October 10, 2008

The Honorable Douglas H. Shulman                The Honorable Donald L. Korb

Commissioner                                             Chief Counsel

Internal Revenue Service                             Internal Revenue Service

1111 Constitution Avenue, N.W.                        1111 Constitution Avenue, N.W.

Washington, D.C.  20224                             Washington, D.C.  20224

The Honorable Eric Solomon                         Mr. Michael Mundaca

Assistant Secretary (Tax Policy)                   Deputy Assistant Secretary (Tax Policy)

Department of the Treasury                             -  International

1500 Pennsylvania Avenue, NW                     Department of Treasury

Room 3104 MT                                           1500 Pennsylvania Avenue, NW - Room

Washington, DC 20220                                 Washington, DC 20220

Mr. Steven A. Musher                                    Mr. John Harrington

Associate Chief Counsel (International)             International Tax Counsel

Internal Revenue Service                                Treasury Department

1111 Constitution Avenue, N.W.                      1500 Pennsylvania Avenue, NW

Room 4619 IR                                               Room 5064-D MT

Washington, D.C.  20224                                Washington, D.C.  20220

Ms. Phyllis E. Marcus

Associate Chief Counsel (International)

Branch 2 (CC :INTL :B02), Room 4710R

Internal Revenue Service

1111 Constitution Avenue, N.W.

Washington, D.C.  20224

HAND DELIVERED:  Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC

RE:   International Tax Regulations References to GAAP and U.S. GAAP

 Dear Messrs. Shulman, Korb, Solomon, Mundaca, and Musher and Ms. Marcus:

The American Institute of Certified Public Accountants (AICPA) respectfully requests that the Internal Revenue Service and the Department of the Treasury publish guidance or, as necessary, amend the international tax regulations listed below to (i) clarify that any reference to “generally accepted accounting principles” (GAAP) in these regulations includes International Financial Reporting Standards (IFRS) and (ii) expressly provide that information prepared in accordance with either IFRS or U.S. GAAP is sufficient for purposes of such regulations.

 1.482-9T(e)(2)(iii) (GAAP reference)

1.861-9T(g)(2)(ii)(A)(2) (U.S. GAAP reference)

1.864-4(c)(4) (GAAP reference)

1.897-1(o)(4)(i) and (ii) (both U.S. GAAP references)

1.897-2(b)(2)(ii) (U.S GAAP reference)

1.964-1(b) (“accounting principles generally accepted in the United States”)

1.985-1(b)((2)(ii)(D) (U.S. GAAP reference)

1.985-3(b)(2) (U.S. GAAP reference)

1.985-4(b) (U.S. GAAP reference)

1.988-1(f)(1)(ii)(B) (GAAP reference)

1.6038-2(g) (GAAP reference)

1.6038A-3(c)(2)(ii) (U.S. GAAP reference)

1.6046-1(b)(10) (GAAP reference)

1.6046-1(g) (U.S. GAAP reference)

We note that none of the statutes underlying these regulations define GAAP or require compliance with U.S. GAAP. Therefore, the IRS and Treasury have the authority to make these changes through published guidance or amended regulations.  

 We also request that the forms associated with these regulations, and, in particular, Form 5471, “Information Return of U.S. Persons With Respect To Certain Foreign Corporations,” Form 8858, “Information Return of U.S. Persons With Respect to Foreign Disregarded Entities,” and Form 8865, “Return of U.S. Persons With Respect to Certain Foreign Partnerships,” be amended as appropriate to include references to GAAP that include IFRS or specifically to IFRS as an acceptable accounting standard. Please note that Forms 5471, 8858 and 8865 all are used to report only the required financial information of foreign entities, not of U.S.-incorporated entities.

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Recent IFRS developments include:

• The AICPA approved (May 2008) the International Accounting Standards Board (IASB) as an accounting standard-setter under Rules 202 and 203 of the AICPA Code of Professional Conduct. The IASB promulgates IFRS.
  
•  The U.S. Securities and Exchange Commission (SEC) voted (November 2007) to accept foreign private issuers’ financial statements prepared in accordance with IFRS without reconciliation to U.S. GAAP. At a public meeting on August 27, 2008, the SEC announced that it will issue a proposed Roadmap (http://www.sec.gov/news/press/2008/2008-184.htm) for the adoption of IFRS by U.S. listed companies (i.e., U.S. parent companies). The SEC will propose that IFRS reporting begin with years ending on or after December 15, 2014 if the interim milestones are met. The SEC also said it will propose an option that would allow 20 of the largest companies (by market cap) in a particular industry sector where IFRS is the single largest reporting regime to adopt IFRS starting 2009. 
  
•  The IASB and Financial Accounting Standards Board (FASB) issued (September 11, 2008) “Completing the February 2006 Memorandum of Understanding (MOU): A progress report and timetable for completion” (http://www.fasb.org/intl/MOU_09-11-08.pdf). The update to this MOU states that joint projects on major standard-setting initiatives are expected to be completed by 2011.
  
• The European Union (EU) in 2005 began to require listed companies to issue their consolidated financial statements in accordance with IFRS.  Canada and Japan plan to adopt/converge with IFRS by 2011, and several countries including Australia, New Zealand and Israel have essentially adopted IFRS as their national standard.
  
• The Treasury/IRS 2008-2009 Priority Guidance Plan (issued September 10, 2008) includes under the International Issues Sourcing and Expense Allocation section an item on guidance under section 475 tax/book conformity election relating to IFRS (http://www.irs.gov/pub/irs-il/2008-2009pgp.pdf).

It is increasingly likely that many foreign corporations owned by U.S. taxpayers will present financial statements in accordance with IFRS. Furthermore, it is likely that the U.S. corporate parent itself will use IFRS within the next decade, and perhaps as soon as next year. With so many companies following IFRS, Treasury and IRS regulations should no longer require compliance with U.S. GAAP and that certain information on the Forms 5471, 8858, and 8865 be in accordance with U.S. GAAP, as such compliance can require the creation of books not otherwise utilized in the corporation’s business. This burden will affect more corporations (both foreign and potentially domestic) over time as IFRS becomes a worldwide accounting standard.

We welcome you to visit the AICPA’s website on IFRS: www.ifrs.com and the “backgrounder” on IFRS at:  https://media.cpa2biz.com/Publication/IFRS/ 1924_IFRS_Backgrounder_v3_web_FINAL_05-14-08.pdf.

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These comments were developed by the AICPA Form 5471 Task Force and approved by the International Taxation Technical Resource Panel and Tax Executive Committee.

The AICPA is the national professional organization of certified public accountants comprising approximately 350,000 members. Our members advise clients on federal, state and international tax matters, and prepare income and other tax returns for millions of Americans. Our members provide services to individuals, not-for-profit organizations, small and medium-size businesses, as well as America’s largest businesses.

We welcome the opportunity to discuss our comments further with you or others at the IRS. Please contact me at jeffrey.hoops@ey.com; Paul Schmidt, Chair of the International Tax Technical Resource Panel, at pschmidt@bakerlaw.com; Vern Jacobs, Chair of the AICPA Form 5471 Task Force, at jacobs1@kc.rr.com,or Eileen Sherr, AICPA Technical Manager, at or esherr@aicpa.org.

Sincerely,

Jeffrey R. Hoops, CPA

Chair, AICPA Tax Executive Committee