What's new? What's missing? The IRS updates APA procedures.

Summary

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Advance Pricing Agreements

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What's new? What's missing? The IRS updates APA procedures.

In July, the Internal Revenue Service issued Rev. Proc. 2004-40, (1) the long-in-the-works update of the procedural rules for obtaining and maintaining Advance Pricing Agreements (APAs) on intercompany transfer pricing.

The APA Program was launched in 1991 (2) and refurbished in 1996. (3) With about 100 new applications submitted annually in the last few years and the increased experience of completing 500 APAs, the IRS should be in a position to refine, streamline, and, as needed, amplify the APA Program's procedural requirements. Given the concerns of both the taxpayer community and the IRS about the lengthy processing time for APAs, one would particularly hope to see procedural changes designed to expedite the process.

In fact, the revisions are mostly evolutionary, rather than innovative. (4)

* No special new steps are proposed to shorten processing time, though several aspects have that potential, e.g., increased reliance on electronic media and certain expedited renewal procedures. The APA request contents have been made more comprehensive, rather than winnowed, on the ground the additional information will eventually be needed so up-front submission will be more efficient. This is a critical bet that should be evaluated quickly.

* Features to enhance the prospectivity of APAs are stressed.

* The APA Program's direction is increasingly focused on bilateral APAs.

A recurrent theme is requiring a continuous flow of updated information to the IRS to enhance the "best"-ness of the result (and perhaps to enhance the perceived integrity of the APA Program in the face of the current Senate Finance Committee inquiry). (5)

This article explores the changes reflected in Rev. Proc. 2004-40 and the implications for the APA customer base. (6) This is not a detailed instruction booklet--after all, that is Rev. Proc. 2004-40's job--but rather a look...

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