4.60.6 International Referral Criteria and Procedures

Manual Transmittal

December 16, 2015

Purpose

(1) This transmits revised IRM 4.60.6, International Procedures, International Referral Criteria and Procedures.

Scope

This IRM provides guidance and technical information on international referral criteria and procedures applicable to referrals to all operating divisions.

Material Changes

(1) Text previously contained in IRM 4.60.6, International Referral Criteria and Procedures, has been substantially revised to clarify and expand on existing international referral criteria and procedures.

(2) Mandatory referral criteria were changed to include post-processing compliance examinations in IRM 4.60.6.2.

(3) Forms 8873, 8895, and IC-DISC/8804 have been added to the mandatory referral criteria in IRM 4.60.6.2(3)(a).

(4) IRM 4.60.6.3 was updated to include tax computation specialist to the list of specialists that use SRS and to provide guidance for referral recipients.

(5) The instruction and guidance for the Specialist Referral System (SRS) in IRM 4.60.6.4 and IRM 4.60.5 have been substantially revised including the elimination of automatic referrals in IRM 4.60.6.4.2

(6) The term "limited scope returns" has been changed to international controlled returns in IRM 4.60.9.6, and additional guidance has been provided for these returns.

(7) IRM 4.60.6.10 has been expanded to include new guidance on referral procedures to the Office of Exchange of Information (EOI).

(8) Editorial changes were made throughout the IRM.

Effect on Other Documents

IRM 4.60.6 dated March 1, 2007 is superseded.

Audience

LB&I, SB/SE, TE/GE management and examiners

Effective Date

(12-16-2015)

Sharon R. Porter
Acting Director, International Business Compliance
Large Business and International Division

Referral Criteria and Procedures

  1. This section describes the features of tax returns that make an international referral necessary and the procedures to follow in making an international referral.

Mandatory Referral Criteria

  1. Except as otherwise noted below, all original filed returns and claims with international features meeting the mandatory international referral criteria must be referred to an international examiner (IE). The IE will assist revenue agents and tax compliance officers with evaluating and examining significant high risk international issues. International is available to consult with and/or participate with revenue agents and tax compliance officers on any international issues. If revenue agents and tax compliance officers examiners identify areas of interest (including potential emerging issues) with international characteristics not found in the table below, they should make a referral to International and consult with an IE.

  2. Returns examined through Campus Compliance functions, after initial processing, are not required to be referred to International. The campuses, however, may refer returns and claims where international issues are present.

  3. Returns examined in International Individual Compliance (IIC) are not required to be referred to an IE. IIC examiners receive specialized training in international individual tax issues and will therefore perform the audit of those issues including, but not limited to, foreign tax credit (FTC), foreign earned income exclusion (FEIE), information returns such as Forms 3520, 3520-A, 5471, 5472, etc.

  4. International features include but are not limited to the following schedules and attachments of any of the following forms to the tax return:

    1. Form Form Title Referral Criteria
      926 Return by a U.S. Transferrer of Property to a Foreign Corporation All
      1116 Foreign Tax Credit (Individual, Estate or Trust) FTC < than $25,000
      1118 Foreign Tax Credit - Corporations FTC < than $25,000
      1120, Schedule C Dividends and Special Deductions An entry of $500,000 or more appears on any of the following lines: 3, 6, 7, 8, 12, 13
      1120, Schedule M-3 Net Income (Loss) Reconciliation for Corporations with Total Assets of $10 Million or More Part II, Col. (c), lines 2-5 and 10, if amounts on any one line are less than -$100,000; Part III, Col. (c), lines 5-7, if amounts on any one line are greater than $100,000 and sum of columns (b+c), lines 9 and 23-25, if amounts (i.e. sum of (b+c) are greater than $1,000,000
      1120, Schedule N Foreign Operations of U.S. Corporations Yes to any question except 6 (foreign bank account)
      2555, 2555 EZ Foreign Earned Income Exclusion All
      3520 Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts All
      3520-A Annual Information Return of Foreign Trust with a U.S. Owner All
      5471 Information Return of U.S. Persons With Respect To Certain Foreign Corporations All
      5472 Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business (under Sections 6038A and 6038C of the Internal Revenue Code) All
      5713 International Boycott Report Both questions in 7(f) are answered yes
      8621 Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund Part IV, has an entry that is $500,000 or more
      8804 Form IC-DISC All
      8832 Entity Classification Election Box 6(d), (e) or, (f) is checked
      8833 Treaty Based Return Position Disclosure Under Section 6114 or 7701(b) All
      8858 Information Return of U.S. Persons With Respect to Foreign Disregarded Entities All
      8865 Return of U.S. Persons With Respect to Certain Foreign Partnerships All
      8902 Alternative Tax on Qualifying Shipping Activities All
      8873 Extraterritorial Income Exclusion Exclusions greater than $100,000
      8895 One-Time Dividend Received Deduction for Certain Cash Dividends from Foreign Controlled Corporations (IRC 965) All
  5. Any of the following criteria apply to the taxpayer where the transaction exceeds $25,000:

    1. The taxpayer has a foreign branch, subsidiary, disregarded entity, affiliate, partnership, trust, joint venture, or foreign related entity in any form.

    2. The taxpayer has possible Subpart F issues per the provisions of IRC 951.

    3. The taxpayer has a subsidiary, affiliate, or related entity in any form in Puerto Rico.

    4. The taxpayer is a shareholder, officer, director, partner, trustee, beneficiary, or has some other possible involvement in an entity in a tax haven country.

  6. Revenue agents and tax compliance officers may voluntarily submit an international referral requesting participation of an IE in a case involving a complex and substantial domestic transfer pricing issue, or an IRC 861 expense allocation issue related to the domestic production deduction ( IRC 199), or any other case with international features not meeting the mandatory referral criteria. The referring agent is encouraged to include detailed information in the Specialist Referral System (SRS) referral setting forth the pertinent facts and the reasons for requesting participation of an IE. Additionally, information may be emailed or sent to the International Referral Recipient (IRR) if the information is voluminous or it is otherwise not appropriate for inclusion in the SRS referral.

Specialist Referral System

  1. In the normal course of auditing tax returns, revenue agents and tax compliance officers may require the assistance of international subject matter experts (IEs). A request for international assistance may be either a formal request for the assignment of an IE to the case, or an informal request that simply seeks a response to a specific question. In either case, the Specialist Referral System (SRS) shall be used to request international assistance. The SRS is on the IRS intranet at: https://srs.web.irs.gov. All returns meeting the mandatory referral criteria in IRM 4.60.6.2 above will be referred utilizing SRS.

  2. The SRS is also the platform that IEs including revenue agents and tax compliance officers use for requesting assistance from the following specialists: computer audit, economist, employee plan, excise tax, employment tax, engineers, exempt organization, federal state and local government, financial products, tax computation specialist, Indian tribal government, and tax exempt bond. SRS will not accommodate a "reverse referral," i.e., a request for domestic assistance from an IE controlling a case.

  3. SRS facilitates communication of the acceptance or rejection of referrals and enables management tracking. A key benefit of SRS is that it eliminates redundancy in generating the multiple referrals typically required on a coordinated industry case (CIC case).

  4. The SRS is a routing system for specialists' referrals.

  5. Referral recipient access to the SRS requires an approved Form 5081.

  6. Referral recipients may designate temporary access to review referrals for periods when they will be away or otherwise unable to review referrals. See IRM 4.60.6.8System Maintenance.

SRS Referral Process

  1. SRS is accessed through the IRS intranet and is available to all employees. The intranet address is: https://srs.web.irs.gov

  2. A universal online form is used for requesting any of the listed specialists. Information entered onto the form is saved in a database. International referrals are forwarded to the International Referral Recipient (IRR) based on geographical and industry logic established by the international territory managers (ITM) and communicated to the International Business Compliance (IBC) analyst that maintains that listing. See IRM 4.60.6.8System Maintenance, for contact information. Confirmation of the forwarding of a referral is emailed to both the requestor and the requestor’s manager.,

  3. The IRR can view requests by accessing the system. If a LIN (LB&I Image Network) link is not provided, formal requests for the assignment of an IE require the requestor to mail or via email copies of relevant portions of the returns to the IRR or IE (i.e., the first 4 pages of Form 1120 and other forms and schedules that provide information regarding international transaction or amounts). Referring examiners are encouraged to include additional information that will assist the IRR in evaluating whether to assign an IE to the examination.

  4. Comments may be included in the SRS system or, if voluminous, may be sent directly to the IRR. In most cases, other information that comprises the basis for making the referral will also be required from the requestor. Circumstances where supporting documentation is not required include formal referrals on CIC cases and requests for informal assistance. The IRR may accept the referral by assigning an IE to the case, assigning an IE to assist on a consultation basis, transferring the referral to another manager, or rejecting the referral. Upon assignment, an IE will receive email notification. Additionally, the requestor and the requestor's manager will receive email notification of the IRR's action. The IE may then access the SRS and view the referral.

  5. When another year (subsequent or prior) or a related return with international features requiring a referral is added to the examination, a new referral is needed to add the additional year, or taxpayer to the referral.

Supporting Documentation

  1. Supporting documentation, such as return information and other relevant taxpayer information, assists the IRR in evaluating a referral. Although generally required, an exception for CIC cases exists under the premise that those types of cases typically have extensive documentation and the timing of the engagement is frequently planned well in advance so that the submission of a referral is simply a formality. In such cases, the IRR is therefore generally familiar with productivity in prior cycles, and knows who will be assigned the case in the current cycle. In CIC cases where this is not the case, the IRR should contact the first level team manager of the referring agent and make arrangements to assess the audit potential of the referred case.

  2. The IRR will review the tax return to evaluate international examination potential and whether an IE should be assigned to the examination except as discussed in (1) above. In most situations, this will be accomplished using the LIN link that should be included in the SRS referral. If no LIN link is available, copies of the following return pages should be sent to the IRR:

    Form Form Name To be Included
    1040 U.S. Individual Income Tax Return Pages 1 and 2 Form 1116, Form 2555/2555EZ, Form 5471 and other forms or schedules that indicate international activity, income, expenses, transactions, etc.
    1040-NR U.S. Nonresident Alien Income Tax Return Entire Return
    1065 U.S. Return of Partnership Income Entire Return
    1120 U.S. Corporation Income Tax Return Return pages 1-4 and all other forms, schedules, etc. that indicate international activity, income, expenses, transactions, etc.
    1120-F U.S. Income Tax Return of a Foreign Corporation Entire Return

Management Reports

  1. The SRS is a database of referral information and is capable of generating the following reports:

    Report Description
    Referral Analysis Provides number of referrals by customers and the disposition of each request.
    Response Time Provides average time to respond and range of time to respond ( by manager at the Territory level).
    Referral Transaction List of referral requests and relevant information for each request.
    Ad Hoc Ad hoc queries on data to identify trends and to answer specific questions.
  2. Management reports are accessible from the SRS home page. To access reports, click on "Managers" at the top of the screen and then select "View Reports" .

Informal Assistance

  1. Questions limited to 100 words are submitted to the IRR through the SRS. Limited detailed information is required from the requestor. An IRR receives the question via email. This ends the SRS’s involvement in the informal assistance request.

  2. The IRR reviews the question and assigns it to an IE by forwarding the email. The IE assigned to an informal assistance request has the option of responding by phone or email.

System Maintenance

  1. Each specialty is required to maintain the routing logic on the SRS. The IBC analyst that maintains the Field Operations List (FOL) and IRR list is also responsible for and has administrative access to the routing logic within SRS. All IRR changes shall be communicated to the IBC analyst who maintains that listing. This analyst can be identified by going to the LB&I intranet web site and locating the FOL under "Contacts" in the "International" section. The point of contact is listed at the bottom of the "Contacts" web page.

  2. A team manager can edit and delete team members. Territory managers can change or delete managers in their territory. For temporary absences, a manager can assign an acting manager. To access the edit menu from the SRS home page, click on "Managers" and select "Edit Specialist Group/Team Information."

  3. The SRS will not properly route referrals or track activity when a personnel vacancy occurs. There must always be valid routing paths in place. When a vacancy occurs, someone must be designated the responsibility to assign referrals to IEs. Similarly, a vacancy at the team or territory level will impair the SRS’s managerial reporting function. Information about changes that can not be handled by the team or territory manager must be communicated to the IBC analyst with administrative access over SRS. The analyst is on the staff of the IBC team.

  4. The following actions require changes to SRS routing:

    1. New team manager enters the program

    2. Current team manager leaves the program

    3. Change in acting team managers

    4. Change in international territory managers

international Controlled Returns

  1. An IE examining an international controlled return will generally focus only on international issues. If material domestic issues are identified during the examination, a domestic revenue agent may be assigned to the examination as a team member, or the IE may examine the domestic issue. The IE maintains administrative control of the return.

  2. The IE charged with the return will assume all examination and case control responsibilities, including, but not limited to:

    1. Maintaining timely AIMS and IMS updates

    2. Following all examination procedures and directives pursuant to IRM instructions

    3. Preparing all relevant examination reports pursuant to IRM instructions

    4. Preparing all relevant closing documents pursuant to IRM instructions

  3. The IE charged with the return is responsible for maintaining statute controls and securing timely extensions of statutes when warranted.

  4. The Commissioner, LB&I and NTEU signed a Letter of Understanding (LOU) on September 5, 2002, that in part, stipulates: "The IE will be responsible for all elements of case control and statute control that are contained in the Internal Revenue Agent Standard Position Description and detailed in IRM 25.6.23Examination Process - Assessment Statute of Limitations Controls" .

APMA/TAIT//EOI/JITSIC/Overseas Operations Referral Procedures

  1. The following offices under the authority of the Deputy Commissioner (International), LB&I - who is the United States Competent Authority for tax matters - rely on the expertise of LB&I IEs and SB/SE revenue agents for assistance with their programs.

    1. Advance Pricing and Mutual Agreement (APMA) program

    2. Treaty Assistance and Interpretation Team (TAIT)

    3. Exchange or Information (EOI) program

    4. Joint International Tax Shelter Information Centre (JITSIC)

    5. Overseas Operations program

    These offices are collectively referred to as the "requesting office" . The assistance provided by the international examiners and revenue agents to the requesting office is referred to as "field services" .

  2. The EOI program and JITSIC are administered by EOI and JITSIC analysts based primarily in Washington, DC. The Overseas Operations program is administered by tax attachés and revenue service representatives stationed primarily in foreign jurisdictions. At times, these offices request the assistance of LB&I IEs or SB/SE revenue agents in order to fulfill foreign-initiated specific requests for exchange of information made pursuant to international tax information sharing agreements (such as income tax treaties and Tax Information Exchange Agreements). These programs forward such requests for assistance to LB&I IRRs (for requests involving large case entities and/or complex international issues) or to SB/SE Examination Area Directors (for requests involving individuals and SB/SE entities). The IRRs and Examination Area Directors in turn assign the requests to examination offices within their respective business divisions for action. LB&I and SB/SE examination offices assigned to these assistance requests will strive to conclude all requested field work within 60 days upon receipt in the groups. The assigned IE or revenue agent will route the results back to the originating LB&I EOI analyst, JITSIC analyst, tax attaché, or revenue service representative.

  3. These procedures are in accordance with the Memorandum of Understanding between LB&I and SB/SE regarding the Assignment of Specific Requests for Exchange of Information signed in September 2005. More detailed procedures for processing foreign-initiated specific requests for exchange of information may be found in IRM 4.60.1, Exchange of Information.

  4. Any request from the Treaty Assistance and Interpretation Team (TAIT) involving taxpayers and/or returns that meet the following criteria will be forwarded directly to the Program Manager, LB&I IIC Foreign Resident Compliance office:

    1. Individual taxpayer with a foreign address

    2. Individual taxpayer with an APO or FPO address

    3. Form 2555, Foreign Earned Income, is attached to the tax return

    4. Form 1120-F, U.S. Income Tax Return of Foreign Corporations ($10 Million and under); or

    5. Form 1120-NR, U.S. Non-Resident Alien Income Tax Return.

  5. For a request in which LB&I assistance is required , the requesting office will use the listing of LB&I IRRs to identify who should receive the request. The IRR listing, which is arranged geographically, can be accessed using the following link: http://lmsb.irs.gov/international/dir_compliance/compliance/auto-referral.asp.

  6. The LB&I IRR or SB/SE Examination Area Director will maintain a log of all requests received, noting the date of the request, the accountable LB&I or SB/SE examination action office, and the date forwarded to the accountable office.

  7. For a request to LB&I, the IRR will forward the request for field services to the accountable office (i.e., the appropriate LB&I examination action office team manager within five business days of receipt.

    1. The identification of the appropriate team manager shall be established by local agreement among all of the international teams servicing a particular geographic area with the concurrence of the respective international territory managers (ITMs) and industry directors (IDs).

    2. The IRR should exercise reasonable diligence in meeting the five-day requirement.

  8. Upon receipt of a request for field services, the team manager of the accountable LB&I or SB/SE office shall notify the requesting office that the request has been received, and provide the name of the IE or revenue agent assigned. This communication should occur as soon as possible, but in no event later than five business days from the date the request is received by the team manager. For an LB&I accountable office, the team manager shall also notify their international territory manager and/or industry director in accordance with procedures established by each industry.

  9. If a request to LB&I is sent by a requesting office to an IRR in error (e.g. incorrect geographical area or industry), the IRR shall, as soon as practicable, establish communication with the requesting office and forward the request to the appropriate IRR.

  10. If a request to LB&I is sent by an IRR to an LB&I team manager in error (e.g., not in accordance with the local agreement in paragraph (6) above), the team manager shall, as soon as practicable, establish communication with the IRR and forward the request to the appropriate recipient. The IRR shall record in their log the date the request was sent to the correct accountable office.

  11. The requesting office will transmit a request for LB&I field services to the IRR in a manner appropriate for the nature of the request. For example, the APA program prefers to speak to the IE assigned to the request for services prior to shipping voluminous documents and data. Requests for field services may be submitted in two forms:

    1. Notice

    2. Detailed request

  12. Notices may be transmitted by phone, fax, email, or regular mail, and shall contain the following:

    • Name and address of the taxpayer

    • Nature of request

    • Suspense date

    • Point of contact in the requesting office

    Taxpayer information, which includes names and addresses, can only be transmitted by e-mail in an encrypted attachment.

  13. Detailed requests are mailed to the IRR and must contain all of the information needed by the accountable office to take the proper action.

  14. The requesting office will set a suspense date to reflect the period of time within which the requesting office would like the field service completed. The suspense date does not apply to APMA teams, but does apply to the review of APMA annual reports. If additional time is needed to complete the field services, the team manager of the accountable office will coordinate with the requesting office in establishing a revised suspense date.

  15. The team manager of the accountable office should inform the requesting office when the IE has completed the request. Delivery of the completed report and/or provision of requested documents should be arranged on a case-by-case basis.