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Issue description: Whether the taxpayer¡¯s activities or expenses qualify for the credit for increasing research activities or amortization of specified research and experimental expenditures (SRE).

The list below provides items the IRS will need to review upon acceptance into the program. Address the availability of each item in your request.

Research credit issues can be resource intensive. To facilitate the review of a PFA request for a research credit issue and to evaluate the IRS¡¯s resource commitments, the IRS recommends attaching items 1-5 to your PFA request.

1. If the taxpayer is a publicly traded company, a link or information needed to access the publicly available SEC Form 10-K for the three years preceding the PFA tax year. If the taxpayer is a privately held entity, electronic copies of your audited annual financial statements for the three years preceding the PFA tax year, if those financial statements include ASC 730 amounts or an equivalent statement of Research & Development expense.
2. Form 6765, Credit for Increasing Research Activities filed with your tax return for the 3 taxable years prior to the PFA tax year and workpapers generally showing the source (e.g., operating units, departments, cost centers, etc.) of the taxpayer¡¯s qualified research expenses (QREs).
3. A statement whether you anticipate following LB&I-04-0820-0016, Guidance for Allowance of the Credit for Increasing Research Activities under IRC Section 41 for Taxpayers that Expense Research and Development Costs on their Financial Statements Pursuant to ASC 730, in the PFA tax year.
4. For potential qualified research activities (QRAs) performed by you on behalf of third parties, a description of the types of agreements you have with third parties, e.g., agreements for research services, agreements to furnish finished products, etc.
5. A copy, in original electronic format, of any research credit study used to determine the research credit for the three tax years prior to the PFA tax year. If items 6-20 are addressed in the study, reference the appropriate section of the study.
6. Electronic financial accounting records that reconcile with the Form 10-K, audited financial statements, or other financial reports. These records should also align with the income expected to be reported on the filed tax return. The records should clearly show research and development expenses and match the amounts reported under Auditing Standards Codification (ASC) 730, or similar standard if the financial statements don¡¯t follow the Generally Accepted Accounting Principles (GAAP). If this is not available for the tax year for which the pre-filing agreement is sought, then provide the information for the preceding tax year.
7. For potential QREs from computer rental or lease costs, a description of the type of costs identified and included as computer rental or lease costs.
8. For potential QRAs related to software development, an explanation of whether the software should be treated as non-internal use software, internal-use software, or dual-function software.
9. Description of types of potential QRAs that are performed on your behalf by third-party contractors.
10. Amount of SRE expenditures for the PFA tax year if available, and the taxable year preceding the PFA tax year. Provide schedules showing how the SRE expenditures were computed.
11. Organization charts that show the departments and cost centers in which activities that have the potential to be QRAs are conducted.
12. Description of your research and development process that may involve potential QRAs.
13. Documentation of the policies and procedures governing your product and process development.
14. Documentation relied on to substantiate the performance of QRAs and an explanation of how this documentation may be used in assessing the qualification of potential QRAs.
15. Description of the methodology and process used to determine the activities included or excluded in qualified research and the amount of QREs incurred in the conduct of QRAs.
16. Documentation with respect to any QREs that are accounted for as production costs or cost of goods sold (with explanation of any book-to-tax difference for the treatment of these expenses).
17. For any research credit that includes QREs from pilot models, a list of business components connected to a pilot model and the documentation used to confirm that the costs for each pilot model were for the conduct of qualified research and are a qualified research expense.
18. Summary of your history of QREs for the 3 taxable years prior to the PFA tax year, such as changes to your methodology for identifying business components or qualified research.
19. From your most recently filed return, provide your carryback and carryforward schedules for the general business credit and your properly completed Form 6765. (if not already provided in response to Item 11).
20. A brief summary of your IRS examination history related to the research credit for the 3 tax years prior to the PFA tax year. If the research credit was adjusted, please provide the QREs and research credits ¡°as filed¡±, ¡°per exam¡± and ¡°as amended,¡± if applicable. For each year, indicate how the research credit issue was resolved or if the issue is still pending.

Issue description: The determination of whether a security became worthless during the eligible taxable year and the amount of the loss, for purposes of section 165(g). If applicable, the determination of whether the security is a security in a domestic affiliate pursuant to IRC 165(g)(3).

The list below provides items the IRS will need to review upon acceptance into the program. Address the availability of each item in your request.

1. Documentation to corroborate the taxpayer¡¯s description of the transaction. This may include, but is not limited to, tax and legal opinions, transaction presentations, valuations (whether prepared internally or by a third party), financial statements, and copies of elections and tax forms filed.
2. Documentation to corroborate the basis used in calculating the loss. This may include, but is not limited to, a basis study or analysis, which includes documentation to corroborate all changes to basis reflected on such basis schedule and analysis such as acquisition agreements or general ledger detail.
3. Documentation to corroborate the business purpose for each step of the transaction (if applicable) and the business purpose of the transaction in its entirety. This may include, but is not limited to, board of director minutes, emails, or internal and external tax and legal memos.
4. With respect to a security in an affiliate, provide a copy of the gross receipts calculation used to confirm the worthless affiliate has met the gross receipts test under IRC 165(g)(3)(B). Provide a statement disclosing the specific tax years, since inception, for which you have documentary evidence to corroborate the amounts reported on this calculation. If documentary evidence is unavailable for all years, the statement provided should also include a detailed description of how the gross receipts calculation was performed, including what specific gross receipts data was used in the calculation for those missing years.

Issue description: The investment adjustment rules of Treas. Reg. 1.1502-32 and Unified Loss Rule (ULR) of Treas. Reg. 1.1502-36. This issue is usually worked in correlation with the worthless securities deduction and requires much of the same documentation.

The list below provides items the IRS will need to review upon acceptance into the program. Address the availability of each item in your request.

1. Stock basis computations.
2. Unified loss rule computations.
3. Any stock basis study prepared.
4. Any valuation study of loss subsidiary.
5. All relevant supporting documentation (such as the purchase price documentation and documentation to support the stock basis calculations).

Issue description: Whether to apply the limitations provided by related to the repurchase premium on convertible debt.

The list below provides items the IRS will need to review upon acceptance into the program. Address the availability of each item in your request.

1. Offering memoranda, promissory note, indenture agreement, or any similar loan agreement.
2. Any studies or analysis substantiating the 249 exclusion. These should include the normal call premium or the change in cost of borrowing.
3. Details supporting the amount paid to redeem or convert the debt.
4. Details supporting the adjusted issue price of the convertible debt.

Issue description: Determine the discount rate and the costs of required capital for valuation of an insurance company.

The list below provides items the IRS will need to review upon acceptance into the program. Address the availability of each item in your request.

1. The actuarial report and all supporting workpapers and documentation prepared in accordance with Actuarial Standard of Practice (¡°ASOP¡±) No. 19, which covers Appraisals of Casualty, Health, and Life Insurance Businesses as promulgated by the Actuarial Standards Board of the American Academy of Actuaries. Supporting workpapers and documentation should include, but are not limited to:
   • An analysis detailing the methodology (e.g., the capital asset pricing model (CAPM), weighted average cost of capital (WACC), etc.), and the variables used to calculate the chosen discount rate(s) and discount rate range(s). The analysis should demonstrate how the actuary utilized these rates to discount projected earnings to determine the present values used in the appraisal report.
   • An analysis describing and computing the cost of required capital, including assumptions such as risk-based capital (RBC) level percentage, discount rate, and after-tax earnings rate, used to arrive at the result.
2. Consideration of items outside the scope of the actuarial appraisal value that may increase or decrease value, such as branding, market position, buyer¡¯s contemplated synergies of the acquired business, and general market conditions.
3. Sufficient detail in all the above to ensure another actuary qualified in the same practice area could evaluate the reasonableness of the actuary¡¯s work, as described in ASOP No. 19, Section 3.10.

Issue description: Determine whether a construction or manufacturing contract is required to be accounted for as a long-term contract under IRC 460.

The list below provides items the IRS will need to review upon acceptance into the program. Address the availability of each item in your request.

1. Relevant dates.
   • Date contract entered into (contracting year).
   • Date you, or a related party, first incurred any contracting costs (contract commencement date).
   • Estimated year of completion.
2. Basic contract information.
   • Is the contract for the construction, improvement, or building of real property?
   • Is the contract for the manufacture of:
     • Unique items not normally carried in finished goods inventory; or
     • Items which normally require more than 12 months to complete (regardless of the duration of the actual contract).
   • Is the contract with a related party? If so, provide additional details such as a narrative and an organizational chart.
   • Was the contract aggregated with, or severed from, another contract?
3. A copy of the complete executed contracts (including addendum, schedules, exhibits, and any contract modifications) entered into on or before the date of the PFA application.
4. A copy of all applicable Form 3115, Application for Change in Accounting Method, if you have filed one related to a construction or manufacturing contract in the past 5 years.

Issue description: Whether a unit of the taxpayer¡¯s trade or business is a qualified business unit (QBU) within the meaning of section 989(a) and the regulations promulgated under that section.

The list below provides items the IRS will need to review upon acceptance into the program. Address the availability of each item in your request.

1. Business identification
   • Documents evidencing the legal structure of the potential QBU (e.g., corporation, partnership, trust, etc.) including articles of incorporation or similar formation documents, employer identification number, etc.
   • Description of the specific unit of the trade or business to be evaluated including whether the QBU is a branch, division, or an entity disregarded from its owner.
   • An organizational chart depicting the potential QBU, its direct owner, tax owner, and overall organization.
2. Nature of activities
   • Description of each activity conducted by the potential QBU, including how the potential QBU operates within the overall organization.
   • Description of how the activities constitute or could constitute an independent economic enterprise carried on for profit. Include whether the expenses related to such activities are deductible under section 162 or 212.
   • Copies of the potential QBU¡¯s separate set of books and records and the location of the custodian of the separate books and records.

Issue description: Whether the taxpayer is engaged in a trade or business within the United States (excluding questions under section 864(b)(2)).

The list below provides items the IRS will need to review upon acceptance into the program. Address the availability of each item in your request.

1. Documentation of taxpayer¡¯s activities in the U.S. which may include, but is not limited to:
   • Functional organization chart of the taxpayer¡¯s worldwide activities.
   • Legal entity organization chart of the parent company and all subsidiaries, including disregarded entities.
   • Description of the taxpayer¡¯s worldwide business operations including the jurisdictions in which it performs activities (e.g., manufacturing, sales, marketing, distribution, etc.) relevant to the products or services that are sold or marketed to U.S. customers.
   • Detailed description of the nature and scope of activities performed by the taxpayer¡¯s employees in the United States for the year at issue in your request, including the number of such employees and their specific activities (e.g., sales, marketing, other services, etc.).
   • Detailed description of the nature and scope of activities performed by any agent acting on the taxpayer¡¯s behalf in the United States for the year at issue, including the number of such agents and their specific activities (e.g., sales, marketing, other services, etc.).
   • A list of all property owned or leased by the taxpayer located in the United States (e.g., office, real estate, warehouse, equipment, etc.).
   • Copies of representative contracts and invoices to U.S.-based customers for products sold or services rendered, noting whether such contracts were negotiated or executed in the U.S.

Issue description: The amount of gross income that is effectively connected with the conduct by the taxpayer of a trade or business within the United States.

The list below provides items the IRS will need to review upon acceptance into the program. Address the availability of each item in your request.

1. Copies of audited financial statements for the U.S. branch or other legal entity operating in the U.S. for the two prior tax years.
2. Trial balance of all gross revenue and expenses for the U.S. branch or other legal entity operating in the U.S. for the prior tax year and the year for which the PFA is being requested.
3. Description of assets used and material participation of employees and agents who assist in generating gross revenue.
4. Documentation of any foreign office that materially participates in the generation of gross revenue from U.S. customers, and the individuals involved.
5. Description of any passive income (interest, dividends, capital gains, royalties, rentals, etc.) that is connected with the U.S. activities.

Issue description: Factual determinations concerning the extent to which, under Section 882(c), deductions are connected with income that is effectively connected with the taxpayer¡¯s conduct of a trade or business within the United States.

The list below provides items the IRS will need to review upon acceptance into the program. Address the availability of each item in your request.

1. For the determination of deductions, other than interest or head office expense, documentation which may include, but is not limited to:
   • Documentation that indicates the amounts and types of gross income effectively connected with the U.S. trade or business.
   • Documentation that describes and quantifies all U.S. direct expenses incurred in generating gross effectively connected income.
2. For the determination of interest expense deduction, documentation which may include, but is not limited to:
   • Documentation reflecting average U.S. assets and average amount of U.S. booked liabilities.
   • For any assets or liabilities on the branch¡¯s books that were determined to not be U.S. assets or U.S. liabilities e.g. non-effectively connected, documentation clearly reflecting the type and average amount of such assets or liabilities and a description of each.
3. For the determination whether a reasonable method for expense allocation and apportionment under Treas. Reg. 1.861-8 and 8T for purposes of the allocation of head office expenses to a U.S. branch of a foreign corporation has been used, documentation which may include, but is not limited to:
   • Copies of all head office allocation studies (e.g. functional and factual analysis) performed for the past 2 years to substantiate allocation and apportionment of expenses under Treas. Reg. 1.861-8.
   • If no studies have been prepared for (a) above, documentation which may include, but is not limited to, a list of all head office functional departments, description of such departments, the total costs incurred in such departments, a description of how the department contributes to the generation of gross effectively connected income, etc.
   • Documentation to corroborate the taxpayer¡¯s position that the allocation key is reasonable. This may include, but is not limited to, a written description of the business and economic reason(s) why the specific allocation keys (gross revenue, gross assets, headcount, etc.) were selected for allocation/apportionment of head office costs.

Issue description: Whether the taxpayer has a permanent establishment in the United States for purposes of a bilateral income tax convention to which the United States is a party and, if so, what profits are attributable to that permanent establishment.

The list below provides items the IRS will need to review upon acceptance into the program. Address the availability of each item in your request.

1. General information
   • Explain how you meet all requirements necessary to claim benefits under the income tax convention at issue (e.g., residence, beneficial ownership, limitation on benefits) and provide documentation to support your response (e.g., articles of incorporation, certificate of residence).
   • Describe whether you are a fiscally transparent entity under the laws of your country of residence or under the laws of the United States. If so, please identify each person owning interests in your enterprise during the year at issue, including the residence, the percentage of ownership, and the status of each person as a nominee or as a fiscally transparent entity.
2. Permanent establishment information
   • The ¡°Fixed Place of Business¡± Permanent Establishment
     • Explain whether the business of your enterprise was carried on in the United States through
       • a branch
       • an office
       • a factory
       • a workshop
       • a mine, a well, a quarry, or any other place of extraction of natural resources
       • a facility, such as premises, machinery, equipment, or installations (including any space at your disposal that is used for activities of the business).
     • Explain if there were any changes to the location of such place of business during the year at issue.
     • Describe the circumstances of such change(s).
     • Explain the number of months the business of your enterprise was carried on in the United States during the year at issue.
     • Describe whether your employees or personnel (i.e., persons employed by your enterprise, including agents) carried on the business of your enterprise in the United States during the year at issue. Identify such employees and personnel, including the title of, the activities carried on by, and the duration of presence in the United States of each employee or personnel.
     • Explain whether you are a holder of any interest in a fiscally transparent entity that is engaged in a trade or business within the United States. If so, identify each of such entities and the trade or business in which such entities are engaged in within the United States.
3. The ¡°Dependent Agent¡± Permanent Establishment
   • The ¡°Dependent Agent¡± Permanent Establishment
   • Explain whether you have authorized (explicitly or implicitly) any person(s) to conclude (or to negotiate) contracts in the United States that, if concluded, would be binding on your enterprise.
   • Describe the activities carried on in the United States under such authority during the year at issue.
   • Specify the number of contracts concluded (or negotiated) in the United States under such authority during the year at issue.
   • Provide copies of such contracts (or, if there are too many contracts to do so, please provide samples that are representative of such contracts).
4. The ¡°Construction or Installation Project¡± Permanent Establishment
   • Describe whether the business of your enterprise is carried on in the United States through
     • a building site or construction or installation project
     • an installation or drilling rig or a ship used for the exploration of natural resources.
   • Specify the period (in months) each project was carried on (or the exploration continued) in the United States during the year at issue.
   • Provide copies of documents under which you perform such activities in the United States (such as agreement or contracts).
5. The ¡°Services¡± Permanent Establishment
   • Describe whether your enterprise was furnishing services in the United States through employees or other personnel (i.e., persons employed by your enterprise, including agents) during the year(s) at issue.
   • If it was, specify the period (in months) your enterprise was furnishing such services during each of the years at issue.
   • Provide copies of documents under which you furnish such services (such as agreement or contracts).
   • Describe whether your enterprise was furnishing any of such services to a related enterprise.
6. The ¡°Preparatory or Auxiliary¡± Exception
   • Describe the main business activities of your enterprise (you may choose to answer by providing copies of, or references to, certain documents, such as your public filings).
   • Describe each activity that your enterprise carried on in the United States (including through agents) during the year at issue (you may choose to answer by providing copies of certain documents, such as agreements or contracts).
   • Explain the relationship between such activities in the United States and your main business activities.
   • Describe whether such activities in the United States were limited to any combination of:
     • the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to your enterprise
     • the maintenance of a stock of goods or merchandise belonging to your enterprise solely for the purpose of storage, display or delivery
     • the maintenance of a stock of goods or merchandise belonging to your enterprise solely for the purpose of processing by another enterprise
     • the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or of collecting information, for your enterprise
     • the maintenance of a fixed place of business solely for the purpose of carrying on, for your enterprise, any other activity of a preparatory or auxiliary character
7. Profit Attribution Information
   • The foreign entity¡¯s financial statements (annual income statement and balance sheet data for the year at issue).
   • The permanent establishment¡¯s financial statements (annual income statement and balance sheet data for the year at issue). Include an explanation of the steps taken to segment income statement and balance sheet items and cost categories (e.g., apportionments performed, allocations made, allocation keys used, rationales for allocation keys, etc.).
   • Profit attribution calculations for the permanent establishment with supporting documentation.