CCA 200848032: Treaty mutual-agreement procedure does not reopen assessment period

Plain-English summary

Chief Counsel advised that the treaty's mutual-agreement-procedure article did not waive a closed U.S. assessment period. A treaty may prevent or reduce double taxation but cannot itself increase U.S. taxable income without an assessment. For a foreign-initiated adjustment, competent authority may grant a U.S. refund even after the assessment period closes, but the IRS cannot impose additional tax then. For a U.S.-initiated adjustment, the Field must keep the case open and protect the assessment period.

Ruling snapshot

• Question: Does a treaty MAP article permit a U.S. assessment after the domestic limitations period closes?
• Outcome: Advice given. No; it may support refund relief for a foreign adjustment, but not a new U.S. assessment after expiration.
• Key authorities: Applicable treaty mutual-agreement-procedure article.

Full text (IRS public release)

ID: CCA_2008071409324836 Number: 200848032
Office: ------------
Release Date: 11/28/2008

UILC: 894.12-00

From: ---------------------
Sent: Monday, July 14, 2008 9:32:49 AM
To: ----------------------
Cc: ------------------------
Subject: RE: Need Help in Interpreting a Treaty Provision

In this case, the Mutual Agreement Procedure article won't waive the statute and allow an assessment.

Generally, whether the MAP article will waive the statute depends on whether the adjustment is foreign or U.S. initiated. The purpose of tax treaties is to avoid or at least minimize double tax, and therefore, a treaty cannot be used to increase a taxpayer's income. This may be done only through an assessment. Accordingly, if the statute to assess in the United States is closed for a tax year, we can't assess tax under the treaty.

Most treaties contain language in the MAP article similar to that which you have quoted below. Competent authority has interpreted this language to mean that if Country A raises an adjustment, the United States can grant relief (a refund) even if it is for a tax year for which the statute to assess has closed. The United States would not be able to increase a taxpayer's income under the treaty unless the Field has already assessed additional tax and the statute to assess has passed. If the United States raised the adjustment, then the case would stay open with the Field, and the statute would be protected.

Please let me know if you have other questions.