Rev. Proc. 79-31

Section 1. Purpose.

The purpose of this Revenue Procedure is to prescribe additional procedures of the Internal Revenue Service with regard to the handling of issues by the United States competent authority as described in Rev. Proc. 70-18, 1970-2 C.B. 493.

Sec. 2. Background.

.01 Rev. Proc. 70-18, 1970-2 C.B. 493, prescribes the procedures of the Internal Revenue Service with regard to the handling of issues by the United States competent authority involving the allocation of income and deductions between a person subject to the income tax jurisdiction of the United States and a related person subject to the income tax jurisdiction of a foreign country with which the United States has an income tax treaty.

.02 Section 9 of Rev. Proc. 70-18, Action by Competent Authority, states the action to be taken by the United States competent authority when a case is considered suitable for competent authority consideration or assistance, and, when a case is considered unsuitable for consideration or assistance.

.03 Section 9.02 of Rev. Proc. 70-18 provides that if the competent authority determines at any time that a case is unsuitable for consideration or assistance, the United States taxpayer may submit a request to the Commissioner of Internal Revenue for a review of the declination by a panel designated by the Commissioner. The decision of the review panel will be final.

.04 Section 9.02 is silent with respect to granting the taxpayer an oral conference before the review panel. Section 9 is also silent with respect to the United States competent authority's action should the statute of limitations of the foreign country expire so that the competent authority of such foreign country declines to make a correlative adjustment as described in Rev. Proc. 70-18.

Sec. 3. Application.

.01 The procedure described in section 90.2 of Rev. Proc. 70-18 is amended to grant an oral conference and a new subsection 9.05 is added to deal with the United States competent authority action when the statute of limitations has expired in a foreign country.

.02 Section 9.02 of Rev. Proc. 70-18 is amended to read as follows:

.02 If the United States competent authority denies assistance, the United States taxpayer may ask the Commissioner of Internal Revenue to name a panel and have the panel review such denial of assistance. In connection with the panel's review, the panel will notify the taxpayer that the taxpayer may present oral arguments at the hearing, if so desired, in support of the taxpayer's request for competent authority assistance. The decision of the review panel as to whether competent authority assistance should be provided is final. The United States competent authority will notify the taxpayer of the review panel's decision and, if the decision is that the case is suitable for competent authority assistance, will assist the taxpayer in accordance with this Revenue Procedure.

.03 New Subsection 9.05 is as follows:

.05 The United States competent authority will not grant unilateral relief to a United States taxpayer with respect to an adjustment to income, deductions, credits or other items, solely because the period of limitation has expired in the foreign country and the competent authority of that country has declined to grant any relief from double taxation.

If the period provided by the foreign statute of limitations has expired, then the United States competent authority may take into account other relevant facts and may, in his discretion, provide unilateral relief with respect to the adjustment to the extent necessary to avoid double taxation of income. Relevant facts include the absence of actual or constructive notice of the proposed allocation so that the taxpayer may not have availed itself of remedies in the foreign jurisdiction; the absence of abusive tax arrangements in the structuring of the relevant international relationships and transactions; the absence of recurring adjustments. In no event, however, will relief be granted where there is fraud or negligence with respect to the relevant international relationships and transactions.

If an income tax treaty is not in force with a particular foreign country, then the Internal Revenue Service will not provide relief with respect to an adjustment because the period of limitations of that country has expired.

Sec. 4. Effect on Other Documents.

Rev. Proc. 70-18 is amplified.