IRS Revenue Procedure
2002-7

Code Sec. NONE



<<FULL TEXT>>

26 CFR 601.201: Rulings and determination letters.


REV. PROC. 2002-7

SECTION 1. PURPOSE AND NATURE OF CHANGES

.01 This revenue procedure updates Rev. Proc. 2001-7, 2001-1 I.R.B.
236, by providing a current list of subject areas under the jurisdiction
of the Associate Chief Counsel (International) in which the Internal
Revenue Service will not issue letter rulings or determination letters.

.02 Changes

(1) New section 3.02(7), which describes frivolous issues on which the
Service generally will not rule, has been moved from old section 4.02(4),
and amended to cross reference section 7.04 of Rev. Proc. 2002-1.

(2) Section 4.01(11), dealing with whether the income received by a
nonresident alien student for services performed for a university or other
educational institution is exempt from federal income tax or withholding
under specific United States income tax treaties, has been restated as a
general statement in order to make the provision applicable to all income
tax treaties currently in effect, and also has been expanded to cover
similar issues involving trainees.

(3) Section 4.01(12), dealing with whether the income received by a
nonresident alien performing research or teaching at a university is
exempt from federal income tax or withholding under United States income
tax treaties, has been restated as a general statement in order to make
the provision applicable to all income tax treaties currently in effect.


SECTION 2. BACKGROUND AND SCOPE OF APPLICATION

.01 Background

In the interest of sound tax administration, the Service answers
inquiries from individuals and organizations regarding their status for
tax purposes and the tax effects of their acts or transactions before the
filing of returns or reports that are required by the Internal Revenue
Code. There are, however, areas where the Service will not issue letter
rulings or determination letters, either because the issues are inherently
factual or for other reasons. These areas are set forth in sections 3 and
4 of this revenue procedure.

Section 3 lists areas in which letter rulings and determination letters
will not be issued under any circumstances. Section 4 lists areas in which
they will not ordinarily be issued; in these areas, unique and compelling
reasons may justify issuing a letter ruling or determination letter. A
taxpayer who plans to request a letter ruling or determination letter in
an area described in Section 4 should contact (by telephone or in writing)
the Office of Associate Chief Counsel (International) (hereinafter "the
Office") prior to making such request and discuss with the Office the
unique and compelling reasons that the taxpayer believes justify issuing
such letter ruling or determination letter. While not required, a written
submission is encouraged since it will enable Office personnel to arrive
more quickly at an understanding of the unique facts of each case. A
taxpayer who contacts the Office by telephone may be requested to provide
a written submission. The Service may provide a general information letter
in response to inquiries in areas on either list.

These lists are not all-inclusive. Future revenue procedures may add or
delete items. The Service may also decline to rule on an individual case
for reasons peculiar to that case, and such decision will not be announced
in the Internal Revenue Bulletin.

.02 Scope of Application

This revenue procedure does not preclude the Director, (International),
or Area Director, Appeals from submitting requests for technical advice in
the areas listed to the Office.


SECTION 3. AREAS IN WHICH RULING OR DETERMINATION LETTERS WILL NOT BE
ISSUED

.01 Specific Questions and Problems

(1) Section 871(g). -- Special Rules for Original Issue Discount. --
Whether a debt instrument having original issue discount within the
meaning of section 1273 of the Internal Revenue Code is not an original
issue discount obligation within the meaning of section 871(g)(1)(B)(i)
when the instrument is payable 183 days or less from the date of original
issue (without regard to the period held by the taxpayer).

(2) Section 894. -- Income Affected by Treaty. -- Whether a person that
is a resident of a foreign country and derives income from the United
States is entitled to benefits under the United States income tax treaty
with that foreign country pursuant to the limitation on benefits article.
However, the Service may rule regarding the legal interpretation of a
particular provision within the relevant limitation on benefits article.

(3) Section 954. -- Foreign Base Company Income. -- The effective rate
of tax that a foreign country will impose on income.

(4) Section 1503(d). -- Dual Consolidated Loss. -- Whether the
conditions under the regulations for excepting a net operating loss of a
dual resident corporation from the definition of a dual consolidated loss,
or for rebutting the presumption that an event constitutes a triggering
event for purposes of section 1.1503-2(g)(2)(iii)(B), are satisfied.


.02 General Areas.

(1) The prospective application of the estate tax to the property or
the estate of a living person, except that rulings may be issued on any
international issues in a ruling request accepted pursuant to Rev. Proc.
88-50, 1988-2 C.B. 711, and section 5.05 of Rev. Proc. 2002-1.

(2) Whether reasonable cause exists under Subtitle F (Procedure and
Administration) of the Code.

(3) Whether a proposed transaction would subject a taxpayer to criminal
penalties.

(4) Any area where the ruling request does not comply with the
requirements of Rev. Proc. 2002-1.

(5) Any area where the same issue is the subject of the taxpayer's
pending request for competent authority assistance under a United States
tax treaty.

(6) A "comfort" ruling will not be issued with respect to an issue that
is clearly and adequately addressed by statute, regulations, decisions of
a court, tax treaties, revenue rulings, or revenue procedures absent
extraordinary circumstances (e.g., a request for a ruling required by a
governmental regulatory authority in order to effectuate the transaction.)

(7) Any frivolous issue, as that term is defined in Section 7.04 of
Rev. Proc. 2002-1, this Bulletin.


SECTION 4. AREAS IN WHICH RULING OR DETERMINATION LETTERS WILL NOT
ORDINARILY BE ISSUED

.01 Specific Questions and Problems

(1) Section 367(a). -- Transfers of Property from the United States. --
Whether an oil or gas working interest is transferred from the United
States for use in the active conduct of a trade or business for purposes
of section 367(a)(3); and whether any other property is so transferred,
where the determination requires extensive factual inquiry.

(2) Section 367(b). -- Other Transfers. -- Whether a foreign
corporation is considered a corporation for purposes of any nonrecognition
provision listed in section 367(b), and related issues, unless the ruling
presents a significant legal issue or subchapter C rulings are requested
in the context of reorganizations or liquidations involving foreign
corporations.

(3) Section 864. -- Definitions and Special Rules. -- Whether a
taxpayer is engaged in a trade or business within the United States, and
whether income is effectively connected with the conduct of a trade or
business within the United States; whether an instrument is a security as
defined in section 1.864-2(c)(2); whether a taxpayer effects transactions
in the United States in stocks or securities under section 1.864-2(c)(2);
whether an instrument or item is a commodity as defined in section
1.864-2(d)(3); and for purposes of section 1.864-2(d)(1) and (2), whether
a commodity is of a kind customarily dealt in on an organized commodity
exchange, and whether a transaction is of a kind customarily consummated
at such place.

(4) Section 871. -- Tax on Nonresident Alien Individuals. -- Whether
the income earned on contracts that do not qualify as annuities or life
insurance contracts because of the limitations imposed by section 72(s)
and section 7702(a) is portfolio interest as defined in section 871(h).

(5) Section 881. -- Tax on Income of Foreign Corporations Not Connected
with United States Business. -- Whether the income earned on contracts
that do not qualify as annuities or life insurance contracts because of
the limitations imposed by section 72(s) and section 7702(a) is portfolio
interest as defined in section 881(c).

(6) Section 892. -- Income of Foreign Governments and of International
Organizations. -- Whether income received by local governmental
authorities of the United Kingdom from certain United States investments
of money allocable to their superannuation funds is exempt from federal
income taxation.

(7) Section 892. -- Income of Foreign Governments and of International
Organizations. -- Whether a foreign government is engaged in commercial
activities for purposes of section 892, and whether income received by a
foreign government is derived from the conduct of such commercial
activities.

(8) Section 893. -- Compensation of Employees of Foreign Governments
and International Organizations. -- Whether a foreign government is
engaged in commercial activities for purposes of section 893, and whether
the services of an employee of a foreign government are primarily in
connection with such commercial activities.

(9) Section 894. -- Income Affected by Treaty. -- Whether a taxpayer
has a permanent establishment in the United States for purposes of any
United States income tax treaty and whether income is attributable to a
permanent establishment in the United States.

(10) Section 894. -- Income Affected by Treaty. -- Whether certain
persons will be considered liable to tax under the laws of a foreign
country for purposes of determining if such persons are residents within
the meaning of any United States income tax treaty. But see Rev. Rul.
2000-59, 2000-52 I.R.B. 593.

(11) Section 894. -- Income Affected by Treaty. -- Whether the income
received by a nonresident alien student or trainee for services performed
for a university or other educational institution is exempt from federal
income tax or withholding under any of the United States income tax
treaties which contain provisions applicable to such nonresident alien
students or trainees.

(12) Section 894. -- Income Affected by Treaty. -- Whether the income
received by a nonresident alien performing research or teaching as
personal services for a university, hospital or other research institution
is exempt from federal income tax or withholding under any of the United
States income tax treaties which contain provisions applicable to such
nonresident alien teachers or researchers.

(13) Section 894. -- Income Affected by Treaty. -- Whether a foreign
recipient of payments made by a United States person is ineligible to
receive the benefits of a United States tax treaty under the principles of
Rev. Rul. 89-110, 1989-2 C.B. 275.

(14) Section 894. -- Income Affected by Treaty. -- Whether a recipient
of payments is or has been a resident of a country for purposes of any
United States tax treaty. Pursuant to section 1.884-5(f), however, the
Service may rule whether a corporation representing that it is a resident
of a country is a qualified resident thereof for purposes of section 884.

(15) Section 894. -- Income Affected by Treaty. -- Whether an entity is
treated as fiscally transparent by a foreign jurisdiction for purposes of
section 894(c) and the regulations thereunder.

(16) Section 901. -- Taxes of Foreign Countries and of Possessions of
United States. -- Whether a foreign levy meets the requirements of a
creditable tax under section 901.

(17) Section 901. -- Taxes of Foreign Countries and of Possessions of
United States. -- Whether a person claiming a credit has established,
based on all of the relevant facts and circumstances, the amount (if any)
paid by a dual capacity taxpayer under a qualifying levy that is not paid
in exchange for a specific economic benefit. See section 1.901-2A(c)(2).

(18) Section 903. -- Credit for Taxes in Lieu of Income, Etc., Taxes.
-- Whether a foreign levy meets the requirements of a creditable tax under
section 903.

(19) Sections 927(a), 936(h)(5), 943(a), 954(d), 993(c). --
Manufactured Product. -- Whether a product is manufactured or produced for
purposes of section 927(a), section 936(h)(5), section 943(a), section
954(d), and section 993(c).

(20) Section 936. -- Puerto Rico and Possession Tax Credit. -- What
constitutes a substantial line of business.

(21) Section 956. -- Investment of Earnings in United States Property.
-- Whether a pledge of the stock of a controlled foreign corporation is an
indirect pledge of the assets of that corporation. See section
1.956-2(c)(2).

(22) Section 985. -- Functional Currency. -- Whether a currency is the
functional currency of a qualified business unit.

(23) Section 989(a). -- Qualified Business Unit. -- Whether a unit of
the taxpayer's trade or business is a qualified business unit.

(24) Section 1058. -- Transfers of Securities under Certain Agreements.
-- Whether the amount of any payment described in section 1058(b)(2) or
the amount of any other payment made in connection with a transfer of
securities described in section 1058 is from sources within or without the
United States; the character of such amounts; and whether the amounts
constitute a particular kind of income for purposes of any United States
income tax treaty.

(25) Section 1503(d). -- Dual Consolidated Loss. -- Whether an event
presumptively constitutes a triggering event for purposes of section
1.1503-2(g)(2)(iii)(A)(1)-(7), apart from possible rebuttal of the
presumption under section 1.1503-2(g)(2)(iii)(B). See section 3.01(4),
Rev. Proc. 2002-7.

(26) Section 2501. -- Imposition of Tax. -- Whether a partnership
interest is intangible property for purposes of section 2501(a)(2)
(dealing with transfers of intangible property by a nonresident not a
citizen of the United States).

(27) Section 7701. -- Tax on Nonresident Alien Individuals. -- Whether
an alien individual is either a resident or a nonresident of the United
States, in situations where the determination depends on facts that cannot
be confirmed until the close of the taxable year (including, for example,
the length of the alien's stay or the nature of the alien's activities).

(28) Section 7701. -- Definitions. -- Whether an estate or trust is a
foreign estate or trust for federal income tax purposes.

(29) Section 7701. -- Definitions. -- Whether an intermediate entity is
a conduit entity under section 1.881-3(a)(4); whether a transaction is a
financing transaction under section 1.881-3(a)(ii); whether the
participation of an intermediate entity in a financing arrangement is
pursuant to a tax avoidance plan under section 1.881-3(b); whether an
intermediate entity performs significant financing activities under
section 1.881-3(b)(3)(ii); whether an unrelated intermediate entity would
not have participated in a financing arrangement on substantially the same
terms under section 1.881-3(c).


.02 General Areas

(1) Whether a taxpayer has a business purpose for a transaction or
arrangement.

(2) Whether a taxpayer uses a correct North American Industry
Classification System (NAICS) code or Standard Industrial Classification
(SIC) code.

(3) Any transaction or series of transactions that is designed to
achieve a different tax consequence or classification under U.S. tax law
(including tax treaties) and the tax law of a foreign country, where the
results of that different tax consequence or classification are
inconsistent with the purposes of U.S. tax law (including tax treaties).

(4)(a) Situations where a taxpayer or a related party is domiciled or
organized in a foreign jurisdiction with which the United States does not
have an effective mechanism for obtaining tax information with respect to
civil tax examinations and criminal tax investigations, which would
preclude the Service from obtaining information located in such
jurisdiction that is relevant to the analysis or examination of the tax
issues involved in the ruling request.

(b) The provisions of subsection 4.02(4)(a) above shall not apply if
the taxpayer or affected related party (i) consents to the disclosure of
all relevant information requested by the Service in processing the ruling
request or in the course of an examination to verify the accuracy of the
representations made and to otherwise analyze or examine the tax issues
involved in the ruling request, and (ii) waives all claims to protection
of bank or commercial secrecy laws in the foreign jurisdiction with
respect to the information requested by the Service. In the event the
taxpayer's or related party's consent to disclose relevant information or
to waive protection of bank or commercial secrecy is determined by the
Service to be ineffective or of no force and effect, then the Service may
retroactively rescind any ruling rendered in reliance on such consent.


(5) The federal tax consequences of proposed federal, state, local,
municipal, or foreign legislation.

(6)(a) Situations involving the interpretation of foreign law or
foreign documents. The interpretation of a foreign law or foreign document
means making a judgment about the import or effect of the foreign law or
document that goes beyond its plain meaning.

(b) The Service, at its discretion, may consider rulings that involve
the interpretation of foreign laws or foreign documents. In these cases,
the Service may request information in addition to that listed in sections
8.01(2)(b) and (c) of Rev. Proc. 2002-1, including a discussion of the
implications of any authority believed to interpret the foreign law or
foreign document, such as pending legislation, treaties, court decisions,
notices or administrative decisions.


SECTION 5. EFFECT ON OTHER REVENUE PROCEDURE

Rev. Proc. 2001-7 is superseded.


SECTION 8. EFFECTIVE DATE

This revenue procedure is effective January 7, 2002.


DRAFTING INFORMATION

This revenue procedure was compiled by Gerard Traficanti of the Office
of Associate Chief Counsel (International). For further information about
this revenue procedure, please contact Mr. Traficanti at (202) 622-3619
(not a toll-free number).

<<END RULING>>


 

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