This revenue procedure prescribes the procedure to be followed with
respect to the claiming of any setoffs (hereinafter �� 482
setoffs�) to adjustments proposed by the Commissioner pursuant to � 482
of the Internal Revenue Code (�Code�). Rev. Proc. 70-8, modified.
.01 Section 1.482-1(g)(4)(i) of the Income Tax Regulations (T.D. 8552,
1994-2 C.B. 93, 125) provides in part:
If an allocation is made under section 482 with respect to a transaction
between controlled taxpayers, the district director will also take into account
the effect of any other non-arm�s length transaction between the same
controlled taxpayers in the same taxable year which will result in a setoff
against the original section 482 allocation. Such setoff, however, will be
taken into account only if the requirements of � 1.482-1(g)(4)(ii)
are satisfied.
.02 Section 1.482-1(g)(4)(ii) of the regulations further provides:
The district director will take a setoff into account only if the taxpayer�
(A) Establishes that the transaction that is the basis of the setoff
was not at arm�s length and the amount of the appropriate arm�s
length charge;
(B) Documents, pursuant to paragraph (g)(2) of this section, all correlative
adjustments resulting from the proposed setoff; and
(C) Notifies the district director of the basis of any claimed setoff
within 30 days after the earlier of the date of a letter by which the district
director transmits an examination report notifying the taxpayer of proposed
adjustments or the date of the issuance of the notice of deficiency.
The relevant duties of the district director referred to in the regulations
are now exercised by the director of field operations. For purposes of this
revenue procedure, references to the Commissioner shall be to the director
of field operations or other applicable delegate.
.03 The requirement that a taxpayer notify the Commissioner of the basis
of any � 482 setoff is separate and distinct from the requirements
that the taxpayer must:
(1) Establish that the transaction that is the basis of the setoff was
not at arm�s length;
(2) Establish the amount of the appropriate arm�s length charge;
and
(3) Document all correlative adjustments resulting from the � 482
setoff.
The notification requirement requires that the non-arm�s length
transactions upon which the amount of the appropriate arm�s length charge
is based be sufficiently identified in the notification to the Commissioner
so as to constitute a reasonable foundation for the claimed � 482
setoff and to permit verification by the Commissioner. The listed requirements
involve the proving of the � 482 setoff. Taxpayers must establish
or document the requirements described in this section with reasonable specificity.
.04 The taxpayer must notify the Commissioner of the basis of any claimed
� 482 setoff within 30 days after the earlier of the date of a letter
by which the Commissioner transmits an examination report notifying the taxpayer
of proposed adjustments (�30-day letter�) or the date of the issuance
of the notice of deficiency. Ordinarily, the taxpayer will be able to notify
the Commissioner of the basis of any claimed � 482 setoff during
the course of an examination, prior to the time the Commissioner transmits
a 30-day letter. In unusual circumstances, this may not be so. However, orderly
administration of the Code necessitates a reasonable cutoff point for claiming
any � 482 setoffs. The timing provision concerning the notification
accommodates both considerations. Accordingly, where a taxpayer does not file
a protest to the 30-day letter, the notification must be filed within 30 days
after the date of the 30-day letter, unless an extension has been granted
by the Commissioner. The request for an extension must be filed before the
30-day period expires. Where the taxpayer files a timely protest, a notification
that accompanies the protest will be considered timely. In all events, the
notification must be filed no later than within 30 days after the date of
the issuance of a notice of deficiency with respect to the adjustments pursuant
to � 482. The provisions of � 7502 of the Code apply as
to timeliness of any mailed notification.
.05 To meet the burden of proof concerning any claimed � 482
setoff it will be necessary for the taxpayer to furnish certain detailed information
as specified in � 1.482-1(g)(4)(ii) of the regulations and � 2.03
of this revenue procedure. Early submission of such information, when possible,
will be to the advantage of both the taxpayer and the Commissioner. Normally,
the information should be submitted concurrently with the notification. The
question concerning the appropriateness of granting additional time in this
regard lies entirely within the administrative discretion of the Commissioner.
SECTION 3. OTHER PROCEDURES RELATING TO � 482 SETOFF CLAIMS
.01 The notification to the Commissioner of a � 482 setoff
required under � 1.482-1(g)(4)(ii) of the regulations must be a
separate written statement.
.02 The notification must sufficiently identify the non-arm�s
length transaction(s) upon which the claimed � 482 setoff is based
so as to constitute a reasonable foundation for the claimed � 482
setoff and permit verification by the Commissioner. Under � 1.482-1(g)(4)(i)
of the regulations, the non-arm�s length transaction(s) must be between
the same controlled taxpayers and in the same taxable year as involved in
the transaction that is the subject of the adjustment pursuant to � 482
against which the � 482 setoff is claimed.
.03 The notification must also contain:
(1) The taxpayer�s name, address, and U.S. employer identification
number or Social Security number;
(2) The date and symbols on the 30-day letter or notice of deficiency
specified in � 1.482-1(g)(4)(ii)(C) of the regulations and � 2.04
of this revenue procedure; and
(3) The taxable year(s) involved.
.04 The taxpayer must include with the notification a signed declaration
under penalties of perjury that the statements made in the notification, and
all evidence submitted, are true, correct, and complete to the best of the
taxpayer�s knowledge and belief.
.05 If a duly authorized representative prepares or files the notification,
instead of the declaration required by � 3.04 of this revenue procedure,
the representative may substitute a declaration stating that the representative:
(1) Prepared the notification and accompanying documents, and
(2) Knows personally that the statements contained therein and all evidence
submitted are true, correct, and complete to the best of the representative�s
knowledge and belief.
.06 An incomplete or improper notification will not extend the period
within which the Commissioner is to be notified. Therefore, the taxpayer must
be careful to include sufficient information in its notification and, if possible,
to submit the notification in sufficient time to permit correction of any
deficiencies within the prescribed limitation period. Thus, as indicated in
� 2.04 of this revenue procedure, when possible, the notification
should be submitted during the examination prior to the issuance of the 30-day
letter.
.07 When appropriate, a previously submitted notification may be incorporated
by reference into a protest filed by the taxpayer.
.08 To expedite the examination, information necessary to establish
the claimed � 482 setoff must be submitted in accordance with � 2.05
of this revenue procedure.
.09 The taxpayer must make available to the Commissioner such information
as the Commissioner may require to examine the transactions relied on by the
taxpayer. In this connection, the taxpayer must execute such consents extending
the statute of limitations as the Commissioner, in the exercise of the Commissioner�s
administrative discretion, determines to be necessary to enable an examination
of the transactions claimed by the taxpayer as � 482 setoffs. If
the taxpayer declines to execute such consents, the Commissioner may reject
the claimed � 482 setoffs.
SECTION 4. EFFECTIVE DATE
.01 This revenue procedure is effective for taxable years beginning
on or after July 25, 2005.
.02 Taxpayers may elect to apply this revenue procedure for any open
taxable year beginning after October 6, 1994, but before July 25, 2005. Such
election shall be effective for the taxable year of the election and all subsequent
open taxable years.
.03 Although this revenue procedure is generally effective for taxable
years as stated in �� 4.01 and 4.02 of this revenue procedure,
� 1.482-1(g)(4) of the regulations is generally effective for taxable
years beginning after October 6, 1994 (or for earlier open taxable years pursuant
to an election under � 1.482-1(j)(2) of the regulations), and � 1.482-1T(d)(5)
of the temporary Income Tax Regulations (T.D. 8470, 1993-1 C.B. 90, 110) is
generally effective for taxable years beginning after April 21, 1993, but
before October 7, 1994 (if no election pursuant to � 1.482-1(j)(2)
of the regulations is applicable). For the taxable years beginning after April
21, 1993, to which this revenue procedure is not otherwise applicable pursuant
to �� 4.01 and 4.02 of this revenue procedure, taxpayers must
apply � 1.482-1(g)(4) of the regulations and � 1.482-1T(d)(5)
of the temporary regulations in a reasonable manner consistent with those
regulations. The Commissioner considers an application of the provisions of
this revenue procedure to be a reasonable manner of compliance with such regulations.
.04 For taxable years beginning prior to April 22, 1993, where no election
pursuant to � 1.482-1(j)(2) of the regulations is applicable, Rev.
Proc. 70-8, 1970-1 C.B. 434, prescribes the procedure to be followed with
respect to the claiming of any � 482 setoffs pursuant to � 1.482-1A(d)(3)
of the Income Tax Regulations (T.D. 6952, 1968-1 C.B. 218, 220).
SECTION 5. EFFECT ON OTHER DOCUMENTS
Rev. Proc. 70-8 is modified.
SECTION 6. DRAFTING INFORMATION
The principal author of this revenue procedure is Carol B. Tan of the
Office of Associate Chief Counsel (International). For further information
regarding this revenue procedure, contact Ms. Tan at (202) 435-5265 (not a
toll-free call).
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