Internal Revenue Bulletin 2012-16 (PDF rendition): IRS Announcements

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing. Whole bulletin rendition: numbered items are identified below; other legal material and publisher context remain included. This is not a new standalone advance release.

Bulletin No. 201
2-16
April 16, 2012
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
SPECIAL ANNOUNCEMENT
Announcement 2012–13, page 805.
This announcement is issued pursuant to section 521(b) of
Pub. L. 106-170, the Ticket to Work and Work Incentives Im-
provement Act of 1999, which requires the Secretary of the
Treasury to report annually to the public concerning Advance
Pricing Agreements (APAs) and the APA Program. The first re-
port covered calendar years 1991 through 1999. Subsequent
reports covered separately each calendar year 2000 through
2010. This Thirteenth report describes the experience, struc-
ture, and activities of the APA Program during calendar year
2011. It does not provide guidance regarding the application
of the arm’s length standard.
INCOME TAX
T.D. 9579, page 796.
Final regulations under section 863 of the Code prescribe the
source of income received on a qualified fails charge.
T.D. 9580, page 801.
Final regulations under section 7623(a) of the Code relate to
the payment of rewards and awards under section 7623(b).
REG–135491–10, page 803.
Proposed regulations under section 6109 of the Code provide
rules requiring any person assigned an employer identification
number (EIN) to provide updated information to the IRS in the
manner and frequency prescribed by forms, instructions, or
other appropriate guidance.
EXEMPT ORGANIZATIONS
T.D. 9581, page 798.
Final regulations under section 6104 of the Code pertain to
the public inspection of material relating to tax-exempt organi-
zations and final regulations pertaining to the public inspection
of written determinations and background file documents.
Announcement 2012–18, page 845.
The IRS has revoked its determination that The Center for
Creative Resources, Inc., of San Francisco, CA; Chadwell
Townsend Private Foundation of Bellbrook, OH; Consumer
Advocacy Group of Beverly Hills, CA; CreditGuard of America,
Inc., of Boca Raton, FL; Friends of the Border Patrol, of
Chino, CA; and Pro Israel, Inc., of Riverdale, NY, qualify as
organizations described in sections 501(c)(3) and 170(c)(2) of
the Code.
ESTATE TAX
T.D. 9580, page 801.
Final regulations under section 7623(a) of the Code relate to
the payment of rewards and awards under section 7623(b).
GIFT TAX
T.D. 9580, page 801.
Final regulations under section 7623(a) of the Code relate to
the payment of rewards and awards under section 7623(b).
(Continued on the next page)
Finding Lists begin on page ii.

EMPLOYMENT TAX
T.D. 9580, page 801.
Final regulations under section 7623(a) of the Code relate to
the payment of rewards and awards under section 7623(b).
EXCISE TAX
T.D. 9580, page 801.
Final regulations under section 7623(a) of the Code relate to
the payment of rewards and awards under section 7623(b).
ADMINISTRATIVE
T.D. 9581, page 798.
Final regulations under section 6104 of the Code pertain to
the public inspection of material relating to tax-exempt organi-
zations and final regulations pertaining to the public inspection
of written determinations and background file documents.
April 16, 20122012–16 I.R.B.

The IRS Mission
Provide Americ
a’s taxpayers top-quality service by helping
them understa
nd and meet their tax responsibilities and en-
force the law wi
th integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod-
ify, or amend any of those previously published in the Bulletin.
All published rulings apply retroactively unless otherwise indi-
cated. Procedures relating solely to matters of internal man-
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—19
86 Code.
This part i
ncludes rulings and decisions based on provisions of
the Intern
al Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Secre-
tary (Enforcement).
Part IV
.—Items of General Interest.
This par
t includes notices of proposed rulemakings, disbar-
ment an
d suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The c
ontents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402.
2012–16 I.R.B.April 16, 2012

April 16, 20122012–16 I.R.B.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 863.—
Special
Rules for Determining
Source
26 CFR 1.863–10: Source of income from a qualified
fails charge.
T.D. 9579
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Source of Income From
Qualified Fails Charges
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations and removal
of temporary regulations.
SUMMARY: This document contains fi-
nal regulations thatprescribe the source
of income received on a qualified fails
charge under section 863 of the Internal
Revenue Code (Code). The regulations fi-
nalize proposed regulations and withdraw
temporary regulations published on De-
cember 8, 2010, and affect persons that
pay or are entitled to receive qualified fails
charges, including withholding agents.
DATES:Effective Date:These regulations
are effective on February 21, 2012.
Applicability Date:For the date of ap-
plicability, see §1.863–10(g).
FOR FURTHER INFORMATION
CONTACT: Karen Walny, Office of Asso-
ciate Chief Counsel (International) (202)
622–3870 (not a toll-free call).
SUPPLEMENTARY INFORMATION:
Background
In re
sponse to persistent delivery fail-
ures
in delivery-versus-payment transac-
tio
ns involving U.S. Treasury securities
(Tr
easuries), the Treasury Market Prac-
tic
es Group (TMPG) and the Securities
Industry and F
inancial Markets Associa-
tion publishe
d a trading practice governing
failed delive
ries of Treasuries in 2008.
In July, 2009
, the Treasury Department
and the Inter
nal Revenue Service (IRS)
issued Notic
e 2009–61, 2009–32 I.R.B.
181, which pr
ovided that the IRS will not
challenge t
he position taken by a taxpayer
or a withhol
ding agent that a fails charge
paid with re
spect to a Treasury on or be-
fore Decemb
er 31, 2010 is not subject to
U.S. gross b
asis taxation. On December 8,
2010, the T
reasury Department and the
IRS issued
temporary and proposed
regulatio
ns that establish source rules
for a fails
charge paid with respect to
a Treasur
y, with a correction to the
temporar
y regulations on December 28,
2010. 75 F
R 76262, 75 FR 76321, and 75
FR 81457,
respectively.
The tempo
rary and proposed regula-
tions pro
vide that the source of income
from a qua
lified fails charge is generally
determi
ned by reference to the residence
of the ta
xpayer that is the recipient of the
qualifi
ed fails charge income, with two
excepti
ons. Qualified fails charge income
earned
by a qualified business unit (QBU)
of a tax
payer is sourced to the country in
which t
he QBU is engaged in a trade or
busine
ss, and qualified fails charge income
that ar
ises from a transaction the income
from w
hich is effectively connected to a
Unite
d States trade or business is sourced
in the
United States and treated as effec-
tivel
y connected to the conduct of a United
State
s trade or business.
No com
ments were received on the pro-
posed
regulations, and no hearing was re-
ques
ted or held. This Treasury decision
adop
ts the proposed regulations with the
chan
ges discussed in this preamble.
Expl
anation of Provisions
Thes
e final regulations adopt, with one
subs
tantive change, the proposed regula-
tion
s on the source of a qualified fails
char
ge. The final regulations also make
anu
mber of clarifying changes to the lan-
gua
ge of the regulations.
The
preamble to the temporary reg-
ula
tions noted that no trading practice
exi
sted at that time for fails charges on
securities ot
her than Treasuries, but that
if a fails char
ge trading practice pertain-
ingtootherse
curities was endorsed by
the TMPG or an
agency of the United
States gover
nment, the Treasury Depart-
ment and the I
RS would consider whether
the source ru
le in the regulations should
be extended
to those fails charges. The
TMPG has sub
sequently endorsed a trad-
ing practic
e for debentures issued by the
Federal Nat
ional Mortgage Association
(Fannie Mae
), the Federal Home Loan
Mortgage C
orporation (Freddie Mac), and
the Federa
l Home Loan Banks and agency
pass-thro
ugh mortgage-backed securities
issued or g
uaranteed by the Government
National
Mortgage Association (Ginnie
Mae), Fan
nie Mae, and Freddie Mac
(Agency D
ebt and Agency MBS, respec-
tively) b
eginning in February, 2012.
The Treas
ury Department and the IRS
have dete
rmined that the same source rule
should ap
ply to fails charges incurred with
respect
to Agency Debt and Agency MBS
as to fai
ls charges on Treasuries. Accord-
ingly, t
hese final regulations expand the
scope of
a qualified fails charge to fails
charge
s paid with respect to Agency Debt.
The sou
rcing rule in the final regulations
also ap
plies to a fails charge on Agency
MBS gua
ranteed by Fannie Mae, Freddie
Mac, an
d Ginnie Mae (for tax purposes,
Fanni
e Mae, Freddie Mac, and Ginnie Mae
do not
issue Agency MBS). The final reg-
ulati
ons do not address the source of any
other
payment, includinga fails charge that
is not
a qualified fails charge.
The Tr
easury Department and the IRS
are co
nsidering whether separate guidance
is ne
eded on the source of income attribut-
able
to certain payments, other than qual-
ifie
d fails charges, that arise in securities
lend
ing transactions or repurchase transac-
tion
s and request comments regarding this
issu
e.
Effe
ctive Date
Thes
e regulations are effective on Feb-
rua
ry 21, 2012.
2012–16 I.R.B.796April 16, 2012

Applicability Date
These regulations apply to a qualified
fails charge paid or accrued on or after
December 8, 2010.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866, as supplemented by Executive Or-
der 13563. Therefore, a regulatory assess-
ment is not required. It has also been de-
termined that section 553(b) of the Admin-
istrative Procedure Act (5 U.S.C. chapter
5) does not apply to these regulations, and
because these regulations do not impose a
collection of information on small entities,
the provisions of the Regulatory Flexibil-
ity Act (5 U.S.C. chapter 6) do not apply.
Pursuant to section 7805(f) of the Code,
the proposed regulations preceding these
regulations were submitted to the Chief
Counsel for Advocacy of the Small Busi-
ness Administration for comment on its
impact on small business.
Drafting Information
The principal author of these regula-
tions is Karen Walny, Office of the Asso-
ciate Chief Counsel (International). How-
ever, other persons from the Office of As-
sociate Chief Counsel (International) and
the Treasury Department participated in
their development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1— INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 863(a) and 7805
***
Par. 2. Section 1.863–10 is added to
read as follows:
§1.863–10 Source of income from a
qualified fails charge.
(a)In general. Except as provided in
paragraphs (b) and (c) of this section, the
source of income from a qualified fails
charge shall be determined by reference to
the residence of the taxpayer as determined
under section 988(a)(3)(B)(i).
(b)Qualified business unit exception.
The source of income from a qualified fails
charge shall be determined by reference to
the residence of a qualified business unit
(as defined in section 989) of a taxpayer
if—
(1) The taxpayer’s residence, deter-
mined under section 988(a)(3)(B)(i), is the
United States;
(2) The qualified business unit’s
residence, determined under section
988(a)(3)(B)(ii), is outside the United
States;
(3) The qualified business unit is en-
gaged in the conduct of a trade or business
in the country where it is a resident; and
(4) The transaction to which the qual-
ified fails charge relates is attributable to
the qualified business unit. A transaction
will be treated as attributable to a qualified
business unit if it satisfies the principles of
§1.864–4(c)(5)(iii) (substituting “qualified
business unit” for “U.S. office”).
(c)Effectively connected income excep-
tion. Qualified fails charge income that
arises from a transaction any income from
which is (or would be if the transaction
produced income) effectively connected
with a United States trade or business
pursuant to §1.864–4(c) is treated as from
sources within the United States, and the
income from the qualified fails charge is
treated as effectively connected to the con-
duct of a United States trade or business.
(d)Qualified fails charge. For purposes
of this section, a qualified fails charge is a
payment that—
(1) Compensates a party to a transaction
that provides for delivery of a designated
security (as defined in paragraph (e) of this
section) in exchange for the payment of
cash (delivery-versus-payment settlement)
for another party’s failure to deliver the
specified designated security on the settle-
ment date specified in the relevant agree-
ment; and
(2) Is made pursuant to—
(i) A trading practice or similar guid-
ance approved or adopted by either an
agency of the United States government or
the Treasury Market Practices Group, or
(ii) Any trading practice, program, pol-
icyorprocedureapprovedbytheCommis-
sioner in guidance published in the Internal
Revenue Bulletin.
(e)Designated security. For purposes
of this section, adesignated securitymeans
any—
(i) Debt instrument (as defined in
§1.1275–1(d)) issued by the United States
Treasury Department, the Federal Na-
tional Mortgage Association, the Federal
Home Loan Mortgage Corporation, or any
Federal Home Loan Bank; or
(ii) Pass-through mortgage-backed se-
curity guaranteed by the Federal National
Mortgage Association, the Federal Home
Loan Mortgage Corporation, or the Gov-
ernment National Mortgage Association.
(g)Effective/applicability date.This
section is effective on February 21, 2012.
This section applies to a qualified fails
charge paid or accrued on or after Decem-
ber 8, 2010.
§1.863–10T [Removed]
Par. 3. Section 1.863–10T is removed.
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
Approved February 14, 2012.
Emily S. McMahon,
Acting Assistant Secretary
oftheTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on February 17,
2012, 8:45 a.m., and published in the issue of the Federal
Register for February 21, 2012, 77 F.R. 9846)
April 16, 20127972012–16 I.R.B.

Section 6104.—Publicity
of Information Required
From Certain Exempt
Organizations and Certain
Trusts
26 CFR 301.6104(a)–1: Public inspection of mate-
rial relating to tax-exempt organizations.
T.D. 9581
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 301
Public Inspection of Material
Relating to Tax-Exempt
Organizations
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations pertaining to the pub-
lic inspection of material relating to
tax-exempt organizations and final
regulations pertaining to the public
inspection of written determinations
and background file documents. These
regulations are necessary to clarify rules
relating to information and materials
made available by the IRS for public
inspection under the Internal Revenue
Code (Code). The final regulations affect
certain organizations exempt from Federal
income tax, organizations that were
exempt but are no longer exempt from
Federal income tax, and organizations that
were denied tax-exempt status.
DATE:Effective Date:These regulations
are effective on February 29, 2012.
FOR FURTHER INFORMATION
CONTACT: Mary Ellen Keys, (202)
622–4570 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to
the Procedure and Administration Regula-
tions (26 CFR part 301). Section 6104(a)
of the Code relates to information per-
taining to tax-exempt organizations made
available by the IRS for public inspection.
Section 6110 of the Code relates to in-
formation pertaining to written determina-
tions made publicly available by the IRS.
These final regulations amend
§§301.6104(a)–1(i) and 301.6110–1(a)
to eliminate the portions of the previous
regulations that the United States Court
of Appeals for the District of Columbia
Circuit, inTax Analysts v. IRS,350F.3d
100 (D.C. Cir. 2003), held violated sec-
tion 6110 of the Code. Prior to theTax
Analystsdecision, the IRS relied on those
regulations to withhold letter rulings deny-
ing or revoking tax exempt status from
public inspection under section 6110. In
accordance with theTax Analystsdecision,
the IRS now makes those letter rulings
available for public inspection pursuant
to section 6110. These final regulations
also update §301.6104(a)–1 to conform
to other current laws and administrative
practices.
The final regulations affect organiza-
tions exempt from Federal income tax un-
der section 501(a) or section 527, organi-
zations that were exempt but are no longer
exempt from Federal income tax, and orga-
nizations that were denied tax-exempt sta-
tus.
A notice of proposed rulemaking
(REG–116215–07, 2007–2 C.B. 659)
was published in theFederal Regis-
ter(72 FR 45394–01) on August 14,
2007. One comment was received from
the public in response to the notice of
proposed rulemaking. This comment was
considered and is available for public
inspection atwww.regulations.govor upon
request. No public hearing was requested
or held. In this Treasury decision, the
proposed regulations are adopted as
revised in this preamble.
Summary of Comment and Explanation
of Changes Made to the Proposed
Regulation
The comment suggested that the pro-
posed revisions did not accomplish the
objective stated in the summary to the
notice of proposed rulemaking, because
§301.6110–1(a) was not changed. The
comment urged that §301.6110–1(a) be
revisedtodeleteeverythingafterthe
sentence that concludes “section 6104,”
which immediately precedes the portion of
the regulation that the court held violated
the statute inTax Analysts. The comment
further suggested that, because no changes
were made to the section 6110 regulations,
paragraph (f) of §301.6104(a)–1 should
be revised to reflect the decision inTax
Analysts. In response to the comment,
paragraph (f) of §301.6104(a)–1 is revised
to explain that negative determinations
issued to organizations that applied for
an exemption from Federal income tax
are included among the written deter-
minations that are made available under
section 6110. No changes were made to
§301.6110–1(a) in response to the com-
ment because the language in the notice
of proposed rulemaking and these final
regulations already is consistent with the
substance of the comment.
These final regulations also include
minor, nonsubstantive revisions that vary
from the text of the proposed regulations.
Paragraph (a) of §301.6104(a)–1 of these
final regulations is revised to make clear
that, in the past, some applications were
destroyed and therefore are not avail-
able for inspection. Paragraph (c)(4) of
§301.6104(a)–1 of these final regulations
is revised to include among the informa-
tion pertaining to an organization’s status
that is open to public inspection under
section 6104(a) any letter or document
issued by the IRS relating to exempt op-
erating foundation status under section
4940(d)(2). Also, because the IRS no
longer issues advance and final rulings,
the reference to “final determination let-
ter” in §301.6104(a)–1(c)(4) is revised to
read “determination letter.”
Special Analyses
It has been determined that these fi-
nal regulations are not a significant regu-
latory action as defined in Executive Order
12866, as supplemented by Executive Or-
der 13563. Therefore, a regulatory assess-
ment is not required. It has also been de-
termined that section 553(b) of the Admin-
istrative Procedure Act (5 U.S.C. chapter
5) does not apply to these regulations and,
because these regulations do not include a
collection of information, the Regulatory
Flexibility Act (5 U.S.C. chapter 6) does
not apply. Therefore, a regulatory flex-
ibility analysis is not required. Pursuant
to section 7805(f) of the Code, the notice
of proposed rulemaking preceding these fi-
nal regulations was submitted to the Chief
2012–16 I.R.B.798April 16, 2012

Counsel for Advocacy of the Small Busi-
ness Administration for comments on its
impact on small businesses.
Drafting Information
The principal author of these final reg-
ulations is Mary Ellen Keys, Office of
the Associate Chief Counsel (Procedure &
Administration).
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 301 is
amended as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 continues to read as follows:
Authority: 26 U.S.C. 7805***
Par. 2. §301.6104(a)–1 is revised to
read as follows:
§301.6104(a)–1 Public inspection
of material relating to tax-exempt
organizations.
(a)Applications for exemption from
Federal income tax, applications for a
group exemption letter, and supporting
documents. If the Internal Revenue Ser-
vice determines that an organization de-
scribed in section 501(c) or section 501(d)
is exempt from Federal income tax for
any taxable year, the application upon
which the determination is based, together
with any supporting documents, shall be
open to public inspection. Such appli-
cations and supporting documents shall
be open for public inspection even after
any revocation of the Internal Revenue
Service’s determination that the organiza-
tion is exempt from Federal income tax.
In the past, some applications were de-
stroyed and therefore are not available for
inspection. For purposes of determining
the availability for public inspection, a
claim for exemption from Federal income
tax filed to re-establish exempt status af-
ter denial thereof under the provisions of
section 503 or 504 (as in effect on Decem-
ber 31, 1969), or under the corresponding
provisions of any prior revenue law, is
considered an application for exemption
from Federal income tax.
(b)Notices of status filed by political
organizations. If, in accordance with sec-
tion 527(i), an organization notifies the In-
ternal Revenue Service that it is a political
organization as described in section 527,
exempt from Federal income tax for any
taxable year, the notice of status filed by
the political organization shall be open to
public inspection.
(c)Letters or documents issued by the
Internal Revenue Service with respect to
an application for exemption from Federal
income tax. If an application for exemp-
tion from Federal income tax is filed with
the Internal Revenue Service after Octo-
ber 31, 1976, and is open to public inspec-
tion under paragraph (a) of this section,
then any letter or document issued to the
applicant by the Internal Revenue Service
that relates to the application is also open
to public inspection. For rules relating to
when a letter or document is issued, see
§301.6110–2(h). Letters or documents to
which this paragraph (c) applies include,
but are not limited to—
(1) Favorable rulings and determination
letters, including group exemption letters,
issued in response to applications for ex-
emption from Federal income tax;
(2) Technical advice memoranda issued
with respect to the approval, or subsequent
approval, of an application for exemption
from Federal income tax;
(3) Letters issued in response to an
application for exemption from Federal
income tax (including applications for a
group exemption letter) that propose a
finding that the applicant is not entitled to
be exempt from Federal income tax, if the
applicant is subsequently determined, on
the basis of that application, to be exempt
from Federal income tax; and
(4) Any letter or document issued by
the Internal Revenue Service relating to
an organization’s status as an organization
described in section 509(a), 4940(d)(2),
4942(j)(3), or 4943(f), including a deter-
mination letter that the organization is or
is not a private foundation.
(d)Requirement of exempt status.An
application for exemption from Federal
income tax (including applications for a
group exemption letter), supporting docu-
ments, and letters or documents issued by
the Internal Revenue Service that relate to
the application shall not be open to public
inspection before the organization is de-
termined, on the basis of that application,
to be exempt from Federal income tax
for any taxable year. If an organization
is determined to be exempt from Federal
income tax for any taxable year, these ma-
terials shall not be withheld from public
inspection on the basis that the organiza-
tion is subsequently determined not to be
exempt for any other taxable year.
(e)Documents included in the term
“application for exemption from Federal
income tax.”For purposes of this sec-
tion—
(1)Prescribed application form.Ifa
form is prescribed for an organization’s
application for exemption from Federal
income tax, the application includes the
form and all documents and statements
that the Internal Revenue Service requires
to be filed with the form, any amendments
or revisions to the original application, or
any resubmitted applications where the
original application was submitted in draft
form or was withdrawn. An application in-
cludes an application for reinstatement of
tax-exempt status after an organization’s
tax exempt status has been revoked pur-
suant to section 6033(j). An application
submitted in draft form or an application
submitted and later withdrawn is not con-
sidered an application.
(2)No prescribed application form.If
no form is prescribed for an organization’s
application for exemption from Federal in-
come tax, the application includes the sub-
mission by letter requesting recognition of
tax exemption and any statements or docu-
ments as prescribed by Revenue Procedure
2011–9, 2011–2 I.R.B. 283 (January 10,
2011) or any successor guidance describ-
ing procedures for application for exempt
status pursuant to section 501 and section
521 of the Internal Revenue Code. See
§601.601(d)(2)(ii)(b).
(3)Application for a Group Exemption
Letter. The application for a group ex-
emption letter includes the letter submit-
ted by or on behalf of subordinate orga-
nizations that seek exempt status pursuant
to a group exemption letter and any state-
ments or documents as prescribed by Rev-
enue Procedure 80–27, 1980–1 C.B. 677,
(June 20, 1980), and any successor guid-
ance. See §601.601(d)(2)(ii)(b).
(4)Notice of status filed under section
527(i). For purposes of this section, docu-
ments included in the term “notice of status
filed under section 527(i)” include—
April 16, 20127992012–16 I.R.B.

(i) Form 8871, “Political Organization
Notice of Section 527 Status”;
(ii) Form 8453–X, “Political Organi-
zation Declaration of Electronic Filing of
Notice of Section 527 Status”; and
(iii) Any other additional forms or doc-
uments that the Internal Revenue Service
may prescribe.
(f)Material open to public inspection
under section 6110. Under section 6110,
certain written determinations, including
negative determinations issued to organi-
zations that applied for an exemption from
Federal income tax, issued by the Internal
Revenue Service are made available for
public inspection. Section 6110 does not
apply, however, to material that is open to
public inspection under section 6104. See
sections 6104(a)(1) and 6110(l)(1).
(g)Supporting documents defined.For
purposes of this section, “supporting doc-
uments,” with respect to an application
for exemption from Federal income tax,
means any statement or document not de-
scribed in paragraph (e) of this section that
is submitted by the organization or group
in support of its application prior to a de-
termination described in paragraph (a) of
this section. Items submitted in connec-
tion with an application in draft form, or
with an application submitted and later
withdrawn, are not supporting documents.
There are no supporting documents with
respect to Notices of Status filed by politi-
cal organizations.
(h)Statement of exempt status.For
efficient tax administration, the Internal
Revenue Service may publish, in paper or
electronic format, the names of organiza-
tions currently recognized as exempt from
Federal income tax, including organiza-
tions recognized as exempt from Federal
income tax under particular paragraphs of
section 501(c) or section 501(d). In addi-
tion to having the opportunity to inspect
material relating to an organization exempt
from Federal income tax, a person may re-
quest a statement, or the Internal Revenue
Service may disclose, in response to or in
anticipation of a request, the following in-
formation—
(1) The subsection and paragraph of
section 501 (or the corresponding provi-
sion of any prior revenue law) under which
the organization or group has been deter-
mined, on the basis of an application open
to public inspection, to qualify for exemp-
tion from Federal income tax; and
(2) Whether an organization or group is
currently recognized as exempt from Fed-
eral income tax.
(i)Publication of non-exempt status.
(1) For publication of the notice of the re-
vocation of a determination that an organ-
ization is described in section 501(c)(3),
see section 7428(c).
(2) For publication of a list including
any organization the tax exemption of
which is revoked for failure to file required
returns or notices for three consecutive
years, see section 6033(j).
(3) For publication of notice of suspen-
sion of tax exemption of terrorist organiza-
tions, see section 501(p).
(j)Withholding of certain information
from public inspection. For rules relating
to certain information contained in an ap-
plication for exemption from Federal in-
come tax and supporting documents that
will be withheld from public inspection,
see §301.6104(a)–5(a).
(k)Procedures for inspection.Forrules
relating to procedures for public inspection
of applications for exemption from Federal
income tax and supporting documents, see
§301.6104(a)–6.
(l)Effective/applicability date.The
rules of this section apply February 29,
2012.
Par. 3. §301.6110–1 is amended by re-
vising paragraph (a) and adding paragraph
(d) to read as follows:
§301.6110–1 Public inspection of written
determinations and background file
documents.
(a)General rule. Except as provided in
§301.6110–3, relating to deletion of cer-
tain information, §301.6110–5(b), relating
to actions to restrain disclosure, paragraph
(b)(2) of this section, relating to technical
advice memoranda involving civil fraud
and criminal investigations, and jeopardy
and termination assessments, and para-
graph (b)(3) of this section, relating to
general written determinations relating to
accounting or funding periods and meth-
ods, the text of any written determination
(as defined in §301.6110–2(a)) issued
pursuant to a request postmarked or hand
delivered after October 31, 1976, shall
be open to public inspection in the places
provided in paragraph (c)(1) of this sec-
tion. The text of any written determination
issued pursuant to a request postmarked or
hand delivered before November 1, 1976,
shall be open to public inspection pur-
suant to section 6110(h) and §301.6110–6,
when funds are appropriated by Congress
for such purpose. The procedures and
rules set forth in §§301.6110–1 through
301.6110–5 and §301.6110–7 do not apply
to written determinations issued pursuant
to requests postmarked or hand deliv-
ered before November 1, 1976, unless
§301.6110–6 states otherwise. There shall
also be open to public inspection in each
place of public inspection an index to
the written determinations subject to in-
spection at such place. Each such index
shall be arranged by section of the Inter-
nal Revenue Code, related statute or tax
treaty and by subject matter description
withinsuchsectioninsuchmanneras
the Commissioner may from time to time
provide. The Commissioner shall not be
requiredtomakeanywrittendetermina-
tion or background file document open to
public inspection pursuant to section 6110
or refrain from disclosure of any such doc-
uments or any information therein, except
as provided by section 6110 or with respect
to a discovery order made in connection
with a judicial proceeding. The provisions
of section 6110 shall not apply to material
that is open to public inspection under
section 6104. See section 6110(l)(1).
****
(d)Effective/applicability date.The
rules of paragraph (a) apply February 29,
2012.
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
Approved February 15, 2012.
Emily S. McMahon,
Acting Assistant Secretary
oftheTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on February 28,
2012, 8:45 a.m., and published in the issue of the Federal
Register for February 29, 2012, 77 F.R. 12202)
2012–16 I.R.B.800April 16, 2012

Section 7623.—Expenses
of Detection of Underpay-
ments and Fra
ud, Etc.
26 CFR 301.76
23–1: Rewards and awards for infor-
mation relat
ing to violations of internal revenue laws.
T.D. 9580
DEPARTMENT O
FTHE
TREASURY
Internal Re
venue Service
26 CFR Part 3
01
Rewards an
dAwardsfor
Informati
on Relating to
Violatio
ns of Internal Revenue
Laws
AGENCY: I
nternal Revenue Service
(IRS), Tr
easury.
ACTION: F
inal regulations.
SUMMARY:
This document contains fi-
nal regul
ations relating to the payment of
rewards
under section 7623(a) of the In-
ternal R
evenue Code for detecting under-
payment
s or violations of the internal rev-
enue law
s and whistleblower awards under
sectio
n 7623(b). The guidance is neces-
sary to
clarify the definition of proceeds of
amount
s collected and collected proceeds
under s
ection 7623. This regulation pro-
vides n
eeded guidance to the general pub-
lic as
well as officers and employees of
the IR
S who review claims under section
7623.
DATES
:Effective Date:This final regula-
tion i
s effective on February 22, 2012.
Appli
cability Date:For dates of appli-
cabil
ity, see §301.7623–1(g).
FOR FU
RTHER INFORMATION
CONTA
CT: Kirsten N. Witter, at (202)
927–0
900 (not a toll-free number).
SUPPL
EMENTARY INFORMATION:
Backg
round
Secti
on 7623(a) provides the Secre-
tary
with the authority to pay such sums
as he
deems necessary from proceeds
of am
ounts collected based on informa-
tion
provided to the Secretary when the
info
rmation relates to the detection of un-
derp
ayments of tax or the detection and
bringing to trial and punishment persons
guilty of violating the internal revenue
laws or conniving at the same. Section
7623(b) provides the Secretary with the
authority to pay awards to individuals if
the Secretary proceeds with an administra-
tive or judicial action described in section
7623(a) that results in collected proceeds
based on information provided by the in-
dividuals. Section 301.7623–1(a) of the
regulations on Procedure and Administra-
tion currently provides that proceeds of
amounts (other than interest) collected by
reason of the information provided include
both amounts collected because of the in-
formation provided and amounts collected
prior to receipt of the information if the
information leads to the denial of a claim
for refund that otherwise would have been
paid. 63 Fed. Reg. 44777.
Section 301.7623–1(a) was promul-
gated prior to amendments of section 7623
as part of the Tax Relief and Health Care
Act of 2006, division A, section 406, Pub-
lic Law 109–432, 120 Stat. 2958. The
amendments designated existing section
7623 as section 7623(a). Before the 2006
amendments, section 7623 provided that
rewards shall be paid “from the proceeds
of amounts (other than interest) collected
by reason of the information provided
....” The 2006 Act struck the “other than
interest” language. The Act also added
section 7623(b), which provides that in
certain cases individuals shall receive an
award of at least 15% but not more than
30% of the collected proceeds resulting
from the action with which the Secretary
proceeded based on information brought
to the attention of the Secretary by the
individual. The Act also created the IRS
Whistleblower Office, which is respon-
sible for administering a whistleblower
program within the IRS.
On January 18, 2011, a notice of pro-
posed rulemaking (REG–131151–10,
2011–8 I.R.B. 519) was published in the
Federal Register(76 FR 2852) clarifying
the definitions of proceeds of amounts col-
lected and collected proceeds for purposes
of section 7623, and providing that the
provisions of Treas. Reg. §301.7623–1(a)
concerning refund prevention claims are
applicable to claimsunder section 7623(a)
and (b). The proposed regulations further
provide that the reduction of an overpay-
ment credit balance is also considered
proceeds of amounts collected and col-
lected proceeds under section 7623.
Seventeen written comments respond-
ing to the notice of proposed rulemaking
were received. A public hearing was held
on May 11, 2011. After consideration of
the comments and hearing testimony, the
regulation is adopted as proposed.
Other issues concerning the whistle-
blower statute, including terminology,
additional definitions, and implementation
of the statute, all of which were beyond
the scope of these regulations, have been
deferred and will be considered and ad-
dressed, if appropriate, in future guidance.
Summary of Comments
Several comm
enters recommended re-
moval of “ove
rpayment” as a modifier of
credit balan
ce. The commenters suggested
that the term
only applied to individual tax-
payers, and
would discourage claimants
from coming
forwardwithinformation
about corpo
rate taxpayers. Further, the
commenters
stated that “overpayment”
unnecessar
ily limits the definition of col-
lected pro
ceeds as credit balances may
arise in ci
rcumstances other than an over-
payment.
The use of t
he term “overpayment
credit bal
ance” was intended to include
amounts th
at have been credited to a tax-
payer’s a
ccount and that would have been
refunded
to the taxpayer under section
6402 but f
or the information provided by
the whist
leblower. These amounts rep-
resent mo
nies credited to the taxpayer’s
account
that are available to pay any tax
liabili
ty or certain other liabilities, or to
be refun
ded to the taxpayer. Overpayment
credit b
alances are distinguishable from
other t
ypes of balances shown on a tax-
payer’
s account, such as a cash deposit
under s
ection 6603. Both individual and
corpor
ate taxpayers may have overpay-
ment cr
edit balances. Accordingly, the
final r
egulations retain the term “overpay-
ment c
redit balance” as consistent with
the pa
yment and refund provisions of the
Code.
Anumb
er of commenters recom-
mende
d that the definition of collected
proce
eds specifically include net operating
losse
s (NOLs). In contrast to overpayment
cred
it balances, NOLs and similar tax at-
trib
utes do not represent amounts credited
to th
e taxpayer’s account that are directly
April 16, 20128012012–16 I.R.B.

available to satisfy current or future tax
liabilities or that can be refunded. Rather,
tax attributes such as NOLs are component
elements of a taxpayer’s tax liability. If an
NOL claimed by a taxpayer is disallowed
as a result of information provided by a
whistleblower, the IRS will factor that
disallowance into the computation of the
taxpayer’s liability, which may, in turn,
result in collected proceeds. For example:
a taxpayer reports an NOL of $10 million
for 2009 and a whistleblower’s informa-
tion results in a reduction of the NOL to
$5 million. If the NOL is unused as of
the date the IRS computes the amount of
collected proceeds, there are no collected
proceeds. If, however, the 2009 NOL was
partially carried back to 2008, initially
generating a $3 million refund, and the
whistleblower’s information reduced the
carryback amount, resulting in a $1.5 mil-
lion reduction in the refund for 2008, then
the amount of the erroneous refund re-
covered and collected would be collected
proceeds. The final regulation’s definition
of collected proceeds, therefore, does not
refer explicitly to NOLs, tax credits, or
any other tax attributes that may factor into
the computation of a particular taxpayer’s
liability.
Several commenters suggested that
collected proceeds should include crim-
inal fines. Under the Victims of Crimes
Act of 1984, criminal fines that are im-
posed on a defendant by a district court
are deposited into the Crime Victims Fund
(CVF). 42 U.S.C. §10601(b)(1). Criminal
fines imposed for Title 26 offenses are not
exempt from this requirement. The fines
imposed in criminal tax cases that are
deposited into the CVF are not available
to the Secretary to pay awards under
section 7623. As criminal fines deposited
in the CVF are not available to pay
awards, the final regulations do not include
criminal fines in the definition of collected
proceeds. However, restitution ordered by
a court to the IRS is collected as a tax by
the IRS and, therefore, is encompassed in
the definition of collected proceeds.
Several commenters suggested that
whistleblowers should be rewarded for
the prevention of future tax avoidance
based on the whistleblower’s information.
Whether the IRS has the authority to make
such an award under section 7623 and, if
so, how the amount of the award would be
determined and paid, is beyond the scope
of this regulation. The final regulations do
not address awards relating to the preven-
tion of future tax avoidance.
Special Analysis
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866, as supplemented by Executive Or-
der 13563. Therefore, a regulatory assess-
ment is not required. It also has been de-
termined that section 553(b) of the Admin-
istrative Procedure Act (5 U.S.C. chapter
5) does not apply to these regulations, and,
because the regulations do not impose a
collection of information on small entities,
the Regulatory Flexibility Act (5 U.S.C.
chapter 6) does not apply. Pursuant to sec-
tion 7805(f) of the Code, these regulations
have been submitted to the Chief Counsel
for Advocacy of the Small Business Ad-
ministration for comment on its impact on
small businesses.
Drafting Information
The principal author of this regulation is
Kirsten N. Witter, Office of the Associate
Chief Counsel (General Legal Services).
*****
Amendments to the Regulations
Accordingly, 26 CFR part 301 is
amended as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 is amended by adding an entry in
numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 301.7623–1 also issued under
26 U.S.C. 7623. * * *
Par. 2. Section 301.7623–1 is amended
by revising the section heading, and para-
graphs (a) and (g) to read as follows:
§301.7623–1 Rewards and awards for
information relating to violations of
internal revenue laws.
(a)In general—(1)Rewards and
awards. When information that has been
provided to the Internal Revenue Service
results in the detection of underpayments
of tax or the detection and bringing to trial
and punishment persons guilty of violating
the internal revenue laws or conniving at
the same, the IRS may approve a reward
under section 7623(a) in a suitable amount
from the proceeds of amounts collected in
cases when rewards are not otherwise pro-
vided by law, or shall determine an award
under section 7623(b) from collected pro-
ceeds.
(2)Proceeds of amounts collected and
collected proceeds. For purposes of sec-
tion 7623 and this section, both proceeds
of amounts collected and collected pro-
ceeds include: tax, penalties, interest,
additions to tax, and additional amounts
collected by reason of the information
provided; amounts collected prior to re-
ceipt of the information if the information
provided results in the denial of a claim
for refund that otherwise would have been
paid; and a reduction of an overpayment
credit balance used to satisfy a tax liability
incurred because of the information pro-
vided.
*****
(g)Effective/applicability date. Para-
graph (a) is effective on February 22,
2012. This section is applicable with re-
spect to rewards paid after January 29,
1997, except the rules of paragraph (a) of
this section apply with respect to rewards
and awards paid after February 22, 2012.
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
Approved February 14, 2012.
Emily S. McMahon,
(Acting) Assistant Secretary
oftheTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on February 21,
2012, 8:45 a.m., and published in the issue of the Federal
Register for February 22, 2012, 77 F.R. 10370)
2012–16 I.R.B.802April 16, 2012

Part IV. Items o
fGeneralInterest
Notice of Prop
osed
Rulemaking
Updating of Em
ployer
Identificati
on Numbers
REG–135491–
10
AGENCY: Inte
rnal Revenue Service
(IRS), Treas
ury.
ACTION: Noti
ce of proposed rulemaking.
SUMMARY: Thi
s document contains pro-
posed regula
tions that provide rules re-
quiring any p
erson assigned an employer
identifica
tion number (EIN) to provide up-
dated infor
mationtotheIRSintheman-
ner and freq
uency prescribed by forms, in-
structions
, or other appropriate guidance.
These prop
osed regulations affect persons
with EINs a
nd will enhance the IRS’s abil-
itytomain
tain accurate information as to
persons as
signed EINs.
DATES: Wri
tten or electronic comments
and reques
t for a public hearing must be
received
by June 12, 2012.
ADDRESSE
S: Send submissions to:
CC:PA:LP
D:PR (REG–135491–10), room
5205, Int
ernal Revenue Service, PO Box
7604, Ben
Franklin Station, Washing-
ton, DC 20
044. Submissions may be
hand del
ivered Monday through Friday
between
the hours of 8 a.m. and 4 p.m.
to: CC:P
A:LPD:PR (REG–135491–10),
Courier
’s Desk, Internal Revenue Ser-
vice, 11
11 Constitution Avenue, N.W.,
Washin
gton, DC 20224 or sent elec-
tronic
ally via the Federal eRulemaking
Portal
athttp://www.regulations.gov(IRS
REG–13
5491–10).
FOR FUR
THER INFORMATION
CONTAC
T: Concerning the proposed
regul
ations, Gregory T. Armstrong, (202)
622–4
940; concerning submissions of
comme
nts and requests for a public hear-
ing, O
luwafunmilayo (Funmi) Taylor of
the Pu
blications and Regulation Branch at
(202)
622–7180 (not toll-free numbers).
SUPPLEMENTAR
Y INFORMATION:
Paperwork Red
uction Act
The collectio
n of information con-
tained in this
notice of proposed rulemak-
ing has been su
bmitted to the Office of
Management an
d Budget in accordance
with the Pape
rwork Reduction Act of
1995 (44 U.S.
C. 3507(d)). Comments
on the collec
tion of information should
be sent to the
Office of Management
and Budget
,A
ttn: Desk Officer for
the Departm
ent of the Treasury, Office
of Informat
ion and Regulatory Affairs,
Washington
, DC 20503, with copies
to theInter
nal Revenue Service,
Attn: IRS R
eports Clearance Officer,
SE:W:CAR:
MP:T:M:S, Washington, DC
20224. Com
ments on the collection
of informa
tion should be received by
May 14, 20
12. Comments are specifically
requeste
d concerning:
Whether t
he proposed collection of in-
formatio
n is necessary for the proper per-
formance
of the functions of the IRS, in-
cluding w
hether the information will have
practica
l utility;
The accur
acy of the estimated burden
associat
ed with the proposed collection of
informa
tion;
How the qu
ality, utility, and clarity of
the info
rmation to be collected may be en-
hanced;
How the b
urden of complying with the
propose
d collection of information may be
minimiz
ed, including through the appli-
cation o
f automated collection techniques
or other
forms of information technology;
and
Estima
tes of capital or start-up costs
and cos
ts of operation, maintenance, and
purcha
se of services to provide informa-
tion.
The col
lection of information in
this pr
oposedregulationisinproposed
§301.6
109–1(d)(2)(ii)(A). This informa-
tion i
s necessary to allow the IRS to gather
corre
ct ownership information with re-
spect
to persons that have an EIN. The
respo
ndents are persons that have an EIN.
Estim
ated total annual reporting bur-
den: 4
03,177 hours.
Estim
ated average annual burden per
respo
ndent: varies from 10 to 20 minutes
with a
n estimated average of 15 minutes.
Estimated num
ber of respondents:
1,612,708.
Estimated fre
quency of responses: on
occasion.
An agency may n
ot conduct or sponsor,
and a person is
not required to respond to, a
collection of
information unless it displays
a valid contr
ol number assigned by the Of-
fice of Manag
ement and Budget. Books or
records rela
ting to a collection of informa-
tion must be r
etained as long as their con-
tents may bec
ome material in the adminis-
tration of an
y internal revenue law. Gen-
erally, tax
returns and tax return informa-
tion are con
fidential, as required by section
6103 of the I
nternal Revenue Code.
Background a
nd Explanation of
Provisions
This documen
t contains proposed
amendments t
o the Procedure and Admin-
istration Re
gulations (26 CFR Part 301)
under secti
on 6109 relating to identifying
numbers. In
general, section 6109(a)(1)
provides th
at persons shall include tax-
payer ident
ifying numbers on returns,
statement
s, or other documents filed with
theIRS.Ad
ditionally, section 6109(c)
authorize
s the Secretary to require such
informati
on as may be necessary to assign
an identif
ying number to any person.
One of the p
rincipal types of tax-
payer iden
tifying numbers used to iden-
tify taxp
ayers is an employer identi-
fication
number (EIN), which takes
the form 0
0–0000000.See Treas.
Reg. §301
.6109–1(a)(1); Treas. Reg.
§301.770
1–12. In general, the IRS as-
signs an
EIN for use by employers, sole
proprie
tors, corporations, partnerships,
non-pro
fit associations, trusts, estates,
governm
ent agencies, certain individuals,
and othe
r business entities for tax filing
and rep
orting purposes.
Section
301.6109–1(d)(2)(i) provides
that an
y person required to furnish an
EIN mus
t apply for one with the IRS on
aFormS
S–4,Application for Employer
Identi
fication Number. The IRS accepts
applic
ations for EINs electronically and
by tel
ephone, facsimile, or mail.
With in
creasing frequency, EIN ap-
plica
nts authorize certain individuals
(some
times referred to as “nominees”) to
act on
the EIN applicants’ behalf. These
April 16, 20128032012–16 I.R.B.

nominees are listed on the EIN applica-
tion as principal officers, general partners,
grantors, owners, and trustors. The author-
ity of these nominees to act on behalf of
the EIN applicant is often temporary and
expires after the application is processed.
The listing of a nominee prevents the IRS
from gathering correct ownership infor-
mation with respect to the EIN applicant
once the nominee is no longer authorized
to act on behalf of the EIN applicant. In
response to concern with this practice and
the need for accurate records, effective
January2010,theIRSrevisedline7aon
the Form SS–4 requiring disclosure of the
name of the EIN applicant’s “responsible
party” and the responsible party’s Social
Security Number, Individual Taxpayer
Identification Number, or EIN.
The Instructions for Form SS–4 provide
a definition for “responsible party.” For en-
tities with shares or interests traded on a
public exchange, or which are registered
with the Securities and Exchange Com-
mission, the instructions currently provide
that a “responsible party” is (a) a principal
officer, if the business is a corporation, (b)
a general partner, if a partnership, (c) the
owner of an entity that is disregarded as
separate from its owner (disregarded enti-
ties owned by a corporation enter the cor-
poration’s name and EIN), or (d) a grantor,
owner, or trustor, if a trust.
For all other entities, the “responsible
party” is the person who has a level of con-
trol over, or entitlement to, the funds or as-
sets in the entity that, as a practical mat-
ter, enables the individual, directly or in-
directly, to control, manage, or direct the
entity and the disposition of its funds and
assets. The ability to fund the entity or
the entitlement to the property of the entity
alone, however, without any correspond-
ing authority to control, manage, or direct
the entity (such as in the case of a minor
child beneficiary), does not cause the indi-
vidual to be a responsible party.
These proposed regulations require any
person issued an EIN to provide updated
information to the IRS in the manner and
frequency required by forms, instructions,
or other appropriate guidance, which the
IRS will issue in the near future. This
requirement includes updated application
information regarding the name and tax-
payer identifying number of the responsi-
ble party. This requirement covers those
persons who previously applied for an EIN
by listing a person other than the appli-
cant’s responsible party. This updated in-
formation will allow the IRS to ascertain
correct ownership details for persons who
have an EIN. In turn, the IRS can use that
knowledge to contact the correct persons
when resolving a tax matter related to a
business with an EIN and to help combat
schemes that abuse the tax system through
the use of nominees.
Proposed Effective/Applicability Date
These regulations are proposed to apply
to all persons possessing an EIN after the
date the Treasury decision adopting these
rules as final regulations is published in the
Federal Register.
Special Analyses
It has been determined that these pro-
posed regulations arenot a significant reg-
ulatory action as defined in Executive Or-
der 12866, as supplemented by Executive
Order 13563. Therefore, a regulatory as-
sessment is not required. It also has been
determined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C. chap-
ter 5) does not apply to these regulations.
When an agency issues a rulemaking
proposal, the Regulatory Flexibility Act
(RFA) (5 U.S.C. chapter 6), requires the
agency to “prepare and make available for
public comment an initial regulatory flex-
ibility analysis” that will “describe the im-
pact of the proposed rule on small enti-
ties.” (5 U.S.C. 603(a)). Section 605 of
the RFA provides an exception to this re-
quirement if the agency certifies that the
proposed rulemaking will not have a sig-
nificant economic impact on a substantial
number of small entities.
The proposed rules affect entities that
have an EIN and the IRS has determined
that these proposed rules will have an im-
pact on a substantial number of small en-
tities. The IRS has determined, however,
that the impact on entities affected by the
proposed rule will not be significant. The
current Form SS–4 already requires enti-
ties to disclose the name of the EIN appli-
cant’s “responsible party” and the respon-
sible party’s SocialSecurity Number, In-
dividual Taxpayer Identification Number,
or EIN. The amount of time necessary to
submit the updated information required
in these proposed regulations, therefore,
should be minimal for these entities.
Based on these facts, the IRS hereby
certifies that the collection of information
contained in this notice of proposed rule-
making will not have a significant eco-
nomic impact on a substantial number of
small entities. Accordingly, a Regulatory
Flexibility Analysis is not required.
Pursuant to section 7805(f) of the Code,
these regulations have been submitted to
the Chief Counsel for Advocacy of the
Small Business Administration for com-
ment on its impact on small business.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written (a signed origi-
nal and eight (8) copies)orelectroniccom-
ments that are submitted timely to the IRS.
Treasury and the IRS request comments
on all aspects of the proposed rules. All
comments submitted by the public will be
made available for public inspection and
copying. A public hearing will be sched-
uled if requested in writing by any person
that timely submits comments. If a pub-
lic hearing is scheduled, notice of the date,
time, and place for the public hearing will
be published in theFederal Register.
Drafting Information
The principal authors of these reg-
ulations are Tammie A. Geier and
Gregory T. Armstrong of the Office of the
Associate Chief Counsel (Procedure and
Administration).
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 301 is pro-
posed to be amended as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 continues to read as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.6109–1 is amended
by adding paragraphs (d)(2)(ii)(A) and
(d)(2)(ii)(B) to read as follows:
§301.6109–1. Identifying numbers.
*****
2012–16 I.R.B.804April 16, 2012

(d) * * *
(2) * * *
(ii) * * *
(A)Requirement to update.Personsis-
sued employer identification numbers in
accordance with the application process
set forth in paragraph (d)(2)(i) of this sec-
tion shall provide to the Internal Revenue
Service any updated application informa-
tion in the manner and frequency required
by forms, instructions, or other appropriate
guidance.
(B)Effective/applicability date. Para-
graph (d)(2)(ii)(A) of this section applies
to all persons possessing an employer
identification number after the date of pub-
lication of the Treasury decision adopting
these rules as final regulations in theFed-
eral Register.
*****
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on March 13,
2012, 8:45 a.m., and published in the issue of the Federal
Register for March 14, 2012, 77 F.R. 15004)
ANNOUNCEMENT AND REPORT CONCERNING ADVANCE PRICING AGREEMENTS
ANNOUNCEMENT 2012–13
April 2, 2012
This Announcement is issued pursuant to § 521(b) of Pub. L. 106–170, the Ticket to Work and Work Incentives Improvement Act
of 1999, which requires the Secretary of the Treasury to report annually to the public concerning Advance Pricing Agreements
(APAs) and the APA Program. The first report covered calendar years 1991 through 1999. Subsequent reports covered separately
each calendar year 2000 through 2010.This thirteenth report describes the experience, structure, and activities of the APA
Program during calendar year 2011. It does not provide guidanceregarding the application of the arm’s length standard.
As described in greater detail below, in the first quarter ofcalendar year 2012, the APA Program merged with that portion of the
Office of the U.S. Competent Authority (USCA) that resolves transfer pricing cases under the mutual agreement procedures of the
United States’ bilateral income tax conventions. As the successor to the APA Program, the new Advance Pricing and Mutual
Agreement (APMA) office has prepared and finalized this report.
Throughout the period covered by this report, and most particularly following the announcement of the new combined APMA
Office, the APA Program and the USCA engaged in extensive efforts to ensure a smooth transition and successful realignment. In
addition to addressing personnel transfer, systems management,and other logistical issues, during the fall of 2011, the USCA
hired additional managers and staff for the APMA Office, representing a 50-percent increase in total headcount. These new
employees are receiving extensive training and mentoring from existing staff and management.
In part because of these transitional issues, during 2011, case closures fell short of normal expectations and average cycle times
increased. APA, with some assistance from USCA, completed 43 APAs (including one amended APA) and 47 recommended
negotiating positions (RNPs), down from totals of 69 APAs and 58 RNPs in 2010. The average time to complete an APA
increased from 37.2 months in 2010 to 40.7 months in 2011.
Additional contributing factors to these results were the decrease in APA personnel for most of 2011 and the record number of
new APA applications filed during the pastfour years. It is anticipated that when the transition to the APMA Office is complete,
the number of completed APAs will increase and the average cycle time will decrease. Despite a decrease in 2011, over the last
several years the APA program experienced increasing productivity, as measured by the number of completed APA items (e.g.,
APAs, APA amendments, and recommended US negotiating positions) divided by total APA staff hours.
In view of the existing backlog of APA submissions, the hiring of new personnel, an expected growth in requests in coming years,
and the expanding role of APMA in examinations and other matters involving treaty jurisdictions, it is difficult to predict APMA’s
future resource needs with confidence. With the recently augmented staff, however, management anticipates steady growth in the
productivity of the new APMA Office in the years to come.
Samuel M. Maruca
Director, Office of Transfer Pricing Operations
April 16, 20128052012–16 I.R.B.

Background
Internal Revenue Code (IRC) § 482 providesthat the Secretary may distribute, apportion, or allocate gross income, deductions,
credits, or allowances between or among two or more commonly controlled businesses if necessary to reflect clearly the income
of such businesses. Under the § 482 regulations, the standard to beapplied in determining the true taxable income of a controlled
business is that of a business dealing at arm’s length with an unrelated business. The arm’s length standard has also been
adopted by the international community and is incorporated intothe transfer pricing guidelines issued by the Organization for
Economic Cooperation and Development (OECD). OECD,TRANSFER PRICING GUIDELINES FOR MULTINATIONAL
ENTERPRISES AND TAX ADMINISTRATIONS (2010). Transfer pricing issues by their nature are highly factual and have
traditionally been one of the largest issues identified by the IRS in its audits of multinational corporations. The APA Program
is designed to resolve actual or potential transfer pricing disputes in a principled, cooperative manner, as an alternative to the
traditional examination process. An APA is a binding agreement between the IRS and a taxpayer by which the IRS agrees not to
seek a transfer pricing adjustment under IRC § 482 for a covered transaction if the taxpayer files its tax return for a covered year
consistent with the agreed transfer pricing method (TPM) and otherwise complies with the APA.
Since 1991, with the issuance of Rev. Proc. 91–22, 1991–1 C.B. 526, the IRS has offered taxpayers, through the APA Program,
the opportunity to reach an agreement in advance of filing a tax return on the appropriate TPM to be applied to related party
transactions. In 1996, the IRS issued internal procedures for processing APA requests. Chief Counsel Directives Manual
(CCDM), ¶¶ 42.10.10 – 42.10.16 (November 15, 1996).
1
Also in 1996, the IRS updated Rev. Proc. 91–22 with the release of Rev.
Proc. 96–53, 1996–2 C.B. 375.
2
In 1998, the IRS published Notice 98–65, 1998–2 C.B. 803,
3
which set forth streamlined APA
procedures for small business taxpayers. Then on July 1, 2004, the IRS updated and superseded both Rev. Proc. 96–53 and Notice
98–65 by issuing Rev. Proc. 2004–40, 2004–2 C.B. 50,
4
effective for all APA requests filed on or after August 19, 2004.
On December 19, 2005, the IRS again updatedthe procedural rules for processing and administering APAs with the release of
Rev. Proc. 2006–09, 2006–1 C.B. 278.
5
Rev. Proc. 2006–09 supersedes Rev. Proc. 2004–40 and is effective for all APA requests
filed on or after February 1, 2006. On May 21, 2008, the IRS released Rev. Proc. 2008–31, 2008–1 C.B. 1133, which revised Rev.
Proc. 2006–09 to describe further the types of issues that may be resolved in the APA process.
6
Specifically, Rev. Proc. 2008–31
added a new sentence to Section 2.01 of Rev. Proc. 2006–09, to advise that the APA process may be used to resolve any issue for
which transfer pricing principles may be relevant, such as attribution of profit to apermanent establishment under certain U.S.
income tax treaties, the amount of income effectively connected with the conduct of aU.S. trade or business, and the amount of
income derived from sources partly within and partly without the United States.
With the formation of the APMA Office, the IRS anticipatesthat it will amend Rev. Proc. 2006–9 and 2008–31, as well as
2006–54 (the revenue procedure governing Competent Authority processes) in 2012.
Advance Pricing Agreements
An APA generally combines an agreement between a taxpayer and the IRS with an agreement between the United States and one
or more foreign tax authorities (under the authority of the mutualagreement process of our income tax treaties) on an appropriate
TPM for the transactions at issue (Covered Transactions). With such “bilateral” APAs, the taxpayer ordinarily is assured that
the income associated with the Covered Transactions will not be subject to double taxation by the combination of the United
States and the foreign jurisdictions. Thepolicy of the United States, as reflectedin §§ 2.08 and 7 of Rev. Proc. 2006–09, is to
encourage taxpayers that enter the APA Program to seek bilateral or multilateral APAs when competent authority procedures
are available with respect to the foreigncountry or countries involved. However, the IRS may execute an APA with a taxpayer
without reaching a competent authority agreement (a unilateral APA).
A unilateral APA is an agreement between a taxpayer and the IRS establishing an approved TPM for U.S. tax purposes. A
unilateral APA binds the taxpayer and the IRS, but does not preventa foreign tax administration from taking a different position
on the appropriate TPM for a transaction. As stated in § 7.07 of Rev. Proc. 2006–09, should a transaction covered by a unilateral
APA be subject to double taxation as the result of an adjustment by a foreign tax administration, the taxpayer may seek relief
by requesting that the U.S. Competent Authority (USCA) consider initiating a mutual agreement proceeding pursuant to an
applicable income tax treaty (if any).
1
Current CCDM provisions regardingAPA procedures are available athttp://www.irs.gov/irm/part32/ch04s01.html.
2
Available athttp://www.irs.gov/pub/irs-irbs/irb96–49.pdf.
3
Available athttp://www.irs.gov/pub/irs-irbs/irb98–52.pdf.
4
Available athttp://www.irs.gov/pub/irs-irbs/irb04–29.pdf.
5
Available athttp://www.irs.gov/irb/2006–02_IRB/ar12.html.
6
Available athttp://www.irs.gov/pub/irs-irbs/irb08–31.pdf.
2012–16 I.R.B.806April 16, 2012

The policy generally preferring bilateral (or multilateral) over unilateral APAs is grounded in the goal of achieving certainty and
avoiding double taxation through an early dispute resolution process that is most efficient from both taxpayer and government
perspectives. Consistent with that policy, the IRS reviews both initial and renewal submissions for factors weighing in favor of
bilateral or multilateral APAs (e.g., potentially large amounts of income; complexissues; a high risk of adjustment in a foreign
country; or other indications in the interests of efficient tax administration) or unilateral APAs (e.g., the lack of a tax treaty with
the country or countries involved with the major transaction flows; the lack of anAPA program in a treaty partner country
involved with the major transaction flows; small amounts at stake relative to the additional transaction costs of a bilateral or
multilateral APA; a multiplicity of smaller foreign situs operations covered by unilateral APAs while bilateral or multilateral
APAs cover major intercompany transaction flows; or other indications in the interests of efficient tax administration).
When a unilateral APA involves taxpayers operating in a countrythat is a U.S. treaty partner, information relevant to the APA
(including a copy of the APA and APA annual reports) may be provided to the treaty partner under normal rules and principles
governing the exchange of information under income tax treaties.
The APA Program
The following discussion explains the APA Program as it was organized through the end ofDecember, 2011. As described
above, prior to the publication of this report, the APA Program merged with that portion of the Office of the U.S. Competent
Authority (USCA) that resolves transfer pricing cases under the mutual agreement procedures of the United States’ bilateral
income tax conventions. It is currently anticipated that the APA process described below will remain substantially the same in
the new APMA Office, although it is also anticipated that an updated Revenue Procedure will be issued that will include
modifications to the specific procedures described below.
The team leader is responsible for organizing the IRS APA team. The IRS APA team leader arranges meetings with the taxpayer,
secures necessary information from the taxpayer to analyze the taxpayer’s Covered Transactions and the available facts under the
arm’s length standard of IRC § 482 and the regulations thereunder, and leads the discussions with the taxpayer.
Before the formation of APMA, the APA team generally included, in addition to the team leader an economist, an IRS Large
Business and International Division (LB&I) international examiner, LB&I field counsel, and, in a bilateral case or multilateral
APA case, a USCA analyst. The economist could be from the APA Program or the IRS field organization. In the last statutory
report, as of December 31, 2010, the APA Program had seveneconomists on staff, plus one economist manager. As of
December 31, 2011, the APA Program had ten economists on staff, plus one economist manager. The APA team sometimes
included an LB&I International Technical Advisor, other LB&I exam personnel, field counsel and an Appeals Officer.
The APA Process
The APA process is voluntary. Taxpayers submit an application for an APA, together with a user fee as set forth in Rev. Proc.
2006–09, § 4.12. The APA process can be broken into five phases: (1) application; (2) due diligence; (3) analysis; (4) discussion
and agreement; and (5) drafting, review, and execution. The APAprocess as described below remained essentially the same
throughout 2011; any changes resulting from the efforts of the APA Program and the USCA to pool resources before the decision
to create the APMA Office are noted where relevant below.
(1)Application
In many APA cases, the taxpayer’s application is preceded by a pre-file conference (PFC) with the IRS staff in which the taxpayer
can solicit the informal views of the APMA Office. Pre-file conferences can occur on an anonymous basis, although a taxpayer
must disclose its identity when it applies for an APA. The APA Program required taxpayers interested in an APA under Rev. Proc.
2008–31 to schedule a PFC before submitting a formal APA application.
Even outside the expanded jurisdiction conferred by Rev. Proc. 2008–31, PFCs are useful tools for the early exchange of ideas
and expectations on complex, novel, and potentially contentious issues that will be present in an APA submission. The APMA
Office believes that having the taxpayer discuss the case with theIRS before making a submission has the potential of shortening
the period of time required to complete an APA by identifying issues that will require specific development and providing
preliminary views on acceptable methodologies. In 2010–2011 the APA Program revised its internal practices concerning PFCs
to improve efficiency, including better tracking of PFCs and, most notably, assigning some PFCs presenting complex or novel
issues to the most experienced staff.
As part of a taxpayer’s APA application, the taxpayer must file the appropriate user fee on or before the due date, including
extensions, of the tax return for the first taxable year that the taxpayer proposes to be covered by the APA. (If the taxpayer receives
an extension to file its tax return, it must file its user fee no laterthan the actual filing date of the return.) Many taxpayers file a
user fee first and then follow up with a full application later— a “dollar file” in APA parlance. The procedures for PFCs, user
fees, and applications can be found in §§ 3 and 4 of Rev. Proc. 2006–09.
April 16, 20128072012–16 I.R.B.

For most taxpayers, the APA application is a substantial document filling several binders. APA applications must be accompanied
by a declaration, signed by an authorizedcorporate officer, attesting to the accuracy and completeness of the information
presented.
7
The application is assigned to a team leader, who is responsible for the case. The APA team leader’s first responsibility is to
organize the APA team. This involves contacting the appropriate LB&I International Territory Manager for assignment of
an international examiner to the APA case and the LB&I Counsel’s office for assignment of a field counsel lawyer. Before
the formation of the APMA Office, in a bilateral or multilateral case the USCA would assign a USCA analyst to the team.
In a large APA case, the international examiner may invite his or her manager and other LB&I personnel familiar with the
taxpayer to join the team. If the APA may affect taxable years in Appeals, the appropriate appellate conferee will be invited
to join the team. In cases involving cost-sharing arrangements, other complex intangibles and services transactions, or novel
issues, the APA team leader contacts the Manager, LB&I International Technical Advisors, to determine whether or not to
include a technical advisor on the team. Themulti-functional nature of APA teams combines the transfer pricing expertise of
APA personnel with the expertise of other IRS personnel that possess complementary or supplementary knowledge about the
taxpayer, the taxpayer’s industry, relatedor ancillary tax issues, the foreign competent authority, and other relevant issues. By
bringing all relevant parties to the tablein a single proceeding, the APA process can resolve transfer pricing issues early in a
principled, efficient, consistent, and comprehensive manner.
The APA team leader distributes copies of the APA application to all team members, makes initial contact with the taxpayer to
confirm the APA Program’s receipt of the taxpayer’s application, and sets up an openingconference with the taxpayer. Under past
APA case management procedures, the APA Program strived to: (i) make initial contact with the taxpayer within 21 days of its
receipt of the APA application; and (ii) hold the opening conference within45 days from the date that the APA team expects to
begin actively working the case — the “Start Date” under the revised case management procedures. However, limited Program
resources led to significant delays, so, forexample, opening conferences have been held six months or more after a completed
application was received. During the period since the prior statutory report the pooling of resources noted above has reduced the
number of cases for which opening conferences were delayed.A priority for the APMA Office is to meet the case processing
goals listed in the Rev. Proc. and case management guidelines.
At the time of the opening conference, the APA team leader would propose a case plan appropriate for the case. Case plans were
generally targeted to complete a unilateral APA or, in the case of a bilateral APA, the U.S. recommended negotiating position
(RNP), within 12 months from the date of the opening conference.The targeted completion date in a particular case, however,
could and often did vary from the 12-month benchmark, depending on the complexity of the case, team workloads, taxpayer
response times, and other factors. Case plans are signed by both an office manager andan authorized official of the taxpayer and
are intended to control the process except in unforeseen or exceptional circumstances. Implementation and adherence to case
plans has been uneven. Rapidly increasing workloads have resulted in the actual median and average times for completion to
increase significantly. These APA inventory and case completion times are described in greater detail below in Tables 2 through
11. During the period since the last statutory report the APA Program took steps to increase its tracking of and adherence to case
plans and, as discussed above, expects to further improve timeliness as the new APMA Office becomes fully operational.
(2)Due Diligence
The APA team must satisfy itself that the relevant facts submittedby the taxpayer are complete and accurate. This due diligence
aspect of the APA is vital to the process.It is because of this due diligence that the IRS can reachadvance agreements with
taxpayers in the highly factual setting of transfer pricing. Due diligence can proceedin a number of ways. Typically, the APA team
leader submitted a list of questions to the taxpayer before the opening conference for discussion at the conference. The opening
conference often resulted in additional questions and an agreement to meet one or more times in the future. These questions and
meetings focus on the transfer pricing issues associated with the transactions in the taxpayer’s application, or other transactions
that the taxpayer and the IRS may agree to add. The APA due diligence process thus differs fromstandard audit procedures.
(3)Analysis
Much of the economic analysis associated with an APA is typically conducted by an economist assigned to the case. The
analysis may result in the need for additional information. Once the APA team has completed its due diligence and analysis,
it begins discussions with the taxpayer over the various aspects of the APA including the covered transactions, the TPM, the
selection of comparable transactions, asset intensity and other adjustments, the appropriate critical assumptions, the APA term,
and other key issues. The APA team leader will discuss particularly difficult issues with his or her managers, but generally the
team leader is empowered to negotiate the APA.
7
Section 9 of Rev. Proc. 2006–09 describes the specialAPA procedures for small business taxpayers.
2012–16 I.R.B.808April 16, 2012

(4)Discussion and Agreement
The discussion and agreement phase differs for bilateral and unilateral cases. In a bilateral case, the discussions have typically
(and for a majority of the cases in 2011) proceeded in two partsand involved two IRS offices — the APA Program and the USCA.
In the first part, the APA team attempted to reach a consensus with the taxpayer regarding the RNP that the USCA should
present in negotiations with its treaty partner. This U.S. RNP was a paper drafted by the APA team leader, reviewed by APA
management, and signed by the Associate Chief Counsel (International) (ACC(I)) and the APA Director. The RNP provided
the APA Program’s view of the best TPM for the Covered Transactions, taking into account IRC § 482 and the regulations
thereunder, the relevant tax treaty, and the USCA’s experience with the treaty partner. It is anticipated that the new APMA Office
will streamline these procedures once it is fully functional.
The experience of the APA Program and the USCA has been thatAPA negotiations are likely to proceed more rapidly with a
foreign competent authority if the taxpayer fully supports the U.S. negotiating position. Consequently, the IRS has worked with
the taxpayer in developing the U.S. RNP. Often, however, the taxpayer has disagreed with part or all of the RNP. In these cases,
the APA Program will send an RNP to the USCA that identifies andexplains the elements of the RNP with which the taxpayer
disagrees. The APA team leader also solicited the views of the other members of the APA team, and, in the vast majority of
APA cases, the other members of the APA team concur in the position prepared by the APA team leader. If there were any
disagreement that could not be resolved, it was noted in the RNP.
After the APA Program completed the recommended U.S. negotiating position, the APA process shifted from the APA Program to
the USCA — in a so-called “hand-off.” The USCA analyst assigned to the APA took the U.S. RNP and prepared the final U.S.
negotiating position, which was then transmitted to the foreign competent authority. The negotiations with the foreign competent
authority were conducted by the USCA analyst, most often in face-to-face negotiating sessions conducted periodically throughout
the year. At the request of the USCA, APA Program staff members have occasionally assisted in the negotiations.
Both in response to the inherent inefficiencies of a “hand-off” of an APA from one team to another, and because of resource
constraints, during 2011 the APA Program and USCA commencedefforts towards a pooling of resources and better managing
their shared bilateral caseload as a singleinventory. This pooling effort ultimatelyled to the merger, as noted above. Following
the merger, the goal is to eliminate hand-offs, so only a single team leader and economist will be involved in all phases of the APA
process — application, due diligence, analysis, discussion, agreement and negotiation with the foreign competent authority.
In unilateral APA cases, the discussions proceed solely between the APA team and the taxpayer. In a unilateral case, the taxpayer
and the APA team must reach agreement to conclude an APA. As in bilateral cases, the APMA team leader almost always will
achieve a consensus with the IRS field personnel assigned to the APA team regarding the final APA. Under APA procedures, the
APA team formally solicits IRS field personnel assigned to a case for their concurrence in the final APA. This concurrence, or
any item in disagreement, is noted in a memorandum prepared by the APMA team leader that accompanies the final APA sent
forward for review and execution.
(5)Drafting, Review, and Execution
Once the IRS, competent authorities, and the taxpayer reachagreement, the APA team drafts the final APA. The IRS has
developed standard language that is incorporated into every APA. The current version of this language appears in Attachment A.
The relevant APA Branch Chief and the APADirector review final APAs. In addition, for the period covered by this statutory
report, the team leader prepared a summary memorandum for approval by the ACC(I). On March 1, 2001, the ACC(I) delegated
to the APA Director the authority to execute APAs on behalf of the IRS.SeeChief Counsel Notice CC–2001–016. An authorized
corporate officer executes the APA on behalf of the taxpayer. Inlight of the formation of the APMA Office, it is anticipated
that there will be modifications to the process of executing APAs with taxpayers.
Model APA at Attachment A
[§ 521(b)(2)(B)]
Attachment A contains the current version of the model APA language.
The APA Office Structure, Composition, and Operation
In 2011, the APA Program consisted of four branches, with Branches 1 and 3 staffed with APA team leaders and Branch 2
staffed with economists based in Washington, D.C. Branch 4, the APA West Coast branch, was headquartered in San Francisco,
California, with an additional office in Laguna Niguel, California staffed with both team leaders and economists.
APA full-time staffing fluctuated during 2011, starting at 35at the end of 2010, decreasing early in the year and returning to
35 by the end of the year. Total hours spent by APA professional staff increased slightly in 2011 over the previous year. The
change in APA hours spent over the last nine years is reflected in the table below:
April 16, 20128092012–16 I.R.B.

Hours of APA attorneys, economists, and paralegal staff by year (excluding holiday and leave):
As of January 25, 2012, for the resolution of allocation cases the U.S. Competent Authority employed seven managers, fifty-seven
analysts, five economists, and five support staff, whichwere combined with the APA Program to form the APMA Office.
APA Issue/Industry Coordination Teams
In May 2005, the IRS Chief Counsel announced a series of initiatives to improve APA Program performance. One initiative was
to increase specialization within the office by creating teams of select individuals to handle all cases of a particular type. The
purpose was to increase efficiency, quality, and consistency.
The APA Program selected five categories of cases for specialization — cases involving cost sharing arrangements, financial
products, the semiconductor industry, the automotive industry, and the pharmaceutical industry. These categories were selected
because they each had a sufficient number of cases and commonality of issues to warrant their assignment to teams. Cases falling
within these five categories have historically accounted for about 40 percent of the APA Program’s case load and about half of its
total case time. At the end of 2011, cases within these five categories accounted for 86 of the 243 cases pending in the office that
were either unilateral APAs or bilateral APAs that had not yet been forwarded to the USCA.
The new APMA Office is mindful that the purpose of the coordination effort is not to impose the same transfer pricing method
on all taxpayers in an industry. The appropriate transfer pricing method remains a case-by-case determination, influenced by
numerous factors that are not common to all companies operating in aparticular industry. While the coordination effort may result
in the IRS promoting a common approach on some issues where appropriate, the APMA Office expects that greater industry
familiarity developed through the coordination effort will also allow it to develop a more sophisticated understanding of issues
that will permit more tailored approaches, thereby promoting more (appropriately) varied results than might otherwise be the case.
The IRS is considering whether to continue formal industry groups in APMA, and if so, in what form.
APA Training
In 2011 the APA Program continued its training activities. Training sessions addressed APA-related current developments,
regulatory developments, new APA Program practices and procedures, OECD guidelines on business restructuring, review of
novel or unique APAs or RNPs, and international tax law issues. In addition, a joint training session with the USCA office
covered negotiation skills and techniques. The training materials used for new hires are available to the public through the APA
internet site athttp://www.irs.gov/businesses/corporations/article/0,,id=96221,00.html. The APA’s new-hire materials, which
were originally prepared in 2003 and have not been updated, do not constitute guidance on the application of the arm’s length
standard and are not to be relied upon or cited as precedent. Also available to the public is a spreadsheet model that performs
calculations in a Comparable Profits Method (CPM) analysis, which APA economists developed in 2007 and which is now
routinelyusedbytheAPMAOfficewhenperformingAPAanalyses. An electronic version of the model may be obtained by
contacting the APMA Office in Washington, D.C. at (202) 435–5220 (not a toll-free number).
2012–16 I.R.B.810April 16, 2012

APA Program Statistical Data
[§ 521(b)(2)(C) and (E)]
The statistical information required under § 521(b)(2)(C) is contained in Tables 1 and 10 below; the information required under
§ 521(b)(2)(E) is contained in Tables 2 and 3 below. The 96APA applications during 2011 represented a decrease from the
all-time high of 144 in 2010 and previous record-breaking years in 2008 (123) and 2009 (127).
8
From 2000–2007, the APA
Program averaged 91 applications per year, and it had never received more than 110 applications in a single year. With the
additional resources and added efficiencies from its recent restructuring, APMA expects APA applications to continue to be
attractive to taxpayers and trendupwards in 2012, possibly reaching the same high levels as in 2008–2010.
TABLE 1: APA APPLICATIONS, EXECUTED APAS, AND PENDING APAS
UnilateralBilateralMultilateral
Year
Total
Cumulative
Total
APA applications filed during 20112076961619
All APAs executed
9
Year 20118340421015
1991–2010
405555
13973
APA renewals executed during 2011213
15
308
APAs revised or amended during
2011
10171
Pending requests for APAs93
352445
Pending requests for new APAs44214
258
Pending requests for renewal APAs49138187
APAs canceled or revoked20211
APAs withdrawn4
5
9174
8
Of the 127 new APA applications in 2009 — the first full year in which Rev. Proc. 2008–31 was in effect — approximately ten submissions invoked APA jurisdiction under Rev. Proc.
2008–31. In 2010, the APA Program completed three or fewer APAs falling within APA jurisdiction because of Rev. Proc. 2008–31. In 2011, there were no APAs completed that fell within
APA jurisdiction because of Rev. Proc. 2008–31.
9
“All APAs executed” includes APA renewals, but not APAs revised or amended.
April 16, 20128112012–16 I.R.B.

TABLE 2: MONTHS TO COMPLETE APAS
Months to Complete Advance Pricing Agreements in 2011
All NewAll RenewalsAll Combined
Average40.9Average40.3Average40.7
Median
39.5
Median38.9Median
36.5
Unilateral
New
Unilateral
Renewals
Unilateral
Combined
Average31.2Average14.2Average27.0
Median28.6Median14.2Median26.8
Bilateral/Multilateral
New
Bilateral/Multilateral
Renewals
Bilateral/Multilateral
Combined
Average43.9Average44.1Average44.0
Median42.8Median42.4Median42.4
2012–16 I.R.B.812April 16, 2012

TABLE 3: APA COMPLETION TIME — MONTHS PER APA
Months
Number
of APAsMonths
Number
of APAsMonths
Number
of APAsMonths
Number
of APAs
121
1
41
1
61
1
222
1
4262
323
1
43
1
63
424
1
4464
5
25
1
4565
62646
1
66
7
27
2
47
1
67
82848
2
68
2
929
2
49
1
69
1030
2
50
2
70
1131
1
5171
1
1232
1
5272
13
1
33
3
53
2
73
1434
1
5474
15
1
35
255751
163656
1737
57
1838
1
58
19
1
3959
2040
1
60
2
TABLE 4: RECOMMENDED NEGOTIATING POSITIONS
Recommended Negotiating Positions Completed in 201147
Table 5: MONTHS TO COMPLETE RECOMMENDED NEGOTIATING POSITIONS
NewRenewal
Combined
Average
29.5
Average23.7Average27.1
Median32.9Median24.4Median29.0
April 16, 20128132012–16 I.R.B.

TABLE 6: RECOMMENDED NEGOTIATING POSITIONS COMPLETION TIME — MONTHS PER APA
MonthsNumberMonthsNumberMonthsNumberMonthsNumber
1122334
2
2
1
132435
2
314
4
25
2
36
3
4
1
1526
2
37
1
5
16
1
27
2
38
617
2
28
1
39
1
7
18
1
29
1
40
819
2
30
4
41
2
9203142
1021
2
32
1
43
2
112233544
45
1
46
1
2012–16 I.R.B.814April 16, 2012

TABLES 7 AND 8 BELOW SHOW HOW LONG EACH APA REQUEST PENDING AT THE END OF 2011 HAS BEEN
IN THE SYSTEM AS MEASURED FROM THE FILING DATE OF THE APA SUBMISSION. THE NUMBERS FOR
PENDING UNILATERAL AND BILATERAL CASES DIFFER FROM THE NUMBERS IN TABLE 1 BECAUSE
TABLES 7 AND 8 REFLECT ONLY CASES FOR WHICH SUBMISSIONS HAVE BEEN RECEIVED, WHILE TABLE
1 INCLUDES ANY CASE FOR WHICH A USER FEE HAS BEEN PAID.
TABLE 7: UNILATERAL APAS — TIME IN INVENTORY — MONTHS PER APA
Months
Number
of APAsMonths
Number
of APAsMonths
Number
of APAs
1
1
17
2
33–35
2
1
18536
1
3
1
19
3
37
420
4
38
1
52
21
3
39
1
6
2
22
1
40
72
23
3
41
1
824542
9
1
25543
2
10
1
26
1
44
1
11
2
2745
1
12
4
28
3
46
1
13
3
29
2
47
14
1
30
2
48
1
15
6
3149
1
16532
2
50
1
April 16, 20128152012–16 I.R.B.

TABLE 8: BILATERAL APAS — TIME IN INVENTORY — MONTHS PER APA
Months
Number
of APAsMonths
Number
of APAsMonths
Number
of APAsMonths
Number
of APAs
1
9
26
3
51
2
81
1
2
7
27
2
52
0
82–83
0
3
1
28
6
53
2
84
1
4
8
29
7
54
1
85–86
0
58
30
12551
87
1
6
4
31556
1
88–91
0
77
32
11571
92
1
8
6
33
0
58
0
93–106
0
9
7
34
6
59
3
107
1
10
14
35
6
60
0
108
0
11
4
36
11
61
3
109
1
12
17
37
6
62–63
0
13
2
38
3
64
3
14
7
39
3
65–67
0
15
4
40
9
68
1
16
2
41
4
69–70
0
17
3
42
3
71
1
18
9
43572
2
19
6
44
2
73
1
20
4
45
4
74
0
21
12
465
752
22
7
47
8
76
0
23
3
485
771
24
10
49
8
78–79
0
25
4
50
2
80
1
Of the 350 cases in the APA Program’s inventory shown in Tables 7 and 8, 45 cases (all of which are reflected in Table 8) are
bilateral cases that have been forwarded to the USCA office for discussion with a treaty partner. This leaves 305 cases in the
APA Program’s active inventory at the end of 2011 that are either unilateral APAs (76 cases) or bilateral APAs for which the
APA Program has not yet completed a recommended negotiating position (229 cases). Of the 305 active APA cases, 36 involve
small business taxpayer (SBT) cases, as defined in Rev. Proc. 2006–9, § 4.12(5).
The table below shows the average age (in months) of the 305 active cases in inventory at the end of 2011, along with a
comparison of the number of active cases and their average ageat year-end for each year back to 2004. The table also shows the
same information for cases that were at least 6-months old or 1-year old (the latter being a subset of the former) at the end of
each year to allow comparison without potential distortions caused by year-to-year variations in the number of cases received in
the latter half or during the course of the year.
2012–16 I.R.B.816April 16, 2012

TABLE 9: NUMBER AND AVERAGE AGE OF ACTIVE CASES IN INVENTORY AT YEAR-END
20042005200620072008200920102011
Active cases130133110
105
161222243
305
Average age (months)
15.2
13.210.69.110.212.9
15.4
17.4
Active cases 6+ months106878166110176196248
Average age (months)17.8
18.5
13.013.0
13.515.6
18.321.2
Active cases 1+ year60
55
3227
51
116138
185
Average age (months)24.223.319.4
18.5
18.7
19.5
22.124.9
TABLE 10: SMALL BUSINESS TAXPAYER APAs
Small Business Taxpayer APAs Completed in 20103
New1
Renewals2
Unilateral1
Bilateral2
TABLE 11: MONTHS TO COMPLETE SMALL BUSINESS TAXPAYER APAs
Months to Complete Small Business Taxpayer APAs in 2011
NewRenewal
Combined
Average31.8Average17.2Average22.1
Median31.8Median17.2Median19.2
Although the APA Program strives to complete SBT cases on an expedited basis, our experience is that such cases require
nearly the same commitment of resources as non-SBT cases. This phenomenon may be explained by a number of factors,
including the fact that the complexity or novelty of transfer pricing issues do not necessarily depend on the dollar volume of the
related-party transactions, the lesser transfer pricing experience and/or resources of many SBTs, and the importance to both SBTs
and non-SBTs of achieving outcomes that reflect each taxpayer’s particular facts and circumstances (as opposed to an analysis
based on streamlined factual developmentand general transfer pricing principles). The Program completed three SBT RNPs
during 2011 with average and median lengths of 21.2 and 22.1 months, respectively.
April 16, 20128172012–16 I.R.B.

TABLE 12: INDUSTRIES COVERED
10
Industry Involved — NAICS Codes
Number
Computer and electronic manufacturing – 3347–9
Wholesale trade, durable goods – 4214–6
Miscellaneous manufacturing – 3394–6
Professional scientific and technical services – 545
4–6
Motor Vehicle and parts dealers – 4411–3
Wholesale Trade, non-durable goods – 4221–3
Transportation equipment manufacturing – 3361–3
Electronic equipment, appliance and component manufacturing – 335
1–3
Chemical manufacturing – 325
1–3
Machinery manufacturing – 3331–3
Publishing industries – 511
1–3
Information service and data processing services – 514
1–3
Fabricated metal manufacturing – 3321–3
Air transportation – 4811–3
Plastics and rubber products manufacturing – 3261–3
Securities, commodity contracts and other intermediary and related activities – 523
1–3
Sporting goods, hobby, book and music stores – 451
1–3
Broadcasting and telecommunications – 513
1–3
Broadcasting and telecommunications – 513
1–3
Heavy Construction – 2341–3
Paper manufacturing – 3221–3
Electronic and appliance stores – 4431–3
10
The categories in this table are drawn from the North American Industry Classification System (NAICS), which has replaced the U.S. Standard Industrial Classification (SIC) system.
NAICS was developed jointly by the United States, Canada, and Mexico to provide new comparability in statistics about business activity across NorthAmerica.
2012–16 I.R.B.818April 16, 2012

Trades or Businesses
[§ 521(b)(2)(D)(i)]
The nature of the relationships between the related organizations, trades, or businesses covered by APAs executed in 2011
set forth in Table 13 below:
TABLE 13: NATURE OF RELATIONSHIPS BETWEEN RELATED ENTITIES
RelationshipNumber of APAs
Foreign Parent — U.S. Subsidiary (-ies)26
Unilateral7
Bilateral19
U.S. Parent — Foreign Subsidiary (-ies)16
Unilateral≤3
Bilateral15
Foreign Company and U.S. branch(es)0
Covered Transactions
[§ 521(b)(2)(D)(ii)]
The controlled transactions covered by APAs executedin2011aresetforthinTables14and15below:
TABLE 14: TYPES OF COVERED TRANSACTIONS
Transaction Type
Number
Sale of tangible property into the United States22
Sale of tangible property from the United States
15
Performance of services by U.S. entity
15
Use of services by U.S. entity9
Use of intangible property by non-U.S. entity8
Use of intangible property by U.S. entity
5
Commodity trading on globally integrated basis≤3
Financial Products- non US parent/US Sub≤3
Financial Products-US branch of foreign company≤3
Other≤3
April 16, 20128192012–16 I.R.B.

TABLE 15: TYPES OF SERVICES INCLUDED IN COVERED TRANSACTIONS
Intercompany Services Involved in the Covered Transactions
Number
Distribution14
Technical support services12
Marketing9
Administrative7
IT7
Accounting and auditing7
Legal6
Management6
Sales support
5
Tax
5
Statistical assistance
5
Payroll4
Contract research & development4
Headquarters costs≤3
Warranty services≤3
Product support≤3
Logistical support≤3
Treasury activities≤3
Benefits≤3
Purchasing≤3
Corporate and public relations≤3
Health, Safety, Environmental, and regulatory affairs≤3
Staffing and recruiting≤3
Accounts receivable≤3
Budgeting≤3
Accounts payable≤3
Maquiladora Manufacturing≤3
Insurance claims Management≤3
2012–16 I.R.B.820April 16, 2012

Business Functions Performed and Risks Assumed
[§ 521(b)(2)(D)(ii)]
The general descriptions of the business functions performed and risks assumed by the organizations, trades, or businesses whose
results are tested in the Covered Transactions in the APAs executed in 2011 are set forth in Tables 16 and 17 below:
TABLE 16: FUNCTIONS PERFORMED BY THE TESTED PARTY
Functions Performed
Number
Distribution46
Product support services26
Marketing functions
15
Manufacturing
15
Research and development10
Product design and engineering9
Licensing of intangibles7
Product assembly or packaging6
Transportation and warehousing
5
Product testing and quality control
5
Managerial, legal, accounting, finance,personnel, and other support services
5
Trading and risk management of financial products
5
Purchasing and materials management≤3
Technical training and technical support≤3
Telecom Services≤3
Mining and extraction≤3
TABLE 17: RISKS ASSUMED BY THE TESTED PARTY
Risks Assumed
Number
Market risks, including fluctuations in costs, demand, pricing, and inventory60
Credit and collection risks46
General business risks (e.g., related to ownership of PP&E)37
Financial risks, including interest rates and currency24
Product liability risks22
Research and development risks8
April 16, 20128212012–16 I.R.B.

Discussion
The majority of APAs involve Covered Transactions featuring numerous business functions and risks. For instance, with respect
to functions, multinational groups that manufacture products typically conduct research and development (R&D), engage in
product design and engineering, manufacture the product, market and distribute the product, and perform support functions such
as legal, finance, and human resources services. These groups are subject to market risks, R&D risks, financial risks, credit and
collection risks, product liability risks, and general business risks. In the APA evaluation process, the APA team devotes a
significant amount of time and effort to understanding the allocation of functions and risks among the entities that are party to
the Covered Transactions.
In its APA submission, the taxpayer must provide a functional analysis. The functional analysis identifies the economic
activities performed, the assets employed, the economic costs incurred, and the risks assumed by each of the controlled parties.
The importance of the functional analysis derives from economic theory, which posits that returns vary in proportion to risk,
and that different economic functions contribute different value and have different opportunity costs associated with them. It
is important that the functional analysis be specific - simply categorizing a tested party as, say, a distributor, is not sufficient.
Not all distributors undertake similar functions and risks.
The functional analysis is critical in determining the appropriate TPM (including the selection of comparables, tested party, and
profit level indicator (PLI)). In conjunction with evaluating thefunctional analysis, the APA Program considers contractual terms
between the controlled parties, the allocation of risk betweenthe parties, the relevant economic conditions, and the type of
property or services at issue. In assessing contractual terms and risk allocations, the APA Program considers not only written
agreements between the parties, but also the economic substance of the transactions as indicated by the conduct of the parties over
time, the financial capacity of each party to fund losses arising from risks, and the managerial or operational control each party
exercises over activities giving rise to risk. Relevant economic conditions reviewed often include the geographic market, the level
of the market in which the functions are performed, and the business cycle or general economic condition of the industry.
During 2010 and 2011, the APA Program received numerous inquiries about the potentialeffect on existing and pending APAs of
the economic downturn and the major earthquake and tsunami that struck Japan in 2011. With respect to existing APAs, the APA
Program, in consultation with the USCA, has adopted a generalpolicy not to re-open closed cases in the absence of a Critical
Assumption on point.
11
The APA Program has dealt with pending APA applications (whether pending with the USCA or the APA
Program) on a case-by-case basis. Whether or not a special “down-economy adjustment” might be appropriate depends on a
variety of factors, including whether or not the tested party and the comparables have been similarly affected by the downturn, the
tested party’s historic risk profile and performance, and a taxpayer’s willingness to accept a symmetrical adjustment (e.g.,ina
renewal APA) when the economy improves. Approaches to the down economy that have been considered include changing the
APA term, waiting for more current financial data, using a different set of comparables, and/or applying a longer testing period.
The APA Program’s evaluation of the functional analysis also considers the assets or other resources employed by each controlled
party. In this evaluation, each party’s ownership or investment in intangible assets is often an important consideration.
11
See Table 21 and accompanying text.
2012–16 I.R.B.822April 16, 2012

Related Organizations, Trades, or BusinessesWhose Prices or Results Are Tested to Determine
Compliance with APA Transfer Pricing Methods
[§ 521(b)(2)(D)(iii)]
The related organizations, trades, or businesses whose prices orresults are tested to determine compliance with TPMs prescribed
in APAs executed in 2011 are set forth in Table 18 below:
TABLE 18: RELATED ORGANIZATIONS, TRADES, OR BUSINESSES WHOSE
PRICES OR RESULTS ARE TESTED
12
Type of Organization
Number
U.S. distributor
25
U.S. manufacturer20
U.S. provider of services11
Non-U.S. provider of services7
Non-U.S. distributor6
U.S. licensor of intangible property≤3
U.S. Licensee of intangible property≤3
Non-U.S. manufacturer≤3
12
“Multiple tested parties” includes covered transactions that utilize profit splits, CUPs, and CUTs.
April 16, 20128232012–16 I.R.B.

Transfer Pricing Methods and the Circumstances Leading to the Use of Those Methods
[§ 521(b)(2)(D)(iv)]
The TPMs used in APAs executed in 2011 are set forth in Tables 19 and 20 below:
TABLE 19: TRANSFER PRICING METHODS USED FOR TRANSFERS OF TANGIBLE
AND INTANGIBLE PROPERTY
13
TPM UsedNumber
CPM: PLI is operating margin30
Unspecified method12
CPM: PLI is markup on total costs7
CUT (intangibles only)≤3
Residual profit split≤3
Cost Plus Method (tangibles only)≤3
CUP (tangibiles only)- not based on market data≤3
CPM: PLI is other PLI≤3
CPM: PLI is Berry ratio≤3
CPM: PLI is return on assets or capital employed≤3
CPM:PLI is gross margin≤3
TABLE 20: TRANSFER PRICING METHODS USED FOR SERVICES
TPM UsedNumber
CPM: PLI is operating profit-to-total services cost ratio8
Cost of Services plus method≤3
Services Cost Method: Specified Covered Services≤3
CPM: PLI is Berry ratio≤3
Residual Profit Split Method≤3
Discussion
The TPMs used in APAs completed during 2011 were based on the section 482 regulations. Under Treas. Reg. § 1.482–3, the
arm’s length amount for controlled transfers of tangible property may be determined using the Comparable Uncontrolled Price
(CUP) Method, the Resale Price Method, the Cost Plus Method,the Comparable Profits Method (CPM), or the Profit Split
Method. Under Treas. Reg. § 1.482–4, the arm’s length amount for controlled transfers of intangible property may be determined
using the Comparable Uncontrolled Transaction (CUT) Method, the CPM, or the Profit Split Method. An “Unspecified Method”
may be used for transfers of either tangible or intangible property if it provides a more reliable result than the enumerated
methods under the best method rule of Treas. Reg. § 1.482–1(c).
13
PLIs used with the Comparable Profit Method of Treas. Reg. § 1.482–5, and as used in these TPM tables, are as follows: (1) operating margin (ratio of operating profit to sales); (2) Berry
ratio (ratio of gross profit to operating expenses); (3) gross margin (ratio of gross profit to sales); (4) markup on total costs (percentage markup ontotal costs); and (5) rate of return on assets
or capital employed (ratio of operating profit to operating assets).
2012–16 I.R.B.824April 16, 2012

For transfers involving the provision of services, Treas. Reg. § 1.482–9(a) provides that the arm’s length amount charged
must be determined under one of six specified methods or an unspecified method. The six specified methods are the Services
Cost Method, the Comparable Uncontrolled Services Price (CUSP) Method, the Gross Services Margin Method, the Cost of
Services Plus Method, the CPM, and the Profit Split Method. Treasury Reg. § 1.482–2(a) provides rules concerning the proper
treatment of loans or advances.
Treas. Reg. § 1.482–7 provides rules for costsharing arrangements under which the parties agree to share the costs of developing
intangibles in proportion to their shares of reasonably anticipated benefits. APAs involving cost sharing arrangements generally
address both the method of allocating costs among the parties as well as determining the appropriate amount of the payment
for “platform contribution transactions” (PCTs) (known as “buy ins” under the previous cost-sharing regulations). In 2011 the
APA Program completed its recommendations on three or fewer bilateral cost sharing/PCT cases and sent those to the USCA. In
addition, the APA Program is currently working on roughly 10 cases involving cost-sharing/PCTs, split almost evenly between
bilateral and unilateral. The PCT cases include both initial and subsequent buy-in/buy-out transactions. The methods used in
the completed and pending PCT cases include valuations based on the income method, including cases involving a split of the
discounted present value of platform contributions made by two or more parties, and other types of analyses.
In reviewing the TPMs applicable to transfers of tangible and intangible property reflected in Table 19, the majority of the APAs
followed the specified methods. However, several points should be noted. The section 482 regulations provide that for transfers
of tangible property, the CUP Method will generally be the mostdirect and reliable measure of an arm’s length price for the
controlled transaction if there are no differences between an uncontrolled transaction and the controlled transaction that would
affect the price, or if there are only minor differences that have a definite and reasonably ascertainable effect on price and for
which appropriate adjustments may be made. Treas. Reg. § 1.482–3(b)(2)(ii)(A). As in earlier years, it was the experience of the
APA Program in 2011 that qualifying CUP transactions were rare.
Similar to the CUP Method, for transfers of intangible property the CUT Method will generally provide the most direct and
reliable measure of an arm’s length result if an uncontrolled transaction involves the transfer of the same intangible under
the same, or substantially the same, circumstances as the controlled transaction. Treas. Reg. §1.482–4(c)(2)(ii). Under the
regulation, circumstances between the controlled and uncontrolled transaction will be considered substantially the same if there
are at most only minor differences that have a definite and reasonably ascertainable effect on the amount charged and for which
appropriate adjustments may be made.Id. It has generally been difficult to identify external comparables, and APAs using the
CUT Method tend to rely on internal uncontrolled transactions (i.e., those between the taxpayer and uncontrolled parties). In
2011, three Covered Transactions utilized the CUT TPM.
The APA team did not apply the Resale Price Method in 2011. See Treas. Reg. § 1.482–3(c), (d).
Both taxpayers and the IRS frequently apply the CPM in APAs because reliable public data on comparable business activities
of independent companies may be more readily available than potential CUP data, and comparability of resources employed,
functions, risks, and other relevant considerations is more likely to exist than comparability of product. The CPM also tends to be
less sensitive than other methods to differences in accounting practices between the tested party and comparable companies,e.g.,
classification of expenses as cost of goods sold or operating expenses. Treas. Reg. § 1.482–3(c)(3)(iii)(B) and (d)(3)(iii)(B). In
addition, the CPM generally requires a lesser degree of functional comparability to obtain a reliable result than that required under
the Resale Price Method or the Cost Plus Method. This difference in degree of functional comparability reflects differences in
functions performed, which often are reflected in operating expenses. Thus, taxpayers performing different functions may have
very different gross profit margins but earn similar levels of operating profit. Treas. Reg. § 1.482–5(c)(2).
Table 19 reflects at least 45 uses of the CPM (with varying PLIs) in Covered Transactions involving tangible or intangible
property. Some APAs used the CPM concurrently with other methods.
The CPM has proven to be versatile in part because of its various PLIs. The discussions in many cases involve identifying the
appropriate PLI, which in turn depends heavily on the facts andcircumstances of the particular case. Some APAs have applied
different PLIs to different parts of the Covered Transactionsor applied a secondary PLI as a check against the primary PLI.
The CPM was also used regularly with services as the CoveredTransactions in APAs executed in 2011. At least twenty-four
services Covered Transactions used the CPM Method, with various PLIs according to the specific facts of the taxpayers involved.
Three or fewer services-related APAs completed in 2011 applied the new Services Cost Method under the § 1.482–9 regulations.
Table 20 reflects the methods used to determine the arm’s length results for APAs involving services transactions.
April 16, 20128252012–16 I.R.B.

In 2011, three or fewer APAs involving tangible or intangible property used the Residual Profit Split Method. Treas. Reg.
§ 1.482–6(c)(3). In residual profit split cases, routine contributions by the controlled parties are allocated routine market returns,
and the residual income is allocated among the controlled taxpayers based upon the relative value of their contributions of
non-routine intangible property to the relevant business activity.
Profit splits have also been used in a number of financial product APAs in which the primary income-producing functions
are performed in more than one jurisdiction.
Critical Assumptions
[§ 521(b)(2)(D)(v)]
Critical Assumptions used in APAs executed in 2011 are described in Table 21 below:
TABLE 21: CRIT
ICAL ASSUMPTIONS
Critical Assumptions involving the following:Number of APAs
Material changes to tax and/or financial accounting practices42
Material changes to the business42
Assets will remain substantially same10
Other7
Other financial ratios≤3
Changes in affiliated companies≤3
Catastrophic events≤3
Currency fluctuations≤3
Discussion
APAs include critical assumptions underlying the application of the TPM. A critical assumption is any fact (whether or not within
the control of the taxpayer) related to the taxpayer, a third party, an industry, or business and economic conditions, the continued
existence of which is material to the taxpayer’s proposed TPM. Critical assumptions might include, for example, a particular
mode of conducting business operations, a particular corporate orbusiness structure, or a range of expected business volume. Rev.
Proc. 2006–09, § 4.05. Failure to meet a critical assumption may render an APA inappropriate or unworkable.Most APAs contain
only the standard critical assumption language set forth in Appendix B of the Model APA (Attachment A to this Announcement
and Report). Where appropriate, additional critical assumption language may be added, but the APA Program generally seeks to
limit additional critical assumption language to objective, measurable benchmarks.
A critical assumption may change or fail to materialize due to changes in economic circumstances, such as a fundamental and
dramatic change in the economic conditions of a particular industry. In addition,a critical assumption may change or fail to
materialize due to a taxpayer’s actions that are initiated for good faith business reasons, such as a change in business strategy,
mode of conducting operations, or the cessation or transfer of a business segment or entity covered by the APA.
If a critical assumption has not been met, the parties may agree to revise the APA. If such an agreement cannot be achieved, the
APA is canceled. If a critical assumption has not been met, the taxpayer must notify and discuss the APA terms with the Service,
and, in the case of a bilateral APA, competent authority consideration is initiated. Rev. Proc. 2006–09,§§ 11.05, 11.06.
2012–16 I.R.B.826April 16, 2012

Sources of Comparables, Selection Criteria, and the Nature of Adjustments to Comparables and Tested Parties
[§ 521(b)(2)(D)(v), (vi), and (vii)]
The sources of comparables, selection criteria, and rationale used in determining the selection criteria for APAs executed in
2011 are described in Tables 22 through 24 below. Various formulas for making adjustments to comparables are included as
Attachment B.
TABLE 22: SOURCES OF COMPARABLES
Comparable Sources
Number of Times This
Source Used
Compustat
54
Disclosure21
Mergent
15
No comparables used12
Moody’s
5
Amadeus4
Japan Accounts and Data on Enterprises (JADE)4
Damodaran4
Sources of comparables unidentified or unknown≤3
Taxpayer’s information on competition≤3
Global Vantage≤3
Osiris≤3
SEC≤3
Thompson financial≤3
Japan Company Handbook≤3
Other≤3
April 16, 20128272012–16 I.R.B.

TABLE 23: COMPARABLES SELECTION CRITERIA
Selection Criteria Considered
Number of Times This
Criterion Used
Comparable functions
65
Comparable risks
51
Comparable industry32
Comparable intangibles20
Comparable products23
Comparable terms17
2012–16 I.R.B.828April 16, 2012

TABLE 24: ADJUSTMENTS TO COMPARABLES OR TESTED PARTIES
AdjustmentNumber of Times Used
Balance sheet adjustments
Payables49
Receivables47
Inventory46
Property, plant, equipment12
Other≤3
Accounting adjustments
LIFO to FIFO inventory accounting40
Other
25
Accounting reclassifications (e.g., from COGS to operating expenses)≤3
Profit level indicator adjustments (used to “back into” one PLI from another PLI)
Operatiing expense≤3
Other≤3
Miscellaneous adjustments
Goodwill value or amortization8
Stock-based compensation7
Research and development≤3
Other4
Discussion
Comparables are at the core of most transfer pricing analysis. The APA Program works closely with taxpayers to find the best and
most reliable comparables for each Covered Transaction. Insome cases, the taxpayer and IRS can identify CUPs or CUTs. In
other cases, the APA team uses profit data on comparable business activities of independent companies to apply the CPM or a
Profit Split Method. Generally, in the APA Program’s experience since 1991, CUPs and CUTs have been most often derived
from the internal transactions of the taxpayer.
For profit-based methods in which comparable business activities or functions of independent companies are sought, the APA
Program typically selects them using a three-part process.First, the team identifies a pool of companies with potentially
comparable business activities through broad searches. From this pool, the team eliminates companies performing business
activities that are clearly not comparable to those of the tested party through the use of quantitative and qualitative analyses,i.e.,
quantitative screens and review of business descriptions. Then, the team finalizes a set of comparable independent companies
based on a review of available descriptive and financial data. The team then enhances the comparability of the final set by
adjusting its financial data.
Sources of Comparables
Comparables used in APAs can be from the United States or foreign countries, depending on the relevant market, the type of
transaction being evaluated, the availability of relevant data, and the results of the functional and risk analyses. In general,
comparables have been located by searching a variety of databases that provide data on U.S. publicly traded companies and
on a combination of public and private non-U.S. companies. Table 22 shows the various databases and other sources used
in selecting comparables for the APAs executed in 2011.
Although comparables were most often identified from the databases cited in Table 22, in some cases, comparables were found
from other sources, such as comparables derived internally from taxpayer transactions with third parties.
April 16, 20128292012–16 I.R.B.

Selecting Comparables
Initial pools of potential comparables generally are derived from the databases using a combination of industry and keyword
identifiers. Then, the pool is refined using a variety of selection criteria specific to the transaction or business activity being
tested and the TPM being used.
The listed databases allow for searches byindustrial classification, by keywords, or by both. These searches can yield a number of
companies whose business activities may or may not be comparable to those of the tested party. Therefore, comparables based
solely on industry classification or keyword searches are rarely used in APAs. Instead, the pool of comparables is examined
closely, and companies are selected based on a combination of screens, business descriptions, and other information such as
that found in the companies’ Annual Reports to shareholders and filings with the U.S. Securities and Exchange Commission
(SEC), company websites, and investment analyst reports.
Business activities of independent companies generally mustmeet certain basic comparability criteria to be considered
comparable. The independent company’s functions, risks, and economic conditions, and the property (product or intangible) and
services associated with the company’s business activities, must be comparable to those involved in the Covered Transaction.
Determining comparability requires judgment - the goal has beento use comparability criteria restrictive enough to eliminate
business activities that are not comparable, but yet not so restrictive as to leave no comparables remaining. The APA Program
normally has begun with relatively strict comparability criteria and then has relaxed them slightly if necessary to derive a pool
of reliable comparables. A determination on the appropriate size of the comparables set, as well as the business activities that
comprise the set, is highly fact-specific anddepends on the reliability of the results.
In addition, the APA Program, consistent with the section 482 regulations, generally has lookedat the results of comparables
over a multi-year period (the analysis window). Often this hasbeen a three-year or a five-year period, but other periods
are sometimes used depending on the circumstances of the controlled transaction. Using a shorter period might result in the
inclusion of comparables in different stages of economic development or use of atypical years of a comparable due to cyclical
fluctuations in business conditions.
The economic downturn and the major earthquake and tsunami that hit Japan in 2011 have focused particular attention on the
appropriate analysis window for APAs with terms that include 2008 and 2009, and to a lesser extent 2010 and 2011, given the
different economic conditions that may have confronted the comparables during the years comprising the analysis window, which
typically lags behind the years covered by an APA (e.g., the comparables results for 2005–09 may be used to test the taxpayer’s
results under the APA from 2008–2012). As noted in the discussion following Table 17, the APA Program has been dealing
with the economic downturn in various ways, including waiting for more current comparables’ financial data to develop a more
contemporaneous analysis window.
Many Covered Transactions are tested with comparables that havebeen chosen using additional criteria and/or screens. These
include sales level criteria and tests for financial distress and product comparability. These common selection criteria and screens
are used to increase the overall comparability of a group of companies and as a basis for further research. The sales level screen,
for example, has been used to remove companies that, due to their smaller size, might face fundamentally different economic
conditions from those of the tested party. Inaddition, APA analyses have incorporated selection criteria designed to identify
and remove companies experiencing “financial distress” because of concerns thatsuch companies face unusual circumstances
and operational constraints that limit comparability to the business activity being tested. These “financial distress” criteria may
include an unfavorable auditor’s opinion, bankruptcy, failure to comply with financial obligations (e.g., debt covenants), and, in
certain circumstances, operating losses in a given number of years.
An additional important class of selection criteria is the development and ownership of intangible property. In many cases the
tested party does not employ unique intangible assets or engage in intangible development. In such cases the APA team has
used several criteria to increase the chances that the comparables similarly do not own significant intangibles or conduct R&D.
These selection criteria have included determining the importance of patents to a company or screening for R&D expenditures
as a percentage of sales. Similar selection criteria may be applied to ensure, where appropriate, that the comparables do not
own or develop unique marketing intangibles such as distinctive trademarks. The APAteam uses quantitative screens related to
identifying comparables with significant intangible property together with publicly available business information.
APA teams sometimes use selection criteria relating to asset and/or operating expensecomparability. For example, a screen
of property, plant, and equipment (PP&E) as a percentage ofsales or assets, combined with a reading of a company’s SEC
filings, may help distinguish distributors (generally lower PP&E) from manufacturers (generally higher PP&E), regardless of
their industry. Similarly, a test involving the ratio of operating expenses to sales has helped to determine whether a company
undertakes a significant marketing and distribution function. Table 25 shows the number of times such screens were used
in APAs executed in 2011:
2012–16 I.R.B.830April 16, 2012

TABLE 25: COMPARABILITY AND FINANCIAL DISTRESS SCREENS
Comparability/Financial Distress ScreenTimes Used
Comparability screens used
R&D/sales37
Sales24
Other21
Foreign sales/total sales19
PP&E/sales7
PP&E total assets6
Operating expense/sales6
Non-startup or start-up≤3
SG&A/sales≤3
Sales to a specific customer type≤3
Financial distress
Bankruptcy31
Unfavorable auditor’s opinion
15
Losses in one or more years10
Other6
Adjusting Comparables
After the comparables have been selected, theregulations require that “[i]f there are material differences between the controlled
and uncontrolled transactions, adjustments must be made if the effect of such differences on prices or profits can be ascertained
with sufficient accuracy to improve the reliability of the results.” Treas. Reg. § 1.482–1(d)(2).In almost all cases involving
income-statement-based PLIs used in the CPMor the Residual Profit Split Method, the analyst calculates certain “asset intensity”
or “balance sheet” adjustments for factors that affect prices or profits.In addition, in specific cases, additional adjustments
are performed to improve reliability.
The most common balance sheet adjustments used in APAs are adjustments for differences in accounts receivable, inventories,
and accounts payable. The APA Program generally has required adjustments for receivables, inventory, and payables based on the
principle that differences in these items may affect prices or profits. For these items, it is generally assumed that the most reliable
measure of the difference is the interest rate on short-term debt.
To compare the profits of two business activities with different relative levels of receivables, inventory, or payables, the APA
Program estimates the carrying costs of eachitem and adjusts profits accordingly. Although different formulas have been used in
specific APA cases, Attachment B presents one set of formulas used in many APAs. Underlying these formulas are the notions
that (1) balance sheet items normally should be expressed as mid-year averages, (2) formulas should try to avoid using data items
that are being tested by the TPM (for example, if sales are controlled, then the denominator of the balance sheet ratio should not
be sales), (3) a short term interest rate should be used, and (4) an interest factor should recognize the average holding period of the
relevant asset. As it has since 2007, during the course of 2011, the APA Program used an interest rate equal to LIBOR (3 months)
plus 200 basis points for purposes of calculating adjustments for accounts receivable and accounts payable for U.S. companies
in many cases. In addition, the APA Program often used an interest rate equal to the Corporate Bonds (Moody’s) Baa rate for
purposes of calculating inventory adjustments for U.S. companies. However, the facts and circumstances surrounding a given
case will ultimately determine the reliability of balance sheet adjustments and the selection of the most appropriate interest rate.
The APA Program also requires that financial data be compared on a consistent accounting basis. For example, although financial
statements may be prepared on a first-in first-out (FIFO) basis,comparisons are less meaningful ifone or more of the comparables
use last-in first-out (LIFO) inventory accounting methods. This adjustment directly affects costs of goods sold and inventories,
and therefore affects both profitability measures and inventory adjustments.
April 16, 20128312012–16 I.R.B.

In some cases, the APA Program has made an adjustment to accountfor differences in relative levels of PP&E between a tested
business activity and the comparables. Ideally, comparables and the business activity being tested will have fairly similar relative
levels of PP&E, since major differences can be a sign of fundamentally different functions and risks. Typically, the PP&E
adjustment is made using a medium-term interest rate. During the course of 2011, the APA Program often used the Corporate
Bonds (Moody’s) Baa rate as the interest rate for purposes of calculating adjustments for inventory and PP&E for U.S. companies.
Again, however, the facts and circumstancessurrounding a given case will ultimately determine the reliability of making balance
sheet adjustments and the selection of the most reliable interest rate.
Additional adjustments used less frequently include those for differences in other balance sheet items, operating expenses, R&D,
and currency risk. Accounting adjustments, such as reclassifying items from cost ofgoods sold to operating expenses, are also
made when warranted to increase reliability. Often, data are not available for both the controlled and uncontrolled transactions
in sufficient detail to allow for these types of adjustments.
The adjustments made to comparables or tested parties inAPAsexecutedin2011arereflectedinTable24above.
Ranges, Targets, and Adjustment Mechanisms
[§ 521(b)(2)(D)(viii)-(ix)]
The types of ranges, targets, and adjustment mechanisms usedinAPAsexecutedin2011aredescribedinTables26and27below.
TABLE 26: RANGES AND TARGETS
14
Type of RangeNumber
Interquartile range30
Other18
Specific point (cost-plus specific mark up)7
Specific point within CPM range (not floor or ceiling)
5
Full range
5
Cost (no mark up-services)
5
Specific point (royalty)≤3
Specific point (CUP)≤3
Specific point (royalty)≤3
Ceiling (i.e., result must be no more than x)≤3
Financial products statistical confidenceinterval to test against internal CUPs≤3
14
The numbers do not include TPMs with cost or cost-plus methodologies.
2012–16 I.R.B.832April 16, 2012

TABLE 27: ADJUSTMENTS WHEN OUTSIDE THE RANGE
Adjustment mechanismNumber
Taxpayer makes an adjustment: to specified point or royalty rate24
Taxpayer makes an adjustment: to closest edge of single year23
Taxpayer makes an adjustment: to closest edge of multi-year average22
Competent Authority negotiation6
Taxpayer makes an adjustment: to median of current year≤3
Cost plus mark up≤3
Taxpayer makes an adjustment:to median of multi-year average≤3
Taxpayer makes an adjustment: to a specific dollar amount≤3
Covered Transaction no longer covered but APA not cancelled≤3
Discussion
Treas. Reg. § 1.482–1(e)(1) states that sometimes a pricing method will yield “a single result that is the most reliable measure of
an arm’s length result.” Sometimes, however, a method may yield “arange of reliable results,” referred to as the “arm’s length
range.” A taxpayer whose results fall within the arm’s length range will not be subject to adjustment.
Under Treas. Reg. § 1.482–1(e)(2)(i), such a range is normally derived by considering a set of more than one comparable
uncontrolled transaction of similar comparability and reliability. If these comparables are of very high quality, as defined in
the section 482 regulations, then under Treas. Reg. § 1.482–1(e)(2)(iii)(A), the arm’s length range includes the results of all
of the comparables (from the lowest to the highest). However, the APA Program has only rarely identified cases meeting the
requirements for using the full range. If the comparables are of lesser quality, thenunder Treas. Reg. § 1.482–1(e)(2)(iii)(B),
“the reliability of the analysis must be increased, when it is possible to do so, by adjusting the range through application of a
valid statistical method to the results of all of the uncontrolled comparables.” One such method, the “interquartile range,” is
ordinarily acceptable, although a different statistical method “may be applied if it provides a more reliable measure.” The
interquartile range is defined as, roughly, the range from the 25th to the 75th percentile of the comparables’ results. See Treas.
Reg. § 1.482–1(e)(2)(iii)(C). The interquartile range was used thirty times in 2011.
Twelve Covered Transactions reflected onTable26weretestedagainstasingle,specific result. Some APAs - deliberately
infrequent - specify not a point or a range, but a “floor” or a “ceiling.” When a floor is used, the tested party’s result must be
greater than or equal to some particular value. When a ceiling is used, the tested party’s result must be less than or equal to some
particular value. Three or fewer APAs executed in 2011 used a ceiling; no APAs executed in 2011 used a floor.
Some APAs examine a tested party’s resultsover a period of years (multi-year averaging) to determine whether a taxpayer has
complied with the APA. In 2011, rolling multi-year averaging was not used for any Covered Transactions.
Adjustments
Where a taxpayer’s actual transactions do not produce results that conform to the TPM, the taxpayer must nonetheless report its
taxable income in an amount consistent with the TPM (an APA primary adjustment), as further discussed in § 11.02 of Rev.
Proc. 2006–09. When the TPM specifies an arm’s length range, an APA primary adjustment is necessary only if the taxpayer’s
actual transactional result falls outside the specified range.
Under Treas. Reg. § 1.482–1(e)(3), if a taxpayer’s results fall outside the arm’s length range, the IRS may adjust the result “to
any point within the arm’s length range.” Accordingly, an APA may permit or require a taxpayer to make an adjustment after
the year’s end to put the year’s results within the range, or at thepoint specified by the APA. Similarly, to enforce the terms of
an APA, the IRS may make such an adjustment. When the APA specifies a range, the adjustment is sometimes to the closest
edge of the range, and sometimes to another point such as the median of the interquartile range. Depending on the facts of each
case, automatic adjustments are not always permitted. APAs mayspecify that in such a case there will be a negotiation between
the competent authorities involved to determine whether and to what extent an adjustment should be made. APAs may permit
automatic adjustments unless the result is far outside the range specified in the APA. Thus, APAs provide flexibility and efficiency,
permitting adjustments when normal business fluctuations and uncertainties push the result somewhat outside the range.
April 16, 20128332012–16 I.R.B.

APA Term and Rollback Lengths
[§ 521(b)(2)(D)(x)]
The various term lengths for APAs executed in 2011 are set forth in Table 28 below:
TABLE 28: TERMS OF APAS
APA Term in YearsNumber of APAs
3≤3
4≤3
5
20
68
76
8≤3
9≤3
The number of rollback years to which an APA TPM was applied in 2011 is set forth in Table 29 below:
TABLE 29: NUMBER OF YEARS COVERED BY ROLLBACK OF APA TPM
Number of Rollback YearsNumber of APAs
1≤3
24
36
5ormore
≤3
Together, Tables 28 and 29 indicate that the 43 APAs (including one amended APA) completed in 2011 covered more than 270
taxable years, and potentially more than 300 taxable years. In terms of dollar value, 26 of the 43 completed APAs involved
Covered Transactions exceeding $100 million per year, with 21 APAs covering transactions exceeding $250 million per year.
Combining the total covered years and the total dollar-value of Covered Transactions represents one measure of the effectiveness
of the APA Program.
2012–16 I.R.B.834April 16, 2012

Nature of Documentation Required
[§ 521(b)(2)(D)(xi)]
APAs executed in 2011 required that taxpayers provide various documents with their annual reports. These documents are
described in Table 30 below:
TABLE 30: NATURE OF DOCUMENTATION REQUIRED
DocumentationNumber
Statement identifying all material differences between Taxpayer’s business operations during APA Year
and description of Taxpayer’s business operations contained in Taxpayer’s request for APA, or if there
have been no such material differences, a statement to that effect.
42
Statement of all material changes in the Taxpayer’s accounting methods and classifications, and
methods of estimation, from those described or used in Taxpayer’s request for the APA. If there has
been no material change in accountings methods andclassifications or methods of estimation, a
statement to that effect.
42
Description of any failure to meet Critical Assumptions or, if there have been none, a statement to
that effect.
42
Copy of the APA42
Financial analysis demonstrating Taxpayer’s compliance with TPM.42
Organizational chart42
Any change to the taxpayer notice information in section 14 of the APA.42
The amount, reason for, and financial analysis of any compensating adjustment under Paragraph 4 of
Appendix A and Rev. Proc. 2006–9, § 11.02(3), for the APA year, including but not limited to: the
amounts paid or received by each affected entity; the character (such as capital or ordinary expense)
and country source of the funds transferred, and the specific line item(s) of any affected U.S. tax return;
and any change to any entity classification for federal income tax purposes of any member of the
Taxpayer’s group that is relevant to the APA.
42
The amounts, description, reason for, and financial analysis of any book-tax difference relevant to the
TPM for the APA Year, as reflected on Schedule M–1 or Schedule M–3 of the U.S. return for the
APA Year.
42
Financial Statements and any necessary account detail to show compliance with the TPM, with a copy
of the opinion from an independent CPA required by paragraph 5(f) of the APA.
42
Certified public accountant’s opinion that financial statements present fairly the financial position of
Taxpayer and the results of its operations, in accordance with a foreign GAAP.
≤3
Financial statements as prepared in accordance with a foreign GAAP≤3
Various work papers≤3
Certified public account’s review of financial statements≤3
April 16, 20128352012–16 I.R.B.

Approaches for Sharing of Currency or Other Risks
[§ 521(b)(2)(D)(xii)]
During 2011, twenty-four tested parties faced financial risks, including interest rate and currency risks. In appropriate cases, APAs
may provide specific approaches for dealing with currency risk, such as adjustment mechanisms and/or critical assumptions.
Efforts to Ensure Compliance with APAs
[§ 521(b)(2)(F)]
As described in Rev. Proc. 2006–09, § 11.01, APA taxpayers are required to file annual reports to demonstrate compliance with
the terms and conditions of the APA. The filing and review of annual reports is a critical part of the APA process. Through annual
report review, the APA Program monitors taxpayer compliance with the APA on a contemporaneous basis. Annual report review
provides current information on the success or problems associated with the various TPMs adopted in the APA process.
All reports received by the APA Program are assigned to a designated APA team leader. Whenever possible, annual report
reviews are assigned to the team leader who negotiated the case, who is already be familiar with the relevant facts and terms of the
agreement. Other team leaders and economists may assist the assigned team leader as well. Once received by the APA Program,
the annual report is also sent to the field personnel with exam jurisdiction over the taxpayer.
The statistics for the review of APA annual reports are reflected in Table 31 below. As of December 31, 2011, there were 251
pending annual reports. In 2011, 349 annual reports were closed.
TABLE 31: STATISTICS OF ANNUAL REPORTS
Number of APA annual reports pending as of December 31, 2011
251
Number of APA annual reports closed in 2011349
Number of APA annual reports requiring adjustment in 20110
Number of taxpayers involved in adjustments0
Number of APA annual report cases over one-year old142
2012–16 I.R.B.836April 16, 2012

Attachment A
Model APA — Based on Revenue Procedure 2006–9
ADVANCE PRICING AGREEMENT
between
[Insert Taxpayer’s Name]
and
THE INTERNAL REVENUE SERVICE
PARTIES
The Parties to this Advance Pricing Agreement (APA) are the Internal Revenue Service (IRS) and [Insert Taxpayer’s Name],
EIN
.
RECITALS
[Insert Taxpay
er Name] is the common parent of an affiliated group filing consolidated U.S. tax returns (collectively referred to
as “Taxpayer”)
, and is entering into this APA on behalf of itself and other members of its consolidated group.
Taxpayer’s pri
ncipal place of business is [City, State]. [Insert general description of taxpayer and other relevant parties].
This APA contai
ns the Parties’ agreement on the best method for determining arm’s-length prices of the Covered Transactions
under I.R.C. se
ction 482, any applicable tax treaties, and the Treasury Regulations.
{If renewal, add}[Taxpayer and IRS previously entered into an APA covering taxable years ending
to,
executed on
.]
AGREEMENT
The Parties agree as follows:
1.Covered Transactions.This APA applies to the Covered Transactions, as defined in Appendix A.
2.Transfer Pricing Method.Appendix A sets forth the Transfer Pricing Method (TPM) for the Covered Transactions.
3.Term. This APA applies to Taxpayer’s taxable years ending
through(APA Term).
4.Operation
a. Revenue Procedure 2006–9 governs the interpretation, legal effect, and administration of this APA.
b. Nonfactual o
ral and written representations, within the meaning of sections 10.04 and 10.05 of Revenue Procedure 2006–9
(including any
proposals to use particular TPMs), made in conjunction with the APA Request constitute statements made in
compromise neg
otiations within the meaning of Rule 408 of the Federal Rules of Evidence.
5.Compliance.
a. Taxpayer must report its taxable income in an amount that isconsistent with Appendix A and all other requirements of this
APA on its timely filed U.S. Return. However, if Taxpayer’s timely filed U.S. Return for an APA Year is filed prior to, or no later
than 60 days after, the effective date of this APA, then Taxpayer must report its taxable income for that APA Year in an amount that
is consistent with Appendix A and all other requirements of this APA either on the original U.S. Return or on an amended U.S.
Return filed no later than 120 days after the effective date of this APA, or through such other means as may be specified herein.
b. {Insert when U.S. Group or Foreign Group contains more than one member.}[This APA addresses the arm’s-length
nature of prices charged or received in theaggregate between Taxpayer and ForeignParticipants with respect to the Covered
Transactions. Except as explicitly provided, this APA does notaddress and does not bind the IRS with respect to prices charged
or received, or the relative amounts of income or loss realized, by particular legal entities that are members of U.S. Group or
that are members of Foreign Group.]
c. For each taxable year covered by this APA (APA Year), if Taxpayer complies with the terms and conditions of this APA, then
the IRS will not make or propose any allocation or adjustment under I.R.C. section 482 to the amounts charged in the aggregate
between Taxpayer and Foreign Participant[s]with respect to the Covered Transactions.
April 16, 20128372012–16 I.R.B.

d. If Taxpayer does not comply with the terms and conditions of this APA, then the IRS may:
i. enforce the terms and conditions of this APA and make or propose allocations or adjustments under I.R.C. section 482
consistent with this APA;
ii. cancel or revoke this APA under section 11.06 of Revenue Procedure 2006–9; or
iii. revise this APA, if the Parties agree.
e. Taxpayer must timely file an Annual Report (an original and four copies) for each APA Year in accordance with Appendix C
and section 11.01 of Revenue Procedure 2006–9. Taxpayer must file the Annual Report for all APA Years through the APA Year
ending [insert year] by [insert date]. Taxpayer must file the Annual Report for each subsequent APA Year by [insert month and
day] immediately following the close of that APA Year. (If any date falls on a weekend or holiday, the Annual Report shall be
due on the next date that is not a weekend or holiday.) The IRS may request additional information reasonably necessary to
clarify or complete the Annual Report. Taxpayer will provide such requested information within 30 days. Additional time may
be allowed for good cause.
f. The IRS will determine whether Taxpayer has complied with this APA based on Taxpayer’s U.S. Returns, Financial
Statements, and other APA Records, for the APA Term and any other year necessary to verifycompliance. For Taxpayer to
comply with this APA, an independent certified public accountant must{use the following or an alternative}render an opinion
that Taxpayer’s Financial Statements present fairly, in all material respects, Taxpayer’s financial position under U.S. GAAP.
g. In accordance with section 11.04 of Revenue Procedure 2006–9, Taxpayer will (1) maintain its APA Records, and (2) make
them available to the IRS in connection with an examination under section 11.03. Compliance with this subparagraph constitutes
compliance with the record-maintenanceprovisions of I.R.C. sections 6038A and 6038C for the Covered Transactions for any
taxable year during the APA Term.
h. The True Taxable Income within the meaning of Treasury Regulations sections 1.482–1(a)(1) and (i)(9) of a member of an
affiliated group filing a U.S. consolidated return will be determined under the I.R.C. section 1502 Treasury Regulations.
i.{Optional for US Parent Signatories}To the extent that Taxpayer’s compliance with this APA depends on certain acts of
Foreign Group members, Taxpayer will ensure thateach Foreign Group member will perform such acts.
6.Critical Assumptions.This APA’s critical assumptions, within the meaning of Revenue Procedure 2006–9, section 4.05, appear
in Appendix B. If any critical assumption has not been met, then Revenue Procedure 2006–9, section 11.06, governs.
7.Disclosure.This APA, and any background information related to this APA or the APA Request, are: (1) considered “return
information” under I.R.C. section 6103(b)(2)(C); and (2) not subject to public inspection as a “written determination” under I.R.C.
section 6110(b)(1). Section 521(b) of Pub. L. 106–170 provides that the Secretary of the Treasury must prepare a report for public
disclosure that includes certain specifically designated information concerning all APAs, including this APA, in a form that does
not reveal taxpayers’ identities, trade secrets, and proprietary or confidential business or financial information.
8.Disputes.If a dispute arises concerning the interpretation of this APA, the Parties will seek a resolution by the IRS Associate
Chief Counsel (International) to the extent reasonably practicable, before seeking alternative remedies.
9.Materiality.In this APA the terms “material” and “materially” will be interpreted consistently with the definition of “material
facts” in Revenue Procedure 2006–9, section 11.06(4).
10.Section Captions.This APA’s section captions, which appear initalics, are for convenience and reference only. The captions
do not affect in any way the interpretation or application of this APA.
11.Terms and Definitions. Unless otherwise specified, terms in the plural include the singular and vice versa. Appendix D
contains definitions for capitalized terms not elsewhere defined in this APA.
12.Entire Agreement and Severability.This APA is the complete statement of the Parties’ agreement. The Parties will sever,
delete, or reform any invalid or unenforceable provision in this APA to approximate the Parties’ intent as nearly as possible.
13.Successor in Interest.This APA binds, and inures to the benefitof, any successor in interest to Taxpayer.
2012–16 I.R.B.838April 16, 2012

14.Notice.Any notices required by this APA or Revenue Procedure 2006–9 must be in writing. Taxpayer will send notices to the
IRS at the address and in the manner set forth in Revenue Procedure 2006–9, section 4.11. The IRS will send notices to:
Taxpayer Corporation
Attn: Jane Doe, Sr. Vice President (Taxes)
1000 Any Road
Any City, USA 10000
(phone:
)
15.Effective Date and Counterparts.This APA is effective starting on the date, or later date of the dates, upon which all Parties
execute this APA. The Parties may execute this APA in counterparts, with each counterpart constituting an original.
WITNESS,
The Parties have executed this APA on the dates below.
[Taxpayer Name in all caps]
By:
Date:,20
Jane Doe
Sr. Vice President (Taxes)
IRS
By:
Date:,20
John E. Hinding
Director, Advance Pricing Agreement Program
APPENDIX A
COVERED TRANSA
CTIONS AND TRANSFER PRICING METHOD (TPM)
1. Covered Transactions.
[Define the Covered Transactions.]
2. TPM.
{Note: If appropriate, adapt language from the following examples.}
[The Tested Party is
.]
•CUP Method
The TPM is the co
mparable uncontrolled price (CUP) method. The Arm’s Length Range of the price charged for
is betweenandp
er unit.
•CUT Method
The TPM is the CUT Method. The Arm’s Length Range of the royalty charged for the license ofis between
%and% of [Taxpayer’s, Foreign Participants’, or other specified party’s] Net Sales Revenue. [Insert definition of net
sales revenue or other royalty base.]
•Resale Price Method (RPM)
The TPM is the resale price method (RPM). The Tested Party’s Gross Margin for any APA Year is defined as follows: the
Tested Party’s gross profit divided by its sales revenue (as those terms are defined in Treasury Regulations section 1.482–5(d)(1)
and (2)) for that APA Year. The Arm’s Length Range is between
%and%, and the Median of the Arm’s Length
Range is
%.
April 16, 20128392012–16 I.R.B.

•Cost Plus Method
The TPM is the cost plus method. The Tested Party’s Cost Plus Markup is defined as follows for any APA Year: the Tested
Party’s ratio of gross profit to production costs (as those terms are defined in Treasury Regulations section 1.482–3(d)(1)
and (2)) for that APA Year. The Arm’s Length Range is between
%and%, and the Median of the Arm’s Length
Range is
%.
•CPM with Berry Ratio PLI
The TPM is the comparable profits method (CPM). The profit level indicator is a Berry Ratio. The Tested Party’s Berry
Ratio is defined as follows for any APA Year: the Tested Party’s gross profit divided by its operating expenses (as those terms are
defined in Treasury Regulations section 1.482–5(d)(2) and (3)) for that APA Year. The Arm’s Length Range is between
and, and the Median of the Arm’s Length Range is.
•CPM using an Operating Margin PLI
The TPM is the comparable profits method (CPM). The profit level indicator is an operating margin. The Tested Party’s
Operating Margin is defined as follows for any APA Year: the Tested Party’s operating profit divided by its sales revenue (as
those terms are defined in Treasury Regulations section 1.482–5(d)(1) and (4)) for that APA Year. The Arm’s Length Range is
between
%and%, and the Median of the Arm’s Length Range is%.
•CPM using a Three-year Rolling Average Operating Margin PLI
The TPM is the comparable profits method (CPM). The profit level indicator is an operating margin. The Tested Party’s
Three-Year Rolling Average operating margin is defined as follows for any APA Year: the sum of the Tested Party’s operating
profit (within the meaning of Treasury Regulations section 1.482–5(d)(4) for that APA Year and the two preceding years, divided
by the sum of its sales revenue (within the meaning of Treasury Regulations section 1.482–5(d)(1)) for that APA Year and the two
preceding years. The Arm’s Length Range is between
%and%, and the Median of the Arm’s Length Range is%.
•Residual Profit Split Method
The TPM is the residual profit split method. [Insert description of routine profit level determinations and residual
profit-split mechanism].
[Insert additional provisions as needed.]
3. Application of TPM.
For any APA Year, if the results of Taxpayer’s actual transactions produce a [price per unit, royalty rate for the Covered
Transactions] [or] [Gross Margin, Cost Plus Markup, Berry Ratio, Operating Margin, Three-Year Rolling Average Operating
Margin for the Tested Party] within the Arm’s Length Range, then the amounts reported on Taxpayer’s U.S. Return must
clearly reflect such results.
For any APA year, if the results of Taxpayer’s actual transactions produce a [price per unit, royalty rate] [or] [Gross Margin,
Cost Plus Markup, Berry Ratio, Operating Margin, Three-Year Rolling Average Operating Margin for the Tested Party] outside
the Arm’s Length Range, then amounts reported on Taxpayer’s U.S. Return must clearly reflect anadjustment that brings the
[price per unit, royalty rate] [or] [Tested Party’s Gross Margin, Cost Plus Markup, Berry Ratio, Operating Margin, Three-Year
Rolling Average Operating Margin] to the Median.
For purposes of this Appendix A, the “results of Taxpayer’s actual transactions” means the results reflected in Taxpayer’s and
Tested Party’s books and records as computed under U.S. GAAP [insert another relevant accounting standard if applicable], with
the following adjustments:
(a) [The fair value of stock-based compensation as disclosed in the Tested Party’s audited financial statements shall be treated as
an operating expense]; and
(b) To the extent that the results in any prior APA Year are relevant (for example, to compute a multi-year average), such results
shall be adjusted to reflect the amount of any adjustment made for that prior APA Year under this Appendix A.
4. APA Revenue Procedure Treatment
If Taxpayer makes a primary adjustment under the terms of this Appendix A, Taxpayer mayelect APA Revenue Procedure
Treatment in accordance with section 11.02(3) of Revenue Procedure 2006–9.
[Insert additional provisions as needed.]
2012–16 I.R.B.840April 16, 2012

APPENDIX B
CRITICAL ASSUMPTIONS
This APA’s critical assumptions are:
1. The business activities, functions performed, risks assumed,assets employed, and financial and tax accounting methods and
classifications [and methods of estimation]of Taxpayer in relation to the Covered Transactions will remain materially the same as
described or used in Taxpayer’s APA Request. A mere change in business results will not be a material change.
[Insert additional provisions as needed.]
APPENDIX C
APA RECORDS AND ANNUAL REPORT
APA RECORDS
The APA Records will consist of:
1. All documents listed below for inclusion in the Annual Report,as well as all documents, notes, work papers, records, or other
writings that support the information provided in such documents.
ANNUAL REPORT
The Annual Report will include two copies of a properly completed APA Annual Report Summary in the form of Exhibit E to this
APA, one copy of the form bound with, and one copy bound separately from, the rest of the Annual Report. In addition, the
Annual Report will include a table of contents and the information and exhibits identified below, organized as follows.
1. Statements that fully identify,describe, analyze, and explain:
a. All material differences between any of the U.S. Entities’ business operations (including functions, risks assumed, markets,
contractual terms, economic conditions, property, services, and assets employed) during the APA Year and the description of
the business operations contained in the APA Request. If there have been no material differences, the Annual Report will
include a statement to that effect.
b. All material changes in the U.S. Entities’ accounting methods and classifications, and methods of estimation, from those
described or used in Taxpayer’s request for this APA. If any such change was made to conform to changes in U.S. GAAP (or
other relevant accounting standards), Taxpayer will specifically identify such change. If there has been no material change in
accounting methods and classifications or methods of estimation, the Annual Report will include a statement to that effect.
c. Any change to the Taxpayer notice information in section 14 of this APA.
d. Any failure to meet any critical assumption. If there hasbeen no failure, the Annual Report will include a statement
to that effect.
e. Any change to any entity classification for federal income taxpurposes (including any change that causes an entity to be
disregarded for federal income tax purposes) of any Worldwide Group member that is a party to the Covered Transactions or
is otherwise relevant to the TPM.
f. The amount, reason for, and financial analysis of any compensating adjustments under paragraph 4 of Appendix A and
Revenue Procedure 2006–9, section 11.02(3), for the APA Year, including but not limited to:
i. the amounts paid or received by each affected entity;
ii. the character (such as capital, ordinary, income, expense) and country source of the funds transferred, and the specific
affected line item(s) of any affected U.S. Return; and
iii. the date(s) and means by which the payments are or will be made.
g. The amounts, description, reason for,and financial analysis of any book-tax difference relevant to the TPM for the APA
Year, as reflected on Schedule M–1 or Schedule M–3 of the U.S. Return for the APA Year.
2. The Financial Statements, and any necessary account detailto show compliance with the TPM, with a copy of the independent
certified public accountant’s opinion required by paragraph 5(f) of this APA.
April 16, 20128412012–16 I.R.B.

3. A financial analysis that reflects Taxpayer’s TPM calculations for the APA Year. The calculations must reconcile with and
reference the Financial Statements in sufficient account detail to allow the IRS to determine whether Taxpayer has complied
with the TPM.
4. An organizational chart for the Worldwide Group, revised annually to reflect all ownership or structural changes of entities
that are parties to the Covered Transactions or are otherwise relevant to the TPM.
5. A copy of the APA.
APPENDIX D
DEFINITIONS
The following definitions control for all purposes of this APA. The definitions appear alphabetically below:
TermDefinition
Annual ReportA report within the meaning of Revenue Procedure 2006–9, section 11.01.
APAThis Advance Pricing Agreement, which is an “advance pricing agreement” within the
meaning of Revenue Procedure 2006–9, section 2.04.
APA RecordsThe records specified in Appendix C.
APA RequestTaxpayer’s request for this APA dated, including any amendments or
supplemental or additional information thereto.
Covered Transaction(s)This term is defined in Appendix A.
Financial StatementsFinancial statements preparedin accordance with U.S. GAAP and stated in U.S. dollars.
Foreign GroupWorldwide Group members that are not U.S. persons.
Foreign Participants[namethe foreign entities involved in Covered Transactions].
I.R.C.The Internal Revenue Code of 1986, 26 U.S.C., as amended.
Pub. L. 106–170The Ticket to Work and Work Incentives Improvement Act of 1999.
Revenue Procedure 2006–9Rev. Proc. 2006–9, 2006–1 C.B. 278.
Transfer Pricing Method (TPM)Atransfer pricing method within the meaning of Treasury Regulations section 1.482–1(b)
and Revenue Procedure 2006–9, section 2.04.
U.S. GAAPU.S. generally-accepted accounting principles.
U.S. GroupWorldwide Group members that are U.S. persons.
U.S. ReturnFor each taxable year, the “returns with respect to income taxes under subtitle A” that
Taxpayer must “make” in accordance with I.R.C. section 6012. {Or substitute for
partnership:For each taxable year, the “return” that Taxpayer must “make” in accordance
with I.R.C. section 6031.}
Worldwide GroupTaxpayer and all organizations, trades, businesses, entities, or branches (whether or not
incorporated, organized in the United States,or affiliated) owned or controlled directly or
indirectly by the same interests.
2012–16 I.R.B.842April 16, 2012

APPENDIX E
APA ANNUAL REPORT SUMMARY FORM
The APA Annual Report Summary on the next page is a required APA Record. The APA Team Leader has supplied some of
the information requested on the form. Taxpayer is to supply the remaining information requested by the form and submit the
form as part of its Annual Report.
APA Annual
Report
SUMMARY
Department of the Treasury—
Internal Revenue Service
Office of Associate Chief Counsel
(International)
Advance Pricing Agreement Program
APA no.
Team Leader
Economist
Intl Examiner
CA Analyst
Taxpayer Name:
Taxpayer EIN:NAICS:
APA Term: Taxable years endingto.
Original APA [ ] Renewal APA [ ]
Annual Report due dates:
,200for all APA Years through APA Year ending in 200; for each APA Year
thereafter, on
[month and day] immediately following the close of the APA Year.
Principal foreign country(ies) involved in covered transaction(s):
Type of APA: [ ] unilateral [ ] bilateral with
Tested party is [ ] US [ ] foreign [ ] both
Approximate dollar volume of covered transactions (on an annual basis) involving tangible goods
and services:
[ ] N/A [ ] <$50 million [ ] $50–100 million [ ] $100–250 million [ ] $250–500 million
[ ] >$500 million
APA tests on (check all that apply):
[]annualbasis[]multi-year basis [ ] term basis
APA provides (check all that apply) a:
[ ] range [ ] point [ ] floor only [ ] ceiling only [ ] other
APA Information
APA provides for adjustment (check all that apply) to:
[ ] nearest edge [ ] median [ ] other point
April 16, 20128432012–16 I.R.B.

APA date executed:,200
This APA Annual Report Summary is for APA Year(s) ending in 200and was filed on,
200
Check here [ ] if Annual Report was filed after original due date but in accordance with extension.
Has this APA been amended or changed? [ ] yes [ ] noEffective Date:
Has Taxpayer complied with all APA terms and conditions? [ ] yes [ ] no
Were all the critical assumptions met? [ ] yes [ ] no
Has a Primary Compensating Adjustment been made in any APA Year covered by this Annual
Report?
[ ] yes [ ] noIf yes, which year(s): 200
Have any necessary Secondary Compensating Adjustments been made? [ ] yes [ ] no
Did Taxpayer elect APA Revenue Procedure treatment? [ ] yes [ ] no
Any change to the entity classification of a party to the APA? [ ] yes [ ] no
Taxpayer notice information contained in the APA remains unchanged? [ ] yes [ ] no
APA Annual
Report
Information
(to be completed
by the Taxpayer)
Taxpayer’s current US principalplace of business: (City, State)
Financial analysis reflecting TPM calculations[ ] yes [ ] no
Financial statements showing compliance with TPM(s)[ ] yes [ ] no
Schedule M–1 or M–3 book-tax differences[ ] yes [ ] no
Current organizational chart of relevant portion of world-wide group[ ] yes [ ] no
Attach copy of APA[ ] yes [ ] no
Other APA records and documents included:
[The information required in the following section should be tailored to the particular case]
[]yes[]no
[]yes[]no
[]yes[]no
[]yes[]no
APA Annual
Report
Checklist of
Key Contents
(to be completed
by the Taxpayer)
[]yes[]no
Authorized RepresentativePhoneNumberAffiliation and Address
Contact
Information
2012–16 I.R.B.844April 16, 2012

ATTACHMENT B
EXAMPLE FORMULAS FOR BALANCE SHEET ADJUSTMENTS
The formulas below provide examples of the balance sheet adjustment formulas used in the APA Program’s CPM spreadsheet
model.
15
The formulas below are applicable to the operating margin profit level indicator. The APA Program’s calculations
measure balance sheet intensity by reference to the denominator of the profit level indicator (e.g., for the Berry ratio, the
denominator used is operating expenses). Therefore, the formulas vary for each profit level indicator.
D
efinitionsofVariables:
AP= average accounts payable
AR= average trade accounts receivable, net of allowance for bad debt
cogs= cost of goods sold
INV= average inventory, stated on FIFO basis
opex= operating expenses (general, sales, administrative, and depreciation expenses)
PPE= property, plant, and equipment,net of accumulated depreciation
sales= net sales
h= average accounts payable or trade accounts receivable holding period, stated as a fraction of a year
i= interest rate
t= entity being tested
c= comparable
E
quations:
Example Assuming Profit Level Indicator is Operating Margin:
Receivables Adjustment (“RA”):RA = {[(AR
t
/ sales
t
)xsales
c
]-AR
c
}x{i/[1+(ixh
c
)]}
Payables Adjustment (“PA”):PA = {[(AP
t
/ sales
t
)xsales
c
]-AP
c
}x{i/[1+(ixh
c
)]}
Inventory Adjustment (“IA”):IA = {[(INV
t
/ sales
t
)xsales
c
]-INV
c
}xi
PP&E Adjustment (“PPEA”):PPEA = {[(PPE
t
/ sales
t
)xsales
c
] - PPE
c
}xi
Then Adjust Comparables as Follows:
adjusted sales
c
= sales
c
+RA
adjusted cogs
c
= cogs
c
+PA-IA
adjusted opex
c
= opex
c
- PPEA
Deletions From Cumulative
List of Organizations
Contributions to Which
are Deductible Under Section
170 of the Code
Announcement 2012–18
The Internal Revenue Service has re-
voked its determination that the organi-
zations listed below qualify as organiza-
tions described in sections 501(c)(3) and
170(c)(2) of the Internal Revenue Code of
1986.
Generally, the Service will not disallow
deductions for contributions made to a
listed organization on or before the date
of announcement in the Internal Revenue
Bulletin that an organization no longer
qualifies. However, the Service is not
precluded from disallowing a deduction
for any contributions made after an or-
ganization ceases to qualify under section
170(c)(2) if the organization has not timely
filed a suit for declaratory judgment under
section 7428 and if the contributor (1) had
knowledge of the revocation of the ruling
or determination letter, (2) was aware that
such revocation was imminent, or (3) was
in part responsible for or was aware of the
activities or omissions of the organization
that brought about this revocation.
If on the other hand a suit for declara-
tory judgment has been timely filed, con-
15
Copies of the APA Program’s CPM spreadsheet model are available from the APA Program by calling (202) 435–5220 (not a toll-free number) or by writing totheOfficeofAssociate
Chief Counsel (International), Advance Pricing Agreement Program, Attn: CC:INTL:APA, MA2–266, 1111 Constitution Ave. NW, Washington DC, 20224.
April 16, 20128452012–16 I.R.B.

tributions from individuals and organiza-
tions described in section 170(c)(2) that
are otherwise allowable will continue to
be deductible. Protection under section
7428(c) would begin April 16, 2012, and
would end on the date the court first deter-
mines that the organization is not described
in section 170(c)(2) as more particularly
set forth in section 7428(c)(1). For indi-
vidual contributors, the maximum deduc-
tion protected is $1,000, with a husband
and wife treated as one contributor. This
benefit is not extended to any individual, in
wholeorinpart,fortheactsoromissions
of the organization that were the basis for
revocation.
The Center for Creative Resources, Inc.
San Francisco, CA
Chadwell Townsend Private Foundation
Bellbrook, OH
Consumer Advocacy Group, Inc.
Beverly Hills, CA
CreditGuard of America, Inc.
Boca Raton, FL
Friends of the Border Patrol
Chino, CA
Pro Israel, Inc.
Riverdale, NY
2012–16 I.R.B.846April 16, 2012

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the ef-
fect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is be-
ingextendedtoapplytoavariationofthe
fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare withmodi-
fied,below).
Clarifiedis used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
withamplifiedandclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
beingstatedinanewruling.
Supersededdescribes a situation where
the new ruling does nothing more than re-
state the substance and situation of a previ-
ously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same po-
sition published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single rul-
ing a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new rul-
ing does more than restate the substance
of a prior ruling, a combination of terms
is used. For example,modifiedandsu-
persededdescribes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously pub-
lished ruling is first modified and then, as
modified, is superseded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original rul-
ing has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the ad-
ditions, and supersedes all prior rulings in
the series.
Suspendedis used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of cases
in litigation, or the outcome of a Service
study.
Abbreviations
The fol
lowing abbreviations in current use
and for
merly used will appear in material
publis
hedintheBulletin.
A—Individual.
Acq.—A
cquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank
.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cu
mulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Coo
perative.
Ct.D.—Court Decision.
CY—County.
D—Decede
nt.
DC—Dummy Corporation.
DE—Donee.
Del. Order
—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Emp
loyer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduc
iary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Fo
reign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Fed
eral Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grante
e.
GP—General Partner.
GR—Grantor.
IC—Insura
nce Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited
Partner.
LR—Lessor.
M—Minor.
Nonacq.—No
nacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Persona
l Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Pa
rtnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Re
al Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsi
diary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target
Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Trans
feree.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpay
er.
TR—Trust.
TT—Trustee.
U.S.C.—Uni
ted States Code.
X—Corporation.
Y—Corporation.
Z—Corporat
ion.
April 16, 2012i2012–16 I.R.B.

Numerical Finding List
1
Bulletins 2012–1 through 2012–16
Announcements:
2012-1, 2012-1 I.R.B.249
2012-2, 2012-2 I.R.B.285
2012-3, 2012-4 I.R.B.335
2012-4, 2012-4 I.R.B.335
2012-5, 2012-5 I.R.B.348
2012-6, 2012-6 I.R.B.366
2012-7, 2012-6 I.R.B.367
2012-8, 2012-7 I.R.B.373
2012-9, 2012-7 I.R.B.377
2012-11, 2012-13 I.R.B.611
2012-12, 2012-12 I.R.B.562
2012-13, 2012-16 I.R.B.805
2012-14, 2012-14 I.R.B.721
2012-15, 2012-15 I.R.B.794
2012-18, 2012-16 I.R.B.845
Notices:
2012-1, 2012-2 I.R.B.260
2012-3, 2012-3 I.R.B.289
2012-4, 2012-3 I.R.B.290
2012-5, 2012-3 I.R.B.291
2012-6, 2012-3 I.R.B.293
2012-7, 2012-4 I.R.B.308
2012-8, 2012-4 I.R.B.309
2012-9, 2012-4 I.R.B.315
2012-10, 2012-5 I.R.B.343
2012-11, 2012-5 I.R.B.346
2012-12, 2012-6 I.R.B.365
2012-13, 2012-9 I.R.B.421
2012-14, 2012-8 I.R.B.411
2012-15, 2012-9 I.R.B.424
2012-16, 2012-9 I.R.B.427
2012-17, 2012-9 I.R.B.430
2012-18, 2012-10 I.R.B.438
2012-19, 2012-10 I.R.B.440
2012-20, 2012-13 I.R.B.574
2012-21, 2012-10 I.R.B.450
2012-22, 2012-13 I.R.B.576
2012-23, 2012-11 I.R.B.483
2012-24, 2012-13 I.R.B.578
2012-25, 2012-15 I.R.B.789
Proposed Regulations:
REG-168745-03, 2012-14 I.R.B.718
REG-109369-10, 2012-9 I.R.B.434
REG-110980-10, 2012-13 I.R.B.581
REG-113770-10, 2012-13 I.R.B.587
REG-113903-10, 2012-11 I.R.B.486
REG-120282-10, 2012-11 I.R.B.487
REG-130302-10, 2012-8 I.R.B.412
REG-135491-10, 2012-16 I.R.B.803
Proposed Regulations— Continued:
REG-149625-10, 2012-2 I.R.B.279
REG-102988-11, 2012-4 I.R.B.326
REG-115809-11, 2012-13 I.R.B.598
REG-124627-11, 2012-8 I.R.B.417
REG-124791-11, 2012-15 I.R.B.791
REG-130777-11, 2012-5 I.R.B.347
REG-132736-11, 2012-15 I.R.B.793
REG-135071-11, 2012-12 I.R.B.561
REG-145474-11, 2012-11 I.R.B.495
Revenue Procedures:
2012-1, 2012-1 I.R.B.1
2012-2, 2012-1 I.R.B.92
2012-3, 2012-1 I.R.B.113
2012-4, 2012-1 I.R.B.125
2012-5, 2012-1 I.R.B.169
2012-6, 2012-1 I.R.B.197
2012-7, 2012-1 I.R.B.232
2012-8, 2012-1 I.R.B.235
2012-9, 2012-2 I.R.B.261
2012-10, 2012-2 I.R.B.273
2012-11, 2012-7 I.R.B.368
2012-12, 2012-2 I.R.B.275
2012-13, 2012-3 I.R.B.295
2012-14, 2012-3 I.R.B.296
2012-15, 2012-7 I.R.B.369
2012-16, 2012-10 I.R.B.452
2012-17, 2012-10 I.R.B.453
2012-18, 2012-10 I.R.B.455
2012-19, 2012-14 I.R.B.689
2012-20, 2012-14 I.R.B.700
2012-21, 2012-11 I.R.B.484
2012-23, 2012-14 I.R.B.712
Revenue Rulings:
2012-1, 2012-2 I.R.B.255
2012-2, 2012-3 I.R.B.286
2012-3, 2012-8 I.R.B.383
2012-4, 2012-8 I.R.B.386
2012-5, 2012-5 I.R.B.337
2012-6, 2012-6 I.R.B.349
2012-7, 2012-6 I.R.B.362
2012-8, 2012-13 I.R.B.563
2012-9, 2012-11 I.R.B.475
2012-10, 2012-14 I.R.B.614
2012-11, 2012-14 I.R.B.686
2012-12, 2012-15 I.R.B.748
Treasury Decisions:
9559, 2012-2 I.R.B.252
9560, 2012-4 I.R.B.299
9561, 2012-5 I.R.B.341
9562, 2012-5 I.R.B.339
9563, 2012-6 I.R.B.354
9564, 2012-14 I.R.B.614
Treasury Decisions— Continued:
9565, 2012-8 I.R.B.378
9566, 2012-8 I.R.B.389
9567, 2012-8 I.R.B.395
9568, 2012-12 I.R.B.499
9569, 2012-11 I.R.B.465
9570, 2012-11 I.R.B.477
9571, 2012-11 I.R.B.468
9572, 2012-11 I.R.B.471
9573, 2012-12 I.R.B.498
9574, 2012-12 I.R.B.559
9575, 2012-15 I.R.B.749
9576, 2012-15 I.R.B.723
9577, 2012-15 I.R.B.730
9579, 2012-16 I.R.B.796
9580, 2012-16 I.R.B.801
9581, 2012-16 I.R.B.798
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2011–27 through 2011–52 is in Internal Revenue Bulletin
2011–52, dated December 27, 2011.
2012–16 I.R.B.iiApril 16, 2012

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2012–1 through 2012–16
Announcements:
2002-44
Supplemented by
Notice 2012-13, 2012-9 I.R.B.421
2010-19
Obsoleted by
Ann. 2012-12, 2012-12 I.R.B.562
2011-63
Corrected by
Ann. 2012-9, 2012-7 I.R.B.377
Notices:
2006-87
Superseded by
Notice 2012-19, 2012-10 I.R.B.440
2006-99
Superseded in part by
Notice 2012-20, 2012-13 I.R.B.574
2007-25
Superseded by
Notice 2012-19, 2012-10 I.R.B.440
2007-77
Superseded by
Notice 2012-19, 2012-10 I.R.B.440
2007-95
Obsoleted in part by
T.D. 9576, 2012-15 I.R.B.723
2008-107
Superseded by
Notice 2012-19, 2012-10 I.R.B.440
2010-27
Superseded by
Notice 2012-19, 2012-10 I.R.B.440
2010-88
As modified by Ann. 2011-40, is superseded by
Notice 2012-1, 2012-2 I.R.B.260
2010-92
Obsoleted by
T.D. 9577, 2012-15 I.R.B.730
2011-8
Superseded by
Notice 2012-19, 2012-10 I.R.B.440
2011-28
Superseded by
Notice 2012-9, 2012-4 I.R.B.315
Proposed Regulations:
REG-208274-86
Withdrawn by
Ann. 2012-11, 2012-13 I.R.B.611
Revenue Procedures:
2000-43
Amplified, modified and superseded by
Rev. Proc. 2012-18, 2012-10 I.R.B.455
2003-61
Superseded by
Notice 2012-8, 2012-4 I.R.B.309
2007-44
Modified by
Ann. 2012-3, 2012-4 I.R.B.335
2011-1
Superseded by
Rev. Proc. 2012-1, 2012-1 I.R.B.1
2011-2
Superseded by
Rev. Proc. 2012-2, 2012-1 I.R.B.92
2011-3
Superseded by
Rev. Proc. 2012-3, 2012-1 I.R.B.113
2011-4
Superseded by
Rev. Proc. 2012-4, 2012-1 I.R.B.125
2011-5
Superseded by
Rev. Proc. 2012-5, 2012-1 I.R.B.169
2011-6
Superseded by
Rev. Proc. 2012-6, 2012-1 I.R.B.197
2011-7
Superseded by
Rev. Proc. 2012-7, 2012-1 I.R.B.232
2011-8
Superseded by
Rev. Proc. 2012-8, 2012-1 I.R.B.235
2011-9
Superseded by
Rev. Proc. 2012-9, 2012-2 I.R.B.261
2011-10
Superseded by
Rev. Proc. 2012-10, 2012-2 I.R.B.273
2011-14
Modified and clarified by
Rev. Proc. 2012-19, 2012-14 I.R.B.689
Rev. Proc. 2012-20, 2012-14 I.R.B.700
Revenue Procedures— Continued:
2011-37
Obsoleted in part by
Rev. Proc. 2012-16, 2012-10 I.R.B.452
2011-40
Corrected by
Ann. 2012-6, 2012-6 I.R.B.366
2011-49
Modified by
Ann. 2012-3, 2012-4 I.R.B.335
2011-50
Corrected by
Ann. 2012-6, 2012-6 I.R.B.366
2011-51
Corrected by
Ann. 2012-6, 2012-6 I.R.B.366
2012-8
Corrected by
Ann. 2012-7, 2012-6 I.R.B.367
Revenue Rulings:
92-19
Supplemented in part by
Rev. Rul. 2012-6, 2012-6 I.R.B.349
2008-40
Modified by
Notice 2012-6, 2012-3 I.R.B.293
2011-1
Modified by
Notice 2012-6, 2012-3 I.R.B.293
2012-9
Modified by
Rev. Rul. 2012-12, 2012-15 I.R.B.748
Treasury Decision:
9517
Corrected by
Ann. 2012-4, 2012-4 I.R.B.335
Ann. 2012-5, 2012-5 I.R.B.348
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2011–27 through 2011–52 is in Internal Revenue Bulletin 2011–52, dated December 27,
2011.
April 16, 2012iii2012–16 I.R.B.

Internal Revenue Service
W
ashington,DC20224
Official Business
Penalty for Private Use, $300
INTERNAL REVENUE BULLETIN
The Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue
Bulletin is sold on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the Superin-
tendent of Documents when their subscriptions must be renewed.
CUMULATIVE BULLETINS
The contents of this weekly Bulletin are consolidated semiannually into a permanent, indexed, Cumulative Bulletin. These are
sold on a single copy basis andare notincluded as part of the subscription to the Internal Revenue Bulletin. Subscribers to the weekly
Bulletin are notified when copies of the Cumulative Bulletin are available. Certain issues of Cumulative Bulletins are out of print
and are not available. Persons desiring available Cumulative Bulletins, which are listed on the reverse, may purchase them from the
Superintendent of Documents.
ACCESS THE INTERNAL REVENUE BULLETIN ON THE INTERNET
You may view the Internal Revenue Bulletin on the Internet at www.irs.gov. Select Businesses. Under Businesses Topics, select
More Topics. Then select Internal Revenue Bulletins.
INTERNAL REVENUE BULLETINS ON CD-ROM
Internal Revenue Bulletins are available annually as part ofPublication 1796 (Tax Products CD-ROM). The CD-ROM can be
purchased from National Technical Information Service (NTIS) on the Internet at www.irs.gov/cdorders (discount for online orders)
or by calling 1-877-233-6767. The first release is available in mid-December and the final release is available in late January.
HOW TO ORDER
Check the publications and/or subscription(s) desired on the reverse, complete the order blank, enclose the proper remittance,
detach entire page, and mail to the Superintendent of Documents, P.O. Box 979050, St. Louis, MO 63197–9000. Please allow two to
six weeks, plus mailing time, for delivery.
WE WELCOME COMMENTS ABOUT THE INTERNAL
REVENUE BU
LLETIN
If you have
comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, we
would be p
leased to hear from you. You can email us your suggestions or comments through the IRS Internet Home Page (www.irs.gov)
or write t
o the IRS Bulletin Unit, SE:W:CAR:MP:T:T:SP, Washington, DC 20224.