straight line method over a period of 15 years (63 percent of the historical cost per year) for such periods during which the drilling rig does not constitute a Canadian permanent establishment (including any period during which the drilling rig is leased in bareboat form by the U.S. resident to another person for use in Canada.) Depreciation determined pursuant to such calculation shall be prorated based on the number of days during the taxation year that the drilling rig did not constitute a Canadian permanent establishment. 5. If a U.S. resident elects to claim Canadian depreciation with respect to a drilling rig under the rules described in paragraphs 2 and 4 herein, the amount deductible by him pursuant to paragraph 20(1)(a) of the CITA shall be the Canadian depreciation permitted pursuant to paragraphs 2 and 4 herein. To the extent that it is inconsistent with this agreement, Part XI of the regulations shall not apply with respect to that drilling rig and any capital improvements thereto. Furthermore, for Canadian Income Tax purposes, the U.S. resident who has so elected shall not realize any recaptured depreciation, capital gain or terminal loss with respect to the removal of the drilling rig from Canada or its disposition in Canada. In addition, a U.S. resident who realizes a terminal loss on a drilling rig for which a statement has not been filed pursuant to paragraph 3 herein will not be permitted to deduct that loss against Canadian taxable income derived by that U.S. resident from any other drilling rig for which a statement has been filed pursuant to paragraph 3 herein. 6. Except as otherwise specifically provided herein, nothing shall restrict the right of any U.S. resident to a credit, deduction or exclusion provided under the CITA. For example, nothing in this agreement shall prevent a U.S. resident of a related person from carrying back or forward to other taxation years under section 111 of the CITA, any non-capital losses (other than terminal losses) from a drilling rig for which a statement has been filed pursuant to paragraph 3 herein in computing the taxable income for such other years. 7. If a U.S. resident does not elect to claim Canadian depreciation with respect to a drilling rig and any capital improvements thereto under the rules described above, paragraphs 2 through 6 of this agreement shall not apply with respect to the taxation by Canada of the U.S. resident in respect of that drilling rig or those capital improvements. 8. Reasonable fees and expenses related thereto for mobilization, de-mobilization, or standby for a drilling rig in respect of the number of days the drilling rig spent outside Canada during the mobilization, de-mobilization, or standby period, as the case may be, are not attributable to a permanent establishment in Canada. 9. Reasonable fees paid for work and expenses related thereto (herein referred to as "preparatory work") performed outside Canada in connection with preparing a drilling rig for operations in Canada are not attributable to a permanent establishment in Canada. 10. For greater certainty, reasonable fees and expenses for mobilization, de-mobilization, standby, or preparatory work will be defined in due course by the Competent Authorities of both countries. Would you please sign in the space provided below if you are in accord with the rules and procedures outlined in the foregoing paragraphs and agree that such rules and procedures shall guide both Competent Authorities in resolving the double taxation and other difficulties outlined in the opening paragraphs of this letter. Yours sincerely, 1993 1992 1991 1990 1989 1988 1987 EXHIBIT B J.R. ROBERTSON, INDIVIDUAL INCOME TAX RETURNS FILED-INTERNATIONAL JURISDICTION INTERNAL REVENUE SERVICE 1986 1985 1984 INDIVIDUAL INCOME TAX RETURNS FILED-INTERNATIONAL JURISDICTION INTERNAL REVENUE SERVICE EXHIBIT C ASSISTANT COMMISSIONER (INTERNATIONAL) EXAMINATION COVERAGE—ACI ONLY Please note that the coverage rate information is based only on audits conducted by the Office of the Assistant Commissioner (International) (ACI) who has primary examination jurisdiction of overseas filers. Examinations of individual return types are also audited by the other IRS district offices. The IRS information systems do not capture nationwide examination data separately for overseas filers, thus it must be accumulated on an independent basis. This data does not include service center audit activity. The Hon. BILL ARCHER, UNITED STATES DEPARTMENT OF STATE, Chairman, Joint Committee on Taxation, DEAR MR. CHAIRMAN: In my letter to you of May 9, I stated that the Department would provide additional information in response to your letter of April 25 and the May 1 meeting with the staff of the Joint Committee on Taxation. That information is enclosed. Specifically, you asked that we review the "Forbes 400" list and provide the Joint Committee with a list of the names of individuals with substantially similar names who were issued Certificates of Loss of nationality during the period 1985-1994. Such a list may be found at TAB 1. We reiterate, as stated in our May 9 letter, that we lacked sufficient information to conduct a proper search when presented with only a family surname. Furthermore, absent a date and place of birth, we are not able to confirm that any of the "Forbes 400” individuals were issued Certificates of Loss of Nationality. Also, you will find at TAB 2 the computer-generated list of persons who relinquished U.S. citizenship and were issued Certificates of Loss of Nationality between January 1, 1994 and April 26, 1995. You will note that in every instance the list includes the date when the Certificate of Loss of Nationality was issued, as well as the "loss date," i.e., the date upon which the statutory act was performed. In addition, we have included in the far right column, whenever available, the date upon which an individual naturalized abroad signed a statement of voluntary relinquishment of U.S. citizenship. As mentioned in my May 9 letter, there proved to be a number of cases which we were not able to retrieve and, thus, we lack the date of signature of the statement of voluntary relinquishment in those few cases. hope this reply addresses your concerns. Should you or your staff have additional questions, please contact Mr. Ed Betancourt in the Bureau of Consular Affairs at (202) 647-3666. Sincerely, Attachments: As stated. WENDY R. SHERMAN, Assistant Secretary, Legislative Affairs. ATTACHMENTS TAB 1 Individuals from "Forbes 400” List whose names are substantially similar to those of persons who were issued certificates of loss of nationality during the period 1985– 1994: DEPARTMENT OF THE TREASURY, KENNETH J. KIES, Esq., Chief of Staff, Joint Committee on Taxation, DEAR MR. KIES: This is in response to your letter of May 16, 1995, addressed to Assistant Secretary Samuels and me, in which you requested certain additional information pertaining to the current legislative proposals that would impose a tax on U.S. citizens and residents who expatriate. This letter also responds to two questions regarding the exhibits to my letter of May 12, 1995, which were raised by your staff in telephone calls subsequent to your letter of May 16. As with both of my previous letters on this topic, this letter will address your inquiries from the perspective of the Internal Revenue Service. RESPONSES TO MAY 16 REQUEST 1. Refund of expatriate's tax We are not aware of any case in which a former U.S. citizen filed for a refund of taxes paid between the time he performed an expatriating act under the Immigration and Nationality Act and the time he received a certificate of loss of nationality from the U.S. Department of State. Our research has found one litigated case that bears on your question, although it is not directly on point. In United States v. Rexach, 558 F.2d 37 (1st Cir. 1976), rev'g, 411 F. Supp. 1288 (D.P.R. 1976), the Court of Appeals held that an individual who was involuntarily expatriated by the State Department was nonetheless taxable as a citizen of the United States following the performance of his expatriating act because the individual continued to use a U.S. passport. The Court of Appeals reached this result even though the certificate of loss of nationality eventually issued by the State Department was retroactive to the date of the performance of the expatriating act. In reaching its decision, the Court of Appeals reasoned that the balance of the equities mandates that back income taxes be collectible for periods during which the involuntarily expatriated persons affirmatively exercise a specific right of citizenship. This is precisely the position taken by the Internal Revenue Service [in Rev. Rul. 70-506 and Rev. Rul. 75-357]. 558 F.2d at 41. As a general matter, when an individual files a Form 1040, we assume either that he is a U.S. citizen, who might reside anywhere, or an alien residing in the United States. If a Form 1040 filer were to file an amended return claiming a refund of tax on the basis that he was not, during the relevant tax periods, a U.S. citizen, we would initially seek to verify the taxpayer's citizenship status with the State Department. Under current tax law, a person's status as a citizen, including when such status is lost, is determined under relevant provisions of the Immigration and Nationality Act. Treas. Reg. sec. 1.1-1(c). If the State Department confirmed that the taxpayer had lost his citizenship prior to the tax periods at issue, under the Rexach decision, we would enquire whether the taxpayer had exercised a specific citizenship right, such as traveling on a U.S. passport, at any time after the date of expatriation. We would next examine whether the taxpayer had resided in the United States during the periods for which a refund of tax was sought and, if not, whether the taxpayer was subject to U.S. tax on the income received in such periods under section 877 or the normal rules applicable to nonresident aliens. If we concluded, following our examination, that the former U.S. citizen was indeed entitled to a refund of tax, we would issue the refund. However, in these circumstances a taxpapyer would obtain a refund only for tax years for which a refund claim could still be filed; under section 6511(a), the limitations period for such a claim normally is three years from the date of filing the original return or two years from the date the taxes are paid, if later. 2. Congressional/GAO Studies The 1985 study by the General Accounting Office ("GAO”) to which your letter refers was incorporated in the report of a Congressional hearing regarding the "Problem of Tax Return Nonfiling by Americans Living Abroad" held before a Subcommittee of the Commerce, Consumer and Monetary Affairs Committee on May 8, 1985. The IRS's testimony and associated reports on the GAO study are contained at pages 41-92 of the report. Subsequently, in May 1993, the GAO issued a Report to the Chairman, Committee on Finance, U.S. Senate, entitled "Tax Administration, |