part4-9

4.1.9 
International Features

4.1.9.1 
(10-24-2006)
Overview-International Returns

  1. This chapter discusses features unique to returns with international
    issues.

  2. The Chief, Classification Section is responsible for ensuring all returns
    with international characteristics are classified at the campus before sending
    them to the Areas.

  3. An international examiner will classify all returns with international
    characteristics except for those under the jurisdiction of SBSE International
    which will be classified by SBSE International examination personnel.

  4. The jurisdiction for the field examination of entities filing Form 1120F is determined by the assets of the corporation.
    Entities with assets < $ 10 million are under the jurisdiction of SBSE
    International. Entities with assets > $10 million are the jurisdiction of
    LMSB.

  5. Form 1040NR,
    Form 1040PRForm 1040SS and Form 1040 returns with Form
    2555 or Form 2555EZ attached
    are under the jurisdiction of SBSE International.

  6. Foreign Sales Corporation (FSC).

    1. A FSC is a taxable foreign corporation that files
      Form 1120F-FSC (U.S. Income
      Tax Return of a Foreign Sales Corporation)       at the Philadelphia Campus.

    2. The FSC Repeal and Extraterritorial Income Exclusion Act of 2000 repealed
      the FSC provisions of IRC §921 through
      IRC §9217 effective October 1, 2000.
      The Act also provides qualifying taxpayers with an Extraterritorial Income
      Exclusion, which is figured on Form 8873 and
      provides transition rules for existing FSCs.

    3. No corporation may elect to be a FSC after September 30, 2000. In general,
      a FSC that was in existence on September 30, 2000 and at all times thereafter,
      will continue to use the FSC rules for qualifying transactions in the ordinary
      course of business before January 1, 2002. These FSCs will continue to use
      the FSC rules after December 31, 2001 for transactions pursuant to a binding
      contract between a FSC and a person, if that binding contract was in effect
      on September 30, 2000 and has remained in effect.

    4. Taxpayers may elect to apply the extraterritorial income exclusion rules
      instead of the FSC rules for transactions occurring during the transition
      period.

    5. The Philadelphia Campus will transfer Form 1120F-FSC returns to the appropriate campus for
      screening and/or classification by an international classifier.

    6. A small DISC may still exist as an Interest Charge-Domestic
      International Sales Corporation (IC-DISC). Generally, this domestic corporation
      will be non-taxable and file Form 1120F-IC-DISC.

4.1.9.2 
(10-24-2006)
Identification of Returns

  1. Individuals responsible for the classification of returns will do the
    following:

    1. Identify returns they select for possible examination
      or those they will associate with returns already under examination as “International.”

    2. Ensure the Form 3210,Document Transmittal sent to the Area PSP Territory Manager
      states the returns were selected for “International,”
      and
      includes special instructions for returns that should be associated with the
      related return of another Area or a return that is part of a national or Area
      coordinated examination.

    3. Assign the applicable project code from the list
      below to returns selected before sending them to the Area.

4.1.9.2.1 
(10-24-2006)
Project Codes

  1. Project code 0090 — returns selected before transmitting them
    to the Area

  2. Project code 0162 — Form 1120F and
    Form 1040(with Form
    2555). Project Code 0162 takes precedence over the project codes
    identified in (1) above.

4.1.9.3 
(10-24-2006)
Corporation, FSC, IC-DISC, Individual, Partnership, Fiduciary Returns

  1. With the exceptions stated in (3) below, there are no mandatory requirements
    for selecting corporate, IC-DISC, FSC, individual, partnership, and fiduciary
    returns showing foreign business transactions or interest in a and foreign
    bank, securities, and other financial accounts.

  2. When screening returns, classifiers will consider the objectives of
    the International Enforcement Program, and carefully scrutinize returns showing
    foreign business transactions and foreign financial accounts. When foreign
    business activity appears to be substantial, they should select the return
    for examination.

  3. Instructions for selecting returns identified during classification
    as reporting Subpart F income ( IRC §951IRC §964, inclusive) appear in the
    Law Enforcement Manual.

4.1.9.4 
(10-24-2006)
International Related Forms

  1. Reserved

4.1.9.4.1 
(10-24-2006)
Form 3520 Internal Processing

  1. Form 3520, Creation
    of, or Transfers to, Certain Foreign Trusts     is filed at the Philadelphia
    Campus. A copy is forwarded to the Classification Section at the campus where
    the related tax return will be filed.

  2. During July of each year, the income tax return which relates to the
    prior year Form 3520 will be secured.

  3. When Forms 3520 are received in the
    campuses, they will be associated with copies of the related returns, prior
    to classification by an international examiner. The copies of
    Forms 3520will remain with their related returns. Related returns
    to associate are:

    1. Person filing the return, identified by the TIN
      (of the filer) on Form 3520, line 1b

    2. Form 3520-A (Foreign Trust Owned by U.S. Persons) identified by TIN on
      Form 3520, Line 1b

    3. Form 706, if check
      box describing U.S. person filing return is identified as ”
      Executor”

  4. Include a three-year Midwest Automated Classification System (MACS)
    print of the Form 3520 and for each related
    return. If the related return is already open, the copy of the Form 3520 will be forwarded for association. Upon receipt
    in the Area, the related return will be referred to the International Enforcement
    Program.

  5. The potential liability for a gift tax, generation skipping transfer
    tax, or income tax should be considered when classifying the returns. Additionally,
    consider the penalty for failure to timely file the
    Form 3520 under IRC §6677.
    See Figure 4.1.9-1.,
    Form 3520 Information.

    Figure 4.1.9-1

    IfForm 3520 Then
    Line 10
    is YES (the transfer is a completed gift or bequest)

    		 Form 706 and/or Form 709should
    be filed and associated.
    Line 12
    is NO (filer is not treated as owner of the assets)

    		  
    Line 13
    is NO (not treated as an exempt transfer)     		Associate Form 926, Return
    by a U.S. Transferor of Property to a Foreign Corporation, Foreign Estate
    or Trust, or Foreign Partnership     with the Form
    3520.
    Line 15
    is NO (no election under IRC §057
    )     		 
    Line 16
    is NO (no election under similar principles under IRC §367)     		 

  6. Check the Currency and Banking Retrieval System (CBRS) for the following
    documents and if filed, associate with the related returns.

    • TD F 90–22.1 Foreign Bank and Financial Accounts
      (FBAR)

    • Cash Transaction Report (CTR)

    • Suspicious Activity Report (SAR)

  7. A foreign trust without a U.S. owner which has effectively connected
    U.S. source income is filed currently on Form 1040NR-Fiduciary
    . This Form is filed at the Philadelphia Campus and is processed
    on the Automated Non-Master File System (ANMF). Forms
    1040NR-Fiduciary fall under the jurisdiction of SBSE International.

4.1.9.4.2 
(10-24-2006)
Form 926

  1. Taxpayers must file Form 926,Return by a U.S. Transferor of Property to a Foreign Corporation,
    Foreign Estate or Trust, or Foreign Partnership     on the day of the transfer
    and at the service center where they normally file their return.

  2. The excise tax per IRC §1491does
    not apply if Federal income tax avoidance is not a principal purpose of the
    transfer.

  3. After processing, Form 926will be
    forwarded to the Chief, Classification Section, who will enter a Transaction
    Code (TC) 930 on the transferor’s account to secure the return when
    filed. If a transferor files Form 926 at
    a campus other than the one where the transferor normally files their return,
    the Chief, Classification Section in the receiving campus will forward Form 926 to the Chief, Classification Section at the
    transferor’s controlling campus.

  4. The transferor’s return and Form 926 will
    be associated before classification. An international examiner will classify
    all Forms 926.

  5. Due to their potential use in classifying Form
    706NR, Estates of Nonresidents and Form 1040NR filed by foreign trusts, copies of Forms 926 indicating that the transferee is either
    an Estate or Trust should be forwarded to SBSE Area 15 at the following address:

    Internal Revenue Service
    Attn:
    International PSP Territory Manager
    950 L’Enfant Plaza S.W , Room
    4411
    Washington, D.C. 20024

  6. When classifying Form 926, the international
    examiner may generally accept as filed the following types of transfers.

    1. Form 926 with a
      transferee that is an exempt organization [Reg. 1492–1(a)(1)]. A copy
      of the Commissioner’s determination letter must be attached.

    2. Transfer plans approved by the Commissioner [Reg.
      1492–1(a)(2)]. A copy of the Commissioner’s approval letter must
      be attached.

  7. Returns selected for examination will be forwarded to the appropriate
    Area office. Area offices should follow normal assignment, survey, and examination
    procedures.

4.1.9.5 
(10-24-2006)
Foreign Information Documents

  1. Income tax treaties generally provide for the exchange of routine information
    relating to payments made to residents of the contracting countries (Foreign
    Information Documents). These documents reflect payments of dividends, interest,
    royalties, commissions, tax refunds, etc. Philadelphia Campus receives and
    stores documents from approximately 15 treaty countries in many formats.

  2. Foreign information documents showing individual taxpayers [Individual
    Master File (IMF)] as recipients are subject to processing under the Information
    Returns Program (IRP).

4.1.9.5.1 
(10-24-2006)
Classification Procedures

  1. Foreign Information Return Program (FIRP) documents, which meet the
    selection criteria contained in the Law Enforcement Manual
    , will be processed as follows:

4.1.9.5.1.1 
(10-24-2006)
Campuses

  1. The PSP Territory Manager, Philadelphia Campus will:

    1. Sort the Automatic Exchange documents

    2. Forward them to the payees’ campus, Attention:
      Chief, Classification

    3. Forward Automatic Exchange documents with incomplete
      taxpayer information to the Director, Compliance, Attn: Manager, Exchange
      of Information Programs for return to the submitting country.

  2. The Chief, Classification at each campus will:

    1. Receive FIRP documents for payees within that campus

    2. Perfect those documents without TINs

    3. Perform a cross-reference search for spouses’
      TIN

    4. Forward FIRP documents (after TIN perfection) to
      the PSP Territory Manager in the payees’ Areas, or per other Area instructions

4.1.9.5.1.2 
(10-24-2006)
Area Offices

  1. The following procedures are required for Area classification.

    If the
    FIRP documents relate to:     		Then the
    PSP Territory Manager will:
    Cases
    in Status 06 or 08     		Request
    the return from the campus.
    Cases
    in Status 10 or 12     		Forward
    FIRP documents to the group manager.
    Coordinated
    Examination Program (CEP) cases—open     		Forward
    FIRP documents to the CEP manager.
    CEP cases—not
    open     		Forward
    FIRP documents to the district CEP Program Manager.
    Banks
    or insurance companies     		Forward
    FIRP documents to banking or insurance group manager.
    TE/GE
    returns     		Forward
    FIRP documents to Chief, TE/GE Commissioner.
    Survey
    cases     		Attach
    FIRP documents to the return.

  2. Personnel screening FIRP documents to decide whether to secure related
    returns, should consider the following factors:

    1. The impact Foreign Tax Credits (FTC) which may be
      available to the taxpayer

    2. The source and type of the foreign income

    3. The underlying asset and the method of acquisition

  3. The PSP Territory Manager will place returns selected for examination
    into the appropriate program (Tax Auditor or Revenue Agent). If a return is surveyed, the FIRP document should be attached to the return.

  4. ALL PERSONNEL WILL CONSIDER THESE DOCUMENTS
    SENSITIVE UNDER THE EXCHANGE OF INFORMATION PROVISIONS OF THE VARIOUS TAX
    TREATIES AND WILL NOT MAKE THEM AVAILABLE EXCEPT FOR FEDERAL TAX ADMINISTRATION
    PURPOSES UNDER ANY DISCLOSURE PROVISIONS. ADDRESS ALL INQUIRIES CONCERNING
    THE DISCLOSURE OF THIS INFORMATION TO THE DIRECTOR, COMMUNICATIONS, NATIONAL
    HEADQUARTERS.

4.1.9.5.2 
(10-24-2006)
Foreign Information Return Program (FIRP) Document Referrals to
Collection

  1. FIRP Documents which meet the following criteria will be referred to
    Campus Collection:

    1. FIRP Documents with TINs for which no TC 150 has
      posted on the taxpayer’s account.

    2. Undeliverable documents will not be sent to Collection.

    3. A cross reference on the Spouse’s TIN must
      be done before forwarding any FIRP document to Collection. All other research
      done on the FIRP document should be forwarded with the referral.

  2. FIRP documents forwarded to the controlling campus, which are then determined
    to warrant referral to Collection, must be returned to the Chief, Classification,
    Philadelphia Campus. The Chief, Classification, Philadelphia Campus, will
    forward these returned documents to Collection, Philadelphia Campus.

  3. Forward all referrals of FIRP documents to the campus Collection on
    Form 3210. Itemize FIRP Documents on the Form 3210, and identify them as “Foreign
    Information Documents.”

  4. If the collection function determines that a substitute for return is
    required, they will forward the information to the PSP Territory Manager on
    Form 3449, Referral Report.

4.1.9.6 
(10-24-2006)
Form 5074, Allocation of Individual Income Tax to Guam or Northern
Mariana Islands

  1. Forms 1040 requiring a Form 5074 are
    filed at the Philadelphia Campus.

  2. These returns are processed, coded, and delivered to Examination as
    prompt examination returns.

  3. The Campus Classification Section takes the following actions:

    1. Completes page 2 of Form
      5074

    2. Forwards a copy of the completed
      Form 5074 to the Campus Accounting Branch

    3. Classifies the return

4.1.9.7 
(10-24-2006)
SBSE International Special Instructions for International Returns

  1. Procedures, instructions, and information for the identification and
    selection of returns are applicable to SBSE International returns except as
    provided in the following subsections.

4.1.9.7.1 
(10-24-2006)
DIF Returns

  1. The mathematical DIF formulas for individual returns are not generally
    applicable to international returns identified for SBSE International.

  2. No minimum cutoff scores are applicable to SBSE International individual
    DIF returns. All individual returns except Specials are maintained on the
    DIF computer inventory file.

  3. Returns with APO/FPO addresses are DIF scored and can be selected under
    the DIF System. Military personnel stationed overseas or on ships generally
    file these returns. They fall under the jurisdiction of SBSE International.
    Taxpayers should file all APO/FPO returns at the Austin Campus.

4.1.9.7.2 
(10-24-2006)
Special Returns

  1. The same audit codes used for all individual returns apply when identifying
    individual returns as Special Returns. Many codes will not apply to Form 1040NR, Form 1040PR and
    Form 1040SS since the criteria for identifying
    these special features will not be present on these returns.

4.1.9.7.3 
(10-24-2006)
Computer Reports

  1. Computer reports for individual returns (1040–1, 1040–2,
    etc.) and corporate returns (1120–1, 1120–2, etc.) are generated
    for SBSE International.

  2. Computer report 1040–2 contains the number of returns filed which
    have a Form 2555 or
    Form 2555EZ attached.

  3. The individual returns Post-of-Duty (POD) report 1040–1 is generated
    for SBSE International using post of duty assigned by country or countries.

    1. Separate PODs are used for APO/FPO returns.

    2. All Form 1040NR are
      assigned to SBSE International and POD 993.

    3. Various PODs within SBSE International will be assigned
      Form 1040PR and
      Form 1040SS

    4. POD 998 will be assigned to SBSE International returns
      which are not covered by a valid POD code.

4.1.9.7.4 
(10-24-2006)
Ordering Returns

  1. Submit all orders for returns to the Philadelphia Campus.

  2. Form 1040NR,
    Form 1040PR or Form 1040SS may
    be deleted from SBSE International return orders by excluding the applicable
    POD(s) to which these returns are assigned from the individual return order.

  3. Form 1040NR,
    Form 1040NR or Form 1040SSmay
    be separately ordered for SBSE International by placing a POD Supplemental
    Order for individual returns.

  4. Form 1040NR are delivered only when
    the indicator code is either blank or a “J.”

  5. Form 1040NR and
    Form 1040SS are delivered only when the indicator code is blank.

4.1.9.7.5 
(10-24-2006)
Classification of Returns

  1. Tax Compliance Officers from SBSE International will classify the following
    returns:

    • Form 1040 with
      Form 2555 or Form
      2555EZattached

    • Form 1040 with
      foreign addresses

    • Form 1040PR

    • Form 1040SS

    • Form 1040NR

    • APO/FPO returns

  2. Revenue Agents from SBSE International will classify the following returns:

    • Form 1120F with assets < $ 10 million

    • Form 1040NR Foreign Trusts

    • BMF returns where the taxpayer maintains books and records outside the
      United States

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