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Directive on Examination Action With Respect to Certain Gain Recognition Agreements

Control No:  LMSB-4-0510-017
Impacted IRM: 4.51.5

July 26, 2010

MEMORANDUM FOR

LMSB INDUSTRY DIRECTORS

FROM

Michael Danilack /s/ Michael Danilack
Deputy Commissioner International (LMSB) 

SUBJECT:

Directive on Examination Action With Respect to Certain Gain Recognition Agreements 

I. SCOPE AND BACKGROUND

This memorandum applies to a timely-filed document that purports to be a gain recognition agreement (“GRA”) with respect to an initial transfer, but does not satisfy the requirements in §1.367(a)-8(c)(2).  This memorandum also applies to all filings required to be made during the term of a timely-filed GRA with respect to an initial transfer (“original GRA”), or a timely-filed document described in the preceding sentence, including (1) any new GRA required due to a subsequent triggering event, (2) any required waiver of the period of limitations on assessments of tax, (3) any annual certification, and (4) any other information required under §1.367(a)-8.For example, if in lieu of providing required information (such as the basis or fair market value of the transferred stock or securities) taxpayer provides that such information is “available upon request.”For example, if in lieu of providing required information (such as the basis or fair market value of the transferred stock or securities) taxpayer provides that such information is “available upon request.[1]   This memorandum does not, however, apply to any original GRA required to be filed with respect to an initial transfer, where that original GRA (or document purporting to be an original GRA) was not timely filed.

The means to best ensure compliance with these filing provisions, including the possibility of further guidance, is under study.  Pending that consideration, this memorandum provides direction for the efficient use of examination resources in this area until further notice.

II. DIRECTIVE

Effective as of the date of this memorandum and until further notice is provided, examiners should treat any failure to correctly or timely file a document subject to this memorandum as satisfying the timeliness requirement under the regulations if, the taxpayer:

  1. Files an amended return for the taxable year to which the failure relates that includes: 1) the complete and accurate filing that should have been included with the original return for such taxable year; 2) the statement “Filed pursuant to Directive of Examination Action with respect to Certain Gain Recognition Agreement” on the first page of the amended return.  The amended return must be filed with the applicable Internal Revenue Service Center with which the U.S. transferor filed its original return for such taxable year;

  2. Files with the amended return a Form 8838 "Consent to Extend the Time To Assess Tax Under Section 367- Gain Recognition Agreement" extending the period of limitations on assessment of tax with respect to the gain realized but not recognized on the initial transfer to the later of (1) the close of the eighth full taxable year following the taxable year during which the initial transfer occurs or (2) three years from the date the required information is provided to the IRS under this section II; and

  3. Complies with the notice requirements set forth in §1.367(a)-8(p)(2)(ii)(A) and (B).

For purposes of this memorandum, taxpayer is not required to provide an explanation of the reasons for the failure to timely file or comply.

If taxpayer submitted a request for reasonable cause relief under § 1.367(a)-8(p) prior to the issuance of this Directive that was denied, taxpayer will be subject to the procedures under this Directive provided that taxpayer meets all of the other requirements in this Directive.  If, however, taxpayer submitted a request for reasonable cause relief under § 1.367(a)-8(p) prior to the issuance of this Directive that is pending, taxpayer must withdraw its request for reasonable cause to become subject to the procedures under this Directive.  Under these circumstances, the amended return submitted by the taxpayer under § 1.367(a)-8(p) will be deemed to satisfy the requirement described in paragraph 1 above.

III. EXAMPLES

The following examples illustrate the types of filings that are addressed by this memorandum.

Example 1.  With respect to an initial transfer, taxpayer fails to timely file an original GRA or any document purporting to be an original GRA.  Taxpayer’s original GRA is not subject to this memorandum.  Taxpayer can only satisfy the timeliness requirement for the original GRA by satisfying the requirements under § 1.367(a)-8(p) or predecessor, including demonstrating that the failure was due to reasonable cause and not due to willful neglect.

Example 2.  With respect to an initial transfer, taxpayer timely files a document that purports to be an original GRA, but such document fails to satisfy the requirements in §1.367(a)-8(c)(2) [2].   Taxpayer’s original GRA is subject to this memorandum.

Example 3.  Taxpayer timely files an original GRA that satisfies the requirements in § 1.367(a)-8(c)(2) with respect to an initial transfer that occurs in year 1, but fails to file a new GRA to avoid a triggering event with respect to the original GRA that occurs in year 3.  Taxpayer’s new GRA is subject to this memorandum.

IV. COORDINATION AND LIMITATIONS

The filing of a document pursuant to this memorandum does not establish that the document is complete and accurate.  Examiners may consider whether the document is complete and accurate under normal examination procedures.

Cases addressed pursuant to this memorandum must be coordinated with LMSB Technical Advisor Deborah Childers or LMSB Technical Advisor Dorian McCloskey.

This memorandum is not an official pronouncement of the law or the position of the Internal Revenue Service and cannot be used, cited, or relied upon as such.  Specifically, this memorandum contains no legal conclusion as to whether taxpayers have complied with the requirements in §1.367(a)-8, or whether they have demonstrated that the failure to comply was due to reasonable cause and not willful neglect.

This memorandum applies only to failures to comply with provisions contained in the current regulations in §1.367(a)-8 (or the predecessor temporary and final regulations to those regulations).

Footnote:

[1] This memorandum applies not only to failures to timely comply with current regulations under §1.367(a)-8, but also to failures to timely comply with predecessor temporary and final regulations.  See TDs 9311 and 8770.  References to the current regulations include references to comparable provisions in predecessor regulations.

[2] For example, if in lieu of providing required information (such as the basis or fair market value of the transferred stock or securities) taxpayer provides that such information is “available upon request.”

Page Last Reviewed or Updated: 05-Mar-2014