SECTION 9. PROTECTIVE

MEASURES

.01 General . In negotiating treaties, the United States seeks to secure an agreement with its treaty partner that any competent authority agreement reached with the treaty partner will be implemented notwithstanding any time limits or other procedural limitations in the domestic law of either country. However, treaty provisions providing a competent authority with the ability to waive such limitations do not affect the application of statutes of limitation in the event that a request for competent authority assistance is declined or the competent authorities are unable to reach an agreement. In addition, the particular treaty or the posture of the particular case may indicate that the taxpayer or a related person must take protective measures with the U.S. and foreign tax authorities so that the implementation of any agreement reached by the competent authorities or alternative remedies outside of the competent authority process are not barred by administrative, legal or procedural barriers. Such barriers may arise either before or after a competent authority request is filed. Protective measures include, but are not limited to: (a) filing protective claims for refund or credit; (b) staying the expiration of any period of limitations on the making of a refund or other tax adjustment; (c) avoiding the lapse or termination of the taxpayer’s right to appeal any tax determination; (d) complying with all applicable procedures for invoking competent authority consideration, including applicable treaty provisions dealing with time limits within which to invoke such remedy; and (e) contesting an adjustment or seeking an appropriate correlative adjustment with respect to the U.S. or treaty country tax. A taxpayer should take protective measures in a timely manner, that is, in a manner that allows sufficient time for appropriate procedures to be completed and effective before barriers

arise. Generally, a taxpayer should consider, at the time an adjustment is first proposed, which protective measures may be necessary and when such measures should be taken. However, earlier consideration of appropriate actions may be desirable, for example, in the case of a recurring adjustment or where the taxpayer otherwise is on notice that an adjustment is likely to be proposed. Taxpayers may consult with the U.S. competent authority to determine the need for and timing of protective measures in their particular case.

.02 Filing Protective Claim for Credit or Refund with a Competent Authority Request.

(a) In General . A valid protective claim for credit or refund must meet the requirements of section 6402 of the Code and the regulations thereunder. Accordingly, a protective claim must (a) fully advise the Service of the grounds on which credit or refund is claimed; (b) contain sufficient facts to apprise the Service of the exact basis of the claim; (c) state the year for which the claim is being made; (d) be on the proper form; and (e) be verified by a written declaration made under penalties of perjury.

(b) Treatment of Competent Authority Request as Protective Claim . The Service will treat a request for competent authority assistance itself as one or more protective claims for credit or refund with respect to issues raised in the request and within the jurisdiction of the competent authority and will not require a taxpayer to file the form described in Treasury regulation section 301.6402–3 with respect to those issues, provided that the request meets the other requirements of section 6402 of the Code and the regulations thereunder, as described in section 9.02 (a) of this revenue procedure. The information constituting the protective claim should be set forth in a separate section of the request for assistance and captioned “Protective claim pursuant to section 9.02 of Rev. Proc. 2002–52. The penalties of perjury statement described in section 4.05(o) satisfies the requirement for the written declaration and a separate declaration is not required.

.03 Protective Filing Before Competent Authority Request.

(a) In general . There may be situations in which a taxpayer would be unable to file a formal competent authority assistance request before the period of limitations would expire with respect to the affected U.S. return. In these situations, before the period of limitations expires, the taxpayer should file a protective claim for credit or refund of the taxes attributable to the potential competent authority issue to ensure that alternative remedies outside of the competent authority process will not be barred. Situations for which a protective filing may be appropriate include: (i) the treaty country is considering but has not yet proposed an adjustment; (ii) the treaty country has proposed an adjustment but the related taxpayer in the treaty country decides to pursue administrative or judicial remedies in the foreign country; or (iii) the terms of the applicable treaty require notification to be made to the competent authority within a certain time period. In considering whether to accept a taxpayer’s request for competent authority assistance, the U.S. competent authority will consider whether the proper treaty notification has been made in accordance with this subsection.

(b) Letter to Competent Authority Treated as Protective Claim . In situations in which a protective claim is filed prior to submitting a request for competent authority assistance, the taxpayer may make a protective claim in the form of a letter to the competent authority. The letter must indicate that the taxpayer is filing a protective claim and set forth, to the extent available, the information required under section 4.05(a) through (j) or under section 5.03(a) through (e) of this revenue procedure, as applicable. The letter must include a penalties of perjury statement as described in sections 4.05(o) and 5.03(g). The letter must be filed in the same place and manner as a request for competent authority assistance. The Service will treat the letter as a protective claim(s) with respect to issues raised in the letter to and within the jurisdiction of the competent authority and will not require a taxpayer to file the form described in Treasury regulation section 301.6402–3 with respect to those issues, provided that the request meets the other requirements described in section 9.02 (a). The letter

August 5, 2002 250 2002–31 I.R.B.

to competent authority and a copy of the pending Rev. Proc. 99–32 request forwarded along with the request for competent authority assistance.