SECTION 10. APPLICATION OF REV.

PROC. 99–32

Rev. Proc. 99–32 generally provides a means to conform a taxpayer’s accounts and allow repatriation of certain amounts following an allocation of income between related U.S. and possession corporations under section 482 of the Code without the federal income tax consequences of the adjustments that would otherwise have been necessary to conform the taxpayer’s accounts in light of the allocation of income. In situations where a section 482 allocation

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 Re- quest.

(1) 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 IRS of the grounds on which credit or refund is claimed; (b) contain sufficient facts to apprise the IRS 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.

(2) Treatment of Competent Authority Request as Protective Claim. The IRS 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 Treas. Reg. § 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(1) 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. 2006–23.” The penalties of perjury statement described in sections 4.05(22) and 5.03(10) of this revenue procedure satisfies the requirement for the written declaration and a separate declaration is not required.

.03 Protective Filing Before Competent Authority Request.

(1) 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 possession is considering but has not yet proposed an adjustment; or (ii) the possession has proposed an adjustment but the taxpayer or related person decides to pursue administrative or judicial remedies in the possession.

(2) 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 paragraphs (1) through (10) of section 4.05 or under paragraphs (1) through (5) of section 5.03 of this revenue procedure. The letter must include a penalties of perjury statement as described in sections 4.05(22) and 5.03(10) of this revenue procedure. The letter must be filed in the same place and manner as a request for competent authority assistance. The IRS 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 Treas. Reg. § 301.6402–3 with respect to those issues, provided that the request meets the other requirements described in section 9.02(1) of this revenue procedure. The letter must include the caption “Protective claim pursuant to section 9.03 of Rev. Proc. 2006–23.”

(3) Notification Requirement. After filing a protective claim, the taxpayer periodically must notify the U.S. competent authority whether the taxpayer still is considering filing for competent authority assistance. The notification must be filed every twelve months until the formal request

2006–20 I.R.B. 908 May 15, 2006

clude an agreement ( e.g., significant factual development is required that cannot effectively be completed outside the examination process); or (iii) fails to cooperate with the U.S. competent authority (including failing to provide sufficient facts and documentation to support its claim of double taxation or taxation contrary to the coordination agreement) or otherwise significantly impedes the ability of the U.S. competent authority to negotiate and conclude an agreement; or

(8) the transaction giving rise to the request for competent authority assistance: (i) is more properly within the jurisdiction of Appeals; (ii) includes an issue pending in a U.S. Court, or designated for litigation, unless competent authority consideration is concurred in by the U.S. competent authority and the Associate Chief Counsel (International); or (iii) involves fraudulent activity by the taxpayer.

.03 Extending Period of Limitations for Assessment. If the U.S. competent authority accepts a request for assistance, the taxpayer may be requested to execute a consent extending the period of limitations for assessment of tax for the taxable periods in issue. Failure to comply with the provisions of this subsection can result in denial of assistance by the U.S. competent authority with respect to the request.

.04 No Review of Denial of Request for Assistance. The U.S. competent authority’s denial of a taxpayer’s request for assistance or dismissal of a matter previously accepted for consideration pursuant to this revenue procedure is final and not subject to administrative review.

.05 Notification. The U.S. competent authority will notify a taxpayer requesting assistance under this revenue procedure of any agreement that the U.S. and the possession competent authorities reach with respect to the request. If the taxpayer accepts the resolution reached by the competent authorities, the agreement shall provide that it is final and is not subject to further administrative or judicial review. If the competent authorities fail to agree, or if the agreement reached is not acceptable to the taxpayer, the taxpayer may withdraw the request for competent authority assistance and may then pursue all rights to review otherwise available under the laws of the United States and the possession.

.06 Closing Agreement. When appropriate, the taxpayer will be requested to

is the subject of a request for competent authority assistance, any new or pending requests for Rev. Proc. 99–32 treatment relating to such allocation must be disposed of by the competent authority. Accordingly, if a taxpayer intends to seek Rev. Proc. 99–32 treatment in connection with competent authority assistance relating to a section 482 allocation, the taxpayer must request Rev. Proc. 99–32 treatment in conjunction with its request for competent authority assistance. If a taxpayer has already requested Rev. Proc. 99–32 treatment at the time it submits a request for competent authority assistance relating to a section 482 allocation, consideration of Rev. Proc. 99–32 treatment must be transferred to competent authority and a copy of the pending Rev. Proc. 99–32 request forwarded along with the request for competent authority assistance.