In the priority guidance plan for 2021–22, the Internal Revenue Service (IRS) and the Department of the Treasury included updates to two important revenue procedures.
These revenue procedures govern the IRS’ MAP and APA programs, as well as other transfer pricing (TP) guidance. This topic was covered in an earlier article.
Given a large number of priority projects on the plan and the introduction of new regulatory difficulties related to litigation, it is perhaps not unexpected that the MAP and APA revenue procedure revisions were not released before the plan year ending on June 30th, 2022.
The updates, on the other hand, were incorporated into the plan’s most recent quarterly update for 2021–22, and they will likely be carried over into the priority guiding plan for 2022–23.
We think that successor advice to the MAP and APA revenue procedures will continue to be a priority item for both the IRS and the Treasury, even though the timing of this endeavour is currently unknown.
Less is known about what will be included in the successor guidance at this time. The priority guidance plan is typically succinct, listing only “[g]uidance updating Rev. Proc. 2015-40, providing the procedures for requesting and obtaining assistance from the U.S. competent authority under U.S. tax treaties” via MAP and “[g]uidance updating Rev. Proc. 2015-41, providing the procedures for requesting and obtaining advance pricing agreements and guidance on the administration of executed advance pricing agreements.”
Under the highly structured frameworks of Rev. Procs. 2015-40 (MAP) and 2015-41 (APA), the requirements for filing MAP and APA requests can result in taxpayers compiling voluminous submissions with information that is not actually relevant to the case at hand.
According to our understanding, one of the purposes of the update may be to streamline these filing requirements. During the COVID-19 pandemic, the necessity to provide physical copies of submissions was temporarily stopped; nevertheless, this requirement may be eliminated permanently in a future update.
A rationalization of the filing procedures for MAP and APA is desirable, but the IRS would be passing up an opportunity if it did not also implement meaningful enhancements.
The Advance Pricing and Mutual Agreement function (APMA) of the Internal Revenue Service (IRS) is a frontrunner in the field of tax certainty, and the MAP and APA programs that it administers can act as models for a significant portion of the international community.
The most recent statistics, which were covered in earlier articles on MAPs and APAs, reveal that the MAP and APA programs in the US are quite successful, but there are still many obstacles to overcome, particularly in terms of the amount of time it takes to process cases.
In addition, the growing demand for tax certainty makes it absolutely necessary for tax authorities to keep refining dispute resolution and preventive procedures like MAPs and APAs.
Potential places where one could make improvements.
There are a few parts of the existing revenue procedures that the successor advice should improve upon. For one thing, Rev. Proc. 2015-40 applies a cumbersome annual notification requirement for protective claims (which extends the statute of limitations for obtaining a refund of US tax) and treaty notifications.
In other words, this requirement makes filing these claims more difficult (which are required under a small number of US treaties, including the treaties with Canada and Mexico).
There is no mention of an annual notification requirement anywhere in the regulation that controls claims for refund or in the text of the tax treaties that need notification.
Both of these sources state that an annual notification is required. It adds to the compliance burdens and presents a serious trap for the unwary, potentially jeopardizing effective MAP relief for taxpayers who skip a later yearly notification despite having filed a timely protective claim or notification of a treaty promptly. If all goes according to plan, the yearly no.
the need for certification would be done away with in the subsequent advice.
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In the area of APA, a significant issue that is brought up by the current guidance but is not resolved is the question of whether or not a complete APA application satisfies the section 6662 TP documentation requirements for the years in which the APA request is pending.
This is an issue that has been raised but has not been resolved. Although Rev. Proc. 2015-41 states that the “submission of a complete APA request… will be a factor taken into consideration in determining whether the taxpayer has met the documentation requirements,” the wording of this provision is so ambiguous that it does little to offer taxpayers any sense of security.
The APA guidelines might be enhanced by defining what, if anything, is required in addition to a complete APA application to satisfy the documentation requirements and gain protection from transfer pricing penalties. This would be an example of an improvement that could be made.
