US IRS interim guidance on review and acceptance of Advance Pricing Agreement submissions fundamentally changes early stages of the process

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EY Global

4 May 2023
Subject Tax Alert
Categories Corporate Tax
Jurisdictions United States
  • The interim guidance, which is effective immediately, is intended to allow the US Internal Revenue Service (IRS) to determine a taxpayer's suitability for an Advance Pricing Agreement (APA), or, alternatively, another dispute resolution process.
  • While stating that the guidance is not meant to decrease the number of APA requests accepted, the IRS also says that it will consider whether a taxpayer will be most successful in the APA program or an alternative workstream (e.g., International Compliance Assurance Program (ICAP), a joint audit or a domestic audit).

In a 25 April 2023 Memorandum for Treaty and Transfer Pricing Operations Employees (pdf) (memo), the US Internal Revenue Service's (IRS's) Acting Director of Treaty and Transfer Pricing Operations (TTPO) informed IRS employees of new internal procedures for Advance Pricing Agreement (APA) prefiling meeting requests and the review and acceptance of APA submissions. The guidance implements a rigorous screening process whereby the Advance Pricing Mutual Agreement team (APMA) (along with other TTPO personnel) may shift taxpayers from the APA process to alternative workstreams.

The IRS's stated goal for the procedural change is "to improve the quality and timeliness of APMA's APA program by providing an early mechanism for identifying potential roadblocks to successfully concluding a proposed APA and opportunities for other paths to certainty."1 While the memo represents interim guidance at the moment, it states that it will be incorporated into the Internal Revenue Manual within the next two years. The memo applies to prefiling memoranda and APA requests filed on or after 25 April 2023.

New prefile procedures

APMA invites, and in some cases requires, taxpayers requesting an APA to meet with APMA in a prefiling conference. (See section 3.02(1) of Revenue Procedure 2015-41.) Ordinarily, taxpayers submit a prefiling memorandum explaining the salient facts and proposing a transfer pricing method (TPM). A prefiling meeting allows APMA to ask questions and provide feedback on the transactions and TPMs and suggest additional information to include in the APA submission.

Under the new procedures, an APMA Team Leader (or Economist) and a member of the IRS's Transfer Pricing Risk Assessment (TPRA) team (collectively, the Prefiling Memorandum Review Team) will review a taxpayer's APA prefiling memorandum and recommend to the APMA country manager whether the taxpayer should:

  • Proceed with submitting the APA request

  • Provide additional information to APMA about the proposed APA

  • Consider an alternative workstream to achieve tax certainty more effectively

The APMA country manager will then make and orally communicate to the taxpayer a decision about the recommended taxpayer action, within four weeks of filing the APA prefiling memorandum.

The Prefiling Memorandum Review Team will evaluate the prefiling memorandum to determine whether the proposed transactions are suitable for the APA program or an alternative workstream by considering the following factors:

  • Whether the proposed covered transactions are significant enough to justify using APMA resources

  • The years proposed to be covered and the remaining period of limitations for assessing tax each year

  • Whether a high probability exists of significantly enhancing transfer pricing compliance in bilateral or multilateral cases

  • Whether the treaty and applicable international exchange agreements allow for the requisite exchange of information among the relevant tax administrations in multilateral cases

  • The potential for the proposed APA to impact prior tax year or period compliance

  • Whether the IRS has suggested to a taxpayer in the Compliance Assurance Process to pursue an APA

  • Whether the proposed transactions are suitable for resolution through taxpayer participation in ICAP, based on factors including (but not limited to):

    • The scope, materiality and complexity of the covered transactions in the US and the jurisdictions participating in ICAP

    • The multinational enterprise (MNE) group's history of transparent and cooperative engagement with the IRS

    • The MNE group's transfer pricing examination history with the IRS

    • The anticipated availability of TPRA resources necessary to perform the ICAP risk assessment

  • Whether the proposed transactions are suitable for a future potential IRS examination or joint audit, based on factors including (but not limited to):

    • Taxpayers (including foreign affiliates) with common tax years or periods under examination in the jurisdictions of the relevant tax administrations

    • Common or complementary tax issues relevant to the tax administrations

    • Transactions that pose significant compliance risk to one or more tax administrations relative to the resources employed

New APA submission review procedures

The information that must be included in an APA submission and the format in which to provide it to APMA is substantial and detailed. (See section 1 of the Appendix to Revenue Procedure 2015-41.) In the past, after being assigned a case, an APMA Team Leader would form a team, often consisting of an APMA economist, members from an IRS examination team and any technical specialists the Team Leader thought helpful. The APMA team would review the APA submission, issue a set of due diligence questions and schedule an opening conference.

Under the new procedures, a taxpayer's APA submission will be reviewed by an IRS team consisting of an APMA country manager, an APMA Team Leader, a member of the TPRA team and a member of the IRS's Transfer Pricing Practice (TPP).2 The purpose of the review is "to determine whether the APA workstream is best suited to successfully achieve certainty for the proposed covered transactions." The review is supposed to take no longer than eight weeks and result in an oral communication from APMA as to whether it accepts or declines the APA request. If APMA declines the APA request, it will recommend an alternative workstream for the taxpayer to consider, including ICAP or audit.

Like the APA prefile review procedures, the APA submission review procedures include a detailed list of factors that the IRS will consider in reaching its determination, such as:

  • The criteria in the prefiling memorandum review (if a prefiling memorandum review was not conducted)

  • Whether an actual or potential transfer pricing dispute would be most efficiently resolved through an APA

  • Whether the APA process will likely result in prospective APA years

  • Whether there are country-specific strategic considerations based on the other jurisdictions involved

  • Whether APMA is best situated to effectively analyze the proposed transactions

  • Whether the proposed transactions are suitable for ICAP

  • Whether the IRS has an interest in examining the covered transactions based on TPP's workload

  • The extent to which the transfer pricing issues are secondary to other domestic tax law provisions

  • The views of the other jurisdictions involved in bilateral or multilateral APA requests

New procedures for unilateral, renewal and rollback requests

The memo also provides guidance specific to unilateral, renewal and rollback requests.

For unilateral APA requests, the TTPO will consider whether (1) a unilateral APA is the most efficient or only option to provide necessary certainty; (2) the IRS has suggested an APA; (3) the IRS has to price the transaction under a bilateral APA for the same taxpayer; and (4) a unilateral APA would facilitate inappropriate base erosion or profit shifting in the other jurisdiction.

For APA renewal requests, the TTPO will consider whether: (1) there is a continuing risk of a tax dispute or need for APMA to accept the APA renewal request; (2) the request is a straightforward renewal that APMA can work in a streamlined manner; (3) the treaty partner will be likely to agree to streamline the renewal process; and (4) the taxpayer properly applied the TPM agreed in the prior APA.

For APA rollback requests, the TTPO will consider: (1) the time remaining in the relevant periods of limitations on assessment at the time of the APA submission; (2) the IRS's interest in rolling back the TPM (including concerns about litigation and judicial determinations in Revenue Procedure 2015-41, Section 5.02(7)); (3) whether APMA anticipates that an APA will increase US taxable income for the rollback year, and if so, whether MAP provides a more efficient process for tax administration; and (4) the reasons the taxpayer did not apply for an APA for prior years.


The procedural changes set out in the memo fundamentally change the early stages of the APA process. APMA will now engage in a rigorous two-step review of APA requests — the first at the prefiling stage and the second after an APA submission is filed. At each step, APMA may decline a taxpayer's APA request and recommend the taxpayer apply to ICAP or indicate that the issues are better suited to be handled in an audit — joint or domestic. Given this change, it is possible that the new procedures will reduce the number of APAs accepted into the APA program.

It appears that the IRS wants to set APAs up for success and believes that encouraging taxpayers to consider ICAP and joint audits is a way to achieve that goal. Some taxpayers with simpler transactions may find ICAP appealing; it does not have a user fee, may require less documentation, is faster than the average APA negotiation, may include agreement among a larger number of jurisdictions, and provides comfort or practical certainty that the governments involved will not re-examine the transactions. It does not, however, provide the legal certainty of an APA.

Less clear is whether taxpayers will want to expose themselves to the potential for a joint audit. Audits often involve significant risk and resources for taxpayers. In addition, the IRS appears to have little experience with joint audits, which could result in taxpayers participating in the learning process.

APAs likely will remain the primary avenue for prospective transfer pricing certainty. Regardless, taxpayers considering whether to request an APA may need to carefully evaluate whether one of the alternatives, such as ICAP or an audit (joint or domestic) is better suited for their purposes. This will depend on factors such as the type of covered issues involved (e.g., simple versus complex, amount of segmentation required), taxpayer audit history and the overall probability of success among the alternative workstreams.

Contact Information

For additional information concerning this Alert, please contact:

National Tax Department, International Tax and Transactions Services, Transfer Pricing
  • Ryan J. Kelly, Americas ITTS Tax Controversy Leader
  • Hiro Furuya
  • Ameet Kapoor
  • Carlos M. Mallo
  •  Marla McClure
  • Donna McComber
  • Mike McDonald
  • Tom Ralph
  • Craig Sharon
  • Kent Stackhouse
  • Thomas A. Vidano
  • Heather Gorman
  • Giulia Di Stefano
  • Carolina Figueroa
  • Mitch Gibson

Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.

  • Show article references#Hide article references

    1 Since the inception of the APA program until December 31, 2022, 287 APA submissions (approximately 9% of all APA submissions) did not result in APAs (e.g., APA request withdrawals). It is unclear why these APA submissions did not result in an APA, but acquisitions, divestitures and other business reasons likely played a part. During the life of the APA program, the IRS has accepted 3,119 APA submissions, executed 2,268 APAs and has 564 APAs in progress (Announcement 2023-10 (pdf)).

    2 A Treaty Assistance and Interpretation Team analyst will be assigned for any non-transfer pricing treaty issues, such as permanent establishment.