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In August 1978, a nationwide Petroleum Industry Program (PIP) was established in what was then the Southwest Region. Prior to the inception of the Program, the Service’s specialized activities in the petroleum industry included an industry-wide examination program under the direction of a program coordinator, and an Oil Pricing Program that had the nationwide responsibility for determinations regarding certain oil pricing and shipping issues.
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PIP merges the objectives, functions, and responsibilities of the aforementioned oil pricing and Industry-wide examination programs with concepts outlined in the Technical Advisor Program.
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Any reference to Director, field or field office, refers to Industry Director, Large and Mid-Size Business Division; Area Director, Field Compliance, Small Business/Self Employed Division; Director, Compliance, Wage & Investment Division; Director, International, Large and Mid-Size Business Division; Director, Employee Plans Examinations; Director, Exempt Organizations Examinations; Director, Federal, State & Local Governments; Director, Tax Exempt Bonds; or Director, Indian Tribal Governments and their respective offices, as appropriate.
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In order to maximize, and more effectively use, the Service’s resources, the staff of PIP will coordinate the efforts of managers who have the responsibility for examining the tax returns of petroleum companies. PIP, with the cooperation of Examination Teams, will identify, develop and resolve oil and gas issues with significant national impact. PIP objectives are to: Ensure uniform and consistent treatment of issues nationwide.
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Provide for better identification, development and resolution of issues.
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Provide a vehicle for coordination of technical issues at the Large and Mid-Size Business Division and other Operating Divisions.
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Through the auspices of the Director, Natural Resources and Construction, PIP will maintain liaison with other Federal agencies and governmental authorities to ensure the most efficient utilization of available resources.
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A Controlled Issue is an issue over which the Director, Natural Resources and Construction, has nationwide jurisdiction, including the authority to enter into, and approve, settlements.
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A Coordinated Issue is an issue of particular importance to the petroleum industry that has been selected for industry-wide coordination. Jurisdiction over Coordinated Issues remains with Examining Teams; however, to achieve the desired objective of uniformity, Examiners will secure the concurrence of the Petroleum Technical Advisor and the Technical Advisor Manager prior to resolving Coordinated Issues on basis different than that formulated by the Petroleum Technical Advisor.
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The Technical Advisor Manager will, on a continuing basis, review both Controlled and Coordinated Issues. When an issue no longer requires control or coordination, he/she will recommend that the issue be decontrolled or de-coordinated. This may include a recommendation to change a Controlled Issue to a Coordinated Issue or vice versa.
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Communication at the working level will facilitate the exchange of information. Therefore, Therefore, Petroleum Technical Advisors and field personnel are authorized and encouraged to communicate directly with each other concerning audit issues and changes in accounting methods and practices. Management should be kept informed of significant events.
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Delegation Order No. 153 gives the Director, Natural Resources and Construction, nationwide jurisdiction and authority to make determinations regarding certain petroleum-related issues. These issues are referred to herein as Controlled Issues, and include:
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Pricing — Inter/intra-company transfer prices of foreign produced crude oil and refined products, including transfers between related producers and/or traders.
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Freight Rates — Major U.S. international oil companies have foreign shipping subsidiaries. Companies may elect to use the average freight rate assessment (AFRA) rates for intercompany shipments. AFRA is a statistical index of the average cost to the independently chartered ocean tanker tonnage in service at a specific time. AFRA is widely recognized within the Industry and has been accepted by the Service. The Director, Natural Resources and Construction, will be responsible for ensuring that AFRA rates are not being abused and that they continue to reflect inter-company shipping charges for crude oil and refined products. The Director, Natural Resources and Construction, will also have the responsibility for accepting or rejecting other proposed methods of determining freight rates for crude oil and refined products.
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Cases involving the production, import or sale of foreign crude oil by taxpayers to related subsidiaries or third parties must be referred to PIP for review.
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The Director, Natural Resources and Construction, will be responsible for making, and has the authority to make, determinations regarding Controlled Issues and approve settlements. Appropriate Territory Managers or Appeals Office will be informed of the determinations.
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The Director, Natural Resources and Construction, will be responsible for identifying and developing Controlled Issues and, if warranted, recommending that a Controlled Issue be decontrolled.
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In carrying out these responsibilities, the Director, Natural Resources and Construction, will keep informed of actions and trends within the international petroleum industry that may have potentially significant tax implications. In-depth studies of specific aspects of the industry will be conducted as needed.
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The Director, Natural Resources and Construction will discharge his/her responsibilities for the examination of Controlled Issues in the Petroleum Industry through PIP and the International Territory Managers.
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In the examination of Controlled Issues, PIP may participate in the examination of a Controlled Issue as a support examiner or may act in the capacity of a Petroleum Technical Advisor to the Territory with responsibly for an examination involving a Controlled Issue. However, an adjustment proposed involving a Controlled Issue will require the concurrence of PIP and the Technical Advisor Manager.
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Each Territory will retain jurisdiction over returns filed in that Territory subject to decisions of the Director, Natural Resources and Construction, regarding the Controlled Issues. Each Territory will adopt the position of the Director, Natural Resources and Construction, concerning the Controlled Issues.
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Territories will be asked, from time to time, to assist the Director, Natural Resources and Construction, in studies and negotiations by securing, verifying, and screening data provided by taxpayers within their jurisdiction. Examiners should direct their attention to Controlled Issues during the early stages of their examinations. They should be alert for information that may be useful to the Technical Advisor. This information may take the form of third-party contracts, methods of determining relative values of crude oil or methods of determining exchange ratios. Examination Teams will be invited to have their representatives attend substantive meetings between PIP and taxpayers in their territory.
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A Territory may conduct an examination of a Controlled Issue, it is anticipated that examination of a Controlled Issue will involve the participation of Senior International Examiners with experience in the Petroleum Industry.
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The Territory will request participation of PIP and/or a Petroleum Technical Advisor.
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All unagreed Controlled Issues will generally use the Fast Track Settlement Program as outline in IRM 4.51.4. Exceptions to the procedures outlined in IRM 4.51.4 are as follows:
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The Industry Director, NRC, will be the LMSB official with responsibility for the Fast Track procedure in lieu of the LMSB Team Manager.
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Each Appeals Office will have jurisdiction over all referred issues except Controlled Issues as described in Delegation Order No. 153
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When Controlled Issues, or issues directly related thereto, are protested, the Appeals Office will forward a copy of the written protest, together with all supporting material, to the Director, Natural Resources and Construction, for evaluation. The Appeals Officer should advise the taxpayer that protests involving Controlled Issues are forwarded to the Director, Natural Resources and Construction.
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The Technical Advisor Manager will assist the Director, Natural Resources and Construction, in reviewing information and evaluating a taxpayer’s protest involving Controlled Issues sent to Fast Track.
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The Director, Natural Resources and Construction, generally will grant taxpayers a conference to discuss their protests and the Service’s position concerning the disputed issues. Such a conference will constitute one level of administrative appeal as described in the above Delegation Order.
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The Director, Natural Resources and Construction, acting under Delegation Order No. 153, will make will make the final determination concerning Controlled Issues and issues related thereto. After careful consideration of all information, arguments, and other material, the Director, Natural Resources and Construction, will, in a disposition memorandum, provide the grounds for the Appeals’ closing action.
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When Controlled Issue adjustments are proposed and agreed to by the taxpayer, International Examiners should follow the Report Writing Procedures contained in IRM 4.10.8. In addition, the following language should be included on the Form 5701. This adjustment is subject to concurrence by the Director, Natural Resources and Construction. That statement should be followed by the word Concurrence with a space for the signature of the Director Natural Resource and Construction.
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After the taxpayer signs the form 5701 for Controlled Issues the Form 5701 should be forwarded to the Director Natural Resources and Construction for concurrence. The Form 5701 should be directed to the Natural Resources and Construction Executive Assistant, with a copy to the Technical Advisor Petroleum Industry.
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The form 5701 should be maintained with the case file, with a copy given to the taxpayer.