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In August 1978, a nationwide Petroleum Industry Program (PIP) was established
in what was then the Southwest Region. Prior to the inception of the Program,
the Service’s specialized activities in the petroleum industry included
an industry-wide examination program under the direction of a program coordinator,
and an Oil Pricing Program that had the nationwide responsibility for determinations
regarding certain oil pricing and shipping issues. -
PIP merges the objectives, functions, and responsibilities of the aforementioned
oil pricing and Industry-wide examination programs with concepts outlined
in the Technical Advisor Program. -
Any reference to Director, field or field office, refers to Industry
Director, Large and Mid-Size Business Division; Area Director, Field Compliance,
Small Business/Self Employed Division; Director, Compliance, Wage & Investment
Division; Director, International, Large and Mid-Size Business Division; Director,
Employee Plans Examinations; Director, Exempt Organizations Examinations;
Director, Federal, State & Local Governments; Director, Tax Exempt Bonds;
or Director, Indian Tribal Governments and their respective offices, as appropriate.
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In order to maximize, and more effectively use, the Service’s
resources, the staff of PIP will coordinate the efforts of managers who have
the responsibility for examining the tax returns of petroleum companies. PIP,
with the cooperation of Examination Teams, will identify, develop and resolve
oil and gas issues with significant national impact. PIP objectives are to:
Ensure uniform and consistent treatment of issues nationwide.-
Provide for better identification, development and resolution of issues.
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Provide a vehicle for coordination of technical issues at the Large and
Mid-Size Business Division and other Operating Divisions. -
Through the auspices of the Director, Natural Resources and Construction,
PIP will maintain liaison with other Federal agencies and governmental authorities
to ensure the most efficient utilization of available resources.
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A Controlled Issue is an issue over which the Director, Natural Resources
and Construction, has nationwide jurisdiction, including the authority to
enter into, and approve, settlements. -
A Coordinated Issue is an issue of particular importance to the petroleum
industry that has been selected for industry-wide coordination. Jurisdiction
over Coordinated Issues remains with Examining Teams; however, to achieve
the desired objective of uniformity, Examiners will secure the concurrence
of the Petroleum Technical Advisor and the Technical Advisor Manager prior
to resolving Coordinated Issues on basis different than that formulated by
the Petroleum Technical Advisor. -
The Technical Advisor Manager will, on a continuing basis, review both
Controlled and Coordinated Issues. When an issue no longer requires control
or coordination, he/she will recommend that the issue be decontrolled or de-coordinated.
This may include a recommendation to change a Controlled Issue to a Coordinated
Issue or vice versa.
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Communication at the working level will facilitate the exchange of information.
Therefore, Therefore, Petroleum Technical Advisors and field personnel are
authorized and encouraged to communicate directly with each other concerning
audit issues and changes in accounting methods and practices. Management should
be kept informed of significant events.
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Delegation Order No. 153 gives the Director, Natural Resources and Construction,
nationwide jurisdiction and authority to make determinations regarding certain
petroleum-related issues. These issues are referred to herein as Controlled
Issues, and include:-
Pricing — Inter/intra-company transfer prices of foreign produced
crude oil and refined products, including transfers between related producers
and/or traders. -
Freight Rates — Major U.S. international oil companies have foreign
shipping subsidiaries. Companies may elect to use the average freight rate
assessment (AFRA) rates for intercompany shipments. AFRA is a statistical
index of the average cost to the independently chartered ocean tanker tonnage
in service at a specific time. AFRA is widely recognized within the Industry
and has been accepted by the Service. The Director, Natural Resources and
Construction, will be responsible for ensuring that AFRA rates are not being
abused and that they continue to reflect inter-company shipping charges for
crude oil and refined products. The Director, Natural Resources and Construction,
will also have the responsibility for accepting or rejecting other proposed
methods of determining freight rates for crude oil and refined products.
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Cases involving the production, import or sale of foreign crude oil
by taxpayers to related subsidiaries or third parties must be referred to
PIP for review.
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The Director, Natural Resources and Construction, will be responsible
for making, and has the authority to make, determinations regarding Controlled
Issues and approve settlements. Appropriate Territory Managers or Appeals
Office will be informed of the determinations. -
The Director, Natural Resources and Construction, will be responsible
for identifying and developing Controlled Issues and, if warranted, recommending
that a Controlled Issue be decontrolled. -
In carrying out these responsibilities, the Director, Natural Resources
and Construction, will keep informed of actions and trends within the international
petroleum industry that may have potentially significant tax implications.
In-depth studies of specific aspects of the industry will be conducted as
needed. -
The Director, Natural Resources and Construction will discharge his/her
responsibilities for the examination of Controlled Issues in the Petroleum
Industry through PIP and the International Territory Managers. -
In the examination of Controlled Issues, PIP may participate in the
examination of a Controlled Issue as a support examiner or may act in the
capacity of a Petroleum Technical Advisor to the Territory with responsibly
for an examination involving a Controlled Issue. However, an adjustment proposed
involving a Controlled Issue will require the concurrence of PIP and the Technical
Advisor Manager.
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Each Territory will retain jurisdiction over returns filed in that Territory
subject to decisions of the Director, Natural Resources and Construction,
regarding the Controlled Issues. Each Territory will adopt the position of
the Director, Natural Resources and Construction, concerning the Controlled
Issues. -
Territories will be asked, from time to time, to assist the Director,
Natural Resources and Construction, in studies and negotiations by securing,
verifying, and screening data provided by taxpayers within their jurisdiction.
Examiners should direct their attention to Controlled Issues during the early
stages of their examinations. They should be alert for information that may
be useful to the Technical Advisor. This information may take the form of
third-party contracts, methods of determining relative values of crude oil
or methods of determining exchange ratios. Examination Teams will be invited
to have their representatives attend substantive meetings between PIP and
taxpayers in their territory. -
A Territory may conduct an examination of a Controlled Issue, it is
anticipated that examination of a Controlled Issue will involve the participation
of Senior International Examiners with experience in the Petroleum Industry. -
The Territory will request participation of PIP and/or a Petroleum Technical
Advisor.
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All unagreed Controlled Issues will generally use the Fast Track Settlement
Program as outline in IRM 4.51.4. Exceptions to the procedures outlined in
IRM 4.51.4 are as follows:-
The Industry Director, NRC, will be the LMSB official with responsibility
for the Fast Track procedure in lieu of the LMSB Team Manager.
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Each Appeals Office will have jurisdiction over all referred issues
except Controlled Issues as described in Delegation Order No. 153 -
When Controlled Issues, or issues directly related thereto, are protested,
the Appeals Office will forward a copy of the written protest, together with
all supporting material, to the Director, Natural Resources and Construction,
for evaluation. The Appeals Officer should advise the taxpayer that protests
involving Controlled Issues are forwarded to the Director, Natural Resources
and Construction. -
The Technical Advisor Manager will assist the Director, Natural Resources
and Construction, in reviewing information and evaluating a taxpayer’s
protest involving Controlled Issues sent to Fast Track. -
The Director, Natural Resources and Construction, generally will grant
taxpayers a conference to discuss their protests and the Service’s position
concerning the disputed issues. Such a conference will constitute one level
of administrative appeal as described in the above Delegation Order. -
The Director, Natural Resources and Construction, acting under Delegation
Order No. 153, will make will make the final determination concerning Controlled
Issues and issues related thereto. After careful consideration of all information,
arguments, and other material, the Director, Natural Resources and Construction,
will, in a disposition memorandum, provide the grounds for the Appeals’
closing action.
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When Controlled Issue adjustments are proposed and agreed to by the
taxpayer, International Examiners should follow the Report Writing Procedures
contained in IRM 4.10.8. In addition, the following language should be included
on the Form 5701. This adjustment is subject to concurrence by the Director,
Natural Resources and Construction. That statement should be followed by the
word Concurrence with a space for the signature of the Director Natural Resource
and Construction. -
After the taxpayer signs the form 5701 for Controlled Issues the Form
5701 should be forwarded to the Director Natural Resources and Construction
for concurrence. The Form 5701 should be directed to the Natural Resources
and Construction Executive Assistant, with a copy to the Technical Advisor
Petroleum Industry. -
The form 5701 should be maintained with the case file, with a copy given
to the taxpayer.
