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APA Confidentiality Provisions Should Be in Tax Bill

APA Confidentiality Provisions Should Be in Tax Bill

Tax Executives Institute has urged the House Ways and Means Committee to support a bill that would preserve the confidentiality of advance pricing agreements (APAs) and background documents relating to APAs. In a July 8 letter to committee chair Bill Archer, TEI called for the substance of H.R. 2378 to be included in the tax bill the committee was crafting.

The APA program is designed to forestall contentious and expensive transfer pricing disputes between taxpayers and the Internal Revenue Service. A voluntary venture, the APA program represents one of the IRS’s success stories of the 1990s, for it furthers the goals of reducing taxpayer burdens and minimizing disputes between the IRS and taxpayers. The information set forth in APAs is highly fact specific and involves sensitive financial and commercial information. Almost 200 APAs have been negotiated since the program began in 1991. “The program is a model for minimizing double taxation of income and settling costly transfer pricing disputes before they occur,” said TEI President Lester D. Ezrati. “By reducing taxpayer burden and enhancing taxpayer certainty, the APA program strengthens the competitiveness of participating American businesses and facilitates the more efficient use of resources.”

H.R. 2378, introduced by Rep. Amo Houghton and other House members, would provide that APAs (and their background information) would be considered confidential tax return information under section 6103 of the Internal Revenue Code. Since the inception of the APA program until January 8 of this year, the IRS treated APAs and APA background files as protected tax return information, providing taxpayers with assurances that the submitted information would be kept confidential. On January 8, 1999, in conjunction with a suit filed under the Freedom of Information Act, the IRS notified taxpayers that the agency had concluded that APAs constitute “written determinations” subject to release (albeit in redacted form) under section 6110 of the Code.

“TEI is concerned that the release of APAs and supporting material, even in redacted form, will adversely affect the program,” said Mr. Ezrati. “Taxpayers submitted the pricing information to the IRS with the understanding that the information would be subject to the same confidentiality restrictions as tax returns. Companies’ legitimate privacy interests will be compromised by the release of the APA background files and their ability to compete effectively in the marketplace could be harmed. H.R. 2378 would safeguard taxpayers’ rights by ensuring that the submitted information remains confidential.”

TEI believes that the APA program represents the best way for companies to resolve transfer pricing controversies and avoid costly and time-consuming audits and litigation. “At a time when the IRS is seeking more taxpayer-friendly ways of doing business,” said Mr. Ezrati, “initiatives such as the APA program should actively be encouraged, rather than jeopardized by a mistaken interpretation of the law.”

TEI’s comments are reprinted in this issue of The Tax Executive, beginning on page 364.

COPYRIGHT 1999 Tax Executives Institute, Inc.

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