SECTION 7. OPTIONAL

SETTLEMENT FOR TAXPAYERS UNDER EXAMINATION, BEFORE AN AREA APPEALS OFFICE, OR BEFORE THE TAX COURT

.01 In General . If a taxpayer is within the scope of this revenue procedure, the treatment of the cost of its qualifying vehicles’ original tires or replacement tires is an issue under consideration (within the meaning of section 3.09 of Rev. Proc. 2002–9) in examination, before an area appeals office, or before the Tax Court, or is an issue pending in examination (within the meaning of section 6.03(6) of Rev. Proc. 2002–9), on April 3, 2002, and the taxpayer does not change to the original tire capitalization method under section 6.03 of this revenue procedure, the Service offers to settle the original and replacement tires issue by changing the taxpayer’s method of accounting for the cost of original and replacement tires to the original tire capitalization method in the earliest open taxable year after which there is no closed taxable year.

required to be capitalized during a taxable year covered by the settlement should be depreciated in that taxable year and in affected succeeding taxable years (whether or not covered by the settlement) in accordance with the taxpayer’s method of accounting for depreciation.

(4) The Service will not require the taxpayer to change its method of accounting for the cost of its qualifying vehicles’ original and replacement tires to a method other than the original tire capitalization method for any taxable year for which a federal income tax return has been filed as of the date of the closing agreement or other appropriate settlement agreement, provided that:

(a) the taxpayer has complied with all the applicable provisions of the closing agreement or other appropriate settlement agreement;

(b) there has been no taxpayer fraud, malfeasance, or misrepresentation of a material fact;

(c) there has been no change in the material facts on which the closing agreement or other appropriate settlement agreement was based; and

(d) there has been no change in the applicable law on which the closing agreement or other appropriate settlement agreement was based.

(5) The taxpayer must execute a closing agreement under § 7121 or other appropriate settlement agreement as described in section 7.05 of this revenue procedure.

.03 Procedures for Requesting the Settlement .

(1) Initiating the request .

(2) Statement of facts, law, and arguments . The request for settlement must include the following information:

(a) the taxpayer’s name, address, telephone number, and taxpayer identification number;

(b) the taxable years covered by the proposed settlement;

(c) the taxpayer’s earliest open taxable year after which there is no closed taxable year;

(d) the taxpayer’s current method of accounting for the cost of its qualifying vehicles’ original and replacement tires; and

(e) a statement of the material facts, including the capitalized amount and the deductible amount computed under the original tire capitalization method for each taxable year under examination, before an area appeals office, or before the Tax Court, and an explanation of the computations used to determine those amounts.

(3) Perjury statement . The request for settlement must be accompanied by the following declaration: “Under penalties of perjury, I declare that I have examined this request, including accompanying documents, and, to the best of my knowledge and belief, the request contains all the relevant facts relating to the request, and such facts are true, correct, and complete.” This declaration must be signed by, or on behalf of, the taxpayer by an individual with the authority to bind the taxpayer in these matters. The declaration may not be signed by the taxpayer’s representative.

.04 Procedures for Processing the Request .

(1) Receipt of request acknowl- edged . The first line examination manager, appeals officer, or Chief Counsel attorney (whichever is applicable) will acknowledge receipt of the taxpayer’s request for settlement in writing within 15 business days of receipt.

(2) Factual development . The first line examination manager, appeals officer, or Chief Counsel attorney (whichever is applicable) will contact the taxpayer to discuss any questions the Service may have, or ask for additional information believed to be necessary to execute the settlement (for example, to verify the correctness of the taxpayer’s information).

.02 Terms of Settlement .

(1) The Service will change the taxpayer’s method of accounting for the cost of original and replacement tires to the original tire capitalization method described in section 5 of this revenue procedure.

(2) The change to the original tire capitalization method will be made using a cut-off method in the earliest open taxable year after which there is no closed taxable year.

(3) The taxpayer must reflect the settlement on its federal income tax returns for any affected succeeding taxable years. For example, an amount

(a) Taxable years under examina- tion or in Appeals . A taxpayer that wants to request a settlement under this section for taxable years under examination or in Appeals must submit its request in writing to the first line examination manager or appeals officer (whichever is applicable) on or before September 3, 2002.

(b) Taxable years before the Tax Court . A taxpayer that wants to request a settlement under this section for taxable years before the Tax Court must submit its request in writing to the Chief Counsel attorney assigned to the case on or before the earlier of September 3, 2002, or the date that is 30 days before the date the case is first set for trial, which is the date scheduled for the calendar call.

2002–17 I.R.B. 805 April 29, 2002

(3) Acceptance . The first line examination manager, appeals officer, or Chief Counsel attorney (whichever is applicable) will accept the taxpayer’s request for settlement if the request complies with the applicable terms of this revenue procedure. For taxable years before the Tax Court, the settlement is subject to the approval of the Court.

(4) Notification of acceptance . The first line examination manager, appeals officer, or Chief Counsel attorney (whichever is applicable) will notify the taxpayer in writing when the Service agrees to the settlement requested by the taxpayer.

.05 Procedures for Implementing the Settlement .

(1) Closing agreement or other appropriate settlement agreement re- quired . A taxpayer implementing a settlement is required to execute a closing agreement under § 7121 or other appropriate settlement agreement.

(2) Contents of closing agreement or other appropriate settlement . A closing agreement must comply with the requirements of Rev. Proc. 68–16 (1968–1 C.B. 770) and must be substantially in the form set forth in the APPENDIX of this revenue procedure. Settlement agreements in cases pending before the Tax Court must conform substantially to the provisions set forth in the APPENDIX of this revenue procedure and must conform to the rules and procedures of the Tax Court.

(3) Review and execution of closing agreement or other appropriate settle- ment .

(a) Taxpayers under examination . The first line examination manager will prepare a closing agreement. The first line examination manager should submit the closing agreement to the appropriate Territory Manager (LMSB) or Territory Manager, Compliance (SB/SE) (whichever is applicable) and his or her assigned counsel for review prior to submitting the closing agreement to the taxpayer for execution. Failure by the examination manager to submit the closing agreement to the Territory Manager or his or her assigned counsel for review will not invalidate the closing agreement. After the closing agreement has been executed

by the taxpayer, it will be executed on behalf of the Service by the appropriate Director, Field Operations (LMSB) or Area Director, Field Compliance (SB/SE) (whichever is applicable).

(b) Taxpayers before an area appeals office . The appeals officer or appeals team case leader will prepare a closing agreement. After the closing agreement has been executed by the taxpayer, it will be executed on behalf of the Service by an authorized official from Appeals.

(c) Taxpayers before the Tax Court . For docketed taxable years before the Tax Court, the taxpayer and the Chief Counsel attorney must prepare an appropriate settlement document, settlement stipulation, or stipulated decision document, pursuant to the rules and procedures of the court. The settlement document, settlement stipulation, or stipulated decision document is subject to the approval of the court.

(4) Amended returns .

(a) In general . In cases pending before examination or appeals, the Service will make the adjustments necessary to reflect the settlement to the taxpayer’s returns for the taxable years under examination or before an area appeals office. In cases pending before the Tax Court, the settlement agreement will include adjustments necessary to reflect the settlement with respect to the year(s) before the court. The taxpayer is required to file amended returns to reflect the settlement for any other affected taxable years for which a federal income tax return has been filed as of the date of the closing agreement or other appropriate settlement agreement. The amended returns must include the adjustments to taxable income necessary to reflect the new method and any collateral adjustments to taxable income or tax liability resulting from the change. A taxpayer eligible to file a qualified amended return under Rev. Proc. 94–69 (1994–2 C.B. 804) may satisfy the requirements of this section by filing a qualified amended return in accordance with that revenue procedure.

(b) Time and manner . The taxpayer must file any required amended returns prior to the date it executes the closing agreement or other appropriate

settlement agreement. The taxpayer must provide a copy of the amended returns to the first line examination manager, appeals officer, or Chief Counsel attorney (whichever is applicable) before the closing agreement or other appropriate settlement agreement is executed.

.06 Effect on Other Offices of the Ser- vice . If a taxpayer is before an area appeals office or the Tax Court regarding the treatment of the cost of its qualifying vehicles’ original and replacement tires and does not settle this issue under the provisions of this section 7, an appropriate representative from an area appeals office or Chief Counsel office may settle a particular taxpayer’s case involving this issue on a more favorable or less favorable basis than provided in this revenue procedure. For example, an appeals officer may settle a case based on the hazards of litigation.