Many changes have taken place in the international arena—in international business operations, in the tax law, and in the way the law is administered. These changes have had a tremendous impact on both the Service and entities engaged in international operations.

The expanding overseas activities of U.S. entities (individuals, trusts, and businesses) and the increased activity of foreign entities in the United States has increased certain opportunities for tax avoidance and/or evasion.

Actions taken to address these issues include passage of tax legislation, promulgation of regulations, and establishment of the International Enforcement Program.

The objective of the International Program is to obtain voluntary compliance in the international tax area through a vigorous but a reasonable examination program. It is not intended that Service personnel make de minimus adjustments. International examiners (lEs) should focus on those situations where there has been substantial deviation from the arm’s length standard or significant shifting of income to a foreign affiliate. The international enforcement program goes beyond the scope of any one code section and requires the utmost skill of the IE in selecting the best issues and audit techniques.

This IRM sets forth both basic and detailed audit techniques for conducting examinations within the LMSB International Program. These techniques are only intended to serve as guidelines. Any suggestions regarding the content of this handbook such as changes, additions, or deletions should be submitted to the Director, International (LMSB).

Basic audit techniques are those that are generally applicable in all field examinations of income tax returns. They are mainly planning and procedural activities that will ensure a uniform approach to the examination.

Detailed audit techniques included in this chapter were not devised to be all-inclusive or restrictive. The extent of their use is entirely optional. They should be modified or amplified, whenever warranted to cover the specific situations encountered in an examination. The narrative material that precedes the guidelines is not meant to be a complete technical discussion of the Code section. Because of the complexity and interrelationship of Code sections, it will serve as a refresher and introduction to the guideline material. International examiners should not rely solely on the information contained herein and are not to use or cite these guidelines as authority for any position taken.