Proposed small business taxpayer APA procedures.

• Author: Olson, Lawrence S.
• Position: Advance pricing agreement

Notice 98-10 provides special procedures for advance pricing agreement (APA) negotiations for small business taxpayers (SBTs). These procedures are designed to allow SBTs with less than $100 million of total gross income and reasonably straightforward transactions to negotiate APAs in a shorter time frame than is normal for larger taxpayers. The procedures also include special provisions to simplify and hasten APA negotiations for SBTs. Formal SBT APA procedures are a very positive development that should make the APA route for gaining transfer pricing certainty and resolving transfer pricing audit issues available to a group of companies that have previously lacked access to APAs.

SBT APAs will normally be limited to cases with relatively uncomplicated transactions (i.e., with routine intangibles or research and development cost-sharing arrangements) and to APAs that propose a specified method as the "best method." Special provisions aimed at simplifying and speeding up SBT APAs can include any or all of the following:

* Earlier and more substantive analysis and feedback from the APA team prior to the prefiling conference. SBTs are expected to submit information on their transactions, functions and proposed transfer pricing methods at least 60 days prior to the initial prefiling conference. For SBTs, this may be as simple as providing their Sec. 6662 documentation study to the APA program.

* At the prefiling conference, the IRS and the taxpayer will negotiate a case management plan for reaching an APA agreement within six months after the SBT files its APA request. SBT APAs may also require fewer prefiling conferences than normal APAs.

* Simplified procedures for reaching an APA agreement may also be negotiated, including simplifying (or eliminating) some normally required elements, such as an economic study of the industry, a detailed presentation of how the comparables were chosen, a detailed explanation of any adjustments used to increase comparability, the contents of the annual reports and the term of the APA agreement.

* APA meetings will be held at a location convenient to the SBT, and teleconferences may replace some face-to-face meetings.

* The Service will assist the SBT in selection and evaluation of comparables or the computation of adjustments.

* The initial term of the APA will be three years, with a potential to renew for a longer term.

* For unilateral APAs, the SBT may submit its proposed draft APA using the current model...