SECTION 7. RECORD — Internal Revenue Bulletin 2002-41

Section 6001 provides that every person liable for any tax imposed by the Code, or for the collection thereof, must keep such records, render such statements, make such returns, and comply with such rules and regulations as the Secretary may from time to time prescribe. The books or records required by § 6001 must be kept at all times available for inspection by authorized internal revenue officers or employees, and must be retained so long as the contents thereof may become material in the administration of any internal revenue law. Section 1.6001–1(e). In order to satisfy the record keeping requirements of § 6001 and the regulations thereunder, a taxpayer that changes to the track maintenance allowance method should maintain records substantiating all aspects of entitlement to the deduction, including, but not limited to, the following:

.01 Work papers or reports that identify and extract the taxpayer’s costs for current additions, operating items, and new track structure, including costs to rehabilitate or improve newly acquired or previously abandoned track structure;

.02 Work papers or reports that identify and extract the taxpayer’s assigned value of relay materials and salvage material credits; and

.02 Terms of Settlement .

(1) The Service will change the taxpayer’s method of accounting for track structure expenditures to the track maintenance allowance method described in section 5 of this revenue procedure.

(2) The change to the track maintenance allowance method will be made in the earliest open taxable year after which there is no closed taxable year using a cutoff method.

(3) The taxpayer must reflect the settlement on its federal income tax returns for any affected succeeding taxable years. For example, an amount 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 track structure expenditures to a method other than the track maintenance allowance method for any taxable year for which a federal income tax return has been

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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 ap- propriate settlement agreement required. 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 agreement. A closing agreement or other appropriate settlement agreement must comply with the requirements of Rev. Proc. 68–16, 1968–1 C.B. 770, and, in the case of a closing agreement, 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 settlement agreement.

(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 Ground Transportation Technical Advisor and his assigned counsel for review prior to submitting the closing agreement to the taxpayer for execution. Failure to submit the closing agreement to the Technical Advisor or his 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 Director, Field Operations (LMSB) MCT, New Jersey.

(b) Taxpayers before an area ap- peals 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.

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 8.05 of this revenue procedure.

.03 Procedures for Requesting the Settle- ment.

(1) Initiating the request.

(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 June 30, 2003.

(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 June 30, 2003, 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.

(2) Statement of facts, law, and ar- guments. 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;

(d) the taxpayer’s current method of accounting for track structure expenditures;

(e) a statement of the material facts, including the track maintenance allowance and the capitalized amount under the track maintenance allowance 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; and

(f) a statement of whether the track maintenance allowance for each taxable year under examination, before an area appeals office, or before the Tax Court is taken into account for federal income tax purposes, for example, whether the amount was incurred under § 461 in that taxable year, and, if § 404 applies to any portion of the amount in a particular taxable year, whether that portion meets the deductibility requirements of § 404.

(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 Re- quest.

(1) Receipt of request acknowledged. 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).

(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

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terms defined in section 4 of Rev. Proc. 2002–65, apply for purposes of this closing agreement.

The taxable years covered by this closing agreement are [insert applicable taxable years].
The taxpayer currently accounts for track structure expenditures as follows: [insert taxpayer’s current method of accounting for track structure expenditures].
The taxpayer and the Internal Revenue Service (“Service”) rely on the following facts and representations in making this closing agreement: [insert relevant facts, including the track maintenance allowance and the capitalized amount under the track maintenance allowance method for each taxable year under examination, before an area appeals office, or before the Tax Court, an explanation of the computations used to determine those amounts, and a statement of whether the track maintenance allowance for each of those taxable years is taken into account for federal income tax purposes].

NOW IT IS HEREBY DETERMINED AND AGREED for federal income tax purposes:

That the Service is changing the taxpayer’s method of accounting for track structure expenditures to the track maintenance allowance method of accounting described in section 5 of Rev. Proc. 2002– 65, for the taxable year ending [insert earliest open taxable year after which there is no closed taxable year].
That the method change will be implemented using a cut-off method.
That 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 for each of the taxable years covered by this agreement, are as follows: [insert appropriate adjustments].
(If appropriate), That the taxpayer has filed any amended returns required by section 8.05(4) of Rev. Proc. 2002–65, to reflect the settlement.
That the Service will not require the taxpayer to change its method of accounting for track structure expenditures to a method other than the track maintenance allowance method for any taxable year for which a federal income tax return has been filed as of the date of this closing agreement, provided that: (a) the taxpayer has complied with all the applicable provi

(c) Taxpayers before the Tax Court. For docketed tax 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. Such 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. 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 on or before 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) at the time it files the amended returns.

(5) Application of Rev. Proc. 2002– 18. Except as otherwise provided in this revenue procedure, the provisions of Rev. Proc. 2002–18 will apply to any settlement under section 8 of this revenue procedure.

.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 its track structure expenditures and does not settle this issue under the

provisions of this section 8, 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.