SECTION 6. RELIEF REQUESTED

FOR FOREIGN INITIATED ADJUSTMENT WITHOUT COMPETENT AUTHORITY INVOLVEMENT

Taxpayers seeking correlative relief with respect to a foreign initiated adjust

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be consulted as necessary with regard to specific matters. See, e.g., Rev. Proc. 2006–9, 2006–2 I.R.B. 278 (concerning APAs); Rev. Proc. 2005–12, 2005–2 I.R.B. 311 (concerning Pre-Filing Agreements); or Rev. Proc. 98–21, 1998–1 C.B. 585 (concerning Article XIII(8) of the U.S.-Canada treaty). Taxpayers with applications under any other dispute resolution procedures should seek competent authority assistance as early as possible if they believe they have potential competent authority issues.

.05 Effect of Agreements or Judicial De- terminations on Competent Authority Pro- ceedings . If a taxpayer either executes a closing agreement with the IRS (whether or not contingent upon competent authority relief) with respect to a potential competent authority issue or reaches a settlement on the issue with IRS Appeals (including an Appeals settlement through the arbitration process) or with Chief Counsel pursuant to an executed closing agreement or other written agreement such as Form 870–AD, the U.S. competent authority will endeavor only to obtain a correlative adjustment from the treaty country and will not undertake any actions that would otherwise change such agreements. However, the U.S. competent authority will, in appropriate cases, consider actions necessary for the purpose of providing treatment similar to that provided in Rev. Proc. 99–32. Once a taxpayer’s tax liability for the taxable periods in issue has been determined by a U.S. court (including settlement of the proceedings before or during trial), the U.S. competent authority similarly will endeavor only to obtain correlative relief from the treaty country and will not undertake any action that would otherwise reduce the taxpayer’s federal tax liability for the taxable periods in issue as determined by a U.S. court. Taxpayers therefore should be aware that in these situations, as well as in situations where a treaty country takes a similar position with respect to issues resolved under its domestic laws, relief from double taxation may be jeopardized.

.06 Accelerated Competent Authority Procedure . A taxpayer requesting competent authority assistance with respect to an issue raised by the IRS also may request that the competent authorities attempt to resolve the issue for subsequent taxable

requested otherwise by the U.S. competent authority; or (b) in situations involving cases pending in court and in other instances in which action must be taken to avoid prejudicing the U.S. Government’s interest. The normal administrative procedures continue to apply, however, to all other issues not under U.S. competent authority consideration. For example, if there are other issues raised during the examination and the taxpayer is not in agreement with these issues, the usual procedures for completing the examination with respect to these issues apply. If the taxpayer is issued a Notice of Proposed Adjustment with respect to these issues and prepares a protest of the unagreed issues, the taxpayer need not include any unagreed issue under consideration by the competent authority. Following the receipt of a taxpayer’s protest, normal IRS Appeals procedures will be initiated with respect to those issues not subject to competent authority consideration.

.02 Coordination with IRS Appeals . Taxpayers who disagree with a proposed U.S. adjustment have the option of pursuing their right of administrative review with IRS Appeals before requesting competent authority assistance; making a request pursuant to the Simultaneous Appeals procedure in section 8 of this revenue procedure; or requesting competent authority assistance immediately for bilateral consideration. Taxpayers requesting unilateral withdrawal of a U.S. adjustment without consultation with the treaty country must direct such a request to IRS Appeals rather than to the U.S. competent authority. Taxpayers who are pursuing their rights with IRS Appeals may contact the U.S. competent authority if they believe they have a potential competent authority issue. If a taxpayer does not go through the Simultaneous Appeals procedure and instead enters into settlement discussions with IRS Appeals before making a competent authority request, the U.S. competent authority may rely upon, but will not necessarily be bound by, such previous consideration by IRS Appeals when considering the case ( see also section 7.05 of this revenue procedure regarding settlements with IRS Appeals and section 8.05 of this revenue procedure regarding the role of IRS Appeals in the Simultaneous Appeals procedure). If a

taxpayer enters into the Appeals arbitration program ( see Rev. Proc. 2006–44, 2006–44 I.R.B. 800), the taxpayer generally may not request competent authority assistance until the arbitration process is completed. However, if the taxpayer demonstrates that a request for competent authority assistance is necessary to keep open a statute of limitations in the treaty country, then competent authority assistance may be requested while arbitration is pending, and the U.S. competent authority will suspend action on the case until arbitration is completed. If a taxpayer makes a competent authority request, the taxpayer is deemed to consent to communications between the U.S. competent authority and IRS Appeals regarding the matter. See Rev. Proc. 2000–43, 2000–2 C.B. 404.

.03 Coordination with Litigation . The U.S. competent authority will not, without the consent of the Associate Chief Counsel (International), accept (or continue to consider) a taxpayer’s request for assistance if the request involves a taxable period pending in a United States court or involves a matter pending in a United States court or designated for litigation for any taxable period. If the case is pending in the United States Tax Court, the taxpayer may, in appropriate cases, be asked to join the IRS in a motion to sever issues or delay trial pending completion of the competent authority proceedings. If the case is pending in any other court, the Associate Chief Counsel (International) will consult with the Department of Justice about appropriate action, and the taxpayer may, in appropriate cases, be asked to join the U.S. Government in a motion to sever issues or delay trial pending completion of the competent authority proceedings. Final decision on severing issues or delaying trial rests with the court. The filing of a competent authority request does not, however, relieve the taxpayer from taking any action that may be necessary or required with respect to litigation.

.04 Coordination with Other Alterna- tive Dispute Resolution and Pre-Filing Procedures . Competent authority assistance is available to taxpayers in conjunction with other alternative dispute resolution and pre-filing procedures in order to ensure taxation in accordance with tax treaty provisions. Other revenue procedures and IRS publications should

2006–49 I.R.B. 1042 December 4, 2006

(c) When the case is in IRS Appeals and the taxpayer later decides to request competent authority assistance with respect to the competent authority issue. The taxpayer may sever the competent authority issue for referral to the U.S. competent authority and invoke the Simultaneous Appeals procedure at any time when the case is in IRS Appeals but before settlement of the issue. Taxpayers, however, are encouraged to invoke the Simultaneous Appeals procedure as soon as possible, preferably as soon as practicable after the first IRS Appeals conference.

(2) After Filing for Competent Authority Assistance . The taxpayer may request the Simultaneous Appeals procedure at any time after requesting competent authority assistance. However, a taxpayer’s request for the Simultaneous Appeals procedure generally will be denied if made after the date the U.S. position paper is communicated to the foreign competent authority, unless the U.S. competent authority determines that the procedure would facilitate an early resolution of the competent authority issue or otherwise is in the best interest of the IRS.

.03 Cases Pending in Court . If the matter is pending before a U.S. court or has been designated for litigation and jurisdiction has been released to the U.S. competent authority, a request for the Simultaneous Appeals procedure may be granted only with the consent of the U.S. competent authority and the Office of Associate Chief Counsel (International).

.04 Request for Simultaneous Appeals Procedure . The taxpayer’s request for the Simultaneous Appeals procedure should be addressed to the U.S. competent authority either as part of the initial competent authority assistance request or, if made later, as a separate letter to the U.S. competent authority. The request should state whether the issue was previously protested to IRS Appeals for the periods in competent authority or for prior periods (in which case a copy of the relevant portions of the protest and an explanation of the outcome, if any, should be provided). The U.S. competent authority will send a copy of the request to the Chief of IRS Appeals, who, in turn, will forward a copy to the appropriate Area Director. The U.S. competent authority will consult with IRS Appeals to determine whether the Simultaneous Ap

periods for which returns have been filed, if the same issue continues in those periods. See also Rev. Proc. 94–67, 1994–2 C.B. 800, concerning the Accelerated Issue Resolution (“AIR”) process. The U.S. competent authority will consider the request and will contact the appropriate IRS field office to consult on whether the issue should be resolved for subsequent taxable periods. If the IRS field office consents to this procedure, the U.S. competent authority will address with the foreign competent authority the request for such taxable periods. For purposes of resolving the issue, the taxpayer must furnish all relevant information and statements that may be requested by the U.S. competent authority pursuant to this revenue procedure. In addition, if the case involves a Coordinated Industry Case (“CIC”) taxpayer, the taxpayer must furnish all relevant information and statements requested by the IRS, as described in Rev. Proc. 94–67, 1994–2 C.B. 800. If the case involves a non-CIC taxpayer, the taxpayer must furnish all relevant information and statements that may be requested by the IRS field office. A request for the accelerated competent authority procedure may be made at the time of filing a request for competent authority assistance or at any time thereafter, but generally before conclusion of the mutual agreement in the case; however, taxpayers are encouraged to request the procedure as early as practicable. The application of the accelerated procedure may require the prior consent of the Associate Chief Counsel (International). See section 7.03 of this revenue procedure. A request for the accelerated competent authority procedure must contain a statement that the taxpayer agrees that: (a) the inspection of books of account or records under the accelerated competent authority procedure will not preclude or impede (under section 7605(b) or any administrative provision adopted by the IRS) a later examination of a return or inspection of books of account or records for any taxable period covered in the accelerated competent authority assistance request; and (b) the IRS need not comply with any applicable procedural restrictions (for example, providing notice under section 7605(b)) before beginning such examination or inspection. The accelerated competent authority procedure is not subject to the AIR process limitations. The accelerated competent

authority procedure is implicitly invoked when a taxpayer requests a rollback of its requested bilateral APA to already filed years. Thus, the provisions of section 7.06 of this revenue procedure also apply when a rollback is requested pursuant to Rev. Proc. 2006–9, which governs requests for APAs filed with the Office of Associate Chief Counsel (International), Advance Pricing Agreement Program.