4.60.9 International Examiner’s Report

Manual Transmittal

September 04, 2015


(1) This transmits revised IRM 4.60.9, International Procedures, International Examiner's Report.

Material Changes

(1) IRM Section was revised to eliminate the requirement to maintain a hard copy of Form 3963 outside the Issue Management System (IMS).

Effect on Other Documents

IRM 4.60.9 dated June 11, 2014 is superseded.


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

Effective Date


Sharon Porter
Director, International Business Compliance.
Large Business and International Division (LB&I)

International Examiner’s Report

  1. The International Examiner's Report (IER) serves several purposes:

    1. It documents the results of the International portion of the examination.

    2. It transmits the International audit conclusions and relevant information to the team coordinator or the controlling examiner. In addition to providing information on the results of the International portion of the examination, the IER provides information that the controlling examiner may use for BNA or RGS input.

    3. Although IMS now captures BNA report input for LB&I cases, the IER isolates the International adjustments and can be useful to validate and perfect the BNA coding and input.

    4. The IER also provides historical information that is used to evaluate subsequent International referrals.

    5. Finally, part 4 of the Form 3963 is used for the MAP report if one is required (see IRM

  2. lEs will prepare a report of findings for each case in which they participate as a team member. A report is not required for consultation assignments. The IE transmittal report (with the exception of the Forms 4549B, 4605 and Forms 886A) should not be shared with the taxpayer.

  3. The IER consists of Form 3963, narrative comments regarding the International examination, Form 4549-B or Form 4605-A, and Forms 886A Explanation of Adjustments. Local practice may eliminate the inclusion of Forms 886A for CIC cases.

  4. The IE should also include with the report:

    1. a brief description of the taxpayer’s operations and history,

    2. an explanation of issues considered and not changed that would be useful for evaluating future referrals and planning future audits,

    3. an organization chart if warranted, and

    4. any other information that may be helpful to the next IE such as foreign tax credit carryover amounts, claim information, etc.

General Instructions

  1. Form 3963 is the transmittal memorandum used by the IE for all reports of completed examinations

  2. The IE will submit the completed report to the International Team Manager for an administrative review and signature. The approved report is then forwarded to the Team Manager of the domestic examiner.

Specific Instructions for Preparing Form 3963

  1. Form 3963 is a two-page document consisting of eight parts that requires IE entries for all applicable items. The entry fields in the parts are mostly self-explanatory.

  2. Form 3963 may be generated in the Issue Management System (IMS). The instructions for generating Form 3963 are located in the IMS Help section. Type "3963" in the search box.

  3. Business Code: enter the six-digit NAICS code.

  4. Foreign Controlled – country: Enter the name of the country where the corporation, partnership, trust, or person that controls the taxpayer under examination is located.

  5. Start Date: Enter the date when time was first applied to the case.

  6. Report Date: enter the date that the report was completed.

  7. Part 3 reflects the total IE recommended adjustments by year and category.

  8. Provide a brief and concise narrative for the MAP fields in part 4 of the Form 3963(.

  9. The IE Team Manager will review the IE responses and initial and date part 4.

  10. The IE and Team Manager must print their name in part 5 and provide the relevant telephone number. The IE and the IE Team Manager must also sign at the bottom of the last page of the form.

  11. Part 8 – Comments

    1. There are no mandatory items that require a comment by the IE. Comment on any pertinent information that will be useful for future International examinations.

    2. Remark on taxpayer cooperation

    3. Identify potential issues, areas with no potential, changes that occurred after the audit years that may be relevant, FTC carryovers, claims, information and recommendations for future International examinations, etc.

    4. The IE should also make comments concerning penalty consideration including what penalties were considered and why they were not proposed during the course of the examination. Penalty consideration comments should be made on a separate work paper and included in the index of the IE report.

Items to Accompany Form 3963

  1. Information that should not be given to the taxpayer should be attached directly to the Form 3963 preceding the IER which is given to the taxpayer. In all non-CIC cases a brief description of the taxpayer’s operations, an explanation of issues considered but not changed, and possibly an organization chart should be prepared. These items may be required for CIC cases depending on local procedures.

Specific Instructions for Preparing the IE Report to be Given to the Examining Agent

  1. Page 1 of Form 3963 must be completed (and, serves as the cover page for the MAP report).

  2. Ensure that the following information and schedules are included:

    1. Index;

    2. A brief description of the taxpayer’s operations and history;

    3. A brief explanation of issues considered and changed if relevant (i.e. unagreed issues and information that would be helpful evaluating subsequent referrals and for future audits). Information in the Forms 886A should not be included;

    4. An explanation of issues considered but not raised or changed. This information will be useful for evaluating future referrals and planning future audits;

    5. Other comments; and

    6. An organization chart.

  3. In each case prepare the Form 4549-B or 4605-A, listing each recommended adjustment as follows:

    1. Primary Adjustments: Income adjustments. Use a separate line item to identify each proposed Income Adjustment recommended. Include the Form 5701 number.

    2. Sourcing Adjustments. List all proposed adjustments to sourcing. Include the Form 5701 number.

    3. Foreign Tax Credit Adjustments. List all proposed adjustments to foreign tax credits. Include the Form 5701 number.

    4. Alternative Adjustments. Identify a separate Form 4549-B as"Alternative Adjustments to Income" . List each proposed alternative adjustment and show the dollar amount of adjustments by year(s). If more than one alternative adjustment is recommended, identify each as First Alternative, Second Alternative, etc. Provide an explanation of alternative adjustments in the body of the report.

    5. Reflect dollar amounts in the appropriate year columns.

  4. Form 886-A (Explanation of Items) – Forms 886-A (Explanation of items) should be attached to the Form 4549-B or 4605-A for each primary and alternative issue.

Mutual Agreement Procedures (MAP) Report

  1. The U.S. competent authority relies on a well-developed Mutual Agreement Procedures (MAP) report in presenting the U.S. position to a treaty partner. Therefore, the IE must ensure that the U.S. position is factually and technically sound. Part 4 of the Form 3963 (Rev. 10-2006) serves as a procedural reminder to the examiner regarding the requirements of a MAP report.

  2. As part of competent authority negotiations, the Office of Advance Pricing and Mutual Agreement (APMA) and the Treaty Assistance & Interpretation Team (TAIT) may request from the field a copy of the MAP report. The U.S. competent authority often relies on the IE report to explain the MAP issue to the treaty partner, and to develop a negotiating position for the issue. Thus, it is important that lEs ensure that the tax issue is well-developed and that their reports are factually and technically correct. If problems arise during the preparation or review of a report about a MAP issue, the IE should consult with the Team Manager, who may contact APMA for assistance.

  3. The IE prepares the MAP report either when preparing the IER with any adjustments, or when the taxpayer files a MAP request. No MAP report is required when the case is a no-change. Page 1 of Form 3963 serves as the cover page for the MAP report.

  4. The IE shall forward the MAP report to the U.S. competent authority within 30 days of receiving notification from U.S. competent authority that the taxpayer has filed a MAP request.

  5. The MAP report should include the following information regarding the taxpayer:

    1. A brief description of the taxpayer’s U.S. business operations and the operations of all subsidiaries involved in the MAP request, including the control, ownership, and entity classification of all of the entities involved. If the structure of an entity is different for U.S. and foreign tax purposes, please indicate such.

    2. Copies of the examination report and work papers pertinent to the MAP issues (see IRM 4.60.2).

    3. A statement appraising the degree of the taxpayer’s cooperation in providing information.

    4. A statement (including reasons) indicating the examiner's position concerning the facts in the MAP report.

    5. Provide the status of the statue of limitations and the expiration dates for each year included in the MAP report.

    6. A evaluation of the MAP issues in view of the U.S. taxpayers business operations and arms'-length standards.

    7. Comment on requests for economic assistance and results (if any).

    8. Contain a pattern letter (Letter 1853(P) or Letter 1915(P)) with required schedules/attachments.

  6. The MAP report should include the following information regarding the MAP issues:

    1. An explanation of the U.S. and/or foreign initiated adjustments.

    2. A comment about whether the issue is expected to occur in subsequent cycles.

    3. Royalty issues: a copy of the taxpayer’s royalty agreement(s) and a copy of any third party royalty agreements used as comparables; copies of any royalty agreements used as comparables.

    4. Transfer pricing issues: business descriptions of the comparable companies, search matrix for the comparable data, the IRS economist’s report, if any, and a functional analysis, if any.

    5. Imputed interest issues: the capital and debt structure of the U.S. and foreign entities; a breakdown of the accounts on which interest is imputed with details of the adjustment computation; and, a reconciled schedule of the U.S. entity’s accounts with its foreign affiliates.

    6. The IE’s evaluation of the MAP issues, particularly as they relate to the U.S. taxpayer’s business operations and to the arm’s length standard (if not already provided in the MAP report).

    7. State if any of the MAP issues also existed in prior audit cycles, and explain the status of any prior cycle adjustments. Also, list the date of any pattern letters 1853(P) or 1915(P) that were issued in the prior cycle.

  7. The MAP report should include information about the basis for assertion or non-assertion of the IRC section 6662(e) penalty where potentially applicable.

  8. The International Team Manager (or International Reviewer if applicable) should initial and date the appropriate boxes next to the descriptions of the mutual agreement procedures.

  9. Refer to IRM 4.60.2 for updated MAP procedures.

  10. IEs working on competent authority cases, not currently under examination, will use Activity Code 507(000) to track their time.

IE Time Tracking on non-ERCS Assignments

  1. The IEs working on non-ERCS assignments should refer to Exhibit 4.9.1-2 of IRM 4.9.1, for Activity Codes to be used to track time. The table below delineates the Activity Codes to be used by the IEs; however, refer to the latest LB&I International instructions to ensure that proper Activity Codes are used to track time.

    Activity Activity Code
    Pricing Issues 507
    Competent Authority Assignments 507
    APAs (APA Renewals and APA Annual Reports) 507
    IE Consultation Time 514
    Spontaneous Exchanges and Simultaneous Examinations 514
    MAP Reports 514
    CAP Cases 525
    Foreign Initiated Adjustments 550
    Joint Committee Survey 596
    Specific Requests responses made under a Treaty 695
    Preparing a case for trial with LB&I Counsel 821
    Appeals Rebuttals 822

AIMS/ERCS Codes for Competent Authority, and Advanced Pricing

  1. Where all other issues are resolved, LB&I will use AIMS/ERCS Status Code 15, together with the designated Aging Reason Code for returns meeting the following criteria:

    1. Aging Reason Code 02 - The taxpayer has requested Competent Authority assistance

    2. Aging Reason Code 03 - The taxpayer has requested an Advanced Pricing Agreement (APA)