Tax Administration: IRS' Advance Pricing Agreement Program (Letter
Report, 08/14/2000, GAO/GGD-00-168).

Pursuant to a congressional request, GAO reviewed the Internal Revenue
Service's (IRS) Advance Pricing Agreement Program, focusing on the: (1)
extent of advance pricing agreements (APA) use by U.S. taxpayers,
including those that have had transfer pricing disputes with the IRS;
(2) timeliness of IRS' APA processing; and (3) results of IRS' review of
taxpayers' annual reports on compliance with APAs.

GAO noted that: (1) based on IRS information, as of September 30, 1999,
244 business taxpayers had either entered into an APA with IRS or had
one pending; (2) IRS records also showed that at least 88 other
taxpayers were identified as having considered APAs, but for various
reasons, they did not complete the process; (3) according to an IRS
official, the majority of taxpayers involved in its APA program were
large corporations, and they were spread across many industries; (4)
also, most U.S. taxpayers that had recent transfer pricing disputes with
IRS had not participated in the APA program as of September 30, 1999;
(5) as of that date, 10 percent of the 1,245 large corporate taxpayers
with international related parties had an approved agreement or had one
pending, but the 10 percent accounted for 42 percent of the dollar value
of the intercompany transactions in GAO's analysis of large taxpayers;
(6) IRS did not consistently meet its timeliness targets for processing
unilateral APAs and the first phase of bilateral APAs; (7) although IRS
did not have targets for completing bilateral agreements in their
entirety, some were pending for several years, even after their proposed
time periods had expired; (8) in particular, IRS did not have targets
for completing the part of bilateral agreements involving negotiations
with tax authorities in other countries; and (9) while IRS has acted to
address what its officials said were some of the reasons for the
timeliness problems, it is unlikely to resolve them without gathering
more information to determine the causes.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-00-168
     TITLE:  Tax Administration: IRS' Advance Pricing Agreement Program
      DATE:  08/14/2000
   SUBJECT:  Tax administration
	     Prices and pricing
	     Tax law
	     Taxpayers
IDENTIFIER:  IRS Advance Pricing Agreement Program
	     IRS Chief Counsel's Automated Systems Environment Database

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GAO/GGD-00-168

United States General Accounting Office
GAO

Report to the Honorable

Byron L. Dorgan, U.S. Senate

August 2000

GAO/GGD-00-168

TAX ADMINISTRATION
IRS' Advance Pricing Agreement Program

Reporting Fraud, Waste, and Abuse in Federal
Programs
To contact GAO FraudNET use:
Web site:
http://www.gao.gov/fraudnet/fraudnet.htm
E-Mail: [email protected]
Telephone: 1-800-424-5454 (automated answering
system)

 (268895)

Contents
Page 141GAO/GGD-00-168 Advance Pricing Agreement Program
Letter                                                                      1
                                                                             
Appendix I                                                                 16
Objectives, Scope, and
Methodology
                                                                             
Appendix II                                                                20
The Extent of APA Use by
Taxpayers With Section
482 Proposed Adjustments
                                                                             
Appendix III                                                               22
The Extent of APA Use by
Large U.S. Parent
Companies of Controlled
Foreign Corporations
                                                                             
Appendix IV                                                                24
The Extent of APA Use by
Large Foreign-Controlled
Corporations
                                                                             
Appendix V                                                                 26
Competent Authority
Contributions to APA
Processing Times
                                                                             
Appendix VI                                                                27
Comments From the
Internal Revenue Service
Appendix VII                                                               32
GAO Contacts and Staff
Acknowledgments
                                                                             
Tables                     Table 1: Involvement in APA Program of           6
                           Taxpayers With Section 482 Disputes
                           Table III.1: Participation of Large             22
                           CFC Parent Companies and Their CFCs
                           in IRS' APA Program
                           Table III.2: Payments by CFCs Whose             23
                           Parent Companies Were or Were Not
                           Involved in APAs
                           Table IV.1: Largest FCCs' Involvement           24
                           in IRS' APA Program
                                                                             

Abbreviations

APA       advance pricing agreement
CASE      Chief Counsel's Automated Systems
Environment
CFC       controlled foreign corporation
FCC       foreign-controlled corporation
IRS       Internal Revenue Service
USCC      U.S.-controlled corporation

B-283781

Page 13GAO/GGD-00-168 Advance Pricing Agreement Pr
ogram
     B-283781

     August 14, 2000

     The Honorable Byron L. Dorgan
United States Senate

     Dear Senator Dorgan:

     Any company that has a related company with
which it transacts business needs to establish
transfer prices for its intercompany transactions.
The pricing of intercompany transactions affects
the distribution of profits among the related
companies and, ultimately, the taxable income of
the companies. To help curtail complex, lengthy,
multimillion-dollar transfer pricing disputes with
business taxpayers, the Internal Revenue Service
(IRS) developed an advance pricing agreement (APA)
program. Under an APA, IRS and taxpayers agree on
the methods to determine the prices that related
companies charge each other when transferring
goods and services over a specified period.
Taxpayers also agree to submit annual reports that
demonstrate compliance with the terms of the
agreements. APAs can be either unilateral-between
only IRS and specific taxpayers-or
bilateral-involving negotiations with tax
authorities in countries that have income tax
treaties with the United States.

     This is the second report in response to your
request that we review various transfer pricing
issues.1 As agreed with your office, the
objectives of this report are to determine (1) the
extent of APA use by U.S. taxpayers, including
those that have had transfer pricing disputes with
IRS; (2) the timeliness of IRS' APA processing;
and (3) the results of IRS' review of taxpayers'
annual reports on compliance with APAs.

     To fulfill these objectives, we interviewed
IRS officials and other people knowledgeable about
IRS' APA program. We also analyzed information
from several IRS databases. This report includes
information on IRS' APA program from January 1991,
when the first APA was approved, through September
30, 1999. We did our review in Washington, D.C.,
from July 1999 through April 2000 in accordance
with generally accepted government auditing
standards. (See app. I for a complete discussion
of our objectives, scope, and methodology.)

Results in Brief
     Based on IRS information, as of September 30,
1999, 244 business taxpayers had either entered
into an APA with IRS or had one pending. IRS
records also showed that at least 88 other
taxpayers were identified as having considered
APAs, but for various reasons, they did not
complete the process.2 According to an IRS
official, the majority of taxpayers involved in
its APA program were large corporations, and they
were spread across many industries.

     Also, most U.S. taxpayers that had recent
transfer pricing disputes with IRS had not
participated in the APA program as of September
30, 1999.3 As of that date, 10 percent of the
1,245 large corporate taxpayers with international
related parties had an approved agreement or had
one pending, but the 10 percent accounted for 42
percent of the dollar value of the intercompany
transactions in our analysis of large taxpayers.4

     IRS did not consistently meet its timeliness
targets for processing unilateral APAs and the
first phase of bilateral APAs. Although IRS did
not have targets for completing bilateral
agreements in their entirety, some were pending
for several years, even after their proposed time
periods had expired. In particular, IRS did not
have targets for completing the part of bilateral
agreements involving negotiations with tax
authorities in other countries. While IRS has
acted to address what its officials said were some
of the reasons for the timeliness problems, it is
unlikely to resolve them without gathering more
information to determine the causes. As a result,
we are recommending that IRS gather such
information and that IRS test target timeframes
for approving bilateral APAs.

     According to IRS, only a few problems were
found in its reviews of APA annual reports. IRS
stated that, of the 211 annual reports reviewed
between October 1, 1995, and late September 1999,
only 15 reports involving 11 taxpayers caused IRS
to adjust or consider adjusting tax returns.

     In commenting on a draft of this report, the
Commissioner of Internal Revenue agreed with our
recommendations and described several other IRS
initiatives to improve the APA program. These
initiatives included approximately doubling the
APA professional staff over 2 years and changing
the annual report review process.

Background
     Transfer pricing is governed by section 482
of the Internal Revenue Code and its accompanying
regulations. Accurate transfer pricing is
important because it affects the distribution of
profits among related companies and, thus, their
taxable income and may also affect the
distribution of tax revenue among countries.

     Using APAs, IRS seeks to avoid transfer
pricing disputes between it and business taxpayers
by reaching prospective agreements with each
taxpayer on the (1) appropriate transfer pricing
methodologies that are to be applied to
intercompany transactions and (2) results that are
likely to occur from applying the methodologies.
Intercompany transactions include those between
U.S. taxpayers and their controlled foreign
corporations (CFCs) and between entities abroad
and their foreign-controlled corporations (FCCs)
in the United States.5

     Taxpayers who consider APAs do so voluntarily
and pay IRS processing fees when they request an
APA. APAs cover a specified time, often 3-5 years,
and may be renewed or revised if IRS and the
taxpayer agree. IRS may cancel or revoke an APA
under certain circumstances, such as cases
involving a misrepresentation or fraud. In
addition, APAs may cover all of a taxpayer's
transfer pricing activities or may be restricted
to certain related companies or products. IRS'
policy provides that the agreed-upon transfer
pricing methodology may be applied retroactively
to similar unresolved issues identified during
previous audits of the taxpayer.

     In January 1991, IRS approved its first APA
and, shortly after that, issued procedures that
implemented its APA program. It also adopted
streamlined procedures in December 1998 to
encourage small businesses meeting certain total
gross income or intercompany transaction
thresholds to participate in the program.

     Several IRS organizational units are involved
in the APA program, principally the APA program
office within the Office of Chief Counsel. This
office is to work closely with IRS examiners who
audit income tax returns, Appeals representatives
who work on appeals of examined cases, and others
in developing the proposed agreements with
taxpayers.

     When the APA program office considers a
bilateral agreement, it develops its position on
the proposed APA with the taxpayer but leaves the
negotiation with the foreign government on such
matters as the appropriateness of the transfer
pricing methodology to the U.S. Competent
Authority. Under U.S. tax treaties, the IRS
Assistant Commissioner (International) is the U.S.
Competent Authority, a role recently assumed under
an IRS reorganization by the IRS Director,
International. A tax treaty requires each country
to designate a "competent authority" to administer
the treaty's operative provisions. The U.S. and
foreign competent authorities negotiate APA
matters with each other under the applicable
treaty's framework. The U.S. Competent Authority
uses IRS' Tax Treaty Division as staff.

     In administering approved agreements, APA
program officials and IRS examiners are to review
taxpayers' annual reports on their APAs describing
actual operations during the year to ensure that
they demonstrate compliance with the terms of the
agreements. The annual report for each year of the
agreement is to identify all material differences
between the taxpayer's actual and expected
business operations, all material changes in its
methods of estimation, and all failures to meet
critical assumptions.

     Legislation enacted in December 1999
prohibited disclosure of specific APAs and APA
background files but required the Department of
the Treasury to report annually to Congress
general information on APAs.6 The first report,
which included such information as the number of
APA applications filed, the number of APAs revoked
or canceled, the number of APAs by industry, and
general descriptions about the substance of the
APAs, covered January 1, 1991, through December
31, 1999. It was issued on March 30, 2000.7
Because our APA cutoff date differed from IRS',
some statistics in our report also differ from
IRS'.

The Extent of APA Use by Taxpayers Varied
     Various measures exist on the extent to which
taxpayers have used IRS' APA program. For
instance,

ï¿½    244 taxpayers involved in various industries
and countries had approved or pending APAs;
ï¿½    most taxpayers with recent section 482
international examination findings or appeals
determinations did not participate in APAs;8 and
ï¿½    a few large taxpayers that participated in
APAs accounted for much intercompany trade.

244 Taxpayers Involved in Various Industries and
Countries Had Entered Into APAs or Had Them
Pending
     As of September 30, 1999, 244 taxpayers had
entered into an APA, that is, agreed to one that
IRS also approved, or had one pending. In addition
to these taxpayers, at least 88 others considered
APAs but did not complete the process for various
reasons, including their voluntary withdrawal of
their proposal or IRS' rejection of it.9 Although
a majority of the taxpayers with APAs were large
corporations according to an IRS official, eight
small business taxpayers had completed agreements
under IRS' small business APA program as of
September 30, 1999.

     Also as of September 30, 1999, IRS reported
that of the 400 APAs in its records, 210 had been
approved since the program's inception in 1991,
and 190 others were in various stages of
development. The number of taxpayers involved was
less than the number of agreements because some
taxpayers had more than one APA.10 According to IRS
data, 247 of the 400 approved and pending APAs
were bilateral ones with 15 countries, and most of
them involved 4 countries.

     The taxpayers in IRS' APA program represented
many different industries. As reported by IRS in
March 2000, the agreements reached between IRS and
taxpayers as of December 31, 1999, were spread
over 21 broad industrial categories.11 However,
five industries were predominant among the 21
categories-financial institutions and products;
computer items and computer software; chemicals
and related products; transportation equipment;
and electrical equipment and components.

Most Taxpayers With Recent Transfer Pricing
Disputes Did Not Participate in APAs
     Most taxpayers with recent section 482
international examination proposed adjustments to
income or significant section 482 issues subject
to appeals determinations did not have approved or
pending APAs as of September 30, 1999.

     As table 1 shows, taxpayers with approved or
pending APAs as of September 30, 1999, accounted
for a small proportion of the taxpayers (72, or 6
percent of 1,150) that had section 482 examination
disputes with IRS in fiscal years 1996 through
1998. For these 1,150 taxpayers, IRS'
international tax return examiners proposed $15.4
billion in section 482 adjustments to income.12
(See app. II for more information on the extent of
APA use by taxpayers with recent section 482
proposed adjustments.)

Table 1: Involvement in APA Program of Taxpayers
With Section 482 Disputes
Number of taxpayers     APA status     No APA Tota
with                                  experien    l
                                           ce
                     Approved  Process             
                          or disconti
                     pending     nued
                    agreemen
                          ts
Proposed examination      72       23   1,055 1,15
adjustmentsa                                     0
Nontrial appeals          17       11      91  119
closedb
Appeals openc             18       10      76  104
Note 1: The information in this table is for the
APA program as of Sept. 30, 1999.
Note 2: Because we could not obtain employer
identification numbers for 20 taxpayers whose APA
process was discontinued, this table might not
properly reflect those taxpayers. If any of them
had an employer identification number that matched
an employer identification number in the
examination or appeals database, those taxpayers
would have appeared in the "process discontinued"
column.
aThese taxpayers had section 482 international
examination cases closed in fiscal years 1996-98.
bThese taxpayers had section 482 appeals cases
closed between Oct. 1, 1994, and Dec. 31, 1998.
cThese taxpayers had appeals cases open as of Dec.
31, 1998.
Source: GAO analysis of IRS information.

     As was the case with section 482 proposed
adjustments, taxpayers with approved or pending
APAs accounted for a small percentage (14 percent)
of section 482 large issue appeals determinations.13
Of the 119 taxpayers that had $8.1 billion in
appeals cases closed between October 1, 1994, and
December 31, 1998, without trial, 17 taxpayers had
an approved or pending APA as of September 30,
1999. Taxpayers with approved or pending APAs
accounted for 18 of the 104 taxpayers involved in
open section 482 appeals cases, which had $16.2
billion at issue as of December 31, 1998.

A Few Large Taxpayers Participating in APAs
Accounted for Much Intercompany Trade
     Another way to describe the extent of APA use
by taxpayers is to discuss the extent to which
taxpayers in international intercompany trade
participated in the APA process. According to IRS
data, a small percentage of the 1,245 large
taxpayers with international intercompany
transactions participated in IRS' APA program;
however, those taxpayers that did participate
included some with the largest receipts from, or
payments to, related parties. As of September 30,
1999, 10 percent of the large taxpayers had
approved or pending APAs. However, these taxpayers
accounted for 42 percent of the dollar value of
the large corporations' intercompany transactions
included in the information we used.14 These
percentages cover both transactions with CFCs and
transactions with FCCs and their foreign related
parties. (See app. III for information on the
extent of APA use by U.S. parent companies of CFCs
and app. IV for data on the extent of APA use by
FCCs.)

IRS Did Not Consistently Meet Its APA Timeliness
Targets
     IRS did not consistently meet its timeliness
targets for completing APA processing. In some
instances, APAs were pending for years. We found
many reasons why IRS was unable to complete the
processing of APAs as quickly as IRS officials had
hoped; some were related to its management of the
APA program and some were related to differences
in views with its treaty partners. IRS took some
actions to improve APA timeliness, but did not go
as far as it could have.

The Timeliness of IRS' APA Processing Varied
     The timeliness of IRS' APA processing varied.
For unilateral APAs, IRS' target was generally 12
months from application, with the target for small
businesses being 6 months. For fiscal year 1999
unilateral APAs, the median completion time was
12.5 months-slightly more than the target and the
lowest median since 1993. Eleven 1999 unilateral
APAs exceeded the target by 2 to 32 months. The
median completion time for fiscal year 1998 was 16
months. The median for fiscal years 1998 and 1999
together was 14.5 months, but excluding renewals
and small businesses, the median was 24 months.15
The median times for APA renewals and small
businesses for the 2 years were 7.5 and 5 months,
respectively, with the small business actual time
less than the target. IRS procedures did not
specify a separate targeted completion time for
approving renewals.

     With regard to bilateral APAs, IRS had a
target for completing only the first phase of the
two-phase process.  In the first phase, IRS and
the taxpayer agree on the transfer pricing
methodology, and the IRS APA team then formulates
a negotiating position for use by the U.S.
Competent Authority in further negotiations with
foreign tax authorities. IRS' target for this part
of the bilateral APA process was 9 months.
However, for the bilateral agreements IRS approved
in fiscal year 1999 for which we had information,
the APA office used a median time of 18 months to
complete the initial phase of bilateral
processing. Including competent authority time,
for which IRS does not have a target, that year's
approved bilateral agreements required a median
time of 32 months for approval, the most time
since the program began in 1991.16 Approved
bilateral agreements required a range of 10 to 60
months. Forty-two bilateral APAs were pending as
of September 30, 1999, even though their
applications were filed between calendar years
1993 and 1996. (See app. V for competent authority
contributions to APA processing time.)

     Despite the intended prospective nature of
APAs, IRS was unable to consistently approve all
APAs before their proposed terms of coverage
ended, so the agreements would have to be applied
retroactively. Based on IRS mid-calendar year 1999
data, at least 25 applications for bilateral APAs
were still pending even though their proposed
terms had passed. While the taxpayers involved
might have filed their tax returns knowing IRS'
transfer pricing preferences, the "advance" nature
of the APAs might have been compromised. Also,
completing APAs after relevant tax returns were
filed could have kept taxpayers in suspense about
their tax treatment and required adjusting their
tax returns.

Many IRS Reviews of APA Annual Reports Were
Pending for More Than a Year
     In many instances, IRS reviews of APA annual
reports were pending for a longer amount of time
than the period the reports covered. According to
an IRS official, IRS did not meet various informal
timeliness guidelines relating to its process for
reviewing the annual reports. On the basis of IRS
statistics, 120 of 240 annual reports pending IRS
review as of September 30, 1999, had been pending
with IRS for more than a year, and 50 had been
pending for more than 2 years. According to an IRS
official, APA teams reviewing renewal applications
had reviewed some of these annual reports, but
this was not reflected in the Chief Counsel's
database that contains such information. The IRS
official could not say when the annual report
review backlog would be eliminated. However, IRS
was planning to revamp its procedures for
reviewing annual reports to speed up the process.

APA Timeliness Concerns Existed for Many Reasons
     IRS officials and others knowledgeable about
IRS' APA program were concerned about how much
time it took to complete APAs and offered reasons
for APA delays. IRS officials said that they had
acted to address some of their concerns and were
considering other suggestions.

Reasons Given for APA Delays
     In addition to the inherent difficulty of
handling contentious cases involving large amounts
of tax, IRS officials and others attributed delays
within IRS' APA program office to various factors.
Both IRS officials and others cited the need for
more APA staff and less staff turnover.
Individuals outside IRS also mentioned the
following: (1) IRS' field staff, with their
traditional audit focus, were overly involved in a
process that was intended to be cooperative; (2)
IRS had difficulty making decisions about proposed
APAs; and (3) taxpayers delayed the process by not
expeditiously giving IRS requested information.

     IRS officials and others agreed that
bilateral APA negotiations between it and U.S. tax
treaty partners could take a substantial amount of
time because, for instance,

ï¿½    other countries sometimes preferred a
different transfer pricing methodology than IRS
preferred;
ï¿½    APA negotiation meetings between IRS and some
countries were infrequent;
ï¿½    the level of some foreign governments'
resources devoted to APAs was inadequate; and
ï¿½    other countries were reluctant to negotiate
on APAs because they feared changes in APA
confidentiality before the 1999 legislation
prohibited disclosing APAs and APA background
files.

 In addition, individuals knowledgeable about IRS'
APA program said that having a single office
negotiate with both the taxpayer and the foreign
government, a structure that some foreign tax
authorities have had, was more efficient than IRS'
structure of using two offices to negotiate
bilateral agreements. Other knowledgeable
individuals, however, saw benefit in having people
involved who had experience negotiating with
treaty partners. Our work did not address the
efficiency of IRS' structure for processing APA
applications or those of foreign tax authorities.

IRS Actions to Improve APA Timeliness
     IRS has acted over the past few years to
address the reasons for its APA timeliness
problems.  According to IRS officials, the APA
program office started requiring a case plan and
schedule for each proposed APA, specifying
timeframes for completing various negotiation
steps with the taxpayer within the APA office. IRS
also targeted for completion all APA cases that
were at least 2 years old. In addition, to speed
up reviewing APA annual reports, IRS assigned one
person to coordinate the reviews, rather than
having APA negotiating staff be responsible.

Possibilities for Improving APA Timeliness
     Although IRS had taken actions over the past
few years to address its APA timeliness concerns,
it was not systematically gathering information to
determine the reasons for processing delays and,
thus, did not have reliable information to make
process improvements. For instance, its APA case
files did not specifically annotate whether
timeframes in its plans and schedules were met,
and if they were not met, the reasons why. Nor did
IRS make full use of the APA data in its Chief
Counsel's Automated Systems Environment (CASE)
database. APA officials did not use information
from CASE on step-by-step processing times
because, among other things, the dates in the
database were not always accurate. As a result of
these failures to collect and use APA data, IRS
lacks information for making improvements to the
program.

     APA officials were concerned about the extra
burden associated with annotating case files. One
way to help reduce the burden would be for APA
officials to capture this information for approved
APAs when recording the data needed to prepare the
annual report to Congress on APAs. Another way
would be to modify CASE to continually capture
information on why problematic APAs were delayed
and where the responsibility for delays resided.
An APA official said that this was a less costly
alternative for capturing information on
processing delays than annotating case files.

     On a related matter, IRS did not have a
timeliness target for completing all processing
related to bilateral APAs, including the
negotiation with foreign tax authorities. An IRS
official told us that at least in recent years,
IRS had not focused on having a target.  The
United Kingdom, however, publicly wrote that it
and other affected tax authorities should aim to
complete bilateral APAs within 18 months,
depending on the applicant's ability to provide
information in a timely way.

     Also emphasizing the importance of targets, a
private firm representing taxpayers advised IRS to
include in the impending revisions to its APA
procedures the target times it already had for
approving unilateral APAs and formulating the
negotiating position to use with foreign tax
authorities for bilateral agreements. By doing so,
the firm said, it would reinforce the idea that
timely completion of APAs is both an IRS priority
and an element critical to the APA program's
future success.

     IRS officials were open to the possibility of
establishing targets for completing bilateral
APAs. However, they were wary of adopting other
countries' targets as their own and using them in
negotiations with those countries or having
different targets for different countries. In
addition, one official was concerned that another
country's target might be optimistic. Also,
according to IRS officials, targets would need to
achieve a balance between efficient processing and
prudent tax administration, not sacrificing
appropriate APA outcomes for the sake of meeting
deadlines. These officials described giving
taxpayers good customer service and providing a
model for relations with other countries as
benefits of setting targets. IRS officials told us
they wanted APAs approved more quickly than they
have been, and having an APA's term elapse before
completion was disappointing and frustrating to
both them and taxpayers. Taxpayers had no
certainty, and IRS had to acknowledge the lengthy
process up front when dealing with taxpayers.

IRS' Reviews of APA Annual Reports Found Few
Problems
     According to IRS, only a few problems were
found in the APA annual reports that staff
reviewed. Of the 211 annual reports staff reviewed
between October 1, 1995, and late September 1999,
IRS staff found circumstances in 15 reports
affecting 11 taxpayers that appeared to be
problematic. For these taxpayers, adjustments to
their income tax returns had been made or were
still being considered when we completed our
review. Adjustments were needed because IRS
believed the taxpayers did not fully comply with
the terms of the APA. Problems included
inappropriate costs being charged and certain
income not being reported. An IRS official
estimated these adjustments to taxpayers' income
would total at least $132 million, with additional
amounts still being developed.

Conclusions
     Delays in APA processing could adversely
affect business taxpayers, leading, for instance,
to retroactive adjustments to tax returns and
preventing taxpayers from getting the advance
certainty about their tax situations that they
seek. Delays that discourage participation in the
APA program could also lead to more disputes that
are costly to both the taxpayer and the
government.

     With better information on the reasons for
APA delays, IRS would have more of a basis for
making improvements to the APA program. Also,
although IRS officials were wary of setting
targets for completing the processing of bilateral
APAs, such targets might establish expectations
for more timely bilateral APA negotiations on the
part of both American taxpayers and other
countries.

Recommendations to the Commissioner of Internal
Revenue
     We recommend that the Commissioner of
Internal Revenue take steps to cost-effectively
collect data on APA processing suitable for
analyzing the causes of delays and developing
options for improvement. Such steps might include
documenting deviations from plans or schedules and
the reasons why in case files or modifying CASE to
systematically capture such data.

     We also recommend that the Commissioner test
the use of written timeliness targets for
processing bilateral APAs to determine the
feasibility of using them for all bilateral APAs.

Agency Comments
     In commenting on a draft of our report, the
Commissioner of Internal Revenue said it was fair
and informative. He agreed with our
recommendations and also described other
initiatives to improve the APA program. He shared
our concerns about the time taken to process APAs
and found our recommendations helpful.

     In agreeing to collect more data on APA
processing, the Commissioner said that, by
September 1, 2000, the APA program would create
codes within CASE to capture data on the causes of
APA case-processing delays. According to the
Commissioner, the change will allow IRS to monitor
the causes for delays and address and correct
structural and case-specific problems identified.

     The Commissioner also mentioned three other
measures to improve APA processing times. First,
because it believed resource constraints were the
main cause of APA cases taking a long time, IRS
expected to approximately double the size of the
APA professional staff over 2 years. Second, the
Commissioner for Large and Mid-size Business
within IRS indicated that, as part of his
initiative to promote IRS-taxpayer cooperation
before tax returns are filed, he was preparing a
staffing initiative to help the processing of
bilateral APAs. Finally, agreeing that the backlog
in reviewing annual reports should be reduced, IRS
was planning to change the review process.
Although the APA program office has made marked
progress in reviewing annual reports, starting
September 1, 2000, IRS' operating divisions, with
their larger resources, and not the APA program
office, are to do the first and primary review of
annual reports.

     Agreeing with our recommendation that IRS
test the use of written timeliness targets for
processing bilateral APAs, the Commissioner said
IRS will immediately approach several treaty
partners to pursue such targets bilaterally. It
will do so in the context of not jeopardizing the
timely resolution of non-APA cases. Also, it will
do so keeping in mind that general timeliness
targets should not be misunderstood. That is, the
time to process specific cases may vary
substantially depending on their complexity.

     The full text of the Commissioner's comments
is reprinted in appendix VI.

     As agreed with your office, unless you
publicly announce its contents earlier, we plan no
further distribution of this report until 30 days
from the date of this letter. At that time, we
will send copies to Senator William V. Roth, Jr.,
Chairman, and Senator Daniel Patrick Moynihan,
Ranking Minority Member, Senate Committee on
Finance; Representative Bill Archer, Chairman, and
Representative Charles B. Rangel, Ranking Minority
Member, House Committee on Ways and Means; the
Honorable Charles O. Rossotti, Commissioner of
Internal Revenue; and other interested parties.
Copies will be made available to others upon
request.

     If you or your staff have any questions about
this report, please contact Charlie Daniel or me
on (202) 512-9110. Key contributors to this report
are acknowledged in appendix VII.

     Sincerely yours,

James R. White
Director, Tax Policy
 and Administration Issues
_______________________________
1We previously issued Tax Administration: Foreign-
and U.S.-Controlled Corporations That Did Not Pay
U.S. Income Taxes, 1989-95 (GAO/GGD-99-39, Mar.
23, 1999).
2Some taxpayers who considered APAs did not
identify themselves to IRS and, thus, are not
included in the 88 taxpayers. Taxpayers might use
a representative to contact IRS informally about
APAs and remain anonymous until they decide to
formally pursue an agreement.
3This relates to taxpayers involved in IRS'
section 482 international examination or appeals
cases between Oct. 1, 1994, and Dec. 31, 1998. We
used this information because IRS had already
compiled and used it in Apr. 1999, shortly before
we began our work. (See table 1 and app. I for
specific timeframes.)
4In this context, a large corporation is one with
reported assets in tax year 1994 of $500 million
or more for U.S. parent companies of controlled
foreign corporations or, in general, total
reported receipts of $500 million or more for
foreign-controlled domestic corporations.
5A CFC is a foreign corporation in which U.S.
shareholders own more than 50 percent of the value
of the outstanding voting stock or all of the
value of the outstanding stock. In the context of
our report, an FCC is a U.S. company in which a
foreign shareholder owns at least 25 percent of
the voting power of stock allowed to vote, or 25
percent of the value of all the corporation's
stock.
6P.L. 106-170, Ticket to Work and Work Incentives
Improvement Act of 1999.
7Annual Report Concerning Advance Pricing
Agreements (IRS, Mar. 30, 2000).
8See table 1 notes for specific time periods.
9We could not obtain employer identification
numbers for 20 of the 88 taxpayers for which the
APA process was discontinued. This means that the
tables in this report might not include all
taxpayers in the databases we studied that
considered obtaining an APA but did not complete
the process.
10About 19 percent of the 400 agreements were
renewals of previous agreements.
11IRS' March 2000 APA annual report. The industrial
categories were devised by IRS staff who reviewed
APA files to develop the APA annual report.
12Other taxpayers with approved and pending APAs
had section 482 adjustments proposed in
examinations closed before fiscal year 1996.
13IRS did not track every section 482 issue but
focused on significant ones for large
corporations.
14We did not determine if these transactions were
actually involved in APAs.
15According to APA officials, renewals entail
reviewing submitted information and meeting with
taxpayers and could involve changed business
circumstances or transfer pricing methodologies.
The first small business APA was approved in
fiscal year 1998.
16Seven renewed bilateral APAs and one revision
completed between Sept. 30, 1997, and Sept. 30,
1999, took a median of 24.5 months, less than the
31-month median for new bilateral APAs in those 2
years.

Appendix I
Objectives, Scope, and Methodology
Page 19GAO/GGD-00-168 Advance Pricing Agreement Pr
ogram
     The objectives of this report were to
determine (1) the extent of advance pricing
agreement (APA) use by U.S. taxpayers, including
those that have had transfer pricing disputes with
IRS; (2) the timeliness of APA processing; and (3)
the results of IRS' review of taxpayers' annual
reports on compliance with APAs.

     In determining the extent of APA use, we took
two approaches. First, by analyzing databases
containing APA information, we ascertained the
number of taxpayers involved in the APA program
and gathered from the databases descriptive
information about each taxpayer, such as the
employer identification number. Second, by
matching these databases with others, we
determined the extent to which taxpayers with
contentious transfer pricing histories or
international intercompany transactions became
part of the APA process.

     The information we are reporting, such as the
number of taxpayers with approved or pending APAs
and the number of taxpayers with histories of
transfer pricing disputes with IRS, was not an
assessment of the effectiveness of the APA
program. Such an assessment would require a more
substantive, in-depth analysis than our work
intended. However, some of our analysis could be
used to draw inferences that could lead to
improving the program. In addition, recognizing
that APAs are voluntary agreements by taxpayers is
important because taxpayers might have legitimate
reasons for not participating in IRS' APA program.
For example, some taxpayers might not want to pay
the fee involved with the APA process, which could
be up to $25,000.

     For our study, we obtained certain types of
information, such as the identity of taxpayers
that did identify themselves to IRS before filing
APA applications, from the Chief Counsel's
Automated Systems Environment (CASE). This system
was designed to, among other things, track various
Chief Counsel cases. We also used IRS' APA program
office databases of APA cases that included
information on those that were approved or
pending.

     We compared the information from these
databases on the taxpayers that had been involved
in the APA program as of September 30, 1999, with
information on taxpayers in two of IRS' Statistics
of Income Division databases. Our purpose was to
determine the extent to which large taxpayers with
international intercompany transactions were
involved in the APA program. We used the
Statistics of Income Division's tax year 1994
databases on foreign corporations controlled by
large U.S. multinational corporations and on large
foreign-owned domestic corporations, which we call
foreign-controlled corporations (FCCs). These
databases were the most recent available when we
began our work.

     As IRS wrote in an article resulting from the
use of the FCC database, it could not locate all
the needed corporate income tax returns in time to
be included in its population of FCCs.1 Thus, some
of the returns it did have were given a sampling
weight of more than one to compensate for those
missing. Because of some imprecision owing to
sampling variability, we used IRS' sampling
weights to calculate confidence intervals for the
FCC estimates used in this report. Unless
otherwise noted, we are 95-percent confident that
actual population values are within plus or minus
5 percent of the estimates we report.

     To determine the extent to which taxpayers
with section 482 examination findings appeared in
IRS' APA databases, we compared information for
examinations completed in fiscal years 1996
through 1998 from IRS' International Case
Management System with information from the APA
databases. The International Case Management
System contains the results of IRS examinations of
the international features of tax returns. We used
information from fiscal years 1996 through 1998
because IRS had already segregated this
information for its April 1999 report to Congress
on section 482.2

     Further, we matched the taxpayers in IRS' APA
databases as of September 30, 1999, with taxpayers
that had appeals cases with section 482 issues.
Our purpose in doing this was to obtain general
information on the extent to which taxpayers
involved in IRS' appeals process were also
involved with APAs. We used an IRS database that
tracks appeals cases covering large corporations
and major appeals issues. Our focus was on cases
that had closed between October 1, 1994, and
December 31, 1998, or were still open as of
December 31, 1998. Like the examination findings
data, the appeals data on closed section 482 cases
had already been used by IRS in its 1999 report to
Congress on section 482.

     Although we did not audit to determine the
accuracy and reliability of the information in any
of these databases, we checked the reasonableness
of the results we obtained against other
information we acquired from IRS. Such checking
was necessary because we determined from our
discussions with IRS officials with knowledge
about the different databases that there were
varying degrees of control over the quality of the
input. If our checks showed that information was
not reliable, we did not use it, or we qualified
our use of it. For instance, in trying to
determine the number of APAs that foreign-
controlled business taxpayers entered into or had
pending, we noticed that the information in CASE
was internally inconsistent and also inconsistent
with other information we obtained. Therefore, we
decided not to use these specific data.

     Throughout our analysis, in comparing
information across the different databases, we
used the employer identification number IRS
assigned to each taxpayer. In circumstances where
the employer identification numbers were not used
in certain databases or seemed to be in error, we
worked with IRS to resolve any discrepancies.

     In matching the databases, we were interested
in determining the extent to which the taxpayers
that had section 482 examination or appeals issues
with IRS were also involved in IRS' APA program.
However, we could not determine whether the APAs
dealt with the same transfer pricing issues that
were the subject of IRS' previous compliance
findings.

     Also, in matching the databases, we used
information from different time periods. This was
because we were analyzing the APA experience of
taxpayers that were at least of a certain size for
a specified time period or had section 482
examination or appeals issues and enough time had
elapsed since those issues arose for them to
become involved with the APA program.

     To determine the timeliness of APA
processing, we analyzed information on processing
times contained in IRS' databases. This
information included data on specific taxpayers
with approved or pending APAs as of September 30,
1999, and on a few taxpayers that started the
process of securing an APA but discontinued it. We
also used this information to determine how much
time IRS used to renew APAs and to review APA
annual reports.

     To determine the results of IRS' reviews of
APA annual reports, we discussed the review
process with IRS officials and analyzed relevant
documentation.

In addressing all three objectives, we interviewed
people knowledgeable about the APA program both
inside IRS, such as officials in the APA program,
and outside IRS, such as taxpayer representatives.
We also reviewed IRS surveys, reports, and other
documents relating to the APA program.

_______________________________
1"Transactions Between Large Foreign-Owned
Domestic Corporations and Related Foreign Persons,
1994," IRS, SOI Bulletin (Winter 1997-1998).
2Report on the Application and Administration of
Section 482 (IRS, Apr. 1999).

Appendix II
The Extent of APA Use by Taxpayers With Section
482 Proposed Adjustments
Page 21GAO/GGD-00-168 Advance Pricing Agreement Pr
ogram
This appendix provides descriptive information on
APA use by business taxpayers whose tax returns
were reviewed by IRS international examiners who
proposed section 482 adjustments to income. This
information is based on the data in table 1 in
this report, which shows that 1,150 taxpayers had
international examination cases closed with
section 482 proposed adjustments in fiscal years
1996 through 1998 and that 1,055 of them had no
experience with IRS' APA program. This information
is also derived from the other sources we used in
our work. In general, the data show that taxpayers
with approved or pending APAs comprised small
percentages of various subgroups of the 1,150
taxpayers with closed examinations. The
information follows:

ï¿½    IRS' international examination database
identified 760 of the 1,150 taxpayers as foreign-
controlled corporations (FCCs) and 269 as U.S.-
controlled corporations (USCCs) but did not have
information for the remaining 121.1 About 6
percent of these FCCs and 9 percent of the USCCs
were taxpayers that had entered into an APA with
IRS or had one pending.
ï¿½    According to IRS information, 366 of the
1,150 taxpayers had assets of $250 million or
more, and about 12 percent of the 366 had entered
into an APA with IRS or had one pending.
ï¿½    Of the 100 taxpayers with the largest section
482 proposed adjustments, 21 had approved or
pending APAs.
ï¿½    In 13 industries, 448 taxpayers accounted for
39 percent of the 1,150 taxpayers with section 482
proposed adjustments for the years covered by our
analysis. These same taxpayers accounted for 62
percent of the $15.4 billion in proposed
adjustments.2 Taxpayers with approved or pending
APAs existed in all of the 13 industries except
one, but accounted for only 7 percent of the 448
taxpayers.

IRS had section 482 examination issues with
taxpayers of different sizes. However, according
to an APA official, the taxpayers with APA
experience were less diverse.

ï¿½    About 67 percent of the 1,150 taxpayers for
which IRS had section 482 proposed adjustments to
income for fiscal years 1996-98 reported that they
had no balance sheet or less than $250 million in
assets. However, an APA official told us that most
of the taxpayers in the APA program were among the
largest corporations in the country.3
ï¿½    About 32 percent of the taxpayers with
section 482 proposed adjustments were taxpayers
with $250 million or more in assets. However, of
the taxpayers with both section 482 findings and
approved or pending APAs, 60 percent were
taxpayers reporting assets in this range.

After we began our review, IRS collected
information on the extent to which the 129
taxpayers that had entered into APAs as of August
23, 1999, had been the subject of previous section
482 findings. IRS found that about half, or 65, of
the 129 taxpayers had previous transfer pricing
examination issues or disputes related to their
APAs for which the IRS examiners had proposed
increases to income of $3.2 billion. Additionally,
IRS and the taxpayers agreed to retroactively
apply the APA transfer pricing methodology to
cover open transfer pricing issues for adjustments
totaling about $920 million. This means that, at
most, about 29 percent of the original proposed
adjustments for these taxpayers were covered
through retroactive applications. In addition, IRS
reported that, even without retroactively applying
the transfer pricing methodology, the APA process
helped it settle another $630 million in proposed
adjustments to income applicable to previous
years. These settlements included almost $300
million for situations in which IRS and the
taxpayer agreed that no adjustment was needed.

_______________________________
1USCCs are domestic corporations that are not
foreign controlled, although certain entities such
as subchapter S corporations, which are
corporations that are treated for federal income
tax purposes like partnerships, are not included
in either category.
2We chose the 13 industries to give us reasonably
broad coverage of both the number of taxpayers
with section 482 proposed adjustments and the
amount of adjustments associated with the
taxpayers.
3We did not verify this assertion because the
indicator in the Chief Counsel's Automated Systems
Environment database noting whether a taxpayer was
in IRS' Coordinated Examination Program-the
program containing the nation's largest
corporations-did not provide information that was
consistent within CASE or with other information
we had.

Appendix III
The Extent of APA Use by Large U.S. Parent
Companies of Controlled Foreign Corporations
Page 23GAO/GGD-00-168 Advance Pricing Agreement Pr
ogram
This appendix provides data on the extent of APA
use by large U.S. parent companies of controlled
foreign corporations (CFCs). In this context, a
large U.S. parent company is one with reported
assets in tax year 1994 of $500 million or more.
Information in table III.1 shows the following:

ï¿½    Sixty-six large parent companies of CFCs had
approved or pending APAs as of September 30, 1999.
This was about 8 percent of the 801 largest
taxpayers that reported having CFCs in tax year
1994, the year covered by the database underlying
IRS' most recently published information on CFCs
at the time we began our work.1
ï¿½    Another 28 large parent companies of CFCs, or
4 percent, were identified as having considered
obtaining an APA but not completing the process.
ï¿½    More of the large U.S. parent companies that
had approved or pending APAs, and more of their
7,500 largest CFCs, were in the manufacturing
industry compared to the other industry groups.

Table III.1: Participation of Large CFC Parent
Companies and Their CFCs in IRS' APA Program
Industry group        APA status       No APA Total
                                      experie
                                          nce
                Approv Pendi  Process          
                    ed    ng discontin
                                  ued
CFC parent                                        
companies
Manufacturing       33    11       17     415  476
Other               17     5       11     292  325
Total               50    16       28     707  801
CFCsa                                             
Manufacturing      345   118      146   2,236 2,845
Otherb             620   121      361   3,553 4,655
Total              965   239      507   5,789 7,500
Note 1: Because we could not obtain employer
identification numbers for 20 taxpayers whose APA
process was discontinued, this table might not
properly reflect those taxpayers. If any of them
had an employer identification number that matched
an employer identification number in the CFC
database, those taxpayers would have appeared in
the "process discontinued" column.
Note 2: Industry groups in the "other" category
include agriculture, forestry, and fishing;
mining; construction; transportation and public
utilities; wholesale and retail trade; finance,
insurance, and real estate; and services.
aThe numbers in this section of the table refer to
the number of CFCs whose parent companies were or
were not involved with APAs. The same parent could
have more than one CFC.
bThe largest industry group within this category
was finance, insurance, and real estate, which had
418 CFCs whose parent companies had approved or
pending APAs, less than the 463 manufacturing CFCs
whose parent companies had approved or pending
APAs.
Source: GAO analysis of IRS information on APA
participation as of Sept. 30, 1999.

The few large taxpayers that had CFCs and also
approved or pending APAs represented
proportionately larger shares of CFC transactions.
Specifically, the 66 large taxpayers (8 percent of
the 801 taxpayers) with CFCs and approved or
pending APAs accounted for almost half the related-
party payments by all the large taxpayers' CFCs
(see table III.2).

Table III.2: Payments by CFCs Whose Parent
Companies Were or Were Not Involved in APAs

Dollars in billions for 1994 tax returns
Payments by     Approved or       APA process Total
CFCs               pending   discontinued or
                      APAs no APA experience
                      $228              $269  $497
Note 1: For U.S. taxpayers involved or not
involved in IRS' APA program as of Sept. 30, 1999.
Note 2: Because we could not obtain employer
identification numbers for 20 taxpayers whose APA
process was discontinued, this table might not
properly reflect those taxpayers. If any of them
had an employer identification number that matched
an employer identification number in the CFC
database, those taxpayers would be included in the
"process discontinued" category.
Source: GAO analysis of IRS information.

Although about 8 percent of large taxpayers with
CFCs had approved or pending APAs, this percentage
was higher for taxpayers with CFCs that had large
amounts of receipts or payments. Of the 73 large
taxpayers whose CFCs reported related-party
receipts or payments of at least $1 billion, 19 of
them, or 26 percent, had completed an agreement or
had one pending.

Our analysis of related-party payments and
receipts by industry showed that 12 industries
each accounted for more than $10 billion of
receipts or payments. Taxpayers had different
experiences in these industries as noted in the
following:

ï¿½    Taxpayers whose CFCs accounted for most of
the dollars in some of those industries had
approved or pending APAs, and taxpayers accounting
for most of the dollars in other industries did
not.
ï¿½    In some industries, IRS had approved or
pending APAs with the few large taxpayers that had
most of those industries' related-party receipts
and payments by large taxpayers' CFCs.
ï¿½    In other industries, IRS had approved or
pending APAs with few of the large number of large
taxpayers involved, and those taxpayers
represented a small percentage of those
industries' related-party receipts or payments by
large taxpayers' CFCs.

_______________________________
11"Controlled Foreign Corporations, 1994," IRS,
SOI Bulletin (Summer 1998).

Appendix IV
The Extent of APA Use by Large Foreign-Controlled
Corporations
Page 25GAO/GGD-00-168 Advance Pricing Agreement Pr
ogram
     This appendix provides data on the extent of
APA use by large foreign-controlled corporations
(FCCs). In this context, a large FCC is one that
had, in general, total reported receipts of $500
million or more. Table IV.1 shows that, of the 444
large FCCs that IRS identified from 1994 tax
returns,1 53, or 12 percent, had an approved or
pending APA as of September 30, 1999.

Table IV.1: Largest FCCs' Involvement in IRS' APA
Program
FCCs            Approved or      APA process Total
               pending APAs  discontinued or
                                      no APA
                                  experience
Selected                40b              156   196
countriesa
All other                13              235   248
countries
Total                   53b              391   444
Payments to             $85             $135  $220
foreign
related
partiesc
Note: Because we could not obtain employer
identification numbers for 20 taxpayers whose APA
process was discontinued, this table might not
properly reflect those taxpayers. If any of them
had an employer identification number that matched
an employer identification number in the FCC
database, those taxpayers would have been included
in the "process discontinued" category.
aFor each of these countries, at least 16 percent
of the large FCCs with a parent company in the
country had an approved or pending APA.
bThe 95-percent confidence interval--plus or minus
3--surrounding this number exceeds plus or minus 5
percent.
cDollars in billions from 1994 tax returns.
Source: GAO analysis of IRS information on APA
participation as of Sept. 30, 1999.

     Table IV.1 summarizes information on large
FCCs that were involved in IRS' APA program by two
country groupings. Country names are omitted to
avoid disclosing taxpayer data. We make the
following observations:

ï¿½    For an aggregation of certain selected
countries, 40 of 196 large FCCs had approved or
pending APAs, a ratio of about 1 in 5.
ï¿½    The corresponding ratio for the other
countries and for the 13 FCCs with no country
identified in IRS' database was about 1 in 19.

 The following observations were also derived from
information in table IV.1:

ï¿½    Although 12 percent of the large FCCs had
approved or pending APAs, they had 39 percent ($85
billion of $220 billion) of the total payments
made to foreign related parties from all large
FCCs.
ï¿½    Of the 49 large FCCs that reported foreign
related-party receipts or payments of at least $1
billion, 16, or about a third, had an approved or
pending APA.

In addition to analyzing the FCC information by
country and size of receipts and payments, we also
examined it by industry. We found the following:

ï¿½    Like most of the large FCCs, most of the 53
large FCCs with approved or pending APAs were in
the manufacturing and wholesale and retail trade
industrial sectors.
ï¿½    Some industries had at least seven large FCCs
but none in IRS' APA program.
ï¿½    For the four largest wholesale trade
industries in terms of intercompany payments made
by large FCCs, about 63 percent of the payments
were made by large FCCs that had approved or
pending APAs.

_______________________________
1"Transactions Between Large Foreign-Owned
Domestic Corporations and Related Foreign Persons,
1994," IRS, SOI Bulletin (Winter 1997-1998).

Appendix V
Competent Authority Contributions to APA
Processing Times
Page 26GAO/GGD-00-168 Advance Pricing Agreement Pr
ogram
     The time an APA spent in the competent
authority part of the APA process was often a
significant, albeit not the only, contributor to
the overall time to complete APA processing, as
follows:

ï¿½    Median competent authority times for cases
closed in fiscal years 1997 through 1999 and
resulting in an APA varied by country involved in
the process. For the 3-year period taken as a
whole, the median competent authority times ranged
between 12 and 19 months for different countries,
with one country having a much lower median time.
ï¿½    The median total times spent on these cases
over the 3-year period, with the same exception
for a shorter time, ranged from 20 to 44 months,
depending on the country.
ï¿½    In 23 of the 60 cases closed in this period,
the time spent in IRS' competent authority
process, as recorded by the competent authority
office, was more than half the entire time
reported by the APA office.
ï¿½    The amount of time spent by competent
authority on individual cases ranged from 2 to 51
months.
ï¿½    IRS' competent authority staff did not have a
goal for how long the competent authority part of
the APA process should take, but they said that
timely resolution was critical.

Appendix VI
Comments From the Internal Revenue Service
Page 31GAO/GGD-00-168 Advance Pricing Agreement Pr
ogram

Appendix VII
GAO Contacts and Staff Acknowledgments
Page 32GAO/GGD-00-168 Advance Pricing Agreement Pr
ogram
GAO Contacts
James R. White (202) 512-9110
Charlie W. Daniel (202) 512-9110

Acknowledgments
     In addition to those named above, Lawrence
Korb, John Lesser, and
John Mingus made key contributions to this report.

*** End of Document ***