Part I. The APMA Program — Structure, Composition and Operation

[PUB. L. 106–170 § 521(b)(2)(A)]

The former APA Program was moved from the Office of Chief Counsel to the Office of Transfer Pricing Operations, Large Business and International Division of the IRS (TPO) in February of 2012 and combined with the USCA staff responsible for transfer pricing cases, thereby forming the Advance Pricing and Mutual Agreement (APMA) Program. The APMA Program Director, Richard McAlonan, joined the Program in May of 2012. Beginning in late 2010, the staffs of the APA Program and the USCA office began working more closely together in processing APAs, with USCA staff handling APAs from application to resolution, and APA Program staff analyzing and resolving double tax cases under the mutual agreement procedure (MAP) included in the U.S. bilateral income tax conventions.

Staffing Increases, Focus on Economists

Beginning in mid–2011, the USCA office began a hiring process that continues to the present, to add both analysts (now called team leaders) and economists to the USCA (now APMA) staff. Overall staffing increased from a total of approximately 70 staff (analysts, team leaders and economists) and seven managers between the APA Program and the USCA office in early 2011, to a total of 92 team leaders and economists and 12 APMA managers at present. In particular the hiring focused on economists, with the addition of two economist managers and 20 economists drawn from both the private sector and the IRS field economist group. This focus on economist hiring was intended, among other things, to improve the ability of the IRS to develop APA positions expeditiously, and reduce the average time from submission to resolution. Further, by adding experienced transfer pricing economists to the team the APMA Program is creating a “deep bench,” that allows resources to be deployed strategically. By more than doubling the number of economists within APMA, and tripling the number of economist managers from one to three, the Program is better able to perform the proper level of analysis for every case, which in turn should continue to result in reduced processing times while maintaining the same high quality of analysis.

Impact of Merger, Office Move

As with any organizational merger, the combination of the APA Program with the USCA office presented challenges. These challenges were heightened by the fact that Washington, DC personnel, which represents the largest cadre of APMA, also went through an office move in September. In addition, the rapid increase in headcount, including the addition of economists located in Chicago and New York, necessitated additional training as the merged organization began to develop and implement new processes for both APA and double tax cases.

Operating Efficiencies Include Elimination of “Handoffs”

Despite the challenges noted above, the merger nonetheless created significant benefits, in addition to the positive impact of staffing increases noted above. One result of the merger that has paid immediate dividends in the processing of bilateral APAs is the elimination of two “handoffs” that existed under the legacy system. That is, before the merger a developed APA position was “handed off” from an APA team leader to a USCA analyst, the latter of whom would then discuss the case with the treaty partner. When the USCA office reached agreement with the treaty partner and entered into a mutual agreement under the treaty, that agreement was “handed off” from the USCA analyst back to the APA Director and team leader to draft the domestic APA.

After the merger, the team that develops the IRS position in the case is also responsible for discussing the case with the treaty partner, obtaining an agreement, and finalizing the APA with the taxpayer. This compression of functions eliminates inefficiencies, and also requires the team in a bilateral case to take the potential challenges or roadblocks that could be posed by the treaty partner into account when developing the U.S. position. This in turn is expected to also lead to a shortening of the time it takes to reach resolution once a case is set for discussion with the treaty partner. ¹

Summary, Look Ahead

Although as of December 31, 2012, the APMA Program had been in existence for less than one year, the Program accomplished much during 2012. In addition to a significant increase in APA output, the recruitment and hiring of highly qualified and experienced team leaders and economists increases internal transfer pricing expertise, which in turn benefits the overall efforts of the Office of Transfer Pricing Operations. In 2013 the Program expects to release new revenue procedures governing both APA applications and MAP applications, and to replace the current revenue procedures that were released in 2006 and, in the case of APAs, supplemented in 2008. These revenue procedures will reflect the changes in structure, and also and more importantly, will be informed by the cumulative experience of more than twenty years of APA practice in the United States, which has produced more than eleven hundred unilateral and bilateral agreements since 1991.

1 In the past, no systematic effort was made to measure how much of the time from submission to agreement of a bilateral APA was spent on the discussions with treaty partners, but anecdotal evidence from the APMA Program’s experience with Japan, the treaty partner responsible for more than half of the bilateral APAs in 2012, suggests that there was a reduction in the number of meetings needed to reach an agreement in 2012, and this trend can be expected to continue.

2013–16 I.R.B. 912 April 15, 2013

The model APA agreement, which was last revised significantly in 2009 and is currently under review for future changes, appears in this report as Appendix A. (See Pub. L. 106–170 § 521(b)(2)(B)). A list of primary APMA contacts is included as Appendix B.

April 15, 2013 913 2013–16 I.R.B.