Internal Revenue Manual - 4.60.8 International Examination and Processing Procedures

Part 4. Examining Process
Chapter 60. International Procedures
Section 8. International Examination and Processing Procedures

4.60.8.1 (09-01-2004)
Examination and Processing Procedures

This chapter provides general instructions to the lE regarding his or her responsibilities during an examination, the responsibilities of the domestic agent, and their shared responsibilities.

4.60.8.2 (09-14-2006)
Responsibilities

LMSB International Examiners generally derive their examination workload from sources that include, though are not limited, to:
1. LMSB Coordinated Industry Cases (CIC).
2. Referrals from LMSB domestic examiners.
3. Referrals from SB/SE domestic examiners.
4. Situations where an international group controls the case, i.e., there is no referral. This can happen when domestic LMSB or SB/SE has accepted a return as filed during classification; however, the international classifier selected the return for examination. It is not unusual for the scope of these examinations to be limited to the package audit and international issues.
5. Advance Pricing Agreements (APA) Cases
6. Competent Authority and Tax Treaty requests
7. Pre-filing Agreement (PFA) Program Cases See IRM 4.60.8.2.1.
The International examiner is responsible for gathering the facts in the case that relates to international issues.
International examiners, in cooperation with domestic agents, will:
1. Develop audit plans concerning international aspects of examination.
2. Evaluate, analyze, and interpret information obtained.
3. Make reasonable efforts for an expeditious completion of the international phase of the examination.
4. Solicit the assistance of the domestic examiner in obtaining information concerning international issues when considered advisable.
Discussions with taxpayers or their representative about the examination or potential adjustments in the international area will be the joint responsibility of the domestic examiner and the IE.
The IE is responsible for the following:
1. The final development of the international aspects of the case. If a difference of opinion arises between the domestic examiner and the IE, they will resolve the difference. If the difference is not resolved among themselves, it will be taken to the next higher management level. Under no circumstances will they make the taxpayer or their representative aware of the difference.
2. The preparation of an international examiner’s report. After review by the International Team Manager, the report will be sent to the domestic examiner for inclusion in his or her report.
3. The IE will be available for discussions with the taxpayers, or their representative, concerning the adjustments in cases where an international examiner’s recommendation results in an adjustment being proposed.
The procedures in (1) to (5) above are equally applicable to Puerto Rican allocation cases.
See the examination procedures in IRM 4.46 concerning specialist participation in team audits.
In those situations where there is no domestic agent assigned to a case, e.g., where the scope of the audit is limited to international issues or where an IE is working both the international and domestic issues, the International Team Manager will have full jurisdiction over the case and responsibility for items (2) – (7), above as applicable.

4.60.8.2.1 (09-14-2006)
Pre-filing Agreement (PFA) Program Cases

LMSB Taxpayers may use the PFA Program to request the examination and resolution of specific issues prior to filing a tax return. The PFA program allows any LMSB taxpayer to request an examination for any taxable year for which a return is not yet due and is not yet filed (including a return for which the due date has been extended), and for up to four future taxable years.
The Service will consider entering into a PFA on any issue (unless specifically excluded ( See IRM 4.60.8.2.1(6).) that requires either a determination of facts or the application of well-established legal principles to known facts. The Service also will, in general, consider entering into a PFA regarding a methodology used by a taxpayer to determine the appropriate amount of an item of income, allowance, deduction, or credit.
There is no list of eligible domestic and international issues. Any domestic or international issue that requires either a determination of facts or application of well established legal principles to known facts and that is not excluded under section 3.08 or 3.09 of Rev. Proc. 2005-12 is likely suitable for a PFA.
In addition to paragraphs 2 and 3, the following issues are likely suitable for PFA, but also require that the Associate Chief Counsel (International) concur with both, the acceptance of the issue into the PFA Program and execution of the PFA. Even though an issue in a particular case may appear on this list, the Service and/or the Associate Chief Counsel (International) may, in its sole discretion, refuse to address that issue based on considerations of sound tax administration. The eligible issues are:
1. whether a unit of the taxpayer’s trade or business is a qualified business unit within the meaning of section 989(a) and the regulations promulgated under that section;
2. whether the taxpayer is engaged in a trade or business within the United States (excluding questions under section 864(b)(2));
3. the amount of gross income that is effectively connected with the conduct by the taxpayer of a trade or business within the United States;
4. factual determinations concerning the extent to which, under section 882(c), deductions are connected with income that is effectively connected with the taxpayer’s conduct of a trade or business within the United States; and
5. whether the taxpayer has a permanent establishment in the United States for purposes of a bilateral income tax convention to which the United States is a party and, if so, what profits are attributable to that permanent establishment
The following special provisions apply, in addition to the generally applicable provisions of Rev. Proc. 2005-12, to any request for a PFA on an issue having international implications:
1. A PFA and any factual information contained in the background files is subject to exchange of information under income tax treaties or tax information exchange agreements in accordance with the terms of such treaties and agreements (including terms regarding relevancy, confidentiality, and the protection of trade secrets). In cases where the exchange of information would be discretionary, information may be exchanged to the extent consistent with sound tax administration and the practices of the relevant foreign competent authority.
2. To minimize taxpayer and governmental uncertainty and administrative cost, taxpayers who seek a PFA on an international issue are encouraged to seek competent authority consideration under the mutual agreement procedure of any applicable United States income tax convention. This consideration will be given after the PFA is concluded, and the PFA may be modified to reflect the outcome of the mutual agreement procedure.
3. A taxpayer may request a PFA for an international issue that is the subject of a previously submitted request for competent authority assistance. The consideration of this competent authority request will not be suspended during the PFA process. If the taxpayer requests a PFA and the previously submitted request for competent authority assistance is ongoing, if appropriate, the taxpayer also should make a request for the Accelerated Competent Authority Procedure of Rev. Proc. 2002-52, 2002-2 C.B. 242.
The Service will not enter into a PFA with respect to thirteen types of issues:
1. transfer pricing issues. See. Rev. Proc. 2004-40, 2004-29 I.R.B. 50 (Advance Pricing Agreement Program);
2. issues involving a change in accounting method. See Treas. Reg. §1.446-1(e);
3. issues involving the annual accounting period;
4. issues of reasonable cause, due diligence, good faith, clear and convincing evidence, or any other similar standard under Subtitle F (Procedure and Administration) of the Internal Revenue Code;
5. issues involving the applicability of any penalty or criminal sanction;
6. issues that are, or will be, the subject of a pending or proposed request for a determination letter, technical advice memorandum, or letter ruling issued to or regarding the taxpayer;
7. issues for which the taxpayer proposes a resolution that is contrary to a private letter ruling, determination letter, technical advice memorandum, or closing agreement previously issued to or regarding the taxpayer;
8. issues for which the taxpayer proposes a resolution that is contrary to a position proposed by the Service in response to a request for a private letter ruling or determination letter that was withdrawn by the taxpayer;
9. issues that are the subject of pending litigation between the Service and the taxpayer for an earlier taxable year
10. issues designated for litigation for an earlier taxable year of the taxpayer by the Office of Chief Counsel;
11. issues that involve a tax shelter described in section 6662(d)(2)(C)(ii);
12. issues that require the Service to determine whether the taxpayer, rather than another entity, is the common law employer; and
13. issues relating to transactions that have not yet occurred, regardless of whether the issue otherwise would qualify as one on which the Service will issue letter rulings or other forms of written guidance as described in Rev. Proc. 2004-1, 2004-1 I.R.B. 1, and successor revenue procedures.
The LMSB Office of Pre-filing and Technical Guidance (PFTG) provides guidance and oversight of the PFA Program. LMSB Industry Directors, coordinating and consulting with the Associate Chief Counsel having jurisdiction over the issues presented by the PFA request, are responsible for determining which taxpayers to accept into the program, for developing individual PFAs, and executing finalized PFAs.
The decision regarding the acceptance of any PFA involving an international issue also will require the concurrence of the Director, International (LMSB).
Detailed information and procedures for the PFA program are set forth in Rev. Proc. 2005-12, 2005-2 I.R.B. 311, IRM 4.30.1, and CCDM 32.4.2.

4.60.8.3 (09-01-2004)
IRC Section 6038A and 6038C Cases

The specific procedures contained herein are applicable to IRC section 6038A cases (foreign-owned corporations) and 6038C cases (foreign corporations engaged in U.S. business).
IRC section 6038A provides two information gathering tools to assist an examiner in auditing foreign owned corporations:
1. IRC section 6038A(d) — a monetary penalty for the failure to furnish information (file a Form 5472) or maintain records.
2. IRC section 6038A(e) — a noncompliance penalty for the failure to authorize a reporting corporation to act as agent or for noncompliance with IRS summons.
IRC section 6038C requires foreign corporations, engaged in trade or business within the United States, to maintain records and furnish the same information as is required of domestic corporations under IRC section 6038A(b), as well as other information connected with transactions not covered by IRC section 6038A(b), in the manner prescribed by regulations. The IRC section 6038A regulations require foreign corporations to maintain and furnish information from related party transactions to the extent income and expenses from such transactions are allocable in whole or in part to effectively connected income or be subject to penalties under IRC section 6038A(d). Regulations for transactions not covered by IRC section 6038A(d) are not yet promulgated. Refer to IRM 20.1.9.8 and 20.1.9.9 for guidance on asserting penalties under IRC section 6038C(c) and (d).
The monetary penalty and the noncompliance penalty may be applied independently or concurrently in appropriate cases.
In order to properly apply the provisions of IRC section 6038A, there are several procedural steps for an examiner to follow. Some will necessitate coordination of activities at the local level with Director, International (LMSB) and Associate Chief Counsel (International).
Be aware that IRC section 6114 requires disclosure whenever a taxpayer, with respect to any tax imposed, takes the position that a treaty of the United States overrules or modifies an internal revenue law, subject to limited exceptions in the regulations.

4.60.8.3.1 (09-01-2004)
Delegation of Authority

The Area Directors of SB/SE have delegated IRC section 6038A penalty authority down to the GS-11 examiner. DFOs in LMSB have not delegated this authority; they are the only authorized signatories on the penalty letters. .

4.60.8.3.2 (09-01-2004)
Coordination with Other Penalties

For criminal penalties for the failure to file a return and filing a false or fraudulent return, see IRC section 7203 and IRC section 7206. For the penalty relating to an underpayment of tax, see IRC section 6662.

4.60.8.3.3 (09-01-2004)
IRC Section 6038A(d) Monetary Penalty

The monetary penalty applies when a reporting corporation fails to:
1. File Form 5472 with the required information, effective for tax years beginning after 7/10/89.
2. Maintain records or cause another to maintain records of transactions with a related party, effective 12/10/90.
3. Comply with the non-U.S. maintenance requirements described in Treas. Reg. section 1.6038A–3.
The basic penalty is $10,000 for the failure(s). If the failure(s) continue(s) after 90 days from the first notice, an additional penalty applies. An additional $10,000 penalty is imposed for each failure for each 30 day period (or fraction thereof) during which the failure continues after expiration of the 90 day period.

4.60.8.3.4 (09-01-2004)
Failure to File Form 5472

A reporting corporation must file a separate annual information return with respect to each related party with which it had reportable transactions. See Treas. Reg. section 1.6038A–2.
A reporting corporation is required to:
1. File a substantially complete Form 5472 including all information regarding the related party and the reportable transactions.
2. Make a duplicate filing of the Form 5472 with the Philadelphia Campus.
3. File Form 5472 by the due date of its income tax return, including extensions.
Reporting corporations with less than $10,000,000 in U.S. gross receipts for a taxable year are not subject to the record maintenance and authorization of agent requirements. However, such corporations remain subject to the filing requirements and the general record maintenance requirements of IRC section 6001. Treas. Reg . section 1.6038A–1(i) provides de minimis value transaction rules.

4.60.8.3.4.1 (09-01-2004)
Failure to File Procedures and Guidelines

The examiner should determine if the monetary penalty for the failure to furnish information should be applied on audit.
1. Review tax returns for Forms 5472.
2. Query via Information Document Request (IDR) if the taxpayer filed all necessary Forms 5472 with the tax return and with the Philadelphia Campus.
3. Consider application of penalty to all open years with failure(s).
4. Review Civil Penalty Procedures covered in IRM 20.1.9 —International Penalties.
5. Look to Treas. Reg. section 1.6038A–2(f) for exceptions.
6. Obtain IDRS transcripts and request via IDRs all correspondence given and received relating to any monetary penalty assessed by a service center.

4.60.8.3.4.2 (09-01-2004)
Failure to Maintain Records or Comply with Non-U.S. Maintenance Requirements

A reporting corporation must maintain or cause another to maintain records within the U.S. See Treas. Reg. section 1.6038A–3(a). For a large volume of records, scheduled production may be permitted. The taxpayer should ask for a scheduled production within 30 days of the Service’s request for records.
A reporting corporation may negotiate and enter into a record maintenance agreement with the LMSB Director of Field Operations or the SB/SE Area Director that has audit jurisdiction over it. This agreement establishes which records must be maintained, by whom, how they must be maintained, and the period of record retention. See Treas. Reg. section 1.6038A–3(e).

Note:

Rev. Proc. 91–38, 1991-2 C.B. 629, provides procedures for requesting an IRC section 6038A agreement under Treas. Reg. section 1.6038A-3(e).
In some circumstances a reporting corporation may maintain outside the U.S. records not ordinarily maintained in the U.S. but required to be so maintained. See Treas. Reg. section 1.6038A–3(f). However, an LMSB Director of field Operations, or SB/SE Area Director, may (with the concurrence of the LMSB Director of International) require, for cause, the maintenance within the U.S. of any foreign-based records. This may occur if there exists a clear pattern of failure to maintain or timely produce the records.

4.60.8.3.4.3 (09-01-2004)
Record Maintenance Procedures and Guidelines

The examiner should determine if the taxpayer has properly maintained the appropriate records in the U.S.
1. Review all authorizations to determine the correct entity or person acting as agent for a foreign related party.
2. See Treas. Reg. section 1.6038A–3(c) which covers the specific records to be maintained for safe harbor.
3. Obtain a complete listing of all foreign maintained records during the early stages of the examination.
4. Issue complete written IDRs with a specific response date to the person or the agent of the person having possession, custody, or control of the records.
  
  Note:
  
  Monitor requests to ensure that the times specified in the regulations are met.
5. Issue IDRs to the reporting corporation on its own behalf for the relevant records over which it has possession, custody, or control. A second set of IDRs should be issued to the reporting corporation as agent for the foreign related party for the relevant records over which it has possession, custody, or control.
6. Request that any documents in a foreign language be translated into English consistent with the rules in Treas. Reg. section 1.6038A–3(b).
7. Review record maintenance agreements prior to implementation to ensure that all relevant records will be maintained.
For coordination with treaty exchange of information requests, see IRM 4.60.8.3.8 below.
On-site examinations can provide an additional means of obtaining non-U.S. maintained records. See IRM 4.3.16.

4.60.8.3.5 (09-01-2004)
Reasonable Cause

Reasonable cause can only apply to excuse the monetary penalties. The reporting corporation must make an affirmative showing of all the facts alleged as reasonable cause for such failure, written under penalties of perjury. See Treas. Reg. section 1.6038A–4(b).

Note:

The beginning of the 90 day period provided for by IRC section 6038A(d) for the monetary penalties shall not be earlier than the last day on which reasonable cause existed.
The Director, Compliance Services, of a service center may grant relief for reasonable cause for failure to file Form 5472.
The responsible LMSB Director of Field Operations or SB/SE Area Director, Compliance may grant relief for reasonable cause for failure to file Form 5472, maintain records, and produce non-U.S. based records.

4.60.8.3.6 (09-01-2004)
Application of the Monetary Penalty

The imposition of the monetary penalty is detailed in Treas. Reg. section 1.6038A–4. Certain basic procedures are given below.
1. Set forth in writing the reasons for imposing the monetary penalty. Counsel will review the case and advise whether Counsel concurs.
2. Provide reporting corporation with proper notice of failure(s). See Pattern Letters that may be used for this purpose or modified or combined to fit the particular situation at hand.
3. Assess the basic penalty and assess additional penalties for continued failure(s) following the non-deficiency penalty procedures outlined in IRM 20.1. 9, International Penalties.
The examiner should refer to Exhibit 4.60.8-2 - IRC section 6038A Timetable and Exhibit 4.60.8-3 - IRC section 6038A(d) - Monetary Penalty Flowchart for assistance in imposing the penalties.

4.60.8.3.7 (09-01-2004)
IRC Section 6038A(e) Noncompliance Penalty

IRC section 6038A(e) provides a noncompliance penalty that applies in the event the reporting corporation:
1. Fails to obtain an Authorization of Agent from a related party.
2. Does not substantially and timely comply with a summons.
The noncompliance rule allows the Service, in its sole discretion, to determine the amount of deduction paid or accrued in connection with the related party transaction or the cost of any property acquired or transferred in such transaction based on information obtained through testimony or otherwise.

4.60.8.3.7.1 (09-01-2004)
Failure to Obtain Authorization of Agent

A reporting corporation must provide an Authorization of Agent within 30 days of a request.

Caution:

Neither the statute nor the regulations authorize any limitation of the authority to act as agent. Therefore, none can be accepted.

Note:

Once obtained, the Authorization of Agent applies to all open years.
The time at which an Authorization of Agent is requested is within the discretion of the Team Manager controlling the case. It may be:
1. At a preaudit conference
2. When IDRs are not satisfactorily answered
3. When complete cooperation is not provided
4. Or never, if IDRs are satisfactorily answered.
The penalty is not normally imposed when a related party does not authorize the reporting corporation as its agent but promptly and fully provides all requested information. Appropriate comments should be included in the Examiner’s Report if this condition exists.

4.60.8.3.7.2 (09-01-2004)
Failure to Comply with IRS Summons

The noncompliance penalty may apply if the reporting corporation, either directly or indirectly as an agent of a related party, fails to produce records or testimony and fails to substantially and timely comply with a summons.
The penalty may also apply if the summons is quashed by reason of the reporting corporation’s failure to maintain or cause another to maintain records.

Note:

The LMSB Director of Field Operations is not required to begin proceedings to enforce the summons in order to impose the noncompliance penalty.

4.60.8.3.8 (09-01-2004)
Coordination with Treaties

IRC section 6038A does not require that Exchange of Information procedures be invoked in all cases prior to issuing an IRC section 6038A Summons. If efforts to secure the records on a voluntary basis do not prove successful, and a Tax Treaty or a Tax Information Exchange Agreement (TIEA) is in force between the U.S. and the country in which the records are located, then a treaty request will generally be made for those records located in the treaty jurisdiction. The procedures of IRM 4.60.4.3.10 should be utilized before an IRC section 6038A Summons is issued. See Treas. Reg. section 1.6038A–6(b).

4.60.8.3.8.1 (09-01-2004)
When a Treaty Request is Not Required

A treaty request is not required when records sought relate to:
1. Direct transactions between the U.S. subsidiary of a foreign parent located in a treaty country and a foreign related party located in a non-treaty country.
2. A foreign branch of a foreign-controlled U.S. subsidiary (even if the branch is located in a treaty country) because the branch is not a separate entity and the records are in the possession, custody, or control of the U.S. subsidiary.

4.60.8.3.8.2 (09-01-2004)
When a Treaty Request May be Required

A treaty request may be required when records sought relate to transactions between the foreign related party located in a non-treaty country and the foreign parent located in a treaty country (e.g. information of the type described in Treas. Reg. section 1.6038A–3(b)).

4.60.8.3.9 (09-01-2004)
Summonsing Records

An IRC section 6038A Summons may be enforced only with respect to the person who:
1. Has possession, custody, or control over the records being sought, or
2. Is acting as the agent for a foreign related party that has possession, custody, or control over the records.
In many instances, records may be similar (e.g., the originator of correspondence will have a copy of the original document and the recipient will have possession of the original document). Both the original and the copy:
1. May be important for verification purposes or in the event any notes were added to the document.
2. May be requested in an IDR and in a summons from the person that has possession, custody, or control of the particular document.
Generally, a pending treaty request for records will not preclude the issuance of presummons letter nor an IRC section 6038A Summons for records, following summons procedures in IRM 25.5.5, either to the reporting corporation on its own behalf or to the reporting corporation as agent for the foreign related party. Information no longer needed because it was provided under a treaty request should not be included in a subsequent IRC section 6038A Summons.
Simultaneous use of a treaty request and an IRC section 6038A Summons is recommended where warranted.
While a treaty request is outstanding, the case manager will forward the IRC section 6038A Summons request to Director of International (LMSB), Attn.: LM:IN who will forward it to Associate Chief Counsel (International) for review and approval before it may be issued. The case manager will be notified in writing when the request has been approved.

4.60.8.3.9.1 (09-01-2004)
Summonsing Testimony

In addition to records, an examiner may also request testimony.
1. Before requesting testimony from an officer or any other employee of a foreign corporation, every attempt must be made to obtain the information from a U.S. person.
2. If testimony will be requested of an officer or any other employee of a foreign corporation, under IRC section 6038A(e), the language to appear on the summons should be reviewed and approved by:
  
  Associate Chief Counsel (International)
  1111 Constitution N.W. Room 4619
  Washington, DC 20224.
3. If a summons is for both records and testimony, the entire summons will be forwarded to Associate Chief Counsel (International) who will review only the portion dealing with testimony. The examiner should consider separate summonses in order not to cause a delay in the production of records.

4.60.8.3.10 (09-01-2004)
IRC Section 6038A(e) Procedures and Guidelines

The examiner should request the Authorization of Agent from the reporting corporation exactly as set out in Treas. Reg. section 1.6038A–5. If the reporting corporation fails to provide it timely, informal and formal notices of such failure must be sent to the reporting corporation before imposing the penalty.
1. Before the informal notice is sent, it must be approved by Associate Chief Counsel (International). The referral to Associate Chief Counsel (International) should be made within 30 days of the compliance date of the summons.
2. Notices must be sent by certified or registered mail.
Ideally, the formal notice should not be sent until 60 days after the mailing of the informal notice. The formal notice may be sent prior to the 60 days if a short period of time remains on the statue of limitations.
In order to impose the noncompliance penalty for failure to furnish information under an IRS summons, the examiner must make a proper summons request.
1. Issue IDRs for records or testimony.
2. Consider issuing a presummons letter request following the procedures in IRM 25.5.5 when the reporting corporation has not substantially complied with the IDR requests. The suggested procedure is to use a cover letter with attachments.
3. Issue Summons Form 2039 following the procedures of IRM 25.5.5.
4. Annotate summons issued to the reporting corporation as agent for a related party as IRC section 6038A summons.
5. Allow sufficient time for summons enforcement; at least nine months must be left under the statute of limitations.
6. Have the proposed summons reviewed and approved in writing by LMSB Division Counsel.
Note:

ASAT Inc. v. Commissioner , 108 TC 147(1997), illustrates the application of the IRC section 6038A(e) provisions and helps to define the role of expert witnesses.

4.60.8.3.11 (09-01-2004)
Application of the Noncompliance Penalty

The imposition of the noncompliance penalty is detailed in Treas. Reg. section 1.6038A–7. Certain basic procedures are given below.
1. Set forth in writing the reasons for imposing the noncompliance penalty.
2. Provide the reporting corporation with proper notice of failure. See Pattern Letters that may be adapted for this purpose.
  
  Note:
  
  Before issuing the notice, receive approval from Associate Chief Counsel (International).
3. Reflect the adjustment to the deduction or cost in the Statutory Notice of Deficiency as directed in Treas Reg. section 1.6038A–7 after the formal notice has been sent.
4. Follow the deficiency penalty procedures outlined in IRM 20.1.9.
  
  Note:
  
  There is no reasonable cause exception to this penalty.
The examiner should refer to Exhibit 4.60.8- 2 -IRC Section 6038A Timetable and Exhibit 4.60.8-4 - IRC section 6038A(e) - Noncompliance Penalty Flowchart for assistance in imposing the penalty.

4.60.8.4 (09-01-2004)
Procedures Regarding Multi-Jurisdiction Cases

Ordinarily, the division controlling the case has jurisdiction over the examination. This will ordinarily be the LMSB Industry or SB/SE Area in which the records and accounts of the corporation are maintained. However, appropriate arrangements will be made when the interest of the Government requires that jurisdiction be vested elsewhere. When providing services in the nature of a support audit, the results of the examination will be transmitted to the appropriate office.

4.60.8.5 (09-01-2004)
International Boycott Procedures

All returns containing a Form 5713 (International Boycott Report) are part of the International Enforcement Program.

4.60.8.6 (09-01-2004)
Referral Criteria and Procedures

If a return is examined where no Form 5713 is filed and it is ascertained that Form 5713 should have been filed; the domestic agent will refer the case to International through Specialist Referral System (SRS). Attach documentation such as copies of contracts, memorandums, invoices and other pertinent data used to ascertain that a Form 5713 should have been filed.
The domestic examiner will continue the examination with respect to issues other than the filing of Form 5713, but will not close the case while the referral is pending.
If the International Team Manager rejects the referral, the domestic examiner will continue the examination giving full consideration to the international boycott factors involved. If information is subsequently developed that indicates that an international boycott issue should be proposed, the domestic agent will submit another international referral.

4.60.8.7 (09-01-2004)
Examination Procedures

The IE will develop an audit plan pertaining to the international boycott aspects of the examination and will evaluate, analyze, and interpret the information obtained. The IE may accompany and assist in obtaining the information pertaining to international boycotts.

If a return to be examined contains a Form 5713 and a boycott determination from Chief Counsel was obtained by the taxpayer, the IE, will:

Verify that the facts on the Form 5713 are correct
Verify that the representations upon which the determination was based reflect an accurate statement of the material facts and that the operation actually was carried out substantially as proposed

If the facts	Then
Are the same as the determination	The IE will prepare Form 3963. See Section of this chapter.
Are not the same as the determination	The IE will forward these findings to the National Office as provided for in Section 9.03 of Rev. Proc. 77–9, 1977–1 C.B. 542. Treat such reference to the National Office as a request for technical advice and follow the procedures of Rev. Proc. 2003-2. Be aware that the revenue procedure is a published document that is annually revised. The current Rev. Proc. 2003-2, will soon be superseded by Rev. Proc. 2004-2. The IEs should continue to follow the current procedures for requesting technical advice from the National Office, in coordination with Area Counsel.

If the facts

Then

Are the same as the determination

The IE will prepare Form 3963. See Section of this chapter.

Are not the same as the determination

The IE will forward these findings to the National Office as provided for in Section 9.03 of Rev. Proc. 77–9, 1977–1 C.B. 542.

Treat such reference to the National Office as a request for technical advice and follow the procedures of Rev. Proc. 2003-2. Be aware that the revenue procedure is a published document that is annually revised. The current Rev. Proc. 2003-2, will soon be superseded by Rev. Proc. 2004-2. The IEs should continue to follow the current procedures for requesting technical advice from the National Office, in coordination with Area Counsel.

In cases where the taxpayer did not request a determination, the IE will review and verify all relevant documents submitted by the taxpayer.

If the fact situation in the case coincides with a published Treasury Guideline on what constitutes participation in or cooperation with an international boycott, the International Examiner will prepare an International Examiner’s Report (Form 3963) based on these findings. See IRM 4.60.9, International Examiner's Report.
If the fact situation in the case does not completely coincide with the published Treasury Guideline on what constitutes participation in or cooperation with an international boycott, the IE will consider the following:

If	Then
Willing to request a determination	The IE will coordinate with the domestic agent in assisting the taxpayer in filing for a determination under Rev. Proc. 77–9 1977–1 C.B. 542. The IE will ensure that the current revenue procedure is followed.
Not willing to request a determination	The IE will coordinate with the domestic agent in submitting a request for technical advice under Rev. Proc. 2001-2, or the most current revenue procedure in effect. Be aware that the revenue procedure is a published document that is annually revised. The IE should follow the current procedures for requesting technical advice from the National Office, in coordination with Area Counsel. After obtaining the technical advice, the IE will prepare Form 3963 based on the technical advice, making an appropriate adjustment. See IRM 4.60.9

If

Then

Willing to request a determination

The IE will coordinate with the domestic agent in assisting the taxpayer in filing for a determination under Rev. Proc. 77–9 1977–1 C.B. 542. The IE will ensure that the current revenue procedure is followed.

Not willing to request a determination

The IE will coordinate with the domestic agent in submitting a request for technical advice under Rev. Proc. 2001-2, or the most current revenue procedure in effect.
Be aware that the revenue procedure is a published document that is annually revised. The IE should follow the current procedures for requesting technical advice from the National Office, in coordination with Area Counsel.
After obtaining the technical advice, the IE will prepare Form 3963 based on the technical advice, making an appropriate adjustment. See IRM 4.60.9

Discussions with a taxpayer or taxpayer’s representative relative to the examination or potential adjustment in the boycott area will be the joint responsibility of the domestic agent and the IE. However, the IE is responsible for the final development of the international boycott aspects of the case.

In cases where the IE confirms that a Form 5713 should have been filed and:

If	Then
There is an indication that the failure to file was willful	The domestic agent will suspend audit activity at the earliest opportunity without disclosing to
There is an indication that a filed Form 5713 contains false or fraudulent statements	the taxpayer, the taxpayer’s representative, or the taxpayer’s employees the reasons for such suspension. The domestic agent, with the assistance of the IE, will
The IE discovers any other firm indication of fraud	refer the matter to the Criminal Investigation Division.

4.60.8.8 (09-01-2004)
IRM 4.60.8 Exhibits

This IRM contains an extensive number of exhibits, including pattern letters to taxpayers. These exhibits are for illustration purposes only and should not be relied upon as a basis for establishing the IRS position on any examination issue.
The International Examiner must be particularly careful to research the applicable tax laws, revenue procedures and IRM guidelines prior to sending out any written communication to the taxpayers or their representatives. The pattern letters included in the exhibits below are simply for illustration purposes.

Exhibit 4.60.8-1 (09-01-2004)
Index to IRC Section 6038A Exhibits

GENERAL INFORMATION:
Exhibit 8–2	IRC section 6038A Time Table
Exhibit 8–3	IRC section 6038A(d) — Monetary Penalty Flowchart
Exhibit 8–4	IRC section 6038A(e) — Noncompliance Penalty Flowchart
MONETARY PENALTIES:
Exhibit 8–5	Inquiry Re: Form 5472
Exhibit 8–6	Failure to File Form 5472
Exhibit 8–7	Failure to Maintain Records
Exhibit 8–8	Failure to Produce Foreign Maintained Records
Exhibit 8–9	Request for Abatement
AUTHORIZATION OF AGENT:
General Situations:
Exhibit 8–10	Agency Designation Letter
Exhibit 8–11	Authorization of Agent
Exhibit 8–12	Nonacceptance of Limited Authorization
Specific Situations:
Exhibit 8–13	Foreign Parent on Behalf of Itself and/or Other Foreign Related Parties
Exhibit 8–14	AoA — Foreign Parent on Behalf of Itself and/or Other Foreign Related Parties
Exhibit 8–15	Attachment to Authorization of Agent
Exhibit 8–16	U.S. Reporting Corp. on Behalf Itself and Any or All Consolidated Subsidiaries
Exhibit 8–17	AoA — U.S. Reporting Corp. on Behalf of Itself and Any or all Consolidated Subsidiaries
Exhibit 8–18	Attachment to Authorization of Agent
Exhibit 8–19	Combination Attachment
Exhibit 8–20	U.S. Reporting Corporation No Longer in Existence
Exhibit 8–21	AoA — U.S. Reporting Corp. No Longer in Existence
NONCOMPLIANCE PENALTY:
Exhibit 8–22	Informal Notice of Failure to Authorize as Agent
Exhibit 8–23	Formal Notice of Failure to Authorize as Agent
Exhibit 8–24	Informal Notice of Failure to Produce Records Via Summons
Exhibit 8–25	Formal Notice of Failure to Produce Records Via Summons

Exhibit 4.60.8-2 (09-01-2004)
IRC section 6038A Timetable

Timetable For Procedures and Issuance Of Notices

The regulations have established several procedures and time tables to be followed. In the event a summons is to be issued, there should be at least nine months left under the statute of limitations for each tax year involved. This table gives minimum time requirements needed.

Item		Number of Days Needed
(1)	Pattern Letters for Agency Designation	Issued to reporting corporation to be executed and returned within 30 days.
(2)	Issuance of written IDRs	30 to 60 days; if foreign maintenance election applies, 60 days for documents and 30 days for translations.
(3)	Exchange of Information Procedures	Information obtained within 180 days of request is considered timely.
(4)	Summons To Reporting Corporation and/or Foreign Related Entity	30 days; the taxpayer may begin proceedings to quash within 90 days of issuance of summons. (Service not prevented from taking further steps under IRC section 6038A during this period.)
(5)	Pattern Letter for Failure to File Form 5472	Issued as soon as discovery of failure; $10,000 monetary penalty; if failure continues, additional penalty applies.
(6)	Pattern Letter for Failure to Maintain Records	Issued as soon as discovery of failure; $10,000 monetary penalty; if failure continues, additional penalty applies.
(7)	Pattern Letter for Failure to Comply with Non-U.S. Maintenance Requirements	Issued as soon as discovery of failure; $10,000 monetary penalty; if failure continues, an additional penalty applies.
(8)	Pattern Letters for Noncompliance Authorization of Agent	Informal notice issued for failure to designate Agent. Formal notice issued about 60 days after Informal notice if failure continues. Noncompliance penalty can apply.
(9)	Pattern Letters for Noncompliance under a Summons	Informal notice issued for failure to comply with summons to produce records. Formal notice issued about 60 days after Informal notice if failure continues. Noncompliance penalty can apply.
Note: The formal notices of failure to authorize as agent or produce records via a summons may be sent earlier than 60 days after the informal notice. The 60 day period is not required by the statute or the regulations.
Reminder: Letters and penalties referred to in (6) & (7) can be issued and imposed concurrently with letters and penalties referred to in (8) & (9) above.