On 28 October 2020, the US Internal Revenue Service (IRS) published that it is updating parameters that the Advance Pricing and Mutual Agreement program (APMA), a representative office of the U.S. competent authority, will follow in implementing resolutions it has reached on behalf of U.S. taxpayers in mutual agreement procedure (MAP) and advance pricing agreement (APA) cases negotiated under U.S. income tax treaties. 

The updates significantly curtail so-called “telescoping” of the results of these cases into current tax years; U.S. taxpayers will generally be required to amend the applicable year’s (or years’) federal income tax return(s) to reflect the changes in taxable income per competent authority resolutions instead of reflecting the changes to taxable income in current tax years.  

The update reflects the IRS’s efforts to promote compliance with changes brought to U.S. tax law by the Tax Cuts and Jobs Act (TCJA) and its many interlocking provisions that require careful determination (and re-determination, as needed) of a U.S. taxpayer’s taxable income and tax attributes.

The updated parameters have three main elements:

• At the conclusion of its competent authority case, the U.S. taxpayer will be instructed as to the taxable year(s) in which the resolution is to be reflected in the taxpayer’s U.S. taxable income. The U.S. taxpayer will generally be instructed to amend its U.S. federal income tax returns for each of the individual years covered by its case.
• When the competent authority case involves multiple years beginning before January 1, 2018, e.g., an audit cycle involving consecutive tax years, the U.S. taxpayer may request that the change to taxable income for each year of the case be aggregated, netted, and reflected in the last of those taxable years.
• If the change to the U.S. taxpayer’s taxable income resulting from a competent authority resolution is $10 million or less, the IRS may permit the U.S. taxpayer to reflect the aggregate change in a taxable year beyond the last year (or last of the years) covered by the case.