentation of hedging transactions;

(4) issues relating to in-house research expenses under § 41;

(5) the allocation of costs among different categories of deductible and capital items, in contexts where there is a published revenue ruling, e.g. repairs (Rev. Rul. 94–12, 1994–1 C.B. 36), advertising (Rev. Rul. 92–80, 1992–2 C.B. 57), and Y2K costs (Rev. Proc. 97–50, 1997–2 C.B. 525);

(6) identification of investigatory costs incurred to determine whether to enter a new business and, if so, which business to enter, for purposes of qualifying such costs as start-up costs under § 195 ( see Rev. Rul. 99–23, 1999–1 C.B. 998); (7) whether a taxpayer’s financial statement presentation of its last-in, firstout (LIFO) inventory is consistent with the LIFO conformity requirement under § 1.472–2(e);

(8) whether a taxpayer’s inventory contains “sub-normal” goods within the meaning of § 1.471–2(c), and the valuation of such goods;

(9) whether a taxpayer is considered to be the tax owner of the property being produced under § 1.263A–2(a)(1)(ii)(A);

(10) whether a manufacturing contract newly entered into by the taxpayer is required to be accounted for as a longterm contract under § 460;

(11) the determination of appropriate classification under § 168(e) for depreciable property placed in service during the eligible taxable year; and

(12) whether a security became worthless during the eligible taxable year, for purposes of § 165(g).

.05 Exclusive list of international issues . The following is a list of international issues that are likely to be suitable for resolution through the LMSB PFA program. This list is exclusive ; the Service will not consider entering into an

agreement previously issued to or regarding the taxpayer;

(8) Issues for which the taxpayer proposes a resolution that is contrary to a position proposed by the Service in response to a private letter ruling, determination letter or accounting method change request that was withdrawn by the taxpayer;

(9) Issues that are the subject of litigation between the Service and the taxpayer with respect to an earlier taxable period;

(10) Issues that have been designated for litigation by the Office of Chief Counsel;

(11) Issues involving a tax shelter described in § 6662(d)(2)(C)(iii); and

(12) Issues that require a determination of whether the taxpayer, rather than another entity, is the common law employer.

.07 Methods of accounting . The LMSB PFA’s application of the law to the taxpayer’s facts may result in treating an item differently from earlier treatments of similar items in prior taxable years ( e.g., deducting items that previously were capitalized, such as certain ISO 9000 costs). If so, the differing treatment may constitute a change in the method of accounting for that item. The LMSB PFA will resolve only the factual characterization of the items at issue for the taxable year(s) to which the LMSB PFA relates, but will not constitute the Commissioner’s consent to make any accounting method change that may be required to conform the agreed upon factual characterization of the item with identical items in earlier years. Permission to make any accounting method changes required by the LMSB PFA’s resolution of the factual and legal issues must be obtained using the applicable administrative procedures. See Rev. Proc. 99–49, 1999–2 C.B. 725 (automatic consent to change certain accounting methods); Rev. Proc. 97–27, 1997–1 C.B. 680. .08 Definition of taxpayer. For purposes of section 3 of this revenue procedure, any reference to the taxpayer also includes a related taxpayer and any predecessor of the taxpayer or a related taxpayer. A related taxpayer is one related within the meaning of § 267 or a member of an affiliated group within the meaning of § 1504 that includes the taxpayer. A pre

decessor is an entity for whose tax liability the taxpayer or a related taxpayer is or was primarily or secondarily liable.