Part 4. Examining Process
Chapter 60. International Procedures
Section 7. Guidelines for Evaluating International Referrals
December 17, 2015
(1) This transmits revised IRM 4.60.7, International Procedures, Guidelines for Evaluating International Referrals.
(1) Text previously contained in IRM 4.60.7, Guidelines for Evaluating International Referrals, has been revised and reorganized to reflect additional criteria for evaluating referrals including abusive tax shelters and listed transactions.
Sharon R. Porter
Acting Director, International Business Compliance
Large Business and International Division
This section outlines international referral recipient (IRR) responsibilities in the evaluation of international referrals for acceptance or rejection.
The IRR will consider the following when evaluating international referrals:
If the taxpayer has a branch, subsidiary, or controlled entity in any form in a tax haven country
Determination of the tax haven country should be made and provided by the submitter. Determination should also be made and provided by the submitter if an abusive tax shelter or a listed transaction is present. Particular care should be exercised in evaluating a referral since there may be greater incentive for the improper shifting of income.
Transactions relating to cost sharing arrangements including platform contribution transactions and the sharing of R&D costs
The impact of allocation of income and expenses between U.S. companies and their affiliates in Puerto Rico
Significant amount of foreign tax credit claimed
Significant foreign activity or losses related to foreign investments
Significant extraterritorial income exclusion (ETI) claimed using Form 8873
The impact of penalties under IRC 6038(a) (Form 5471 penalties), IRC 6038A (25-percent foreign owned domestic corporations) and IRC 6038C (foreign corporations engaged in a U.S., trade or business) for failure to file certain information returns
If Form 1042 was filed and if there are material issues regarding withholding at source issues
The IRR will also review the information provided to determine whether additional information may need to be gathered from the taxpayer including disclosures not made or required forms not filed based on the information already provided on the return.
The IRR will consider whether an opportunity exists for the improper shifting of income from entities subject to U.S. income taxes to related foreign entities. Such shifting of income may have arisen from, but are not limited to, the following situations between a domestic entity and a controlled or controlling foreign entity:
Purchases or sales of stock in trade or depreciable property
Compensation paid or received for technical, managerial, engineering, construction, scientific or other services
Commissions, rents, and royalties received or paid
Constructive dividends received from a foreign corporation
Amounts borrowed from a controlled foreign corporation (excluding ordinary trade accounts that are settled timely)
Premiums paid or received for insurance or reinsurance
Sale, exchange, assignment or capital contribution of intangible property by a taxpayer to a related foreign entity
Transactions under IRC 269, IRC 367, or IRC 482
The IRR will consider the following when evaluating Subpart F income:
Whether the taxpayer has reported any Subpart F income
Whether operations of the controlled foreign corporation may generate Subpart F income
Whether foreign tax credit applicable to Subpart F income has materially reduced the effect of reporting Subpart F income
Whether distributions received have been excluded as previously taxed Subpart F income
Whether a proper amount of Section 1248 gain or loss was recognized on the sale of a CFC